Authored by: James Johnson[1]
It is unlikely that regulators will go as far as
breaking up Big Tech firms, as Warren promised. However, the past two years
have seen reviews across jurisdictions on whether or not existing competition
frameworks are adequate for firms like Amazon and Alphabet. In 2019, the US
Federal Trade Commission (FTC) made a permanent Technology Enforcement
Division.[3] Meanwhile, the European Commission
(EC) commissioned a report on EU competition policy. Even in Australia, the
Australian Competition and Consumer Commission (ACCC) gave recommendations to
the government on how to change competition policy last year.[4] After all these reviews, it
is clear that large changes to competition law are due for the next two years.
What is driving this scrutiny of Big Tech?
Primarily, this scrutiny is being driven by how
ubiquitous Big Tech has become in everyday life. Facebook has almost 2.5
billion active users[5] and so the kind of service
that it provides is increasingly important. Yet, these markets are increasingly
concentrated. For instance, Google comprises over 90% of searches in each
European member state.[6] Ensuring that these huge
platforms still have incentives to innovate and provide a high quality of
service therefore underpins concerns about competition in the technology
sector.
This size has been accompanied by a feeling that large
technology firms are abusing their position of strength. In the aftermath of
scandals such as the Cambridge Analytica scandal in 2018, there is a growing
suspicion of the amount of power that belong to the Big Tech firms. This has
already resulted in regulatory changes to data protection such as the General
Data Protection Regulation (GDPR) in the EU but it is also likely to bring
about changes to competition laws. If consumers have viable alternatives to
Facebook, it is harder for them to be careless with data without losing
business.
Furthermore, Big Tech firms have attempted to use
their size to enter into other industries. The launch of services such as Apple
Music, Alexa and Google Nest shows that firms are trying to diversify their
services as they grow in size. These firms arguably have unfair advantages in
these other services, as they are able to take advantage of the fact that they
have a captive audience already. For instance, Apple initially tried to block
Spotify from the Apple Watch platform in order to force users to use Apple
Music instead.[7] Sometimes these other
services do not have regulatory regimes that can account for Big Tech. This is
particularly the case with the payments industry, where services such as
Microsoft Pay and Google Pay have a competitive edge because they are not
subject to as many regulations as existing players.[8] The fact that these firms are able to
influence a range of industries adds to the sense that they are too big and
thus competition guidelines need to be changed.
Although there have been different specific factors
driving each country’s review into competition law, the international pressure
for each country to change their guidelines has acted across the board.
Research done in one jurisdiction on why competition laws should be changed
often acts as a signal to other jurisdictions that they should implement
similar changes. This was most clearly shown with Japan’s review into its
competition framework in 2019. The Japanese Fair-Trade Commission (JFTC) itself
cited the European Commission’s proposals for competition reform in its
justification behind regulatory changes[9]. This particularly likely to occur as
time goes on. If changes to competition frameworks produce good outcomes in the
long-term, then that will act as an incentive for other countries to adopt the
same measures.
Which changes to competition frameworks are likely to come about?
It is difficult to generalise across jurisdictions
exactly which reforms will be implemented but four trends are emerging: the
increased use of fining, more investigations on firm expansion, a heightened
focus on consumer demands and restrictions on data use across platforms.
The European Commission in particular has been
increasingly willing to use fines to penalise anti-competitive behaviour.
Between 2017 and 2019 alone, the European Commission fined Alphabet €8.25bn.[10] Meanwhile, in the UK, the
Competition and Markets Authority (CMA) has stated that the body should have
more powers to force fines on companies without needing to resort to courts
first.[11] China has also reviewed its
power to fine companies and increased the cap of fines for anti-competitive
behaviour to 10% of the previous year’s revenue in its moves against Alibaba.[12] Fines are an important tool
of competition authorities because the increased use of fining may act as a
deterrent to anti-competitive behaviour from Big Tech. In any case, even if
these firms do not change their practices, the ability of regulators to impose
higher fines marks an important change in the amount of power that competition
authorities have when trying to steer industry.
