Competition in the Age of the Digital Giant

Speech

Remarks by Anthony Durocher, Deputy Commissioner, Monopolistic Practices, Competition Bureau
Big Data Toronto 2019
June 13, 2019
Toronto, Ont
(As prepared for delivery)

Thank you for that kind introduction.

I’m very pleased to be here this morning among so many innovators who are harnessing the vast potential of data and finding new and better ways to deliver products and services.

Today’s digital economy is driving unprecedented innovation and productivity improvements, but it’s also disrupting the status quo, for business and regulators alike.

My goal here today is to examine this new reality through a competition lens, and focus in on the opportunity data represents for businesses and regulators to unleash the potential of the Canadian economy.

I plan to discuss the role of competition in the economy, the impact of data on competition and the Competition Bureau’s work in this regard.

Let me begin by stating an underlying principle of antitrust law: competition is critical to the productivity of an economy and to the welfare of its consumers.

The process of rivalry between firms to outdo one another and fight for consumer spending underpins a robust economy – it incentivizes the creation of value and rewards entrepreneurship and innovation.

Competition brings out the best in us and forces us to work a little harder and be a little more creative.

Without effective competition, or the threat of it, things can get a little too cozy and complacent, and we may be less likely to improve and innovate. My wife reminds me all the time how marriage bears similarities to these principles!

In a properly functioning open market, merit-based competition should ensure the better quality product offered at a lower price is rewarded.

Equally important, consumers can “punish” poor market performance in the form of higher prices or lower quality by switching to a rival company.

Consumer switching, or the threat of it, lies at the heart of the competitive process.

Consumer switching spurs rivalry to win over and retain customers, which in turn enables innovation and economic growth.

The Competition Bureau’s role is to protect this process by ensuring that competitive market forces work their magic to the benefit of the economy and its consumers.

When we do our job well, it’s easier for small start-ups to gain a foothold in their market, and it’s easier for Canadians to develop trust in the online marketplace.

The Bureau is not a regulator, we are an independent law enforcement agency, and we generally only intervene where competition is being undermined and consumers are being harmed.

So, how do we do this? Competition can suffer because of things that private actors do, but equally because of things that governments do.

By enforcing and administering Canada’s Competition Act, we aim to address both.

I will begin by talking about the Bureau’s targeted advocacy work to promote competition with governments across Canada.

Through our advocacy role, we are able to examine a given sector from a competition perspective.

We can identify barriers, such as regulations or policies that make it difficult for businesses to innovate or compete.

And when we find barriers, we can make recommendations on how to reduce or remove them and promote competition.

Recently, we’ve worked with regulators and policy-makers across Canada to recommend changes to make banking more convenient through FinTech and open banking.

And we’ve made recommendations to municipalities struggling with the disruptive arrival of ride-sharing services such as Uber and Lyft.

Bad and out-of-date regulations can hurt.

They can stifle disruptive entrants, discourage innovation and deter investment.

In a 2018 study, researchers, using OECD data, found that Canada has some of the highest levels of competition-stifling regulation among developed economies.

They estimate that Canada could see a four to five percent boost in productivity by reforming regulations and reducing barriers to entry.

In the age of big data, many regulations will need updating as more and more industries are disrupted by data and the advent of artificial intelligence.

It will be challenging for policy-makers at all levels of government to embrace a data-driven economy while protecting health, security, safety, privacy, and environmental standards.

This can be especially challenging with entrenched business interests who advocate for the status quo and for imposing disproportionately high barriers to entry for new and disruptive competitors.

In our present data driven age, there is a real opening for governments across Canada to seize the opportunity presented by new technology, to adopt pro-competitive regulations, and embrace the future -- to the benefit of Canadian consumers and businesses.

The Government of Canada recognizes the importance of pro-competitive regulations and has taken important steps to promote competition.

For example, the Treasury Board is leading a three-year targeted regulatory review process.

Three initial sectors recently completed their reviews (health, agri-food, and transportation) and relevant changes are being considered through Budget 2019.

Now, while we advocate for laws, policies and regulations that embrace competition and innovation, private actors can still undermine our efforts.

History has taught us, from the dawn of the industrial revolution, that there needs to be checks and balances in the system.

