How should progressives respond to the anti-competitive tendencies of the platform economy?

06 November 2017

Craig Berry - Deputy Director at SPERI

Sean McDaniel - Research Assistant at SPERI

Firms such as Google and Uber – and their control of our data – may pose a threat to the UK’s competition regime. How policy-makers respond to this will help to define the platform economy

Generally speaking, the UK’s competition regime is highly regarded. The establishment of competition policy – generally in the 1990s – is typically seen as constitutive of a neoliberal economic policy framework, insofar as it offers normative support to the notion of private enterprise, unencumbered, as the key vehicle for achieving equitable outcomes. However, competition policy is perhaps best understood as occupying a nuanced position in this agenda, encompassing a progressive regulatory response to the tendency of unencumbered markets to enable the concentration of private economic power.

Photo by ev on Unsplash

As such, it is wrong to assume that the UK’s competition regime is generally non-interventionist. However, the grounds upon which UK competition authorities may intervene to prevent or reverse certain practices are generally quite narrow, focused on ensuring that a small number of firms do not become too dominant in conventionally defined industries or sectors. (The National Audit Office, for instance, has commented that the new Competition and Markets Authority has too few cases when judged against its statutory duties.)

The emergence of digital platforms – and particularly platform companies’ control of Big Data – clearly represents a challenge to the UK’s highly targeted and rather technocratic approach to competition law. We recently reviewed the academic and non-academic evidence base on this issue as part of work commissioned by the IPPR’s Commission on Economic Justice; the full review, and related reviews on both labour markets and ownership models, has been published on the SPERI website today.

It is clear that a handful of very large digital companies have achieved very dominant market positions across a range of service industries, and not (yet) clear that this situation represents merely a transitory stage in the development of the industries in question.

The basic definition of platforms are that they are the digital infrastructures which allow two or more parties to interact. This chimes with how platforms are understood in the economics literature. There are several other core features of the business model of platform companies that are, however, worth highlighting. First, there are ‘network effects’: the more users a platform has, the more valuable it is (as discussed further below, this is partly because of the data that would then be housed by the platform). Herein lies one of the key monopolising tendencies: if the value of a platform is that everybody uses it, it is hard for new market entrants to make a better offer to potential users.

Second, platform companies typically cross-subsidise different parts of their business in order to grow the platform – control of the platform creates this opportunity. Thirdly, platform companies exercise a degree of control or governance over the digital space, invariably to maximise profit-making opportunities.

The nature of platform companies’ business models is that they control sizeable market share precisely because they control, or are able to shape, some of the key digital infrastructures through which markets now function.

By and large, these firms are, or have been, highly innovative. But their power may be being used to stymy further productivity growth over the long term. By and large, the evidence suggests that competition policy supports productivity growth – more so when authorities have a greater range of antitrust powers to enable fair competition. This is almost certainly related to the role of competition law in enabling new, disruptive entrants into established markets, insofar as it constrains incumbent rent-seeking.

Today’s platform giants were the disruptors once, and in many ways still are. But insofar as their status within the new industries they have been instrumental in developing affords advantages in other parts of the economy, there might be a need for competition law to keep pace with the rent-seeking opportunities that arise from technological development.

As we discuss at length in our literature review, the evidence base on whether Big Data, in particular, represents a unique set of challenges for competition policy is mixed. In general, the economics literature suggests that data is an asset like any other, and therefore does not require now forms of competition law. Moreover, it is ‘non-rivalrous’, in the sense that the accumulation of data by one company does not prevent other companies from accumulating the same, or even better, information from the same individuals.

Such verdicts, however, appear to overlook the way in which platforms enable forms of data accumulation inherently unavailable to potential rivals, and a more critical literature is emerging in response to this challenge. If nothing else, we know that many of the largest digital companies are extremely eager to control and capitalise upon data, and indeed prepared to engage in unprofitable activities in order to maintain and enhance their accumulation of data. Amazon’s development of the Echo system as an example of this: Amazon sells its Echo devices at a loss, however the data it captures means that not only does Amazon increase its pool of data to analyse, but it can also act as a gatekeeper for third party apps and services that tie in with the Echo system, such as Spotify.

This is a front-line, under-theorised reality which, at the very least, should cause us to question the notion, seemingly supported by mainstream economic theory, that the accumulation of data by digital companies is relatively benign.

A progressive response to these issues would need to focus on simultaneously empowering consumers, citizens and workers. Firstly, one of the key dilemmas in the impact on competition on Big Data is that consumers are generally willingly providing their personal data to companies (often in return for free services). As the Industrial Strategy Commission (of which Berry is a member) advocates, consumer policy and competition policy should therefore be more firmly brought together, enabling joined-up, long-term thinking about the consequences of regulatory reforms to help markets work better, and prevent industry concentration undermining competition and constraining productivity growth.

Secondly, in relation to data but also platforms in general, we need to consider whether there is a need for the state to be more actively involved in regulating platforms qua platforms. If a handful of firms are able not only to operate in new markers but also disproportionately shape how these markets function for all competing firms, it may be correct to subject them to more rigorous public interest tests. It may also be useful to consider whether public authorities can directly provide some platforms, as Nick Srnicek advocates, as a benchmark against which private platforms would have to compete.

Finally, there is a concern that for some platform companies, the most valuable data relates to the performance of their workers. There have been important moves at the European level to make workers’ personal data portable, but this will probably not apply to customer reviews of worker performance. Clearly, addressing these kinds of issues is far outside the remit of competition policy as traditionally understood. But being able to control the future employability of current or former workers is, potentially, an enormous benefit to incumbent firms.

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