Inspired by some Easter Bank Holiday viewing, Ben Evans ponders a new approach to thinking about competition policy in the light of the rise of Big Tech.
According to Time Out. the top movie to stream during the Easter weekend was Monty Python’s Life of Brian and this year the iconic comedy seemed more prescient than ever. As Brian is about to be crucified by the Romans, Sibling Judith rushes into a ‘PFJ’ committee meeting chaired by Brother Reg. Sibling Judith’s impassioned cry rings out “something is actually happening”, in response to which an urgent committee discussion is duly tabled to propose and vote upon action to be taken at an indeterminate juncture. This scene aptly captures competition law intervention in fast-moving digital markets.
Yet, there may be a feint glimmer of hope. Last December, deafened by the chorus of progressively desperate pleading by a substantial coalition of businesses demanding urgent intervention to facilitate market contestability, two of the most influential committees of competition policy published proposals for bold new ex ante regulation in the form of the EC proposal for a Digital Markets Act and the UK CMA Digital Markets Taskforce advice paper. Whilst neither is likely to have a tangible impact for firms in the immediate term, or indeed pass through myriad further committees unchanged, these proposals recognise the need to address anticompetitive practices that apparently fail to be captured by competition law in its current guise. Of course, there are those who decry the approach of the EC and the CMA and fundamentally challenge the theory and assumptions that underpin what is a significant intervention in the commercial liberty presently enjoyed by ‘digital gatekeepers’ and firms with ‘strategic market status’. Indeed, an increasingly tribal debate is currently raging between lawyers, economists, leaders of industry and policymakers, which to a great extent pivots about the fulcrum of innovation. Intervention in fast-moving markets to address the problems of today necessarily raises concerns relating to innovation incentives, the chilling of which is said to risk harming consumers in the long run. Is competition policy about to take a perilous ‘leap of faith’?
Perhaps fortuitously for competition policy, Nicolas Petit and David Teece have recently put forward a working paper Big Tech, Big Data, And Competition Policy: Favoring Dynamic Over Static Competition that seems to suggest that they have in their grasp a ‘sign’ capable of recalibrating that ‘leap of faith’: and one more substantial than Brian’s cast-off sandal or a Holy gourd. It goes by the name of dynamic capabilities theory, and the authors are somewhat zealously recruiting followers: “We believe that if just 5% of the competition policy community would join us … then we can quickly forge a path ahead. The direction of travel is clear.” The theory encompasses three “clusters” of activities, which are claimed to be fundamental sources of sustained competitive advantage, namely: “the sensing of unknown futures, the seizing of business opportunities, value and needs, and the management of change by reconfiguration.” To be sure, it is not argued that entrepreneurial management solus is a panacea; rather, dynamic capabilities buttress firms and enable them to mitigate some of the risks associated with trading in deeply uncertain markets. Crucially, the paper advances a novel analysis of the economic rents enjoyed by the entrepreneurially spirited Big Techs. Among other suggestions it counsels competition authorities to recognise that substantial investment in innovation in the face of such uncertainty signals the likely absence of so-called “naked monopoly rents”, which should be the exclusive focus of intervention.
By elucidating which types of rent reward and stimulate innovation, Petit and Teece put forward persuasive insights that would vindicate a number of hitherto scorned practices. In fact, the authors recommend that greater, rather than diminishing, legal latitude should be afforded to firms engaged in inter-platform competition, which is characterised as being less conducive to “direct value capture”. Moreover, the seeds are sewn for a progression from the traditional consumer welfare standard to a long term total welfare standard that stands to capture better the full spectrum of returns yielded by innovation. Just as Brother Reg found it difficult to deny the wealth of welfare enhancing innovation served up by the Romans, the paper contributes a valid reminder of just how much the Big Techs have done, and continue to do, for ‘us’. Yet, the conclusion appears less divine and more Darwinistic. According to the espoused evolutionary economics, the up-shot for many firms blessed with mere ordinary capabilities is the prospect of little or no intervention; crucifixion awaits them in the name of ‘welfare’.
What happens if the EC and CMA proposals, dynamic capabilities theory and any combination thereof turns out to, in some sense, get it ‘wrong’? The answer may require us to ask the title question straight: “What have the Romans ever done for us?”. Our modern democratic system builds upon foundation stones laid by the Roman Republic and offers the impetus for a competition law standard quite different to that of consumer welfare or total welfare. By focussing upon the relationship between competition and democracy, competition policy may yet be able to carve out a path that balances public and private interests. Indeed, there exists a powerful body of literature from which it follows that protecting competition itself, and in certain instances intervening to protect less efficient competitors, directly facilitates pluralist democracy. Given the historic battles waged to protect such democracy, not least in the twentieth century, this author would observe that of all the current proposals on the table to regulate the Big Techs, one that recognises the symbiosis between competition and democracy must surely require the shortest ‘leap of faith’.
Ben Evans holds an LLM in IT & IP Law and is currently researching an integrated property rights and competition law solution to the problem of ‘data advantage’. He can be reached at: email@example.com / +44 (0) 1603 542 054.