Welcome to the Oxford Undergraduate Law Podcast where we discuss the law and its implications on our relationships, our markets, and our futures. I'm Siobhan. And I'm Bianca, and we're your hosts for this series. Today we are incredibly honoured to be speaking with Professor Ariel Ezrachi on the role of competition law in regulating big tech companies.
Professor Ezrachi is the Slaughter and May Professor of Competition Law at the University of Oxford and the Director of the University of Oxford Centre for Competition Law and Policy. He's the co-editor-in-chief of the Journal of Antitrust Enforcement and the author and co-author of numerous books, including Competition Overdose and Virtual Competition.
Professor Ezrachi's research and commentary have been featured in The Economist, The New Yorker, The Wall Street Journal, and many other influential international outlets. So to start off, what is competition law? So there is a basic assumption that we have as a society that competitive markets deliver welfare to us, to the community, to society, to customers.
And the reason is that when you have competition, each one of us in a market tries their best to make money, and to do so we lower the prices so we can sell more, we improve the quality, and we improve the service. So you probably heard about Adam Smith, the invisible hand of competition. The general idea that it is at the heart of modern markets is that more competition benefits us. Now, competition makes life better for us as consumers, but it can make the life of sellers rather difficult.
Because of course if you're a seller and you operate in a competitive market, you have to work very hard. You need to improve your product, you need to lower the price which requires you to become more efficient. And because of that, sometimes sellers may try to dumpen the competition. They might engage in cartels where they fix the price or share the market. Or you might have a very powerful company, we call them dominant companies, monopolies, that will abuse its market power.
And this is where competition law steps in. So competition law is a set of regulations and laws that are aimed at protecting the dynamic of competition, making sure that we have undistorted competition, and making sure that we maximize consumer welfare.
So it's a set of laws that prevent companies from engaging in anti-competitive agreements, prevent monopolies from abusing their powers, and also is relevant for mergers and acquisitions, because what we try to make sure is that as companies merge, this does not result in market power that can later distort competition on the market. So that's the basic idea behind competition law, making sure that markets work. Is there a difference between digital markets and regular markets?
So in the regular market, we rely on the invisible hand that I mentioned earlier. And that means that you have demand and supply, and these powers, they determine what is the market price, and they determine how much choice you might have on the market. If you shift all of this into the digital arena, what you have is something that looks very much like a real market, but in reality, it is a market that is controlled by algorithms. And this is where the difference lies.
You have, for instance, platforms or websites that control the interface. So if you go on a website to shop, someone can decide what it is that you see on that website and what it is that you don't. They can decide how much information is available to you. They can decide whether they want to target you specifically and engage in what we refer to as discriminatory pricing, whether to give you a discount. So the invisible hand in some ways is pushed aside and is replaced by a digitalized hand.
It's a controlled environment that looks very much like real markets, but in fact, it's not. Let me give you just a few examples on what it means. Because I can, as an online operator, harvest quite a lot of your data, it means that I will know about your search history. I might know about your address, your postcode. I might have information about what you like, what you don't like. And I'm able, based on the patterns that I identified, to estimate what is your willingness to pay for a service.
And what that does is enable me to charge you a specific price. I can charge you a higher price, making it look as if this is the market price. And indeed, we have a lot of examples of that and there are a lot of systems in place that engage in such discriminatory pricing. It's just something that you can do in terms of power, added power that you have because of big data and big algorithms. But it's not limited just to products and prices.
If you think about the market for ideas, it also is relevant there. On the digital market, I will know much more about what you do, who do you interact with. So I can build a profile and I can micro target you accordingly. So of course, you heard the stories about Cambridge Analytica and you know the stories about how I can influence people's beliefs or political affiliations. All of that can be viewed also from a competition law perspective because it is all about market dynamics.
