On 6 October, the German Federal Cartel Office (“FCO”) launched its new series of papers on “Competition and Consumer Protection in the Digital Economy”. The first paper deals with “Big Data and Competition”. The same day, a “real-life example” of competition enforcement in Big Data became public. The EU Commission confirmed unannounced inspections in “a few Member States” concerning online access to bank customer’s account data by competing service providers.
In the words of Andreas Mundt, president of the FCO “the special characteristics of digital markets have created new challenges for competition policy and enforcement.” With its new series of papers the FCO continues the public debate on topical competition policy issues highlighting the interfaces between digitalization, competition and consumer protection. The now published paper on “Big Data and Competition” explains the specifics of data-based, digital markets. It highlights the role data can play in competitive analysis and stresses the importance of data protection issues for competition law proceedings.
- Data in the competitive analysis
The FCO clarifies that data based business models can have pro-competitive as well as anti-competitive effects. Regarding potentially critical topics, the paper mainly discusses the following scenarios where data could negatively impact on competition: (1) Data as a source of market power; (2) Data as the origin of increased market transparency facilitating collusion; (3) Data pooling and cooperations between competitors and (4) Data driven anti-competitive behaviors. Finally, the FCO briefly addresses the interplay between data protection and competition law (5).
1.1 Data as a source for market power
According to the FCO, access to data can establish market entry barriers and contribute to market power of specific companies. The FCO names two criteria which would need to be considered on a case-by-case basis:
- Is the access to specific data important for successful operations in the relevant market?
- Can other market players either collect the relevant data themselves or access it via third parties? While this theory is currently discussed in many articles and at conferences, any real-life examples of anti-competitive foreclosure due to a lack of market access are yet to be identified by the competition authorities. This does not come as a surprise because the parallel offline “essential facilities doctrine”, which deals with access to infrastructure of dominant companies, has very high thresholds. Interestingly, the FCO acknowledges in its paper that in many cases market access to data of a dominant company may be a less important precondition for successful operation on the market than the public debate suggests.
- As a competitively critical example, the FCO refers to smaller or new market players which cannot gather data in an amount comparable to larger market players. This could lead to a “data advantage” of the established market players which is out of reach for smaller competitors.
1.2 Data, market transparency and competition
The FCO recognizes that the availability of data and increased transparency in the market can lead to positive effects, e.g. decreasing information asymmetries and increasing competition on price and quality. However, the FCO emphasizes that it could also lead to restrictions of competition. According to the FCO, highly concentrated and transparent markets are prone to collusion. The possibility of permanent data comparison could facilitate mutual surveillance of competitors and identification of deviation from potential agreements among competitors.
Again, this is not a unique factor of data-rich markets as also in offline markets many companies share information individually or through trade associations. Digital players need to ensure that they adapt a compliance culture based on existing rules for information exchange and “update” this based on the specifics of data markets.
1.3 Data pooling and cooperations
The FCO accepts that cooperations between companies in the collection and pooling of data can generate efficiencies and pro-competitive effects, especially in the context of connected industry applications and the Internet of Things. However, according to the FCO, cooperations between competitors exchanging and pooling competitively sensitive data could facilitate collusion, hamper access to data for third parties and establish market entry barriers. Competition law does not generally prohibit such cooperations. In the competitive assessment, cooperations between competitors would be more difficult to justify than cooperations between non-competing companies operating on different market levels.
1.4 Data driven anti-competitive conduct
Besides these more structural concerns regarding data and competition, the FCO discusses three scenarios in which access and use of data could give reason to anti-competitive conduct.
- First, the collection and use of data could lead to anti-competitive concerns in merger control cases. This would especially be the case according to the FCO if the merger has its (main) purpose in acquiring access to new data and thus leads to a higher concentration of relevant data post-merger which could than hinder market entry and expansion of other companies. In addition, a merger in data driven markets could have vertical or conglomerate effects if the merger enables a large company to hamper or deny its competitors on upstream or downstream markets to access the data.
- Second, a dominant player hampering or denying its competitor’s access to data could lead to anti-competitive abuse of dominance, especially in a discrimination scenario or in an “essential facility” situation. As highlighted above, there are no real life cases providing more guidance yet. The thresholds for such a case should be high as there is no general right to access a competitor’s database.
- Third, availability of data could lead to price discrimination, e.g. in the context of individualized pricing. Although the FCO notes that price discrimination is not necessarily a competition law issue, the paper explains that a high degree of price discrimination or fully individualized prices could lead to anti-competitive effects. This would particularly be the case if individualized pricing would increase information asymmetries as competition would lose its protective function and consumers would be unable to draw price related conclusions from the market. This category demonstrates how cautious competition law authorities need to be in applying new theories of harm to data driven markets. If the individualization of prices is seen as problematic due to a lack of transparency, it needs to be explained why increased market transparency (see above 1.2) should also raise concerns.
- Data privacy and competition law
Finally, the FCO draws attention to potential anti-competitive implications in relation to data privacy aspects. The FCO states that the way how companies handle data and apply data protection rules could be regarded as a non-price related competition parameter. In addition, the FCO refers to its ongoing investigation into a potential abuse of dominance through specific clauses in general terms and conditions regarding the use of customer data of an online platform. Although the enforcement of data protection regulations generally does not lie with the competition authorities, this shows that competition law enforcers are increasingly moving into the data privacy arena, assessing potential anti-competitive implications of the use of data and the applicable data privacy rules.
The FCO’s most recently published paper as well as the most recent dawn raids by the EU Commission show that Big Data remains on top of the policy and enforcement agenda in Europe. The FCO’s paper follows earlier publications and statements by the German FCO on Big Data and Digital Markets, i.e. the Joint Paper of the FCO and the French Competition Authority on “Big Data and Competition”, the White Book on Digital Platforms of the German Ministry of Economic Affairs and the most recent ninth amendment of the German competition law. It clearly underlines Germany’s ambition to play a lead role in the adaptation of competition law enforcement to digital markets, specifically to Big Data. Questions relating to data access and property rights are also being examined by the European Commission in the context of its Digital Single Market initiative (for more details on the Digital Single Market initiative, please visit our DSM Watch Tool: http://dsmwatch.com/).
Companies and other stakeholders are encouraged to follow the public debate and increased enforcement activity carefully. They should consider assessing their data-based business models against the progressively evolving competition law standards and adapting existing compliance policies to consider the tougher stance taken by competition law authorities.