Issues in the Digital Economy: Assessing Competition

In the wake of Facebook's recent data scandal, along with Mark Zuckerberg's testimony before Congress, I decided to revisit a presentation I made on competition in the digital economy about a year ago. As the testimony shows, this is an issue that the world is still struggling to come to grips with, as regulators continue to seek ways to address it. Really, who is Facebook's competitor?

This may seem like a simple question, but in reality it's not. The digital economy brought along with it apps and platforms, and with them, the emergence of multi-sided markets. These markets are a direct result of a platform's ability to connect different consumers, producers, and "prosumers" to some form of value which is no longer bounded by space and time. And so when Mark Zuckerberg was asked who Facebook's competitors were, I wasn't surprised when he talked about different groups of competitors including tech giants Google and Amazon, who themselves operate in multi-sided markets.

The challenges with assessing competition is in part due to its expected risks. Do we encourage competition or stifle innovation in the process? But it doesn't end there. In the digital economy, data is the new oil; and that changes how firms compete. Take a look at the User Feedback Loop of Data below. I adapted this from the OECD's document on Data Driven Innovation, 2016.

Without data, firms in the digital economy cannot benefit from this reinforcing feedback loop. The reason is simple: users need service quality, and that can be only be provided if the firm has data. But data comes from the users. In effect, the big grow bigger, and the small barely survive. Indeed, in the digital economy, firms compete for the market, rather than in the market.

Issues of portability complicate the issue, because unlike other products, users can't easily switch from one provider to the other. For example, you can't just port over your data from Facebook unto uhm, what's the competitor again? The lack of such instruments leaves users locked-in, and that calls for Anti-trust regulatory measures.

On May 25th, however, the EU General Data Protection Regulation (GDPR) will come into force. This comes at a critical time when we need to define known unknowns that affect our digital journeys. Among other things, GDPR will give EU citizens more control of their data -the oil that powers the digital economy, require firms to seek clear consent from users before using their data, and introduce data portability to give users more options to choose their providers.

We are at a critical time in human history. We are more connected than we have ever been, and it is up to us to determine how this connection evolves. The EU has began with this important framework, and other parts of the world need to be having discussions before it's too late. Facebook's data breach is alleged to have had a profound impact on the 2016 American presidential elections. Who knows what the next data breach will do?