It is all about the exchanges that we have. And in this digital arena, what competition law is trying to do is to ensure that markets are not distorted. So you have cases that deal with either using algorithms to fix the price. We have cases that deal with discrimination. We have a lot of cases and this is the main area of focus these days that look at platforms. The power of the platforms, either the ability to manipulate, but very often the ability to exploit us.
This is really the focal point of a lot of what is discussed at the moment. So can you tell us a little bit more about some of the issues we face today with digital markets? So I guess the thing I will start with is the asymmetry of information. When you go shopping online, when you join the social network online, what you see is determined by engineers that sit on the other side. They have much more information about you than you think and they control much more than you are aware of.
In fact, I tend to say that when you shop online or when you interact online, often you will walk on a path with a real sense of autonomy without appreciating that someone created that path especially for you and is leading you in a very specific direction. So most of us are completely unaware of the ability to use dark patterns, to use nudges or manipulation to affect what we do.
And that's true of course in marketing and everywhere, but online there is just this enhanced capacity and this just changes the dynamics of competition. Linked to that, and that's another challenge, is the stealth mode of these elements. The fact that it's very hard to detect them.
Even if you're aware that something is done from a strategic viewpoint, it's quite difficult to put your finger on the exact way in which dark patterns are utilized, in which someone is manipulated or the way it affects the price. Moving more toward the way markets operate, one of the key challenges are what we refer to as network effects. And network effects make it difficult for new companies to challenge the incumbent, challenge the companies that are already established on the market.
And this is something which is a characteristic of many digital markets. So for instance, if I now invent a new social platform and I invite you to join and I tell you of all the benefits and you ask me, so how many other people are on your platform? And I tell you, well, you're the first one.
That's not a very attractive proposition if you compare it to the billions of people that you have on other platforms, which means that it is quite difficult for newcomers to actually be able to surpass the barrier to entry to those markets. And network effects not only affect us as users, they also affect the sellers, the application developers, the providers, the advertisers. If I'm a new platform and I need to attract revenue, I need to provide a sufficiently large scale of users.
And if I don't have that, then advertisers and all of those that actually pay for the services, because we call these multi-side markets, they will prefer to go to the leader, whoever is leading the market. And because of that, some of the markets that we have tipped in favor of the dominant company. And when you have a dominant company that feels very comfortable because it is not subjected to real potential competition, then they can start and change the way they behave.
If you think of Facebook in the early days, privacy was a big thing. So when at some point Facebook changed some of the default definitions in terms of privacy, there was a real criticism. And back then, they apologized publicly and they said, we're so sorry, this is important for us that you feel comfortable and so forth. At some point when you gain power, you have to think slightly less about, we look at it as the quality of the service.
Privacy can be regarded from a competition perspective as a reduction of quality. I can reduce privacy, reduce the quality that I offer you, because I know that you don't have outside options. It is harder for you to leave Facebook. Why? Because of the network effects. Of course you can, in theory, but you will have to take quite a lot of circles of friends with you. You might have already preferences. You might have affiliated products that are linked to that network.
So the longer we stay, the harder it is for us to say goodbye. And the more I know about what makes you stay with me, the more I can make sure that I deliver that and I can start giving you less of other things that are very important for me. Because the less privacy I give you, it means that I have more data about you. Data is power and money because then I can profile you. I can sell that data to advertisers who can target you.
I can sell that data for possibly political organizations who want to target you to convince you to join their cause. So micro targeting works really well when I know a lot about you and I give you very little protection. It's an interesting thing because when we started and you asked me about competition and competition law, I explained that markets work for us, the consumers. And in fact what I describe to you now is a situation where the market doesn't necessarily work for you as a user.
And this is why some people argue that there is room for intervention because the market does not deliver. So are there any solutions that we can implement to combat these issues? It's a very good question and it's a simple question with a complicated answer. So the solution can come from various directions. For example, you can focus on the data and you can say who owns the data? So this can be a debate. Is the data yours or is it, let's say, the platform's?
