In his recent 2023 State of the Union address, President Joe Biden made two important statements we haven’t heard loudly enough from Canadian policy makers in the past few years.
First, he promised to strengthen antitrust regulation in order to rein in the power of big tech, so the tech giants can’t continue to benefit from an “unfair advantage” in our increasingly digital economies.
Second, he vowed to legislate “stricter limits on the personal data” that big tech “collect[s] on all of us.”
Both these measures are long overdue — and not just in the United States.
Consumers’ personal data is fast becoming the underlying resource base of the digital economy; it already represents a critically important asset for big tech. Corporations such as Alphabet, Meta, Microsoft, Amazon and Apple use our personal data to spot market trends, set prices, develop or improve products, train their algorithms, and sell our attention to advertisers — among other uses. Our personal data is also an increasingly important asset for a growing range of ancillary businesses, as well as for governments and their agencies.
Unfortunately, Ottawa has been slow to recognize the importance of personal data in competition. Yet the need is pressing: Canada desperately needs to update its competition policy to responsibly manage data. Because personal data underpins many new digital technologies, this is especially true when it comes to promoting innovation and supporting fair markets in the digital economy. The ongoing reform of the Competition Act offers a compelling opportunity to rethink our approach to competition. But it also requires us to think carefully about the implications of using personal data to drive our economies and societies.
What are the problems we’re facing?
The mass collection and concentration of personal data generate network effects that benefit the data holders to the detriment of everyone else, especially competitors and emerging innovators.
As a starting point, it’s crucial for us to appreciate that personal data is an asset, even if it can’t be found on corporate balance sheets. According to the International Accounting Standards, an asset is defined as an identifiable resource controlled by an entity, such as a business, from which that entity can accrue future benefits. Personal data reflects these criteria: it can be identified and controlled, and future benefits flow from that control.
The European Commission already considers personal data to be an asset in competition cases, reflecting concerns about the further concentration of data in the hands of a few large corporations. A growing number of other competition authorities around the world are likewise raising concerns about the implications of this data concentration. We’ve analyzed these concerns in a new report published by York University’s Institute for Technoscience & Society. The concerns can be split into three main issues.
First, the mass collection and concentration of personal data generate network effects that benefit the data holders to the detriment of everyone else, especially competitors and emerging innovators. (A network effect is the added benefit that a network user gets when more users join the same network, for example, Facebook or other social media. As more users join the network, it becomes more useful to users, creating a self-reinforcing cycle in which users increasingly join one network over all others, leading to a winner-takes-all, or -most, outcome.)
Worryingly, the biggest players in the digital economy (e.g., search engines, social media, e-commerce giants) have been able to not only dominate their respective markets because of these effects but also to move into adjacent markets, supported by their control over data assets.
As the Australian Competition and Consumer Commission has pointed out: “The breadth and depth of user data collected by the incumbent digital platforms provide them with a strong competitive advantage, creating barriers to rivals entering and expanding in relevant markets, and allowing the incumbent digital platforms to expand into adjacent markets.”
Second, control over data gives its hoarders and large platform providers access to market information unmatched by their competitors. As all businesses have become more reliant on digital assets or access to platform users, they’ve had to turn to the gatekeepers of that data and those users, namely, big tech.
Consequently, these gatekeepers have an enormous competitive advantage through the information asymmetries created by their data enclaves, which provide them with insights into market, competitor and consumer behaviours not available to others. And this competitive advantage compounds (like interest) as they collect more data. The more of it you hold, the more useful it becomes.
Third, as data assets become more central to the economy, there is a legitimate fear that incumbents will simply become unassailable in digital markets. The UK Competition and Markets Authority, for example, notes the “scale of data available to powerful digital firms acts as a competitive advantage, while creating a barrier to entry and expansion to smaller potential rivals.”
Not only do big tech companies control their existing data enclaves, blocking start-ups from accessing the vital resources needed to challenge them, but they also leverage their dominant positions to access cheap capital that they then use for massive investments in expanding their computing capacity. Their competitors then face the double whammy of having to contend with the concentration of both data and computing capacity.
How might policy makers deal with these problems?
Our study of a range of investigations, reviews and proposals about competition in digital markets around the world leads us to conclude that Canada can learn much from what’s happened elsewhere as it rethinks the Competition Act.
Addressing the centrality of data assets to the digital economy will be especially important for Canadian policy makers in this rethinking. Data assets must be made visible, in both economic and political terms, if we are to hold big tech and the most powerful digital firms accountable. If Canadian policy makers wish to promote competition, they must incorporate an analysis and treatment of data assets in their market investigations, assessments and enforcement.
This requires transparency about data holdings on balance sheets (e.g., data as an accountable asset), in merger assessments (e.g., data assets as a competition threshold), in pricing algorithms (e.g., data as a driver of algorithmic tacit collusion), in tax calculations (e.g., data as a taxable or tax-deductible asset), and much more. Transparency on data holdings will also have implications for privacy and its protection, and related data rights. Transparency requires a coordinated approach, including collaboration and cooperation between multiple regulatory agencies to promote competition and to secure data rights.
Just as Biden points out in the context of the United States, we find that Canada needs competition rules that ensure Canadians’ personal data doesn’t continue to be hoarded in monopolistic data enclaves, to our collective detriment. Developing the new rules will require a new appreciation and treatment of data as an asset.