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Big Data firms are not immune to disruption

LiveMint logoLiveMint 22-03-2017 Geeta Gouri

The digital market space is vast, open to potentially innovative and disruptive platforms. Yet, in this limitless market space, allegations of market abuse are being filed with competition authorities, including the Competition Commission of India. It is widely accepted that digital markets are subject to disruptive innovation, and that this limits the ability of large firms to exercise market power if they fail to innovate. Some have suggested that network effects and “lock in” serve to remove this competition tension from seemingly dominant firms. Proponents often invoke high-profile and data-rich digital firms such as Snapdeal, Flipkart, Jabong, Ola, Amazon, Google, Facebook and Uber as industry participants who need no longer compete because their databases are so vast. “Data immunity” is the new set of arguments for network lock-in effects.

Persistence of scepticism on the anti-competitive effects of networks is not surprising. An earlier attempt at highlighting the benefits to consumers of networks found few takers despite a well-reasoned minority order of the Commission (MCX-SX v NSE). Network effects in the currency derivative stock exchange, the order argued, create depth, enabling a variety of instruments of trade to the benefit of consumers. And at zero cost. Failing to appreciate that networks and the use of data are not inherently negative, the current debate that data-rich companies often use their resources to tailor products or services and to improve the services perhaps once again needs reaffirmation.

Arguments on “Big Data” and lock-in effects have rather tended to obfuscate competition issues with concerns of privacy and data security. At a time when more and more digital firms design products and services for the benefit of consumers, arguments about network effects and Big Data echo the familiar arguments of the NSE case. This time around, what is more disconcerting is the expansion of the jurisdictional domain of the commission from competition to issues of data security, risk and financial liability.

At the outset, let us ask: Does large firms’ access to private data create an entry barrier, an advantage denied to new entrants? Data requirements in the digital era have spawned a separate market for data. As consumers, we are continuously parting with personal data, be it know-your-customer information or online shopping or using a credit or debit card at brick-and-mortar outlets, some of which surfaces in the market for data. Recent estimates quote that personal data can be bought for as little as Rs15,000. Consumer surveys are another source of access to specific data. Data is often mined from online searches as well. Access to data, essentially, is never a constraint to good business.

The counter argument that Big Data-rich firms capture consumer preferences with the help of sophisticated algorithms and are free from tensions of competition is not borne out by empirical evidence. The ground reality in India does not suggest an advantage to large firms with the proliferation of platforms, especially on smartphones. Consumer preference is a combination of social and cultural factors and in India, at least, is captured by two features—convenience and cost. Algorithms that build in these nuances are more likely to succeed. Thus, the entry of several new platforms with innovative software that enables speech-to-text in major Indian languages or the use of Artificial Intelligence to make buying easy online shows that data provides no immunity for dominant firms.

At a recent conference of the commission on “Economics and Competition Law”, participants from outside the country were surprised at the number of alternatives available for almost every activity of daily life, including purchase of vegetables and groceries, both online and offline. Where products and services are available on an equivalent or almost equivalent basis without the provision of data, data-rich firms are unlikely to rest on their laurels.

And data does not necessarily lead to lock-in. Many argue that the “positive feedback loop” of network effects means that digital customers are unlikely to switch. But because data is not a finite resource, this is usually not so. Multihoming is a well-accepted and understood feature of tech markets: A look at how many social media sites there are today and how many of them young individuals use is sufficient proof. The behavioural instinct of consumers to stick with networks is often overstated. And it certainly doesn’t apply to the younger crowd.

Attempts to raise concerns on access to data and arguments about misuse of data being a competition issue deflect the focus of the commission from consumer benefits and competition. As in the MCX-SX case, it can distort markets. Undoubtedly, concerns on data security and the larger issue of liability and risk of payment platforms have to be addressed. But are these competition issues? Do these concerns fall in the realm of the Competition Commission?

Intervention is warranted only if a firm’s position has been achieved through anti-competitive means and exclusionary conduct that does not allow competitors to compete on merits of innovation, convenience and cost. It also goes without saying that firms should not be placed at a disadvantage if they have acquired a database through legitimate means by producing an innovative product or service that benefits consumers. More significantly, the jurisdiction of the commission is competition. Crossing over to other jurisdictions of privacy, liability and security would only distort the digital space for Indian start-ups. The simple rule, “let the consumer decide”, should be the governing principle here. Indian consumers are very discerning.

Geeta Gouri is a former member of the Competition Commission of India.

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