And once the platform worked on the data and engaged in analytics, is the product that they created yours or is it the platform's? And let's say that it's not yours. Can they transfer it to third parties? Do they have to allow access? And even if you look at that very simple interface, you can see that there is friction here between privacy and competition.
Because your privacy might suggest that if I am your provider and I got your data, you say, well, it's one thing that you have my data, I don't want anyone else to have that data. That's my privacy. Whereas from a competition law perspective, we might say if we force the dominant player to give that data to third parties, there will be more competition and you will benefit.
So it's not that all the policies are aligned because some policies protect our autonomy, some policies try to protect the market. So it can turn a little bit complicated. So I just mentioned this is an example of data, then you have privacy. And of course, you can have regulation such as GDPR that will protect your privacy. You can have the e-privacy regulation. You can have various rules that are there to protect your autonomy.
The area that I focus on is the possible role of competition law in this story and the possible role of regulation. So competition law can impact in two or maybe even three significant ways. It can deal with what we refer to as abuse of dominant position. And if you heard about, for example, the Google case, the Google shopping case, so the European Commission accused Google of abusing its market position.
Or if you heard about the Facebook case in Germany, the Bundeskartelln accused Facebook of exploiting its position and using it to harvest excess information from users. So this is one way to deal with it. Or through, if there is an agreement, you can also apply the law to anti-competitive agreements. Another way is to try and approach this in the area of mergers and acquisitions.
A lot of those leading platforms engage in routine acquisitions of smaller companies that could become potential competitors and could maybe disrupt the market. So if we have better tools to monitor these transactions, we could have markets that are more competitive. And this could also help us resolve some of the problems that we discussed. Because if there is competition, then I need to start giving you a better service because I want to get your business.
And if this is what I do, then if we spoke about privacy, I will have to offer you better protection when it comes to privacy. And you can also engage in something that is sometimes called market investigations. It's a preemptive tool where you just look at a market and you try to see how can we increase the competitiveness of the market. So antitrust law can work in two ways. One is reactive. This is sometimes referred to as ex post intervention, and one is proactive, preemptive.
This is ex ante intervention. And the main challenge that we have is that often by the time you have a decision under antitrust laws, it might be slightly too late. The market has been distorted. There is very little competition. And many people would say that even in cases that were successful, the remedy did not restore competition on the market. And that affects the quality, the service, and the price. And in online, often the price is not money that we pay.
We kind of pay with data usually, with information about ourselves. And because of that, because of the limitations of antitrust, this is why you probably came across a lot of reports on proposals for regulation. So the idea is to supplement and enhance the power of competition by having specific regulations that target platforms, target gatekeepers, target companies that have strategic power on the market. So the idea is to have this dual mechanism.
Often law will deal with abuse of dominant position, anti-competitive agreements, of course mergers. But in some areas where you can preempt and you can identify a problem, we will have a specific regime. And that regime will apply to begin with on companies that are very powerful on the market. Basically, there will be a law that they will be subjected to and will restrict their power either when it comes to their behavior with relations to consumers or with relation to service providers.
So it can have a lot of different implications depending on the market. So specifically relating to mergers and acquisitions, sometimes some startups enter the market with the sole purpose of being acquired by a bigger company. So why is it that mergers and acquisitions is the subject of increased scrutiny when sometimes it is both sides who, it is the goal of both sides to either buy or be bought? When we think about mergers and acquisitions in the digital environment, it's really interesting.
On one hand, mergers can be extremely efficient because what you do is you create scale, you create access to new markets, you create greater network effects. All these things are super efficient and we can all benefit from them. And indeed, a lot of the merger transactions that we have in digital markets are approved. A lot of them involve very large platforms buying smaller companies. What is the problem or why is it that merger analysis is the subject to increased scrutiny?
