Is the data economy self-healing, or should economic regulation be considered?

Last month I attended the ITS Europe annual conference, “Towards a digital future: Turning technology into markets?, at the University of Trento, Italy. More than 90 academics, policy practitioners and experts discussed new scholarly papers on the digital economy over two days.

One of the most interesting themes coming out of this year’s conference was around the behaviour and economic impact of platforms. This is a timely issue, with the Google case in Europe, and Facebook’s Cambridge Analytica scandal, so it is no surprise that academics are turning their attention to these themes. The surge in scholarly interest in the behaviour of platform’s is good news for all stakeholders, as the more we learn about these new realities, the more we are able to cope with the challenges they throw back at us.

There were seven new papers on this topic, analysing platform’s strategy, how they interact with their users, and, crucially, how they acquire and exploit personal data. I also contributed to the discussion, with a new paper titled “Antitrust and consumer enforcement in data markets –
Are new theories of harm based on privacy degradation hitting the mark?
”. The key point in this paper is the need to assess whether privacy degradation and the resulting data exploitation are not only bad for consumers in terms of their privacy, but also in terms of the data economy’s wellbeing. This also chimes with one of my key takeaway discussion points, namely whether we can rely on the data economy, save for few antitrust cases, to “self-heal” when consumers are harmed, or whether barriers are being erected to competition and innovation. While participants generally agreed that consumers are benefiting from huge innovation, some behaviour is starting to raise concerns in terms of its impact on long-term competition and consumer welfare.

In our recent study on The Data Value Chain we highlight how these two sides go hand in hand: i.e. the benefits and innovation unlocked by the power of data, and the key dynamics of the data economy that lead to concentrated markets which often tip in favour of large incumbents. At the same time, data-driven efficiencies have come to dominate the business models of today’s internet giants, and the incentives to maximise the collection and exploitation of data trump other considerations.

In my recent paper [soon to be available with the proceedings of the conference], I go one step further, and consider whether theories of harm based on privacy degradation are credible. The conclusion is that, in principle, they are.  That being said, hard evidence is yet to be produced (i.e. in terms of quantifying the harm to consumers) while the future impact of GDPR, and other similar privacy regimes will be key to understand whether additional regulation is required. One other presenter offered another, market-based, mechanism to rebalance the power of the actors in the data economy, namely the emergence of data markets and data intermediaries.  These will empower consumers to, in effect, to trade their data actively and incrementally in respect of what they already trade for “free” services on the internet.

In conclusion, it is probably too early to give a definite answer to the question of whether the data economy, with its business models based on mass data collection and analysis, is in the long-term in need of tight ex-ante economic regulation to prevent exclusion and exploitation by dominant platforms, save for ex-post antitrust enforcement. One key determinant in the coming 12-18 months will be how privacy regimes like the GDPR in Europe work in terms of providing protection, empowering consumers and fostering competition even (as they envisage some form of data portability but also raise awareness that should facilitate the emergence of enhanced privacy alternatives).