Identifying the implications of Big Tech and digital personal data for competition policy

Why Competition Policy Matters

Big Tech firms are powerful political-economic actors within the economy, especially when it comes to the mass collection and use of digital personal data. As Birch notes, in a data-driven digital economy, they can therefore shape and dominate markets by structurally and strategically undermining competition through their constructed platforms—data-driven ecosystems that appear separate from the market. This capacity gives Big Tech firms structural and techno-economic power over their competitors, making it more important than ever for competition law to step up its game. Through a thematic policy analysis, our research reveals a series of key issues that policymakers around the world are identifying as important structural and techno-economic implications of Big Tech for competition.

Structural and Techno-economic Dimensions of Big Tech’s Market Power

A significant part of Big Tech firms’ market power lies in economies of scale, which can create tough barriers for new competitors to break through. For example, as Fay points out, the high costs needed to start a business can be a genuine hurdle for newcomers, while established companies can handle regulatory costs much more comfortably. Additionally, the costs involved in switching from one provider to another can make users hesitant to change. As highlighted by Stucke, the digital economy has sped up the impact of these economies of scale, in part because personal data complicates how we understand market definitions in competition policy. The basic assumptions that guide competition policy often use price theory to define markets and identify anti-competitive behaviour. These competition frameworks therefore struggle to address situations involving seemingly ‘free’ goods (like search engines) or the trade of these free goods and services for personal data. (Eben, Fourcade and Kluttz).

Meanwhile, the techno-economic side of the power held by these Big Tech firms includes both the strategic and responsive growth of relationships involving technology and political-economics. This growth is aimed at connecting a range of stakeholders, including governments, businesses, users, and academia, with the infrastructures and platforms created by Big Tech.

Structural Implications of Big Tech for Competition

Scholars such as Pistor have highlighted the significance of the network effect as a key structural implication of Big Tech for competition policy. These companies have established themselves as intermediaries in building multi-sided market platforms. Network effects result from how the number of users in a network (e.g., social media platforms, search engines) increases the usefulness of the network to its users, thereby raising its attractiveness for new users. Consequently, as the UK Competition and Markets Authority noted in 2020, network effects lead to a self-reinforcing cycle in which users migrate to the fastest-growing network. With this network effect, Big Tech companies are amassing a startling amount of data, providing them with an enormous competitive advantage, creating barriers to rivals entering or thriving in relevant markets, and allowing the incumbent digital platform providers to expand into adjacent markets.

The second structural effect is connected to but distinct from the first: investments made by Big Tech firms mean they can scale up with lower-than-usual costs. As the UK's 2019 Cairncross Review put it, ‘Both the scale and the data that the platforms possess on consumers make it hard for other players, including publishers, to compete.’ Economies of scale have provided significant benefits for Big Tech firms as they have grown quickly to dominate their markets. This is clearly becoming a cause for concern amongst policymakers worldwide (as seen in, e.g., OECD 2016, G7 2021, G7 2022, OECD 2022). The main negative effect of such economies of scale is the loss of market contestability: there are significant barriers to entry into digital markets because Big Tech incumbents benefit from first-mover technology advantages; there are also significant disparities in market information; and then there are disparities in the capacity to adjust prices because incumbents benefit from greater information (e.g., data collection) and higher processing capacity (e.g., computing infrastructure). 

The third structural issue identified in our paper is the gatekeeping role of these Big Tech companies in our societies and economies. Policymakers have thus noted that a few digital gatekeepers hold the keys to the crucial digital infrastructure that impacts our everyday lives—whether it's staying in touch with friends, finding job opportunities, or accessing information. Gatekeepers can control access to the users and their data, which can hold significant value for other firms wishing to connect with consumers. The fact that this vital digital infrastructure, including personal data, is largely provided by Big Tech, makes it tough for startups and competitors to enter the market.

Techno-economic implications of Big Tech for competition

The first techno-economic issue we identify is the capacity of Big Tech to enter adjacent markets through data collection. As the Australian Competition and Consumer Commission pointed out in 2019, ‘The extensive amount of data available to Google and Facebook provide these platforms with a competitive advantage and assist with entry into related markets.’ Data-driven business models enable Big Tech to enter adjacent markets through the modular extension of technical standards and terms and conditions (e.g., APIs, SDKs, plugins).

The second techno-economic issue concerns the spread of market power through the creation of digital ecosystems as ‘walled gardens.’ An ecosystem is more than a platform: it is the configuration of technical devices, applications and software, platforms, users and developers, payment systems, terms and conditions, and other legal rights and claims and standards (see: Autoriteit Consument & Markt, 2019). As explained by the Japanese Fair Trade Commission, through this ecosystem, end-users get locked in, reducing the opportunity for competition, even when products and services (e.g., Gmail, Facebook) are notionally ‘free.’

The third techno-economic issue follows the second: Big Tech reinforces its market power by creating ‘enclaves’ in which they govern economic activities. These enclaves are distinct from markets; they sit inside wider markets, as Birch explains, but gatekeepers can also establish the internal ‘rules of the game’ and control market information. Policymakers have highlighted various relevant business strategies and practices—including the setting of defaults, cross-selling, and self-preferencing—that reduce competition within these techno-economic enclaves.

Challenges of digital personal data for competition and competition policy

The mass collection and use of personal data by Big Tech therefore has structural and techno-economic implications for competition policy—implications with which policymakers around the world are now grappling.

A key consideration in these policy materials is the techno-economic dimension of data-driven leverage. Policymakers repeatedly observe that Big Tech enjoys a competitive edge, primarily because of its vast personal data reserves and its ability to limit other companies' access to this valuable information. Although any digital firm can gather personal data, having substantial data holdings boosts innovation potential and offers a notable business advantage. This concern has been underscored by the UK Secretary of State for Digital, Culture, Media & Sport, along with the Secretary of State for Business, Energy, and Industrial Strategy.

Already concentrated digital markets are likely to concentrate further without concerted action to change competition policy. Our paper demonstrates the growing awareness among policymakers of the important effects of Big Tech and personal data collection on competition and market power. Of course, there's also a looming concern that the winner-takes-all dynamics fuelled by data control could influence the future development of important technologies like artificial intelligence, which significantly depend on large training datasets.

'Damola Adediji is a Visiting Researcher with IP Osgoode and a Doctoral Candidate with the Centre for Law, Technology & Society at the University of Ottawa.