Because one of the fears is that large platforms are able to identify the future disruptors that are likely to inject competition into the market. And what they do is they buy them in order to kill competition. It has a term, it's called killer acquisitions. Now we don't think that all the transactions are killer acquisitions. In fact, probably very few of them, but that's one of the problems that we have.
Another problem is that when you enable them to engage in all these acquisitions, they can also control the innovation paths. So if I am a dominant platform and you started to develop technology that will disrupt my business model, it might be that the best thing for me, because I have very deep pockets, is just to buy you. And what I'll do is I'll align your innovation with my value chain.
Basically, I will kill the product, the future product that you were developing, but I will still use whatever it is that you do to develop a product that suits my value chain. And because of that, there are calls for better scrutiny of these transactions. What is the problem? That it's very hard in those markets that are very dynamic at the point that the merger takes place to say, well, in the future, that tiny company will become a relevant, viable competitor on the market.
In fact, it is so speculative that it's almost impossible for a competition agency to establish that this will be the case. So some calls are, for example, to switch the burden of proof, to require companies to show that the merger is efficient rather than the competition agency to show that the merger is problematic. That is one approach that has been proposed.
But there is also a warning, because if you will have a very strict regime when it comes to those transactions, you might also affect innovation by ruining the exit strategy of many of those small companies, because many of those small companies actually operate on the market expecting to be purchased because this is their way to achieve growth.
Seeing that we have all these different types of solutions that we could implement, looking at how they're implemented in practice, do different jurisdictions have different regulation schemes? Different countries sometimes have different ideas as to the role of the government and the role of the state.
So some countries will have this sense that the state is responsible to designing the market and because of that, they may engage in more competition law enforcement and also use regulation much more. And this would be, the EU is a good example. We have a proactive regime and of course we have proposals, the Digital Market Act, the Digital Services Act, proposals for significant regulation that will affect the role of platforms.
If you shift to the US, traditionally they had a somewhat different approach. They believe much more in the power of markets to self-correct and they also tend to believe that the government should have a very limited role. Now there is an ideology behind it because of course governments, when they engage in regulation, they might get it wrong. We call that government error.
Sometimes they might be subjected to biases, to capture, and all of that might result in sub-optimal markets or sub-optimal regulation. Sometimes also when you have dynamic markets that change very often, if you have a regulatory regime, something heavy, that moves very slowly, it might be that the market changed but the regulation is still the same regulation of five years ago. So it is the wrong tool for the task.
So it is not very effective and it might even accelerate some disruptions or distortions on the market. And because of that, if we focus first on competition, antitrust enforcement, you tend to see in the US a much more limited enforcement of antitrust and in the EU greater enforcement and this is because of different ideas about the ability of the market to self-correct and the costs of over-enforcement.
And on top of that, when it comes to regulation, in the EU regulation is seen as the way forward. In the US that has yet to be endorsed as the solution. So we had at the end of last year, we had the Congress report, very interesting report from the House Judiciary Committee on antitrust and when they looked at Google, Apple, Facebook and Amazon, they tried to identify the problems, the difficulties and also tried to give a sense of what is the solution.
And their solution is not introduce more regulation but apply greater antitrust, break up some of the giant companies, have better merger control. So it might be, it's a different way of delivering the medicine, let's say, because we all differ in our understanding of how markets operate, in our philosophy, do we trust markets, do we trust companies? It's quite interesting, different people from different jurisdictions will have very different ideologies even if not consciously.
I find it quite interesting that in Europe people tend to distrust companies and they feel comfortable with their governments. In the US, generally speaking, people tend to distrust the government and will trust companies. So this is just something, it's not directly linked to our discussion but of course it will affect the toolbox that you will create. So there's no easy answer to those questions but this is also what makes it a fascinating area.
And we focused a lot on privacy just to highlight what about algorithms, what about auditing algorithms, what about deciding whether an algorithm can harvest your information, whether an algorithm can analyze your information. Is it okay that someone is micro-targeting me? Is it okay that there is an algorithm that compares prices and is able then to assess the possibility of increasing the price? So we have a lot of automation.
