Understanding the antitrust risks and implications for businesses (big and small) in the years ahead
“Big data” is the term used to describe the collection, storage and analysis of large quantities of data for a range of different purposes.
Its use is well established in consumer goods markets and retail financial services. Businesses use loyalty cards, credit and debit card transaction history and other financial transaction data to build a profile of their customers. That profile can then be used in advertising and marketing, product development and other aspects of business.
More recently, big data has been associated with data that consumers provide in exchange for free services on the internet. Here, technology companies collect and analyse data they have obtained for free from internet search histories, social media posts and various apps. Again this information, all of which has been freely provided by consumers, can be used by the companies themselves or commoditised and sold on to third parties, such as advertisers and retailers, who would like to target particular customer groups.
Machine to machine big data is also expected to become increasingly important as we move into the “internet of things” era. Manufacturers of vehicles (or their systems), domestic appliances or other consumer goods may be able to access large amounts of data capable of giving valuable insights into consumer behaviour, in addition to other information such as weather or traffic conditions.
Antitrust authorities are increasingly focusing on the implications of big data on competition and consumer choice in today’s marketplace. Most recently, the European Commission has outlined a new strategy on big data and the UK CMA has published a report on commercial use of consumer data. The French and German competition authorities have announced studies and the UK Financial Conduct Authority has announced that it will be studying the use of big data in the insurance sector.
As regulators assess the implications of big data on competitive dynamics, its interplay with antitrust enforcement is an issue businesses will increasingly need to be alive to.
“Antitrust has always been focused on market power. For an increasing number of companies, the data they have, and their ability to analyse that, is what gives them their advantage. The authorities are clearly keen to ensure that this data is an advantage that is used in accordance with competition rules.”
Martin McElwee, Partner, London
Does big data confer market power?
A key question for antitrust authorities is the extent to which access to, and the ability to use, big data can be considered to give a business market power.
Authorities may be interested in a business’s big data if it would be particularly costly and time-consuming to replicate and gives a business a competitive advantage that is difficult or impossible for others to match. Google’s data, based on years of world-wide internet searches, is of course much more difficult to replicate than data held by a smaller internet search provider. In these circumstances, big data could be considered a barrier to entry that makes it harder for new entrants to compete in markets.
Similarly, antitrust authorities might query whether big data is likely to be used in a way that engenders loyalty, or reduces incentives to shop around and/or switch. Where big data is viewed as a particularly important barrier to entry or a barrier to switching in a particular market, this could prove an important factor in the substantive analysis of a merger.
In Facebook/Whatsapp, the European Commission considered whether Facebook would start collecting Whatsapp user data as a result of the merger. The Commission emphasised that it did not have competence to consider data privacy as a standalone issue - rather it was interested in how Facebook could use Whatsapp data when competing in the online advertising market. The Commission ultimately concluded that, even if Facebook did collect Whatsapp data, there would still be a large number of companies (all of whom had their own collections of user data) that could compete with Facebook for the provision of targeted advertising.
While this is controversial, big data could also potentially be considered so important in particular sectors that possessing it, or being able to leverage its use in a particular market, could of itself make a company dominant. It is not impossible that we may see allegations that big data is so important in certain sectors that it could be seen as a so-called “essential facility” to which competitors should be given access.
In fact, a number of regulators in Europe and around the world are currently considering whether ex-post regulatory intervention is sufficient to deal with big data and dominant platforms or whether some form of ex-ante regulation is needed. For example, regulatory intervention could be used to facilitate customer switching from one platform to another by ensuring platforms release customer big data (e.g. browsing and transaction histories) when they move (in much the same way that regulations on mobile number portability have been used to encourage switching in telecoms). Until now, the Commission has been reluctant to legislate due, in part, to the risk of rapid market developments rendering any regulations obsolete. However, the Commission may feel compelled to intervene to prevent regulatory fragmentation (as more active national regulators set about implementing their own regulations).
Furthermore, in a market where a business is already dominant, we may see allegations that big data could be employed to exploit that market position. For example, big data could be used to enhance the ability of the dominant business to employ discriminatory pricing based on information it has on its consumers to the detriment of its competitors or those customers.
Antitrust arguments on big data may be raised in sectors where there has been innovation or disruption that has a big data component. If we consider a business like Uber, its big data arguably allows it to set pricing in a way that is particularly competitive: it can lower prices at non-peak times and increase prices at peak times. Should Uber become regarded as the incumbent, competitors without its detailed data on customer demand for taxis might argue that Uber’s big data gives it an advantage that they cannot replicate.
To many, concerns around big data are more appropriately framed as a privacy or data protection issue than one of antitrust. However there are a number of ways that privacy itself might be considered to be a parameter of competition, and in that sense, privacy issues may become relevant in antitrust cases involving big data.
As the FTC recently acknowledged, in the same way that proposed mergers can be assessed in terms of factors other than the likely impact on price - for example whether range, quality or service will be adversely impacted as a result of a merger - privacy protection for consumers can also be something that businesses seek to compete on and which could, at least in theory, be negatively impacted by a merger.
Separately, and more controversially, there have been calls for antitrust to be used to help regulate adherence to privacy rules in relation to big data. Such views may be motivated less by genuine antitrust concerns than by the fact that the toolkit of antitrust authorities is (currently) generally more powerful than that of data protection supervisors.
“It is not a primary task for antitrust authorities to protect people’s privacy - other rules were designed for that purpose. However the exact borderline between the two sets of rules is yet to be defined. Stakeholders in antitrust cases are increasingly raising privacy issues - a dynamic of which businesses should be aware.”
Sascha Schubert, Partner, Brussels
Looking ahead to 2016:
Antitrust authorities are likely to focus ever more on big data as a key policy area in 2016 and beyond:
- Learning process for antitrust authorities: As antitrust authorities continue to examine the use of big data, they will continue to use market studies to obtain feedback from market participants and consumers to assess whether antitrust issues have arisen. Ex-ante regulation is also a potential area where clear policy objectives could be achieved (for example facilitating customer switching by ensuring platforms must release customers’ big data); although there may be some reluctance to be intrusive in such innovative and fast-moving areas.
- Sectors most affected: As well as the large technology companies, antitrust scrutiny of big data is likely to be particularly relevant in consumer goods markets as well as the insurance and financial services sectors, where accessing and analysing data helps quantify risk and pricing. In the near future, companies that manufacture cars, domestic appliances and other “internet of things” products, may be of interest as the value of the data they can collect becomes more quantifiable.
- Impact on mergers: Big data considerations are likely to be factored into merger control analyses, in particular in the technology sector, but also in any other markets where big data could present a barrier to entry, expansion or switching and thereby potentially confer market power.
- Dominance: Big data may be alleged to be so integral to a business model that it gives the owner a dominant market position. Alternatively, it could be alleged that an already dominant company can exploit that position by using the data it holds on customers. Antitrust authorities and courts are certainly likely to hear claims about the use (or misuse) of big data in a dominance context.
- Interplay with privacy law: Antitrust authorities are likely to steer clear of trying to police data protection rules, but may well be subject to some pressure to clamp down on poor practice under their consumer protection mandates.
“Competition law will play an integral role in ensuring that consumers enjoy the benefits of a data-driven economy while mitigating its associated risks.”
Tom Ensign, Partner, Washington DC