In a digital economy, there has been an increasing amount of scrutiny regarding technology’s impact on consumers and competition. One key question is whether privacy should be considered a dimension of competition? That is to say, is privacy relevant to the analysis of competitive effects?
Competition law incorporates many non-price dimensions of competition, including innovation, quality, variety, service and advertising. One significant type of non-price effect involving data is privacy. Firms may compete to offer better privacy terms to customers over their competitors. However, consumers have vastly different ideas about how or when they want their data to be used. Some find targeted or behavioural advertising invasive, while others appreciate more relevant ads and receive free products or services in exchange for targeted ads.
There is tension between competition law and privacy. Competition law enforcers generally want as much data sharing as possible, whereas privacy advocates want to limit data sharing. For example, a competition law enforcer may want to facilitate access to data to alleviate one party from having more or better information than the other in a transaction (information asymmetry), but this may raise privacy concerns if that data includes personal information, as this data could be exploited or misused.
Barriers to Market Entry and Expansion
Access to data may create or strengthen several economic barriers to entry and help exclude rivals.
The first of these barriers is access to a large amount and variety of data, which can generate economies of scale that allow for innovative products or services that create significant economic value for consumers. For example, the data acquired through a merger may allow firms to develop products or services that would not have been possible otherwise, however this can make it difficult for competing firms to expand or enter the market.
The second barrier access to data can create is switching costs. For example, consumers may find it difficult to transfer from one platform to another competing platform. Dominant firms in the market may take steps to increase switching costs for customers to prevent them from switching products. Dominant firms may use practices such as restrictive contracts to achieve this.
The third barrier is network effects. Network effects exist when the value or benefit from using a product increases with the number of users. For example, search engines like Google gather and analyze data from users who click on ads and links. Increased user counts can therefore lead to improvements in the search algorithms to display more relevant search results and ads. While network effects can improve the quality of a product or service, the effect can create barriers to entry.
Privacy and Data Portability
Privacy frameworks may alleviate barriers to entry by facilitating competition through data portability and interoperability. Data portability protects consumers from having their data stored on platforms that are incompatible with another. Data portability requires common technical standards between firms to facilitate the transfer of data from one firm to another, thus promoting interoperability. Increased data portability can reduce switching costs for consumers and therefore increase completion in the market. Innovation may also increase because firms can more access data more readily and use it in novel ways.
Some companies such as Microsoft, Twitter, Facebook and Google are already taking steps to increase data portability. The companies are participating in the Data Transfer Project, which seeks to create an open-source, service-to-service portability platform so that all individuals across the internet can easily move their data between online service providers when ever they. The Data Transfer Project collaborators believe that portability and interoperability are central to innovation and that making it easier for consumers to chooses among services facilitates completion and consumer value.
Privacy legislation can help facilitate competition. For example, the European Union’s General Data Protection Regulation (“GDPR”) directly addresses the right to data portability in Article 20, facilitating the ability of consumers to switch service providers. While privacy legislation can help provide much needed clarity to enforcers and to firms, policymakers should be aware that privacy legislation can also have negative effects on competition. For example, privacy legislation may increase barriers to entry through increased compliance and legal costs. Often larger established firms are in a better position to absorb these costs at the expense of smaller competitors and potential entrants. Therefore, policymakers must carefully balance the privacy rights of consumers while still facilitating competitive market conditions.
The impact of data accumulation, transparency and control in a digital era creates emerging issues for competition law. While privacy laws deal with breaches of privacy, competition laws also overlap in the regulation of practices related to privacy. Clarity on the boundaries between privacy and competition law is needed going forward to avoid enforcement overlap.