There is a wonderful experiment by an Italian group that created artificial intelligence algorithm. So they're using Q-learning which is a form of artificial intelligence, relatively simple. And those algorithms are able to increase the price in the market without infringing competition. That's quite remarkable. So they engage in something we call tacit collusion and they are able to align their policies without entering into an illegal agreement.
So there is so much that is changing and if there is one thing that I think we should just appreciate is that this is not a simple evolution of the way markets operated. These are completely new tools that require us to think outside the box in many ways. Just to appreciate that the dynamics and forces that shape modern markets are very different and the hope is that enforcement regulation will not lag behind.
They will be able to remain effective because what you hope is that markets eventually will continue to work for consumers rather than the other way around. Consumers working for the market which you can argue is sometimes the case when you think about some of the leading platforms. Is there a better regulation scheme to implement? Is one jurisdiction doing a better job? So if you think of regulation or competition enforcement as a medicine, think about you going to the doctor.
The doctor prescribes you with a medicine and you know that you have to take exactly what was prescribed. If you undertake it you will continue to be ill. If you overtake it you might become even worse or you might even die. So this is why you really rely on the doctor to give you the right amount of medicine. And we're lucky that we have science so it's very clear in most cases what exactly is the right treatment.
Now if you think of competition and regulation as a medicine the problem is you don't have a doctor. You don't have science, accurate science that tells you how much of the medicine you need. So the debate that you see is basically the debate on how much of it should we prescribe. In the EU if we speak about competition enforcement the attitude has been for many years that we need more of the medication because the US is under-medicating. And US criticized the EU.
You had a lot of statements from the US in the Google cases, in other cases saying the EU is over-intervening. And if you over-intervene you will distort the market and you might chill competition. You might create a disincentive and companies will not compete as fiercely as they would otherwise.
The interesting thing is that in the past two years the US has gone through a major change in attitude starting also already with the Trump administration because of several issues that he had with the leading platforms, him believing that they are restricting his access when it comes to customer base and scale when it comes to Twitter, Facebook, Google.
So what happened in the US that they completely shifted from under-enforcement into something that much more resembles now the attitude in the European Union and indeed if you look at the very recent Google and Facebook claims that were launched in the US they are even more expansive than what was done here in the EU.
So it tells you something about this debate on how much of the medicine we should use because you have a real-time experiment where you have the doctor from the US who changed his or her opinion on how much medicine is supposed to be used and now is prescribing much more medicine. The logic behind it is that if you understand that markets are not easily self-correcting then under-dosing on competition law will result in under-enforcement.
And this is why there is a preference to overdose to try and correct it. So this is why you have differences and it's very hard to say who's right or who's wrong because it's not accurate science. And the same would apply to regulation. The big proposals that we have at the moment in Europe, the DMA and DSA, are still in the pipeline. We have more than a year before we will start to see how the final product might look like. So there are costs.
If you limit the regulation only to dominant companies, costs on other companies are lower or non-existent, which means that you minimize the distortion that the regulation creates. If you over-require those companies to give access to other companies, let's say for data, when it comes to data, then maybe you will create free riding.
If there is a dominant company that is obliged to give me access to the data that it collected, as a third party I will become lazy because I'll say I can use the law and force you to give me the data you have. So almost any action that you take in this game can have a benefit and can have a cost. And the great challenge when you engage in public policy, either in competition law enforcement or regulation, is to engage in fine-tuning.
And every measure that you put in place, you have to think what is the benefit, what is the potential cost. Even the GDPR, which governs data protection in Europe and we all benefit from, is a great regulation but it also comes with a cost. For example, it created an opportunity for those who control the data to limit access to the data when it comes to third parties. So every action that we take as the state, as policymakers, as enforcers, has some sort of implications.
