Setting The Record Straight: Another Tech Break-Up Call Gets It Wrong
Yesterday, in Harvard Business Review, former antitrust counsel for Microsoft Maurice Stucke argues for a new approach to antitrust enforcement regarding America’s leading tech services because they are allegedly “monopolizing” data. Stucke’s demand for a vague “big is bad” antitrust mentality won’t support innovation or lower prices. Moreover, he erred in five critical ways.
1. Wrong Premise: Data Cannot Be Monopolized. As Software & Information Industry Association VP of Public Policy Mark MacCarthy puts it, “Data is not oil, it is not infrastructure.” As economists explain, data is “non-rivalrous.” There’s an abundant supply of data available for common use, and alternative data sets can almost always replicate or substitute for proprietary data. Just because some companies are large does not mean they are the exclusive owners of their consumers’ data.
2. Relies On A Strawman: The Consumer Welfare Standard Is Not Just Prices. Referencing the CWS, Stucke writes, “But higher prices are not the only way for powerful companies to harm their consumers or the rest of society.” Stucke goes on to mention other harms, including a reduction in innovation, but as CCIA’s Ed Black recently wrote, “The definition of welfare, however, includes innovation. In fact, Microsoft and Intel’s anti-innovative actions were precisely what led to their respective antitrust actions.”
3. Ignores History: Data Advantages Have Been Overcome Many Times Before. As American Action Forum’s Will Rinehart notes, data is not valuable in and of itself. Rather, it’s the structure and processing tools – and the talent – that makes the data useful. With less data, Google leapfrogged Yahoo. Spotify jumped Apple. Tinder beat Match. Facebook beat MySpace and yet Snap has taken a bite out of Facebook.
4. Bad Analysis: Multihoming In Tech Lowers Barriers To Entry And Disrupts Network Effects: As David S. Evans and Richard Schmalensee argue,”The flaw in that reasoning is that people can use multiple online communications platforms, what economists call ‘multihoming.’ A few people in a social network try a new platform. If enough do so and like it, then eventually all network members could use it and even drop their initial platform. This process has happened repeatedly.”
5. Left Out: Tech’s Economic Impact. Ignored in Stucke’s piece is that the tech sector provides platforms for entrepreneurs, drives down prices for families, invests more in research and development than any other industry, and is growing at more than twice the rate of the American economy as a whole.
Stucke makes a number of other missteps, like when he argues that companies “like Facebook and Google, even without significant rivals, can increase profits by increasing our engagement with their products.” This statement comes not even two months after Facebook announced changes that reduced cumulative time on the site by 50 million hours per day. The piece begs the question, “How are all these supposed monopolies competing with each other?”
More detail is below.
Software & Information Industry Association’s (SIIA) Mark MacCarthy: “No Data Set Is Essential.” “For the same reasons data is not oil, it is not infrastructure. An abundant supply of valuable data is typically available for common use. Moreover, no data set is essential; there are always alternative data sets that can replicate the economic function of proprietary data.” (Mark MacCarthy, “Data Is Not The New Oil Or The Infrastructure Of The Digital Economy,” CIO, 1/24/18)
Economist David Evans: Online Platforms Are More Susceptible To Attacks From New Entrants Than Previous Physical Networks, Thanks To Lower Barriers To Entry, Zero Switching Costs, And Multi-Homing. “Third, online platforms are more susceptible to attack by entrants than network industries of a century ago. Network effects and sunk costs made the natural monopolies around the turn of 20th century difficult to challenge. Rivals had to sink massive amounts of capital into duplicating physical networks such as railroad tracks and telephone lines. Using multiple networks, or switching between them, was expensive for customers, even if a second network was available. However, online platforms can leverage the Internet to provide wired and wireless connections globally. People find it generally easy, and often costless, to use multiple online platforms, and many often do. The ease and prevalence of multihoming have enabled new firms, as well as cross-platform entrants, to attract significant numbers of users and secure critical mass necessary for growth. Incumbent platforms then face serious competitive pressure from new entrants—startups or other online platforms—because their network effects are reversible.” (David Evans, “Why The Dynamics Of Competition For Online Platforms Leads To Sleepless Nights, But Not Sleepy Monopolies,” SSRN, 7/23/17)
