BIG DATA:

BRINGING COMPETITION POLICY TO THE DIGITAL ERA

November 2016 Competition Committee

The opinions expressed and arguments employed herein are those of the authors and do not necessarily reflect the official views of the OECD or OECD member countries.

OECD Competition Committee

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• As part of its broader work stream in the Digital Economy, the Competition Committee has recently taken first steps in the analysis of “big data”:

– Big Data: Bringing Competition Policy to the Digital Era

– Competition Committee Meetings – November 29, 2016

Read the background paper by the secretariat at: http://www.oecd.org/daf/competition/big-data-bringing-competition-policy-to-the-digital-era.htm

The competition agenda on Big Data…

1. Big Data I. Definition II. Productivity gains and innovation III. Risk of consumer harm

2. Implications for competition law enforcement i. Competition tools ii. Merger review iii. Abuse of dominance iv. Cartels

3. Regulations on data ownership, access and portability i. Consumer Protection ii. Competitive Neutrality

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Definition of Big Data

• Two essential features of big data: – Large dimension of datasets – Use of large scale computing power and non-standard software to

extract value from data in a reasonable amount of time

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4 Vs

Volume

Value

Velocity

Variety

• Definition by De Mauro et al (2016): – “Big Data is the information asset

characterized by such a high volume, velocity and variety to require specific technology and analytical methods for its transformation into value.”

Big Data: gains for consumers

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BIG DATA

Innovation

Custom products

Target Ads

Forecast / Nowcast

Efficient processes

New products & services

Low prices

Supply in real-time

Prediction of market trends

Prevention of diseases & natural disasters

Low prices

Personalised recommendations

High quality

Social inclusion?

Big Data: gains for consumers

• Significant productivity gains: – Data-driven innovation users benefit from a 5% to 10% faster

productivity growth – According to Buchholtz et al (2014), as a result of Big Data, the EU

economy will grow by an additional 1.9% by 2020

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• Multiple social benefits by 2020: – Time and fuel savings up to USD 500 billion by reducing traffic

congestion

– Reduction of CO2 emissions by EUR 79 billion through the adoption of smart grid applications to control household appliances

– Savings around USD 300 billion in the US health sector, through the creation of health electronic records

Consumer harm

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Consumer harm

Direct costs

Private data

Attention to ads

Market power

High prices Low output

Low quality

Lack of innovation

Data is the new currency of the internet

Time is money

Sources of market power

• Network effects – Collection of data by online platforms that benefit from

direct and indirect network effects – Data-driven network effects that result of “user

feedback loops”

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Users Data Ad Targeting

Service Quality Investment

Sources of market power

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• Economies of scale – High fixed costs of IT infrastructures – Reduced value per individual observation

• Economies of scope – Gains from cross-referencing databases from a variety of sources

How to prevent harm to the consumer?

Antitrust law versus consumer protection regulation

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Competition law enforcement

Regulations on consumer protection

Overlap with consumer protection goals

Competition impact

The competition agenda on Big Data…

1. Big Data I. Definition II. Productivity gains and innovation III. Risk of consumer harm

2. Implications for competition law enforcement i. Competition tools ii. Merger review iii. Abuse of dominance iv. Cartels

3. Regulations on data ownership, access and portability i. Consumer Protection ii. Competitive Neutrality

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Merger review

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• Assessment of the impact of mergers on the amount of data collected and consumer privacy – IF some consumers have high preferences for data protection and

others for personalized content, then privacy policy is a source of horizontal differentiation

DATA Privacy

Personalized content

“if network effects lead to a reduction in the number of search competitors, consumers will suffer from a diversity of choice among search engines, which will reduce the incentives of search firms to compete based on privacy protections or related non-price dimensions.”

Merger review

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In Dissenting Statement of Commissioner Pamela Jones Harbour

Google / DoubleClick Merger

“We will need to scrutinize the deal carefully to ensure that it will not cause any harm to the competitiveness of what has been a vibrant high tech marketplace, nor negatively impact the privacy rights of internet users.”

In a statement by the Senator Herb Kohl

Microsoft / Yahoo Joint Venture

Merger review

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• However, some practitioners argue that… – The sole purpose of competition policy is to promote an

efficient allocation of resources – Addressing privacy concern through competition policy

could lead to: • Undesirable level of subjectivity in antitrust enforcement • Conflicts with fundamental rights of free speech

How to promote meaningful privacy choice for consumers?

Competition policy Consumer protection

Abuse of dominance

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• Do violations of data protection rules correspond to violations of competition law, when conducted by dominant firms?