And the aim is to try and predict those implications, try to think how this regulation might be misused and what is the best way to communicate or to reach the desired outcome. So again, like if we go back to the idea of the medicine, how much do you prescribe the medicine is very challenging. I think generally speaking there is a consensus that at the moment we under enforce when it comes to merger control. But again, the details are what is important here.
There have been so many reports now that try to look at it in detail and really identify better or more accurate benchmarks for intervention. Since these technology platforms have such a global reach, do differences in regulations across jurisdictions pose any difficulties? You're a company and there is one state that tells you do this and the other state tells you do that. And if those two instructions conflict, it's a real problem. There is a real cost there for you.
So we try to minimize system friction and this is why there are constant calls for cooperation and collaboration. And it's true for taxation, it's true for everything, of course also for competition, law, data protection, but there are limits to cooperation because of these ideological differences.
Because if I believe in free market and minimal state, minimal government, and you believe in large government and more intervention, then of course we will find it more difficult to agree on certain things. But beyond that, when it comes to us as consumers, what it could suggest is that, let's say, customers in the EU will be subjected to different regime or strategies than customers in the US or Canada or South Africa or New Zealand. So I'll give you an example.
In Germany, Facebook users get at the moment greater privacy than Facebook users in the US. Specifically looking at the UK and in light of its recent exit from the European Union, do you think that there will be any significant changes in regulation of big tech companies in the UK? So in broad lines, the UK has legislation that is very similar to the EU. But of course, Brexit means that the UK can now move beyond and develop its own approach that might be very different.
So if you think on the topics that we discussed, so in the UK we have a digital market unit that the idea is that it will govern this whole area. And then there is this idea of creating a pro-competitive ex-ante framework, so a pre-emptive framework that will be quite different from the digital market act or the digital service act. It will deal with strategic market status. And so I guess what I'm saying is the mechanism starts to differ.
You can already see that here in the UK we're taking a slightly different approach. The aim is very much the same, but again, now the UK is using some, in the EU in general, if you look at the proposed regulation, it looks like a shopping list of various activities that the company might engage in and saying if you do that, that will be illegal.
The UK has taken an approach that tries to create a rule and basically says if you have strategic power, we will tailor for you a regime that will address the circumstances in which you operate. So something that looks a little bit more nuanced and it will continue to evolve in a way where we all try, I believe, to achieve the same goals, but we will start to see differences. We will see differences in merger control.
We will certainly see differences in the regulatory regimes and we'll also see differences in the way competition law is applied here in the UK and in the European Union. Are we likely to see more regulation aimed at data sharing? So data access, data portability, data mobility, these are big things and here you have an intersection between intellectual property rights, between privacy, between competition law and you really see the complexity in that junction when all of them meet.
There is certainly, if your focus is on markets exhibiting barriers to entry, there is certainly an attempt to increase access to data and I think it is likely that we will see if we're basing it on the reports that we had in the UK, also in Europe by the way, if we base it on general statements from stakeholders and policymakers, it is likely that we will see something along those lines. But again, the details are the important thing here because it's not all data.
Because of course, A, we have the issue of privacy. So what kind of data? Is it aggregated data? Is it personal data? And all these things will require much more fine tuning. Another thing is data mobility to enable you to just say, I'm just taking all my data with me and going to another provider and here as well we have interoperability, a question of can that data actually be used easily somewhere else?
And if you take your data, do you take your data or do you take the data that was subjected to analytics? Because obviously the analytics were not yours. But certainly, generally speaking, certainly this is a direction that we are likely to see either through the attempt to increase data mobility, portability, or to increase data access. That's all the questions that we have for today.
Thank you so much, Professor Ezrachi for joining us and discussing the role of competition law in regulating these big tech companies. My pleasure. That was Professor Ezrachi speaking with us on the regulation of big tech companies. For more interesting legal discussions and writings, visit the OUULJ's blog and read our annual publications. This is the last podcast featured for Trinity. Join in to make a mess for more exciting interviews.