Big tech in a small economy
By Arsenio M. Balisacan
July 31, 2019
Much has been said about the dominance of the so-called tech titans: Google, Facebook, Amazon, Apple, and the like. Not a day goes by that the decisions and policies of these companies do not touch the lives of millions of citizens, a testament to the success of their business models, which include heavy investments in R&D and the introduction of new products. These innovations have generally made life more convenient, efficient, and pleasant. Tasks that previously took hours and money to accomplish can now be done in much less time and sometimes “for free”.
Not all is well, however. In recent years, tech companies have gone on the defensive, as government regulators (including competition authorities), politicians, academics, and consumer groups decry and scrutinize perceived abusive conduct.
In 2017, the European Commission imposed a hefty $2.7-billion penalty on Google for favoring its own service over those of its competitors that also use its popular search engine. Similarly, the US Federal Trade Commission recently approved a $5-billion fine against Facebook for its much-publicized misconduct concerning users’ personal data. The European Commission is now investigating Amazon for possible anticompetitive conduct involving the exploitation of information provided by third-party merchants. Indeed, it appears that the assault on big tech companies is far from over.
The cases against Google, Facebook, and Amazon demonstrate the dangers posed by market power and dominance. While these technological marvels have greatly enhanced our way of life, they have given rise to a host of new issues, especially those involving competition, data privacy, and the (re)shaping of political and social values.
These cases are taking place in large economies where the stakeholders, including the big tech companies and their citizens, have substantial stakes on the issues. Should a small economy such as the Philippines be also concerned with these issues? If so, how would the country’s leaders proceed with tackling them? In particular, what approach, mechanism, or remedies would the Philippine Competition Commission (PCC) employ in addressing these issues?
The PCC has prioritization frameworks for addressing potential competition concerns involving any industry. Under merger review, it has thresholds on the size of the party and the size of the transaction. It can open an investigation in response to a verified complaint, a referral from a government agency, or on its own initiative. If any transaction or conduct involving big tech companies merits scrutiny under the frameworks, then the Commission is duty-bound to investigate it.
Note that dominance or having significant market power is not prohibited per se. What the competition law prohibits are the abuses of dominance such as foreclosure or exclusionary conduct, which result in substantially lessening competition in the market. For instance, foreclosure can occur when a company’s search engine favors its own price comparison website over other price comparison websites that attempt to reach users through the same search engine.
The issues surrounding big tech companies become very thorny because of the very nature of their products. Three of these come to mind.
One, advances in computing techniques have allowed the use of algorithms that do a nearly perfect job of matching consumer preferences with products offered in the market. Operating as platforms, tech giants have been able to collect massive amounts of buyer and seller data that have allowed them to peek at individual-level behavior and tweak their services accordingly. One outcome would be that, even as overall efficiency improves, consumers may be disproportionately benefited from having to pay for perfectly calculated or “personalized” prices. Efficiency is promoted but the distribution of the gains is not deemed fair. Should a competition authority be concerned?
Two, prohibiting conduct in the rapidly evolving tech sector carries the risk of creating a “chilling effect” where innovation is discouraged. This effect is damaging to the long-run prospects of an economy because it can dampen productivity growth and desirable technological upgrading. As economic history of nations shows, it is productivity growth over the long haul that brings about prosperity and human development.
However, as observers have noted, significant market power may lead dominant firms to acquire political power or cause them to capture political institutions and processes for the enhancement or preservation of their market power. The evidence is clear: unduly high market power that remains unchallenged and protected by public policy can also lead to lower levels of innovation and productivity growth.
The competition authority and other government agencies must therefore carefully weigh the long-run effects of their policies and regulations in consideration of these circumstances.
And three, technology has evolved and seeped into the very fabric of human interaction. We are seeing how it influences the way politics and businesses are organized and the way personal information is valued. From an analytical standpoint, such issues are separate from—but not necessarily unconnected with—the efficiency standard that competition authorities usually employ. In some instances, sector regulators and civil society—not the competition authority—are perhaps in a better position to pass judgment on these matters.
In other instances, there may be a need for effective coordination between the competition authority and the sector regulators to address overlaps in the effects or outcomes of their enforcement actions. After all, regardless of their respective objectives, the goal of public action or intervention—by the competition authority or any other agency—has to be the promotion of the common good, the general welfare.
Given the above considerations and the alarm being sounded across the globe over potential risks that can affect the choices and welfare of millions of citizens, clearly we must be concerned and be prepared to act.
Dr. Arsenio M. Balisacan is the chairman of the Philippine Competition Commission and a professor of economics at the University of the Philippines (UP). Prior to his appointment to the Commission, he served as socioeconomic planning secretary and concurrent director general of the National Economic and Development Authority. He also served as dean of the UP School of Economics.
(Originally published on Business Mirror’s Competition Matters column on July 31, 2019 here.)