“Dominant companies are subject to special obligations. These include the use of adequate terms of service as far as these are relevant to the market. (…) For this reason it is essential to examine under the aspect of abuse of market power whether the consumers are sufficiently informed about the type and extent of data collected”

Stated by the Bundeskartellamt’s president Andreas Mundt

Facebook Investigation

Abuse of dominance

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• Difficulties in proving competitive harm in exploitative cases… – What is the benchmark for adequate terms of service? – Competition law enforcers are not regulators and, hence, do not

fix maximum prices or minimum privacy rights…

More recently, the Italian Competition Authority opened two consumer protection probes against WhatsApp for alleged unfair commercial practices:

– Misleading terms & conditions – Unfair terms of use

WhatsApp Investigation

Collusion

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• Digital markets allow for new forms of price fixing and other bilateral agreements – Use of real-time data to monitor cartels – Coordination of pricing algorithms – Programming automatic price retaliations – Use of artificial intelligence to achieve collusive outcomes

“We will not tolerate anticompetitive conduct, whether it occurs in a smoke-filled room or over the Internet using complex pricing algorithms.”

DoJ Assistant Attorney-General Bill Baer

Collusion

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• Current competition tools may not be enough to tackle digital cartels… – Tacit (non-explicit) collusion is not illegal – Challenges in attributing liability to artificial

intelligence programmers

• Solutions? – Reduce price transparency – Enforce time-lags for price changes – Systems of secret discounts – …

Implications for consumer protection?

The competition agenda on Big Data…

1. Big Data I. Definition II. Productivity gains and innovation III. Risk of consumer harm

2. Implications for Competition Law Enforcement i. Competition tools ii. Merger review iii. Abuse of dominance iv. Cartels

3. Regulations on data ownership, access and portability i. Consumer Protection ii. Competitive Neutrality

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Consumer protection

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• Market failure: – asymmetry of information between users and online service

providers “reading privacy policies carries cost in time of approximately 201 hours a year, worth about $3,534 annually per American Internet user”

McDonald and Cranor (2008)

Terms & Conditions

Accept Decline

Inappropriate use of the word ‘free’

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• Describing a product as “free”: – May be deceptive, as zero-price online services usually have

other forms of non-pecuniary costs – May affect the consumer’s rational decision-making process – May affect the legal rights of the consumer

Online service

Data & attention

Note: See the FTC’s Guide Concerning Use of the Word “Free”.

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• Facebook privacy litigation – Class action against Facebook for the transmission of personal

information to third party-advertisers without consent – Alleged violation of the Electronic Communications Privacy Act

and California’s Unfair Competition Law

“Because Plaintiffs allege that they received Defendant's services for free, as a matter of law, Plaintiffs cannot state a UCL claim under their own allegations. Thus, the Court dismisses Plaintiffs' UCL claim with prejudice.”

In Facebook Privacy Litigation, 791 F. Supp. 2d

Inappropriate use of the word ‘free’

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Inappropriate use of the word ‘free’

“The parties submit that the OFT does not have jurisdiction to review the transaction on the basis that the parties supply turn-by-turn navigational applications for mobile devices which are provided for free and hence do not represent an economic activity.”

Office of Fair Trading, Completed acquisition by Motorola Mobility Holding (Google, Inc.) of Waze Mobile Limited

Google/Waze Merger

“The OFT considers, that (…) there is no requirement on the realisation of gain or reward from the business activity or that any such gain or reward is current or immediate, only that the activity is carried out for that purpose.”

Standards

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• Standards may improve consumers’ understanding of the terms of the service provided

• However, standards must be carefully designed in order not to stifle innovation

Terms of Services

I do not authorise the collection of my personal data.

I authorise the collection of my personal data for internal purposes that are solely needed and used to provide the particular product or service in question.

I authorise the collection of my personal data for the creation of aggregate databases that may be shared with third parties.

I authorise my personal data to be collected and shared with third parties without any restrictions.

Consumer protection

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• Market Failure: – Companies have market power and control over user data

“91% of adults in the survey ‘agree’ or ‘strongly agree’ that consumers have lost control over how personal information is collected and used by companies”

US survey by the Pew Research Center (2014)

Regulations for privacy protection

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• There is the risk that regulations for privacy protection could harm competition…

Competition Checklist

Any competition distortion?

Yes No

Stop Select alternative policy

Status Quo Alternative

Stop Ex-post assessment

OECD Competition Assessment Toolkit

Regulation Positive response

Negative response

Requires information societies to make available a paying service without behavioural advertising, as an alternative to the service paid by users’ personal information.

X

Prohibits information service providers from preventing access to their non-subscription based services in case users refuse the storing of identifiers in their terminal equipment.

X

Requires manufacturers of terminal equipment including operating systems and browsers to place on the market products with privacy by default settings.

X

Regulations for privacy protection

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• CMA’s response to the European Commission’s public consultation on the review of the ePrivacy Directive

Data portability

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• European Commission reform of the General Data Protection Regulation

Article 20

Right to data portability

1.The data subject shall have the right to receive the personal data concerning him or her, which he or she has provided to a controller, in a structured, commonly used and machine-readable format and have the right to transmit those data to another controller without hindrance from the controller to which the personal data have been provided (…)

Data portability

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• Consumer protection impact – Increase of user control over data

• Potential pro-competitive impacts – Reduction of switching costs and lock-in

• Potential anti-competitive impacts – Might create barriers to entry to small start-ups – Could harm incentives to innovate

BIG DATA:

BRINGING COMPETITION POLICY TO THE DIGITAL ERA

Thank you!