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01/10/2016

Franco-German big data paper backs case-by-case competition scrutiny

Digital

Franco-German big data paper backs case-by-case competition scrutiny

Data centre server motherboard.

[Intel Free Press/Flickr]

Whether digital companies with large data sets – such as Facebook, and its WhatsApp subsidiary – could impose a risk on competition has to be assessed on a case-by-case basis, German and French competition officials concluded on Tuesday (10 May). EurActiv’s partner PaRR reports.

Germany’s Bundeskartellamt (BKartA) and France’s Autorité de la concurrence looked at the potential effects of the collection of large sets of personal users’ data on competition in digital markets.

Their conclusions were outlined in a joint paper on big data published on Tuesday (10 May)

Market entry barriers

Theories of harm identified by the agencies are mainly based on the question of whether a firm is capable of sustaining data sets unmatched by rivals.

The collection of data may raise market entry barriers if new entrants are unable to obtain the same kind or volume of data as established players.

In certain sectors, leading players hold such a large data set that third parties may not be able to obtain similar volume and variety, the study said. This particularly applies to online services, such as search engines or social networks, where free services attract a wide user base, which in turn generates high data volumes unavailable to rivals.

Earlier this year, BKartA opened a probe into whether Facebook is abusing its dominant position in the social networks market through the use of user data.

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Small players marginalised

Online markets can become particularly concentrated, the report said, with a few players holding high “user shares”, and the additional restrictive effect of network effects. Therefore data collection and usage in these markets could strengthen leading firms’ market power and marginalise small players.

Market leaders’ higher revenues could also generate higher investment, attracting even more customers and data, which could eventually lead to monopolisation of the market.

Although consumers can benefit from price transparency, which can result from greater data collection, it can also limit competition, the agencies found. It can facilitate collusion by making it easier for rivals to detect each other’s pricing policies or any deviation from an agreement.

This facilitating role has gained increased importance especially in the use of algorithms, which can analyse, monitor and anticipate competitors’ responses to current or future prices.

But even without an actual collusion, the use of similar pricing algorithms reduces uncertainty which is beneficial to price competition.

Data concentration

In data-related markets, even tie-ups between an established and a new player could increase data concentration if the new entrant has an extensive database, such as in Facebook’s acquisition of WhatsApp, the report continued.

Vertically integrated companies, such as a marketplace operator which also operates as an online retailer, could also access information about rivals’ behaviour.

Whether data can facilitate foreclosure also depends on the volume level a company can profit from the economic benefits of the data. These levels vary based on the type and purpose of the specific data, depending on the case at hand, the paper concluded.

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