On Tuesday, March 22nd, the White House released the Economic Report of the President (ERP), a full chapter of which is devoted to Competition in the Digital Economy.
See the full report here.
The report summarises that the promised benefits of the internet have been undermined by over-concentration.
Digital markets should be a great vehicle for innovation: they improve transparency across supply chains and can increase competition across a wider area providing greater choice and opportunity for price and quality comparisons. However, as the report notes, no one wants to be on a social network that isn't used by their friends, and network effects and data imbalances can be used by those with market power to increase the barriers for entry resulting in "winner takes all" market failure.
A dominant social media site is, for instance, an obvious beneficiary of network effects. Even when presented with growing costs of use or markedly reduced quality, the barriers to switch remain restrictively high; users are tied into the dominant network due to the fact all of their friends and family exist on that platform. Facebook, for instance, has exploited its market power to extract more and more data from its locked-in user base, and consequently, drive up the cost of advertising (see the CMA's Market Study on Online Platforms and Digital Advertising and Dina Srinivasan's hugely informative paper, 'The Antitrust Case Against Facebook', which follows how Facebook initially marketed itself as a privacy-preserving platform before it solidified its unshakeable market position, at which point it shifted gear).
The remedies contemplated are interoperability and data portability. On the subject of interoperability, the chapter's authors propose open standards which allow communication between different companies' products: just as SMS text messaging facilitates communications between people on different networks and devices, users of Messenger and iMessage should be able to connect directly. This would "expand the benefits of network effects from the firm level to the market level", encouraging competition on quality and innovation.
This would enable competition on the merits and is tried and tested as the remedy adopted to address network effects in telecoms.
Relatedly, the report notes that data portability could allow users to switch networks without sacrificing their curated data; so, users of Apple Music would be able to jump to Tidal or Spotify without losing their playlists.
Though data imbalances are raised as a core factor contributing to the market power of incumbents, no proposal is put forward to facilitate wider business to business data exchanges is explicitly countenanced. In this respect, the European bloc, which recently adopted the Data Act, remains (just) ahead of the curve.
Nonetheless, this publication lays out a clear and welcome path forward. As it states, "enforcement has seen renewed attention in the past several years". President Biden's mention of "antitrust" in his State of the Union address was the first since 1979, signalling the federal government's alignment and support for the DOJ's cases against Google and a flurry of ongoing State action against digital monopolies.
In short, there is a lot to like in the latest ERP. Monopolists now face activist governments on both sides of the Atlantic. This is good news innovation and undoubtedly good news for consumers everywhere.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
