Free services are good for consumers. And monopolies tend to be bad for them.
However, the big tech platforms such as Facebook and Google have elements of both—a combination that is vexing policy makers around the world as they struggle to figure out how best to regulate the giant platforms and their unusual business models. In North America in particular, anti-trust policy is almost always used as a remedy only when consumers are paying more for a product or service because of a monopoly.
In Canada, newly appointed Commissioner of Competition, Mathew Boswell, told an Ottawa forum last week that Canada’s competition law is “generally up to the task” of dealing with big data. However, he said, his office needs new tools to more effectively regulate the digital economy.
Boswell said his office lacks the power to conduct market studies, including the information-gathering abilities found in most developed jurisdictions. Canada is also the only major economy to have an “efficiencies defence” that the tech giants can use in competition cases “which can allow mergers that potentially hamper competition and which, some say, is particularly ill suited for the digital economy,” he said.
To help deal with the challenges, the bureau has created a new position of chief digital enforcement officer to help position the bureau as one of the world’s leading competition regulators in the digital economy, Boswell said.
Among the issues the bureau will be examining is whether the massive data sets tech giants like Facebook and Google have assembled, prevent other players from entering the marketplace.
Boswell said the bureau is also going to be more vigilant about monitoring the acquisition of small firms by big tech companies — particularly transactions that could affect competition. Facebook’s purchase of Instagram and What’s Up are examples of such acquisitions.
Flanked on the forum panel by representatives of competition regulators from the U.S. and the European Union, Boswell also said laws have to change to allow competition regulators to be able to quickly obtain evidence located in other countries.
Last week, the federal government introduced its Digital Charter. As part of the Charter package, Minister of Innovation, Science and Economic Development Navdeep Bains included a digital competition mandate letter to Commissioner Boswell. Not surprisingly, many of the issues identified in Boswell’s speech are also contained in the Bains mandate letter.
U.S., Europe ahead of Canada in anti-trust thinking
Thinking on how anti-trust law might be used to regulate the giant digital platforms may just be beginning in the Canada, but in the U.S. and many other jurisdictions, the thinking is further advanced and governments are beginning to take action.
The latest signs of escalating government scrutiny: The U.S. Justice Department is laying the groundwork for an antitrust investigation of Alphabet Inc.’s Google, the Federal Trade Commission is eyeing a similar probe of Facebook Inc., and House Democrats are launching a broad review of both companies and tech giants in general.
None of that is surprising. On the surface, Google and Facebook—as well as Amazon.com Inc. and Apple Inc. —have traits that would traditionally raise concerns about stifled competition squelching choices for consumers. They all have dominant market shares in their sectors—from search to social media, e-commerce, online advertising and smartphone apps—and are protected by practices and conditions that make it hard for new rivals to challenge them.
And yet, as discussed above, they don’t fit neatly into the old formulas that signal harm from such power: higher prices and less choice for consumers. On the contrary, these companies offer many of their core products to customers for no charge. And they have vastly expanded the ability of consumers to search, compare and buy a newly broad range of products from all over the world with a quick click, search, or download.
Big tech “creates novel complexities and considerations, particularly a concern that the digital platform may be a unique combination of economic forces that require both new analysis and new public policy,” said a report issued in mid-May by a group of scholars at a University of Chicago conference dedicated to debating how to apply antitrust to the 21st-century economy.
The Chicago meeting followed exhaustive studies on the subject completed in recent months by governments around the world, including the U.K., the European Commission and Australia. All reached similar conclusions about the evolving nature and impact of competition in the digital world.
One common argument is that consumers are facing myriad harms even as they now enjoy free services that used to cost money, like searching for information, using maps and getting directions, communicating with friends and having goods shipped to their homes.
Many economists say consumers do pay for all of these services, not with cash but by providing the tech companies with valuable information about their personal lives as well as shopping and search habits. Those companies in turn convert that data into big profits by selling it to advertisers and other users. These economists say that in a more competitive market, the real free-market price could be lower than it is. Consumers, they suggest, might be paid for that data.
