Last week saw the release of the government-commissioned Furman Review into digital competition.
This shouldn’t come as a surprise, given the recent attention on tech giants’ business models by governments across the world. But this review is interesting not just for what it recommends, but what it doesn’t – coming as it did just days after the Democratic senator Elizabeth Warren called for breaking up the tech giants and implementing utility-style regulation.
Fellow Democrat Furman rejected Warren’s proposals, instead opting for what he calls a “pro-competition approach” that targets barriers to entry and anti-competitive tactics, in order to undermine the factors that lead many digital markets to tip in favour of one big winner.
The problem with utility-style regulation, according to Furman, is that it accepts the monopoly position of the utility as a given and rejects the possibility of competition. In some cases, utility-style regulation is necessary (who expects competition in sewers?), but it should be seen as a last resort – regulated utilities rarely innovate.
The push to break up the tech giants has been driven by an influential group of young academics and activists. Big tech’s hipster anti-trust critics argue that a narrow focus on consumer welfare by competition authorities has meant they’ve been blind to bad behaviour by the providers of free online services. They prefer the naive “big is bad” approach that was rejected in the 70s.
However, Furman argues that this is unnecessary. Keeping the consumer at the forefront of competition law still gives us reason to act when Google or Facebook engage in anti-competitive behaviour. After all, free services might be more innovative when facing competition. But we don’t need to repeat the mistakes of the past by viewing all “bigness” with suspicion.
Instead, it makes a series of moderate recommendations, including calling for an investigation by the Competition and Markets Authority (CMA) into the digital advertising market and tighter controls on tech mergers.
Most significant is a call for a new digital markets unit within the CMA, tasked with setting up a “code of competitive conduct” for firms with “strategic market status”, to make it easier for users to switch between products and move their data elsewhere.
While you already have a right to download your personal data from Facebook and Google under GDPR, it’s not provided in a format that makes it easy to move over to other search engines or social media services.
Some economists argue that the only way to break Facebook’s stranglehold is to allow users to keep their contacts when they switch to a new service. There’s precedent here: Instagram grew off the back of Twitter users’ ability to port over data on who they followed. But we should be careful not to think of data portability as a panacea.
In the case of Facebook there’s a risk that it might backfire. Most of your Facebook friends are people you knew offline first and are already in your phone’s address book. You probably don’t gain much from the ability to port over your Facebook friends onto another site, whereas if data portability goes both ways, it could end up helping Facebook more than it hurts it.
Nonetheless, it is interesting to see a state-backed review look at regulation from the perspective of users, rather taking the starting point that it is the size of these networks that is automatically the problem.
Interventions can have unintended consequences that undermine competition – GDPR, for instance, hit small adtech firms hardest, leading to increased market shares for Google and Facebook. What this industry needs is a pro-competition approach that tackles unnecessary barriers to entry.
But to make it reality, governments will need to go after anti-competitive regulation too.