This is where we get to competition enforcement, the heart of our work.

This enforcement involves investigating and addressing abuses of market power, anti-competitive mergers, price-fixing and deceptive marketing practices.

Evidence-based, principled decisions are at the heart of what we do to ensure that firms compete on the merits of their products and services.

We have conducted several notable investigations in the digital economy, including against the Toronto Real Estate Board, or TREB, over restrictions on the use and display of real estate data.

We were able to stop TREB from withholding its real estate data from agents who wanted to use that data to offer innovative online services to their clients.

After a lengthy court battle, the Bureau prevailed, ending TREB’s anti-competitive restrictions on data, and their ability to thwart competitors.

Since this litigation ended almost a year ago, we have seen the entry of new firms and business models across Canada that are leveraging this data to enhance competition and consumer choice in the real estate sector.

The TREB case has implications for competition well beyond real estate in Toronto.

The Bureau’s victory in this case sent a strong message that firms operating in Canada should not use their power to impose anticompetitive restrictions that thwart entry and growth of innovative businesses.

That message is all the more important in an era where new technology enables disruptive entry and growth.

However, the ongoing debate in competition circles these days is whether our traditional competition enforcement approaches and tools still make sense in a world of big data.

The increasing power of data in our economy, and the control that a relatively small handful of digital platforms have over it, has prompted a rethink of the effectiveness of traditional approaches to antitrust.

Much of the debate concerns the leading platforms’ control over massive amounts of data, and whether this control has entrenched their market dominance, rendering them virtually unassailable.

Some argue that the tech giants operating these platforms serve as gatekeepers to the broader digital economy that allows them to exclude rivals and discriminate in favour of their own products and services.

Public debate has ranged widely on how, if at all, competition policy should adapt.

On one end of the spectrum, there are calls to regulate these tech firms as utilities or break them up.

On the other end, some argue there is nothing to worry about because these large tech firms maintain their position through continued innovation and popular products, and in any event, competition is only one click away.

This important public debate and any ensuing adjustments to competition policy needs to be informed by facts and evidence.

Critical to understanding the role of data in fuelling the rise of tech giants is a sound understanding of two fundamental concepts -- how platforms operate and the role of network effects.

A digital platform connects different users through an access point, which they have created.

Think search engines or social networks that connect users with advertisers; users benefit from free services in exchange for their data, which the platforms then monetize through advertising.

Or ride-hailing services and online marketplaces that connect buyers and sellers, and take a sales commission.

Increasingly, the driving force behind these platforms is the value of user data.

More users equals more data, and with it, the ability to improve algorithms, grow and monetize the platform.

This idea of the appeal of a platform increasing  as more people use it is called “network effects” -- a defining feature in the digital economy.

For example, a social media platform is more valuable to a user when more of her acquaintances use that same platform.

Or a user of a traffic app may benefit when more people use that platform, providing more data to the app, and allowing the app to provide better traffic advice.

This matters in competition law enforcement because network effects can be both an efficiency that benefits consumers and a barrier to entry that may limit competition.  Indeed, if platforms become more valuable to users as they grow, this helps explain why we are seeing digital giants emerge.

NfX, a successful Silicon Valley venture capital firm, recently sought to put an actual number on the amount of value network effects have created in the digital economy.

They estimated that over the past 23 years, network effects have accounted for approximately 70% of the value creation in the technology industry.

An influential Harvard Business Review article published earlier this year titled Why Some Platforms Thrive and Others Don’t also examined the circumstances in which network effects can insulate a platform from competition.

If data and network effects are fuelling an environment where markets have a tendency to tip to a single winner, then competition policy needs to understand this new reality.

Not only do we need to closely monitor against anti-competitive conduct, but we need to ensure that we have the right tools in place to act.

In fact, the Bureau has been studying these issues to make sure we’re well equipped for the digital era.

A key and enduring principle of competition law is that big doesn’t necessarily mean bad.

Becoming big by competing on the merits is the reward a firm should reap for successfully introducing an innovative product or service.

We should not punish this success because imposing a penalty for excellence removes the incentive to pursue excellence.

While we believe that the core principles of competition law are generally up to the task of dealing with Big Data and the digital economy, we cannot be complacent.

