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Joe Cowen

Research and policy adviser at ResPublica

How changes to competition law could reign in Big Tech and boost innovation

Something has gone wrong with our markets and our competition law. That is the contention of ResPublica and the Big Innovation Centre’s recent report “Technopoly” and what to do about it: Reform, Redress and Regulation.

Digitalisation and the new world of Big Tech are conferring vast benefits, but we believe they pose new threats to competition and innovation. Investment in patents, copyrights and computerised systems has become a new form of intellectual capitalism. The company that gains first mover advantage (with the creation of the fastest growing network of digital users) is, in our view, the company on the way to establishing a monopoly position. If unconstrained by competitive alternatives, we fear that companies could eliminate all potential rivals through acquisition strategies.

The IT revolution raised profound questions from the beginning. The first controversies centred on companies like Microsoft and IBM’s restrictive approach on IP. Now it is Facebook and Google who, we believe, exhibit the best and worst of data capitalism. Network effects and other common economic characteristics of the weightless economy have seen these companies grow exponentially. People use these platforms when they are innovative, helping them become ubiquitous; we then use them because they are ubiquitous. Scale breeds scale – Facebook and Google now account for half of all digital advertising revenue. However, scale also brings attendant problems, as the Cambridge Analytica data harvesting scandal has recently dramatised. Suddenly data privacy and the tech goliaths’ sheer size have become pressing public policy issues.

Recommendations for change

It is time to examine how competition law can be adapted and applied to fast moving digital markets and reframed to support increasing productivity and innovation. If we want the benefits of markets pursuing socially beneficial outcomes, authorities need to intervene to correct the course of dynamic markets.

Factoring consumer choice into consumer welfare

We must change the prioritisation of consumer welfare to introduce consumer choice and innovation as additional factors. In media this is called plurality. This would be especially welcome in our online media markets. Online platforms that already control significant channels should be recognised as media players and prevented from accumulating monopoly power.

Reviewing the turnover threshold for CMA intervention

The CMA and other competition enforcement agencies must take a more proactive and alert approach, reviewing current turnover thresholds which allow strategic acquisitions to go unchallenged. The turnover threshold should be replaced with a value-based threshold like in Germany, which takes into account the number of unique users and is far more appropriate for tech firms that are worth billions despite small turnovers. Refocusing on innovation is also critical, for example mergers that restrict or reduce post-merger innovation should not be allowed to proceed even if they can show efficiency benefits through synergies.

Encouraging alliances between small firms

There must also be keen awareness that alliances and collaborations between small firms, seeking to create networks of countervailing scale to an entrenched incumbent, should not be considered a priori anti-competitive. In the UK and the EU we have, in general, banned collaboration and made it illegal subject to exemption. We posit the idea of ‘safe harbour’ provisions allowing small firms to create collaborative networks of their own, without attracting charges of collusion or anti-competitive behaviour.

Clearly establishing data ownership in law

Protecting personal data is vital. However, controlling the use of data presupposes ownership and clearly establishing and protecting ownership of data is a necessary first step for the UK. We believe, that where lack of choice may mean that data ownership is meaningless, safeguards need to be put in place to redress the balance of bargaining power to ensure users have real sovereignty over their data. This will require regulation. It could be achieved by enforcing the existing laws against abuse of dominance. This would support fair, reasonable and non-discriminatory terms of trade with relation to consumers’ data interests.

Closing the gaps in competition regulation

Existing gaps in competition regulation need to be closed. Enforcement of the law needs to be swift and meaningful because at present it is too slow, allowing whole industries to be blighted before enforcement comes into effect. We must also monitor outputs and check that the markets and remedies are working well. This is simply not done at present for which no good reason can be established.

Seizing the profits of wrongdoing

In simple terms, we believe it doesn’t pay for dominant companies to comply with the law as currently enforced. The current system takes a long time and much hay can be made while the sun shines. The penalties, which are designed to signify the public interest or damage to society from the breach of the law, are capped at a percentage of turnover. This means that public action and penalties are limited and not truly related to the profits that can accrue to a company that breaks the rules. We propose that enforcement should have real teeth, and that the law strips any wrongdoer of the profits of wrongdoing, as well as securing compensatory damages.

Joe Cowen is a research and policy adviser at ResPublica. Thanks to Phillip Blond and Tim Cowen, authors of “Technopoly” and what to do about it: Reform, Redress and Regulation, and Dr Birgitte Andersen and Will Hutton of the Big Innovation Centre, for their inputs into this article.