Data Use As An Antitrust Concern?

Antitrust enforcers at the Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) have signaled increasing concern that the collection and commercial use of data by large digital firms may raise novel antitrust questions. In a November 2019 speech at Harvard University, Assistant Attorney General Makan Delrahim discussed some of these potential antitrust concerns. Delrahim’s speech also highlighted the debate among antitrust scholars on how to analyze data markets and the balanced approach antitrust enforcers should pursue.

In an antitrust analysis with traditional goods, high share in and of itself is not indicative of market power. Similarly, the mere possession of a large quantity of data is not necessarily anticompetitive. There are potential benefits to consumers from data collection and aggregation (e.g. knowledge of one’s current location, restaurant ratings/reviews, personal exercise data). Simply, as Delrahim noted in his speech, data have economic value. Like traditional goods, the economic value of a particular type of data depends on numerous market-specific facts, including how difficult it is for firms to collect such data, the number of firms able to collect such data, the degree to which the data are refined and organized so that they are useful, and potential substitutes for the data. Thus, how data are collected and used may warrant antitrust scrutiny if the result of such data collection is reduced entry, reduced consumer choice, or reduced competition for the acquisition of data itself (which can result in reduced consumer bargaining power). At the same time, antitrust enforcers also must consider the potential disincentives to innovation and product improvements from undue intervention.

The debate among antitrust scholars revolves around whether data should be analyzed differently than traditional goods and services. Data perhaps can best be viewed as an input into a “two-sided” production process where firms with digital platforms offer subsidized or free services (e.g., online travel services) to consumers who give those firms implicit or explicit permission to collect and analyze their personal information. The firms then use the consumer information to improve the consumer product, as well as to monetize the resulting data (e.g., through ad placement) on the other side of their business.

Scholars who argue for special treatment of data in an antitrust context state, fundamentally, that allowing firms with digital platforms to control large amounts of data can create entry barriers and allow the exercise of market power. Some of these scholars argue that data collection can create a ‘feedback loop’ — in which data that permit product improvements also allow incumbent platforms to leverage data usage to make entry more difficult, in turn allowing incumbent firms to gain market power over data collection. In this conceptualization, a new platform entrant that does not have access to the same volume and type of data may not be able to compete successfully (or enter at all), and the incumbent firms will have reduced incentives to innovate and expand aggressively.

Further, these scholars argue that traditional antitrust tools are inadequate, because data collection typically does not have a nominal price, and thus cannot be readily analyzed using price-based economic tests for the existence or extension of market power. For example, in digital industries where “prices” of the digital platform itself are not readily observed or are zero, market power may be better measured by share of control over data rather than traditional market power measures (such as the ability to raise price by some small but significant amount). This viewpoint recognizes that data have economic value to digital firms, even if they are producing a “zero-price” product. For example, if data are a necessary input into the platform production process, the acquisition of data by firms is best seen as part of an implicit or explicit bargain with consumers who provide that data. In order to get the data they need, firms offer privacy protection and potentially other items that make the bargain more palatable to consumers. Thus, if there is inadequate competition in the platform market caused by the accumulation of data, firms might degrade privacy protection or refuse to sweeten the bargain.

FTC Commissioner Rohit Chopra recently discussed this issue at a conference. He indicated that digital platforms can potentially force “take it or leave it” propositions on potential platform users, where they must agree to the terms offered in order to use the site. While users may not be explicitly paying anything to use a service like Google or Facebook, they are implicitly paying for access with their data. As such, Chopra stated that the antitrust authorities need to inquire whether platforms with market power can influence the bargaining process between platforms and users to their advantage — for example, by offering less security for data.

Scholars on the other side of this debate argue that possession of significant data is not likely to preclude competitive platform entry, that there is no empirical support for the proposition that lack of data has impeded entry, that data are becoming easier to collect and use as new technologies are developed, and that new platform entrants can employ new technologies to store and analyze data. These experts argue that data are ever-present and are difficult to use in a rivalrous manner, because data can be amassed simultaneously by numerous firms. Data also can become “stale,” so potential entrants have the opportunity to gather new data. These scholars argue that antitrust should consider the pro-competitive aspects of widespread consumer data availability that spur innovation and product improvements. Further, these scholars argue that even if data are a necessary expense for an entrant, it is not a true economic entry barrier, since entrants and incumbents alike face this cost. These scholars further argue that traditional antitrust tools are sufficient for analyzing any potential antitrust problems due to data collection.

In sum, while both DOJ and FTC have expressed potential antitrust concerns pertaining to data collection, aggregation, and use, there is still significant debate in the scholarly research on whether data acquisition markets should be analyzed differently than traditional goods or services.

EI Principal Robert D. Stoner has worked on a number of matters, both at the FTC and in his consulting practice, concerning the application of antitrust to novel issues.