We need to ensure our tools are modern, that we participate in the ongoing debates, and stay attuned to the technology industry.

When looking at global conduct of digital giants, we believe in the increasing need of a globally coordinated approach to enforcement.

This attention to competition and its role in the digital economy was recently highlighted by Navdeep Bains, Minister of Innovation, Science and Economic Development in the Government’s new Digital Charter.

Minister Bains also recently sent a welcome letter to the Commissioner of Competition.

This letter confirms the Bureau’s vital role in promoting a marketplace where innovative business models, spurred by disruptive ideas and technologies, can flourish unimpeded by anti-competitive forces.

And, it makes clear that we must ensure that our competition infrastructure is able to remain responsive to a modern and changing economy.

We must ensure that our marketplace frameworks are well suited to both the present and future marketplace.

In other words, we need to be prepared to move at the same pace as technological change. In the digital economy, network effects can create conditions ripe for anti-competitive conduct, where small acts can have large consequences.

So what should competition policy look like in the digital era? Policy-makers worldwide are pondering this very question.

We’ve seen comprehensive, thoughtful and bold expert reports commissioned by the UK government and European Commission.

We’ve also seen enforcement action in Europe that is driving much of the public discourse, including cases against Google and Facebook, and increased scrutiny in the United States.

This leads me to a topic of growing importance in public policy circles: the role of data mobility in today’s economic environment.

Remember earlier, when I talked about how customer switching can drive competition?

Well, switching is less common when it is costly, complicated, and inconvenient for consumers.

Additionally, switching can become less common when network effects tip markets to a small number of large providers with few, if any, competing options.

Plus, there may be limited value for a user to switch if others aren’t also switching.

The current reality is consumers do not always have the ability to safely and efficiently share their data between service providers, and service providers do not always have incentives to allow consumers to do so.

This may serve to increase the cost and inconvenience of switching and render markets prone to network effects even less contestable for tomorrow’s innovators.

Increased “data portability” allows users to take their personal data from one platform and securely and easily transfer it to another.

And increased “interoperability” allows different platforms to interact with each other, with the user’s consent.

Both concepts work together to increase the user’s ability to share personal data across platforms.

From a competition perspective, there’s a lot of interesting potential here to empower users and facilitate switching, which lies at the heart of competition.

The easier it is for users to switch to rival companies, the greater the potential for competition.

Canadians are concerned about their privacy.

The ability to switch providers easily and safely could allow people to vote with their feet in the face of events such as privacy breaches.

This could enable competitive market forces to punish firms that don’t take privacy seriously and reward firms that do. Thus, competition can complement other regulatory approaches being considered.

Some countries are considering rules that facilitate data mobility to help spur competition.

Some firms are already working on this. For example, the Data Transfer Project that involves Google, Microsoft, Facebook and Twitter.

In Canada, our banking sector is pursuing data mobility through the open banking initiative, and this concept is being explored as the government is considering modernizing Personal Information Protection and Electronic Documents Act or “PIPEDA.”

A recent data mobility study commissioned by the UK government estimates that economy-wide personal data mobility could increase the UK’s GDP by at least 27.8 billion pounds or 47 billion Canadian dollars, through enhanced competition and productivity.

And this does not take into account expected dynamic gains from digital innovation.

Data portability raises many complex issues – including around consents, third party information, industry standards and who owns the user data that really matters for competition.

These issues warrant careful scrutiny and evidence-based debate.

However, the potential of data mobility to empower consumers and ensure the vital role of market forces in the digital era, makes it a discussion worth having.

I recently discussed data mobility with someone working in the tech industry who told me that data mobility is nice in theory, but where are consumers going to take their data when there is no competition?

Well, that’s the whole point, isn’t it? If we make it easier for consumers to take their data elsewhere, and for new firms to acquire this data to gain a foothold, we’re enabling the conditions that drive competition.

And that’s at the core of the Competition Bureau’s mandate – driving competition. When we examine our new rapidly changing economic reality through a competition lens, it’s clear, we’ve got work to do to keep pace, but there’s so much opportunity, the rewards we reap for Canada and its consumers will be great.

Thank you for your time this morning. 


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