“Although accessing services for free may appear to be an attractive proposition, this zero-price may in fact be too high, as consumers could be extracting greater value in return for their data,” said a March report commissioned by the British government, written by Jason Furman, who was former President Obama’s chief White House economist. The report also suggests that data-privacy concerns—a non-monetary “cost” borne by consumers using digital platforms—might be better addressed with more competition, if different companies tried to lure customers by offering tighter protections.
Economists also warn of the potential abuse in the ability of platforms to control the choices consumers see—and how they see them—a power that can be used to limit consumer options. That is the argument behind a private antitrust lawsuit pending against Apple, accusing it of forcing customers to pay higher prices by requiring all iPhone software be purchased through its App Store—where Apple can take a cut—and preventing users from acquiring the programs directly from developers.
Apple says its App Store isn’t a monopoly market and adds that the controls are imposed to ensure higher quality for its consumers. The Supreme Court in mid-May rejected Apple’s attempt to dismiss the suit, stating in an opinion that “Apple’s theory would provide a road map for monopolistic retailers to… thwart effective antitrust enforcement.”
The recent spate of research on digital platforms all conclude those industries naturally tend toward monopoly, for a few reasons. They cite “network effects,” which means that services like social networks inherently grow more valuable for their customers the more users they have, a self-reinforcing cycle that tends to foster more dominance. Those products also work better the more data they can analyze, compare, and sell—another tendency favoring existing firms that makes it harder for new competitors to emerge.
The Chicago report says that, with digital platforms, the “competition in the market” shaping most industries is replaced by “competition for the market,” meaning that once a firm has won the battle to control a sector, it faces little challenge from other rivals. The study—led by Yale economist Fiona Scott Morton, an Obama administration antitrust official—warns of “the difficulty of entry into digital platform businesses once an incumbent is established.”
The reports all recommend tougher antitrust policies toward the big digital platforms. That could include more active investigations of practices used to curb competition, as well as a more aggressive stance in blocking any future acquisitions by those firms of potential competitors, like Facebook’s purchase of Instagram and WhatsApp.
But the studies also say there are limits to what antitrust authorities, like the Justice Department, can do about Google or the other big tech firms given that technology leads to single-firm dominance and moves so quickly.
Both the Chicago and U.K. studies conclude that governments will need new powers to foster more competition.
And all this is on top of the growing concerns over the tech giants invasion of our privacy.
Privacy the big issue in Canada
In fact, in Canada, most of the energy to date has been focused on an overhaul of our privacy legislation, the most important being the federal Personal Information Protection and Electronic Documents Act (PIPEDA).
The federal Privacy Commissioner has repeatedly criticized the legislation as being overly permissive and giving companies far too wide latitude to use personal information for their own benefit.
Under PIPEDA, private organizations have a legal obligation to be accountable, but recent developments make it clear that Canadians cannot rely exclusively on companies such as Facebook and Google to manage their personal information responsibly.
What that means is that provisions protecting privacy have to be spelled out in much greater detail in the Act and effective enforcement of the Act’s provisions has to be considerably stronger than what currently exists.
In addition to the Privacy Commissioner, several parliamentary committees have supported the call for bold legislative reform to reign in the platforms.
Notably, in February, 2018, a House of Commons Standing Committee on Access to Information, Privacy and Ethics (ETHI) report, concurred with many of the Privacy Commissioner’s recommendations to amend PIPEDA, and even called for additional measures inspired by the European Union’s excellent General Data Protection Regulation (GDPR), which came into force in May, 2018.
In a later report in June, after hearing from witnesses on the Facebook/Cambridge Analytica scandal, ETHI came to the view that additional amendments (notably those conferring new enforcement powers to the Office of the Privacy Commissioner, including the power to inspect or audit companies such as Facebook and Google) were urgently required.
In a separate June, 2018 separate report, ETHI also agreed that political parties need to be governed by privacy laws.
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