Thank you very much.
I recently co-authored two books on the data-driven economy. The first, with Allen P. Grunes, is Big Data and Competition Policy, and the second, with Ariel Ezrachi, is Virtual Competition. In both books we discuss some of the benefits of a data-driven economy. We also discuss some of the risks, including algorithmic collusion, data-driven mergers and behavioural discrimination. I won't touch on that.
I'd like to talk to you today about the risks if a few powerful firms monopolize our data. I'd like to break it up into four parts. First, what are data-opolies? Second, how have competition officials in the EU and U.S. viewed them? Third, from an antitrust perspective, do these data-opolies pose any risk of harm to consumers? Finally, I will have some final thoughts.
First, what are data-opolies?
Data-opolies control a key platform through which a significant volume and variety of personal data flows. The velocity of acquiring and exploiting this personal data can help these companies obtain significant market power. In Europe, they're known as GAFA—Google, Apple, Facebook and Amazon. As these firms have grown in size and power, they have also attracted significant antitrust scrutiny, particularly in Europe.
In the United States, it's been relatively quieter. I'll give you a couple of stats. From 2000 onward, the U.S. Department of Justice brought only one monopolization case, in total, against anyone. In contrast, the DOJ, between 1970 and 1972, brought 39 civil and three criminal cases against monopolies and oligopolies.
One question is this. Is there a difference in the perception of harm across the Atlantic between the U.S. and the EU over these data-opolies? In the U.S., antitrust plaintiffs must allege actual or potential harm to competition. Ordinarily when we think of harm, we think of a cable company—higher prices, reduced output, lower quality. Superficially, it appears that data-opolies pose little if any risk of these traditional harms. Ostensibly Google's and Facebook's services are free. Amazon is heralded for its low prices. Because of these network effects, the quality of the products can improve.
If you have low or free prices and better quality, what's the problem? Some, such as the late antitrust scholar Robert Bork, have argued that there “is no coherent case for monopolization”.
One factor for this divergence may be the perceived harm. If there is a consensus over the potential harms, then the debate can switch to the best policy measures to address these harms. I've identified at least eight potential antitrust harms from these data-opolies.
The first is degraded quality. Companies can compete on multiple dimensions, including price and quality as well as privacy, so a data-opoly can depress privacy protection below competitive levels and collect personal data above competitive levels. The data-opoly's collection of too much personal data can be the equivalent of charging an excessive price. Data-opolies can also fail to disclose what data they collect and how they'll use the data, and they face little competitive pressure to change their opaque privacy policies. Even if the data-opoly were to provide better disclosure, so what? Without a viable competitive option, the notice and consent regime is meaningless when the bargaining power is so unequal.
A second concern involves surveillance. In a monopolized market, data is concentrated in a few firms and consumers have limited outside options that offer better privacy protection. This has several implications. One is government capture. The fewer the firms that control the personal data, the greater the potential risk that a government can capture the firms, using its many levers.
One risk is covert surveillance. Even if the government cannot obtain the data directly, it can try to get the data indirectly. The data-opoly's rich data trove increases a government's incentive to circumvent the data-opoly's privacy protections to tap into the personal data. This is what happened with Cambridge Analytica. There are several implications of a security breach or violation of data-opolies' data policies. A data-opoly has greater incentive to protect its data, but hackers also have a greater incentive to tap into this data, because of the vastness that it has. While consumers may be outraged, a dominant firm has less reason to worry about consumers switching to rivals.
A third concern involves the wealth transfer from consumers to data-opolies. Traditionally, you'd think of a monopoly taking money out of your pocket. Even though the product may be free, data-opolies can extract significant wealth through several levels. The first is not paying for the data's fair value. The second is that data-opolies can get creative content from users for free, for example, from YouTube videos or contributions on Facebook. The third level is that data-opolies can extract wealth from suppliers upstream. This includes scraping content from photographers, authors, musicians and newspapers, and posting it on their own website. Finally, data-opolies can engage in what's called “behavioural discrimination”. Basically, this is getting us to buy what we would not otherwise want to buy, at the highest price we're willing to pay. It's a more pernicious form of price discrimination.
A fourth concern is the loss of trust. We can view this as a dead-weight welfare loss. Some consumers will simply forgo the technology out of privacy concerns.
A fifth concern is that the data-opoly can impose significant costs on third parties. Here in our work, we talk about the frenemy relationship that data-opolies have with app makers. They need these app developers in order to attract users to their platform, but once they start competing with them, they can then have an enemy relationship. There are various anti-competitiveness practices they can engage in, including degrading the app's functionality. What is particularly important for you is that data-opolies can impose costs on companies seeking to protect our privacy interests. One example, which our book Virtual Competition explores, is how Google kicked the privacy app Disconnect out of its Android app store.
A sixth concern involves less innovation in markets dominated by data-opolies. Here we point out how data-opolies can promote innovation, but also hinder innovation. One tool they possess that earlier monopolies did not have is what we call “nowcasting radar”. They can perceive trends well in advance of, let's say, the government antitrust enforcer—nascent competitive threats—and they can squelch those threats by either acquiring them or engaging in anti-competitive tactics.
A seventh concern is the social and moral concerns of data-opolies. A historical concern of antitrust was about individual autonomy. Here, a data-opoly can hinder the individual autonomy of those who want to compete on their platform. A related concern is data-opolies making their products intentionally addictive. Here you have an interesting interplay between monopoly and competition. Ordinarily, a monopolist doesn't have to worry about consumers going elsewhere. Here, however, the data-opolies can profit by getting users addicted to spending more time on their platform. They can thereby obtain more data, target them with advertising and increase their profits.
The eighth concern is the political concerns of data-opolies. Economic power often translates into political power, and here data-opolies have tools that earlier monopolies didn't—namely, the ability to affect the public debate and our perception of right and wrong. Data-opolies, as shown in the Facebook emotional contagion study, can affect how we think and feel, particularly as we migrate to digital personal assistance and much greater interaction with the data-opolies' products. You have several risks. One of them is bias. The news we receive will be more filtered, creating echo chambers and filter bubbles. The second risk is censorship. A third is manipulation.
Several themes, in conclusion, run through my papers.
The first theme is that the potential harms from data-opolies can exceed those from monopolies. They can affect not only our wallets. They can affect our privacy, autonomy, democracy and well-being.
Second, markets dominated by these data-opolies will not necessarily self-correct.
Third, global antitrust enforcement can play a key role, but here, antitrust is a necessary but not sufficient condition in order to spur privacy competition. There really needs to be coordination with the privacy officials and the consumer protection officials.
Thank you.