The rapid development of the internet has greatly affected the functioning of the economy and digital technologies such as Big Data, Artificial Intelligence and the Internet of Things (IoT) will continue to shape the transformation of European industries. In that context, online platforms – covering a wide range of activities such as search engines, social media, e-commerce and sharing economy portals – play a prominent role as they are the most accessed websites.
By now ubiquitous connectivity has expanded the platform business model in an unprecedented way. In particular, platforms operate as two-sided or multi-sided markets. A distinction can be made between attention and matching platforms. Attention platforms normally provide free services subsidized by advertising, sustained by user data and attention, while matching platforms are generally transaction marketplaces.
More specifically, these platforms are characterized by network effects, especially indirect network effects. In other words, the behavior of a user group on one side of the platform influences the behavior of the group on the other side. In fact, a second important feature of digital platforms is that they can generate strong network effects: the higher the number of users on the platform, the more other users will want to join the platform because it increases consumer choices and boosts markets for service suppliers.
Hence, in the zero-price economy, data has become a valuable commodity which enables users to access services provided by online platforms. For instance, online platforms can collect data concerning consumers’ personal characteristics and conduct that could, among other things, enable them to estimate consumers’ willingness to pay. Then, based on the estimated willingness to pay, online platforms could choose the optimal price for each consumer.
In fact, the results of the analysis conducted by the Italian TLC Regulator (Agcom), based on empirical research on apps, suggest that the acquisition of personal data plays a critical role in price setting and might become a key competitive factor in the future. Indeed, Agcom found a negative correlation between the price of apps and the amount of personal data collected, confirming the implicit exchange of “free services for personal data” of zero-price transactions.
Therefore, to what extent are users aware of this? Why are users’ behaviors of the utmost importance in this context? These questions require a multidisciplinary approach.
This is why, on 30 May 2017, the Italian Competition Authority (Agcm), the Authority for the Communications Guarantees (Agcom) and the Authority for the Protection of Personal Data (“Garante per la protezione dei dati personali”) launched a joint inquiry to better understand the implications for privacy, regulation, antitrust and consumer protection, the development of the digital economy and, in particular, the Big Data phenomenon.
It should be highlighted that the majority of users are not aware of the relationship between consent given to the processing of data and free services. The survey also empirically proves the so-called “privacy paradox”, that is, the divergence between the declared concern about one’s own privacy and the lack of measures to safeguard and control one’s own information deemed “sensitive” in terms of circulation and widespread dissemination.
Hence, there is an information asymmetry between users and digital operators in the data collection phase. This could have significant implications for user behaviors. For example, a lack of transparency may lead users to provide more data than they would like to, or even to reconsider whether to register and use an online platform.
To address these concerns, the Italian Competition Authority has already intervened on several occasions by applying Italian consumer protection law. In particular, the Authority intervened against unfair contractual clauses and unfair commercial practices such as deceptive and aggressive behaviours adopted by Facebook and WhatsApp.
In particular, in the first case, such deception arose during registration with social networks: users were not adequately informed that their data would be used for commercial purposes and the free nature of the service was emphasized. Regarding the second case, aggressive practices took the form of making access to a service conditional on consent to the transfer of data to third parties.
Most importantly, in these cases, the Italian Competition Authority preliminarily clarified that registration with and use of the online platforms under investigation were considered economic transactions; it is irrelevant that the services are provided free of charge. Indeed, following EU directive 2005/29/EC on unfair commercial practices: “Personal data, consumer preferences and other user generated content have de facto economic value”. Therefore, attention is the real compensation of economic value for such services.
The importance of reducing information asymmetries between users and digital operators has been underlined by the three authorities in their final guidelines and policy recommendations on Big Data. In particular, it is stated that “reducing information asymmetry between users and digital operators in the data collection phase is a fundamental policy objective to which different tools can and must contribute. It is important to fully inform the user-consumer not only of the use of the transferred data, but also about the necessity of the volume and variety of the data required for release and on the specific functioning of the requested service”. Indeed, the reduction of information asymmetries “will help users to better know and effectively exercise their consumer choices”.
Moreover, in policy recommendation number 10, the importance of consumer law is underlined by stating that “consumer protection can intervene on a multiplicity of profiles connected to the relationship between operators and users in the data acquisition and processing phases”. In particular, the three authorities emphasize the need to increase the maximum level of sanctions “as soon as possible” in order to guarantee an effective deterrent by consumer protection laws.
Furthermore, because non-price parameters such as quality and data protection may be relevant to the competitive process in this context, new antirust theories are developing. For instance, it is debated whether the violation of data protection by a company in a dominant position may be considered an exploitative abuse of a dominant position. Building such theories of harm has posed some challenges, especially with regard to definition of the relevant market and the assessment of market power: in both cases the fact that a service is offered free of charge determines the need to find new solutions.
Certainly, in this new digital and data-driven economy, competition law “in order to pursue the goal of consumer welfare shall explore new parameters, in addition to the traditional tools of the antitrust law linked to prices and quantities, thus extending the analysis also to quality of service and products, innovation and fairness”.
The opinions expressed by the author are personal and do not necessarily reflect the position of the Italian Competition Authority