Big Tech’s particular method of expansion has created a need for reviews
into how competition authorities investigate merger and acquisition (M&A)
deals. Technology firms typically acquire smaller competitor in a process
called a ‘killer acquisition’. This allows the larger technology firm to buy
out a competitor before it becomes a threat, as shown in the Facebook
acquisition of Instagram in 2012.[13] This
however poses a challenge for competition authorities who base their definition
of whether or not a merger is anti-competitive on turnover or market shares.
Often, these smaller firms will have little turnover and a very low market
share. To get around this problem, competition authorities have used other
measures to determine when a merger is anti-competitive. For example, Germany
and Austria introduced a form of merger review that is based on valuation in
2018.[14] Even where there is no change to merger guidelines, competition
authorities are likely to be more sceptical of M&A deals going forwards.
The ACCC’s recommendations in 2019 included increasing the amount of notice
that firms have to give to the Australian government, which could allow
investigations to be more thorough. This comes at a time when more M&A
deals are being notified to competition authorities. Whereas between 2008 and
2009, three deals were notified to the European Commission where there were considerations
of data gains involved, between 2018 and 2019 that number has risen to 26.[15]
Competition review could also lead to authorities becoming more
responsive to consumer demands. As the power of regulators increases, consumers
become more willing to raise issues with them. This trend is clearly shown in
Europe where there has been a 121% increase in consumer complaints to the
European Consumer Centres Network between 2009 and 2019.[16] Having more consumer inputs could allow competition authorities to have
more of a justification in intervening in markets as they move towards
consumer-oriented views on competition. For example, Giovannia Pitruzzella, the
new Chair of the Italian Antitrust Authority (IAA), has announced that
competition should be seen as important insofar as consumers benefit. This
suggests that the IAA will be more responsive to the growing numbers of
consumer complaints when deciding whether or not to act against Big Tech.
Finally, restrictions on the use of data are likely to emerge. Regulators
are increasingly realising that having a large amount of data provides firms
with a significant advantage over their competitors. If one firm knows more
about a customer than another firm, then it is likely to retain that customer
for a significantly longer time. The discrepancy between the amounts of
information that Big Tech firms have on customers compared to smaller firms is
huge. Thus, competition reforms are likely to centre on the data that firms
have and the business practices that result from having that data. In the US,
the FTC is currently deciding whether or not it should have an injunction on
Facebook due to its use of data sharing across Instagram, WhatsApp and
Messenger.[17] Meanwhile, Japan’s proposed competition reforms include requiring
businesses to report their business practices to the competition authority.[18] These changes could blunt the competitive edge that Big Tech has from
owning vast sums of data.
What are the likely effects of such changes?
These changes could have adverse effects on consumers
depending on how they are implemented. Some platforms have benefitted
substantially from killer acquisitions. For instance, at the time of its
acquisition by Facebook in 2012, Instagram had 30 million users. Now it has
over a billion user.[19] This only increases the
quality of service for users, as more users mean that there is a larger
community that users can draw interact with.[20]
Nonetheless, if reforms are done carefully, there could be a significant
benefit for consumers. Data sharing could allow multiple platforms to better
tailor their service and imrpove the quality of service that they provide.[21] Meanwhile, blocking killer
acquisitions can ensure that there are incentives for established players to
innovate.
The changes are unlikely to be restricted to a
competition sphere as well. Issues such as data privacy and tax receipts from
Big Tech are likely to be considered once competition guidelines are updated.
In fact, the process of reviewing these guidelines is likely to make these other
issues seem more salient. This has already been seen in Europe. The European
Commission also proposed a digital tax for companies whereby they have to pay
tax in each state that they operate in. In 2019, France introduced this tax
rate and charged Big tech firms 3% of the revenue that they made from operating
in France.[22]
Additionally, these changes are likely to affect other industries as well. Sectors that Big Tech will be less able to enter into will be clear beneficiaries of a tighter competition framework. For example, the payments industry clearly stands to gain from regulators viewing technology with suspicion. Other industries will also be forced to change directly as a result of changes to competition frameworks. In particular, sectors that are reliant upon intellectual property and data are going to have to alter the way in which they conduct business. For instance, pharmaceutical firms will have to change their operations because they are reliant upon the use of data for a competitive advantage. In fact, pharmaceutical firms are also reliant upon an expansion process that involves killer acquisitions[23] and so are likely to lose out as a result of restrictions on M&A activity. Nevertheless, pharmaceuticals could benefit if there is a re-allocation of the investment that currently goes into technology firms. In 2019 alone, venture capital firms invested $34bn in European technology firms. If competition reforms make these firms less attractive, a significant amount of this funding could be re-allocated to other sectors such as pharmaceutical firms. Ultimately, it is unclear whether or not these changes to competition framework are beneficial to other industries.
