Big time for the Competition authorities who take up on big data

Global Publication November 2016

On 10 May 2016, the German and French competition authorities published a joint report on “Competition Law and Data”, making it a prime example of close cooperation between two major national authorities, in a field of growing interest at the dawn of the digital age.

The increase in the collection, processing and use of data by companies has given rise to a broad debate about the impact of data on corporate strategies and competition. Discussions mostly focus on the so-called “big data”, large amounts of different types of data produced at high speed from multiple sources handled and analyzed by powerful processors and algorithms. Big data enabled the emergence of companies achieving high turnovers thanks to data-based business models. Google and Facebook are the most obvious examples. It also raises many concerns such as the risk for innovators of tomorrow being prevented from entering a market by companies seeking to protect their already built-up data advantage.

Yet, the big data issue is a difficult one to tackle from a competition standpoint since enforcers can only use their powers in the context of merger control or to sanction abuses. This is reflected by the numerous and various actions recently taken by the authorities. For example, the European Commission used merger control to analyze big data in 2008, when Google acquired DoubleClick an online advertising server, and later in 2014 when Facebook acquired WhatsApp. The Competition and Market Authority (UK) published a study on the commercial use of consumer data published in 2015. The Bundeskartellamt initiated proceedings against Facebook on suspicion of having abused its market power by infringing data protection rules in March 2016 (Germany).

In this context, the French and German joint report (the “Report”) is a very welcomed initiative aiming to offer an overview of competition issues raised from the use of data as well as the existing case law and debates. It sets a framework for analysis before taking enforcement action and enhances the importance of adopting a case-by-case approach.

The Report identifies three main aspects when assessing the use of data, and even more so when one looks at “big data”, under competition perspective: (i) data as a source of market power, (ii) data as a source of market transparency, and (iii) data-related anticompetitive conduct.

(i) Data as a source of market power

On certain markets where the access to data is a competitive advantage, the collection and use of data may raise barriers to entry allowing established operators to increase their prices, in particular given certain market types and characteristics. For instance, in data-related markets with strong scale and network effects or multi-sided markets, access to a large amount of data allows better services, which attracts more customers and in return brings more data. In such markets, the holding of data by few established businesses is even more likely to restrict competition against competitors and entrants given the snowball effects.
The data advantage analysis or whether data creates market power are key issues that can only be assessed on a case-by-case basis. However, the report identifies two elements of relevance: (i) whether the data under consideration can easily be obtained by rivals and (ii) whether the scale and scope of data matter.

(ii) Data as a source of market transparency

As raised in the Report, the collection of data is likely to impact the market structures by bringing market transparency. Greater market transparency on the consumers’ side enhances better competition both in terms of price and quality by enabling consumers to compare prices and conditions in real time (for instance by the use of price comparators and platforms such as Tripadvisor or market places, such as Amazon or e-bay). Transparency can also help potential competitors to entry markets by providing them relevant information on consumer needs and market conditions.

Market transparency may also have anticompetitive effects. The availability of price and conditions information may be wrongly used by businesses in order to monitor and maintain tacit or explicit collusion, or to facilitate collusion in the hypothesis competitors fix prices through similar algorithms.

(iii) Data-related anticompetitive conducts

M&A transactions in data-driven industries may facilitate anticompetitive behavior. The acquisition of large datasets might increase the concentration of data in the hand of few businesses. The combination of different datasets, as well as the merger of businesses holding strong positions in both upstream and downstream markets might lead to market foreclosure. Indeed, anticompetitive effects might be particularly strong when it is impossible for competitors to obtain an equivalent datasets by any other means.

Further, businesses holding a significant data advantage might engage into exclusionary data-related conducts preventing actual or potential competitors to run their businesses or access a market. The report cites as examples, discriminatory access to data, exclusive contracts, tied sales and cross-usage of datasets or the use of data as a vehicle for price discrimination.

Finally, the report takes up the personal data issue, raising that privacy policies might indicate an exploitative conduct, especially when implemented by a dominant undertaking and if there is a strong interplay between the market position and the data collection.

What’s next?

Originally seen as a data protection enforcement issue, the collection, processing and commercial use of data may also raise competition issues, a parameter that competition authorities are not ready to set aside. While the German authority has already opened an abuse of dominance investigation into Facebook, the French Competition Authority rather prefers to opt for full sector inquiries allowing to gain expertise. Hence, last May it started at its own initiative gathering information in order to assess data processing in the on-line advertising sector.

There is no doubt that a business' conduct towards data, especially dominant businesses in data-related sectors, will be an area of intense scrutiny in the coming years. Authorities will closely monitor the data advantage and businesses amassing large amounts of data might draw antitrust investigations.

Yet, enforcers face a major obstacle since they lack adequate tools to tackle big data issues under competition law. So far their only means of enforcement is through either proceedings or merger control. Data-sourced market power cannot be addressed without any infringement. Regarding mergers, experience shows that big player start-ups are often not subject to merger control due to low turnovers. It is in this context that the German Federal Government is considering introducing a transaction value notification requirement. That could be the first of many more new rules to come across Europe.

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