🔬 Research summary by Vass Bednar, the Executive Director of McMaster University’s MPP in Digital Society Program and holds fellowships with the Public Policy Forum and CIGI.
[Original paper by Vass Bednar, Ana Qarri, Robin Shaban]
Overview: A new independent working paper urges the Ministry of Innovation, Science, and Economic Development to address data-driven dominance. Ahead of the report’s release, Minister François-Philippe Champagne said that he would “carefully evaluate potential ways to improve [the] operation” of the Competition Act, including “adapting the law to today’s digital reality to better tackle emerging forms of harmful behaviour in the digital economy.”
How might online competition fundamentally differ from traditional retail strategies?
This paper provides an overview of the strategies and tactics of leading digitally-enabled firms in obtaining and maintaining “data dominance” and discusses how data dominance may be leveraged within markets to increase profits and protect against competition.
In an attempt to offer more concreteness in these discussions, the paper takes a case study approach to consider whether [new] digital business behaviours are sufficiently captured under the Competition Act, and what would need to be true in order for the Bureau to take a related case forward. This theoretical approach directly tests the flexibility of the current Competition Act.
It ultimately provides an analysis of the intersections between data-dominant firms’ practices to obtain, control, and leverage data and applicable competition concerns, and it ultimately proposes a cross-cutting policy approach that will aid in preserving and encouraging competition in data-driven markets (including traditional industries embracing digital adoption) where there is a data-dominant incumbent.
The bulk of the paper discusses nine case studies that address business behaviour in a data-driven context. In each case study, the paper describes a data-driven business behaviour, discusses the harm associated with that behaviour, considers whether it is currently captured by the Act, asks whether it may be more suitably addressed through other policy levers, and references any relevant open cases or investigations in other jurisdictions.
These behaviours are:
- Gatekeeping, whereby a company or platform mediates the public’s access to information and commerce;
- Self-preferencing, which involves actions that are design to favour a firm’s own products or services over those of its competitors by a platform that is open to other people’s products;
- “Copycatting” or “informed replication,” which refers to the ability of firms that operate marketplaces, such as platforms, to derive insights based on customer data – both directly volunteered and also “exhaust” that may be derive – in order to identify products in the marketplace that the firm can replicate;
- Labour market monopsony, which explores anticompetituve conduct and the wany that monopsony power manifests in labour markets with the use of data;
- “Personalized” or algorithmic pricing; whereby automation is used to target users with a price that matches their personal buying threshold;
- consumer IoT [Internet of Things] ecosystems and commercial IoT ecosystems; which explores important adjacent issues in other, related domains while focussing on how data sets collected by IoT user interactions can be leveraged to infer patterns that help predict future user behaviour;
- data-driven mergers and joint ventures, which considers the role of data as a prompt for mergers that can fundamentally change the structure of a market by creating a “supercompetitor,”
- and killer acquisitions guided by data, which refers to when incumbents acquire nascent competitors to neutralize them.
A key finding of the paper is that various conceptual gaps exist in the Competition Act rather than evidentiary ones. At the same time, the Bureau may not have the legislative capacity to discern some of these data-driven behaviours under the existing Act, which further inhibits satisfying enforcement.
Analysis ultimately demonstrates that the current “effects-based” or “consequentialist” approach for evaluating anti-competitive conduct is not well-suited to addressing dynamic competition concerns. It may be incredibly difficult, if not impossible, to predict the outcomes of markets. In a data-driven, digital context, the consequentialist approach fails and is likely unable to capture the numerous variables. The authors propose a more rules-based approach to evaluating anti-competitive behaviour that may be less flexible, but more predictable.
Between the lines
The paper concludes with a cross-cutting public interest policy approach that will aid in preserving and encouraging competition in data-driven markets where there is a data-dominant incumbent by addressing new forms of market power, improving regulatory capacity, introducing new vehicles for transparency, and addressing complexity.
Minister Champagne’s recent announcement that a review of the Competition Act may be forthcoming provides an encouraging opportunity for Canada to engage in a robust competition conversation.
It is unlikely and inappropriate that all competition issues related to data-driven behaviours will be addressed through amendments to the Competition Act. Policymakers must take a comprehensive, all-of-government approach that mirrors that of the Biden Administration.
The paper points to a suite of supplementary policy levers that regulators should be including as part of any competition modernization efforts. These are: the potential of provincial labour law to address the potential monopsony power of gig platforms, provincial consumer protection organizations and privacy legislation. Another area for future consideration is the potential of considering data to be an essential facility. Further research on data brokers, dark patterns, subscription cancellation mechanisms and smart contracts on blockchain would be additionally relevant to digital competition issues in Canada.
A renewed approach to competition in Canada can empower consumers, support workers, and promote entrepreneurship and productive collaboration with relevant government actors.