Conclusion
It is unlikely that the changes to Big Tech will be as extreme as
Warren’s proposals. However, the changes to competition frameworks cannot be
overstated. The far-reaching effects are likely to change how firms compete in
the longer term. COVID-19 will undoubtedly shape industry for the next few
years but competition standards are very rarely changed. Given this, the
prospect of reforms to competition frameworks are crucial for understanding how
technology firms will operate for the next decade.
[1] James
Johnson is a second year Philosophy, Politics and Economics (PPE) student at
Pembroke College, University of Oxford.
[2] E Warren,
‘Here’s how we can break up Big Tech’ (Medium¸ 08 March 2019) <https://medium.com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c>
accessed 23 March 2020.
[3] Freshfields
Bruckhaus Deringer, ‘Global antitrust in 2020’ (Freshfields, 2020) <https://www.freshfields.com/48ea16/globalassets/our-thinking/campaigns/antitrust/10kt-2020/07939_pg_act_10-key-themes-2020-brochure_aw2.pdf>
accessed 21 March 2020.
[4] Ibid.
[5] J Clement,
‘Number of Facebook users worldwide 2008-2019’ (Statista, April 2020)
<https://www.statista.com/statistics/264810/number-of-monthly-active-facebook-users-worldwide/>
accessed 23 March 2020.
[6] Oxford
Analytica Daily Brief Service, ‘EU/US: ‘Big tech’ faces tighter competition
oversight’ (Oxford Analytica) <https://ezproxy-prd.bodleian.ox.ac.uk:2186/docview/2094458891/fulltext/9D0216042FFB4C11PQ/1?accountid=13042>
accessed 23 March 2020.
[7] C Shapiro,
‘Protecting Competition in the American Economy: Merger Control, Tech Titans,
Labor Markets’ (2019) 33(3) Journal of Economic Perspectives 69-93.
[8] J Padilla
and M de la Mano, ‘Big Tech Banking’ (2019) 14(4) Journal of Competition
Law & Economics 494-526.
[9] CPI,
‘Japan: Big Tech to face new data law’ (Competition Policy International, 18
April 2019) <https://www.competitionpolicyinternational.com/japan-big-tech-to-face-new-data-law/>
accessed 23 March 2020.
[10] Freshfields
Bruckhaus Deringer (n 3).
[11] Ibid.
[12] T Culpan,
‘China’s Warning to Big Tech: You’re Not Bulletproof’ (Bloomberg, 2020) <https://www.bloomberg.com/opinion/articles/2020-01-08/china-s-monopoly-law-puts-giants-like-alibaba-tencent-on-notice>
accessed 23 March 2020.
[13] Karry
Lai, ‘Antitrust regulators struggle with big data’ (International Financial
Law Review, 11 June 2019) <https://www.iflr.com/Article/3878040/Antitrust-regulators-struggle-with-big-data.html>
accessed 23 March 2020.
[14] Freshfields
Bruckhaus Deringer (n 3).
[15] Ibid.
[16] Ibid.
[17] CPI,
‘US/EU: Big Tech & regulators in 2020’ (Competition Policy International,
22 January 2020) <https://www.competitionpolicyinternational.com/us-eu-big-tech-regulators-in-2020/>
accessed 23 March 2020.
[18] CPI (n 9).
[19] J Padilla
and M de la Mano (n 8).
[20] Karry Lai
(n 13).
[21] Joe Cowen,
‘How changes to competition law could reign in Big Tech and boost innovation’ (NS
Tech, 27 June 2018) <https://tech.newstatesman.com/guest-opinion/competition-law-big-tech>
accessed 23 March 2020.
[22] S Ouchan, ‘Tech M&A: five features that make
it different’ (Freshfields, 2020) <https://digital.freshfields.com/post/102fvqn/tech-ma-five-features-that-make-it-different>
accesse 21 March 2020.
[23] Freshfields
Bruckhaus Deringer (n 3).
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