Economists Anja Lambrecht And Catherine Tucker Note, “Big Data Is Not Inimitable Or Rare,” With Insight Into Consumer Needs More Critical To Startup Success. “Our analysis suggests that big data is not inimitable or rare, that substitutes exist, and that by itself big data is unlikely to be valuable. There are many alternative sources of data available to firms, reflecting the extent to which customers leave multiple digital footprints on the internet. In order to extract value from big data, firms need to have the right managerial toolkit. The history of the digital economy offers many examples, like Airbnb, Uber and Tinder, where a simple insight into customer needs allowed entry into markets where incumbents already had access to big data.Therefore, to build sustainable competitive advantage in the new data-rich environment, rather than simply amassing big data, firms need to focus on developing both the tools and organizational competence to allow them to use big data to provide value to consumers in previously impossible ways.” (Anja Lambrecht And Catherine Tucker, “Can Big Data Protect A Firm From Competition?” MIT Initiative On The Digital Economy, 12/18/15)
Andres Lerner, Executive VP At Compass Lexecon: Incumbent Services Do Not Have Exclusivity Over Data, Especially Given Multihoming. “As an initial matter, no single firm controls all, most, or even a significant amount of user data. Many online providers have access to significant amounts of user data from various sources, as the FTC has recognized. And, in contrast to economic theories about foreclosure of rivals through the control of an essential input, incumbent online providers do not have explicit or de facto exclusivity over user data. There are no exclusive contracts with users, and no pricing structure or features that lock-in users to a particular platform. As a result, users can, and often do, utilize multiple online services, even for the same type of task (referred to as user “multi-homing”), which gives multiple providers the ability to collect data on the same user. User data also is “non-rivalrous,” meaning that collection and use by one provider does not detract from collection and use by others. User multi-homing, and the non-rivalrous nature of user data, further diminish the possibility of any de facto exclusivity over user data.” (Andres Lerner, “The Role Of ‘Big Data’ In Online Platform Competition,” Compass Lexecon, 8/26/14)
Former FTC Policy Director David Balto And CCIA Outside Counsel Matthew Lane: Personal Data Is “Ubiquitous And Multi-Homed,” “Simply Does Not Have The Attributes” Of A Barrier To Entry. “Personal data simply does not have the attributes one would expect to find in a barrier to entry for the reasons discussed above: it is typically a non-vital input, it is ubiquitous and multi-homed, and it can be obtained from many different sources. In addition, any companies practicing in the market can generate their own data and costs for storing and analyzing this data are low and decreasing. Without a sufficient barrier to entry, any lost access to personal data is likely to be replaced by either a new company or an existing company that expands to fill the vacuum left by the merger. Based on the above analysis, it seems clear that current competition law has adequate tools to handle competitive abuses of personal data as an input. However, it seems unlikely that actions of companies in sourcing personal data could actually harm competition or ever lead to a firm having a monopoly position in personal data.” (David Balto And Matthew Lane, “Monopolizing Water In A Tsunami: Finding Sensible Antitrust Rules For Big Data,” 3/22/16)
Center For Data Innovation’s Joshua New: “How A Company Uses Data, Rather Than Its Mere Possession Of It, Is What Most Often Determines A Company’s Competitiveness.” “Similarly, some policymakers see tech companies that have collected large stores of data as the new oil cartels, and they mistakenly fear ‘Big Data’ is becoming the new ‘Big Oil.’ But consumers benefit from the network effects and economies of scale that arise with these large companies. Unlike the oil industry, which like most industries has an upward sloping supply curve where marginal costs increase with higher production, data producing firms generally have marginal costs near zero, which drives down consumer prices as they get larger. Moreover, the amount of data a company has rarely insulates it from competition and rarely serves as a serious barrier to entry. That is because how a company uses data, rather than its mere possession of it, is what most often determines a company’s competitiveness. For example, MySpace had a several-year head start on Facebook when it came to collecting user data, but Facebook quickly surpassed MySpace in popularity because it created a better product.” (Joshua New, “Why Do People Still Think Data Is The New Oil?” Center For Data Innovation, 1/16/18)