“Data” as an Object of Contracts/Within the Framework of Competition Law-2
* This article was divided into two articles to improve readability and due to the separate but combined nature of the topics.
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In this article, I will discuss these topics:
“What are the main purposes of competition law?”
“What is “data” as a market product?”
“Let’s get into some technical details-General Data Protection Regulation/GDPR(2016)”
The objectives of competition law vary according to countries and jurisdictions, but it may be possible to list the main objectives as follows:
- Economic policy improvement,
- Promoting economic growth,
- To provide consumers with high quality and affordable products by using business competition,
- To increase productivity and reduce costs so that individual firms and individual sectors and the economy as a whole operate more efficiently,
- To provide better-supplying services,
- Improve economic performance,
Competition law is a law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Protecting the interests of consumers and ensuring that entrepreneurs have an opportunity to compete in the market economy are often treated as important objectives of competition law.
We can say a fundamental purpose of competition law is to prevent companies from submitting to anticompetitive agreements, preventing companies with a strong position in a market from abusing their market power, preventing them from engaging in behavior that will disrupt the competition process and damage competition. Thus, it prevents them from reducing competition by merging with their competitors.
“Data” as a Market Product
In the 21st century, we know that the most important power factor is knowledge. Data is the most important asset. Because of that, understanding these concepts and their consequences are important. The ownership of this data (who owns which data, to which degree), protection of data, usage of this data are the new concepts linked to anti-trust law.
Like any other goods, data can be the object of a contract and therefore the main product of a market. From a competitive perspective, the situation is uncertain. While access to "data" as a resource can improve consumer welfare, questions arise as to how data density at the hands of a few companies can prevent competition and prevent abuse of market power.
“Rights for data subjects: the General Data Protection Regulation(GDPR)
While the Database and Trade Secrets Directives protect data collectors, usually firms, data protection legislation aims to protect individuals (the “data subject”). In the law & economics literature, there is a considerable debate on the merits of granting full ownership rights to natural persons to their personal data. That debate was partly generated by the EU Data Protection Directive (1995), the predecessor to the General Data Protection Regulation (2016).
Acquisti et al. (2015, p 453) argue that while the assignment of property rights is generally welfare-enhancing, granting consumers the right to sell their personal data may undermine consumer welfare. Sellers in a monopolistic market try to improve their capacity to pricediscriminate collecting personal information on consumers. Marginal consumers in a monopolistically priced market make no surplus on their consumption and will be willing to sell their personal information for any marginal price. That enables the seller to collect more data and improve price discrimination. The market unravels as all consumers gradually move to the marginal position with improved price discrimination and will reveal their preferences. The monopolistic seller ends up with perfect price discrimination information across the entire market and acquires all consumer surplus. A counter-argument occurs when transaction costs are brought into the picture. In that case consumers would not sell their data unless the price exceeds transaction costs. In practice, we observe many consumers exchanging their personal data on websites in return for obtaining information. This implies that consumers perceive this exchange as producing a positive consumer surplus.
There are differences between the legal and economic interpretation of the GDPR. From a legal point of view, the GDPR does not give data subjects full ownership rights, but only certain specific rights such as access, limited reuse, the right not to be subject to data processing without a legal basis.
The data collector ("data controller" in terms of the GDPR) has a trust-based role and must ensure that certain rights of the data subject under the GDPR are respected. In this sense, the GDPR de facto (but not de jure) assigns ownership rights over personal data to the data collector, although these may be limited, due to its fiduciary role.
In effect, the individuals whose data are processed access "free" online services and share their personal data in online marketplaces, for example by allowing the service provider or data controller to collect some personal data.
Legal aspects of competition in data markets
Besides the legal debate on the merits of granting exclusive ownership rights to data, there is also a debate on the reverse problem, granting access to exclusively owned data. Full ownership grants an exclusive monopoly right on the use of data. To the extent that the data are unique, this could lead to distortions in the data market. The owner could decide not to sell his data at all, thereby blocking access to potential downstream users of the data, or extract a high rent from downstream users that could completely erode their surplus. This hold-up problem raises the question of competition in data markets and access to data.
EU GDPR (2016) allocates only a limited number of specific personal data rights to data subjects. It leaves all other rights or residual ownership rights unspecified. That creates a bargaining situation between the data subject and the personal data collector. In the data economy this often results in an exchange deal whereby the collector provides the requested information to the data subject in return for being allowed to collect personal data about the subject, for instance through cookies in a web browser.
From an economic perspective, the data collector becomes the de-facto owner of the residual rights to personal data, even if the law does not specify or even rejects an ownership right. His rights are limited by the specific rights assigned to the data subject but he can claim the costs and benefits of everything not covered by these specific rights.
While the legal debate gets stuck in the question to whom an ownership right on data should be given, economics sees easily transferable property rights as a sufficient condition for an efficient allocation of resources. According to the Coase Theorem (Coase, 1960), it does not matter which party receives the initial allocation of property rights. The rights will end up in the hands of the party that attaches the highest value to these resources, provided that transaction costs remain relatively low compared to the value of the right.
In order to add a different perspective and to illuminate the above-mentioned Coase Theorem:
The short history of the digital economy has so far shown that competitive advantage can be achieved not by accumulating too much data, but by reaching a level that can make better use of data.
Especially large companies use their data to improve their products rather than sell it because it is against both the relevant laws and more. For this reason, we discussed the concern that data “being in the hands of one person” may mean that the "product" and the "market" are owned by one person.
However, although some data was not traded or sold, this did not prevent rival firms from entering the market and making huge profits. For example, Skype and Facebook, social networks have chunks of data, but Whatsapp, Snapchat, and Instagram have managed to establish a solid footing in the market even without this data.
References:
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