On 17 June, the UK Competition & Markets Authority (“CMA”) published its reporton the commercial use of consumer data collected by companies. The CMA began its review of the issue with a call for information in January.
In short, the CMA concludes that, while consumer data presents some characteristics that sets it apart from other data, these characteristics are not unique to consumer data and the markets in which it is collected and used. As a result, existing competition and market tools are effective to tackle conduct that may give rise to competition concerns in these markets. The German Monopolies Commission reached a similar conclusion in its digital markets report published on 6 June.
1. Key characteristics of consumer data and data markets
The CMA identified a number of differentiating characteristics of consumer data and the markets in which it is collected and used, including:
- Consumer data can be used simultaneously by multiple people.
- The cost structure of the collection, storage and processing of consumer data can generate economies of scope and scale.
- There is a significant diversity in the types of consumer data collected and used and, therefore, its value.
- The two-sided nature of a number of data markets increases the risk of having fewer and larger firms, and may generate barriers to entry.
- Because of the fast-moving nature of data markets, competition assessments should take into account both the level of competition at the time of assessment and its likely evolution.
2. Main competition concerns
On the basis of the evidence received in response to the call for information, the CMA identified three main competition concerns:
a. Barriers to entry and expansion in data markets
The CMA received mixed evidence but it identified the following types of barriers:
- Structural barriers arising from industry characteristics including the potential for economies of scale and scope and network externalities (which may be more significant in two-sided markets where consumers single-home) and the technology used, etc.
- Strategic barriers arising if incumbent firms intentionally create or enhance advantages over smaller rivals (e.g., brand and reputation, experience, first-mover advantage and pricing strategies).
- Absolute barriers including legal barriers (e.g., data protection requirements) and technical advantages including preferential access to intellectual property. The financial burden imposed on small or new firms as a result of complying with regulation might discourage market entry, reducing competitive constraints and limiting innovation.
b. Market power and restriction of access to consumer data
The CMA concluded that, access to “important” consumer data may enable companies to exploit market power whether (i) other companies do not possess and cannot freely and easily access the data; and (ii) the data has considerable value in the process of offering products or services such that without this data, companies cannot offer products or services or only inferior ones.
Further, the CMA found that firms may seek to leverage market power from one market into a related market by, for example, bundling and tying. While such leveraging may create efficiencies for companies and consumers, in could also foreclose rivals or remove incentives for market entry.
c. Discrimination against consumers
The CMA looked at ways in which companies may try to use consumer data to discriminate between consumers (either individually or as a group), noting that the effect of discrimination is not clear cut – while it may increase the number of consumers using a service, it may also enable exploitation of market power.
- Price discrimination
Offering different prices to consumers does not always amount to price discrimination (e.g., insurance services – where consumer data is not used to estimate the costs involved in providing the service). Some respondents indicated that price discrimination may decrease consumer visibility of the going rate for particular goods or services, and that personalised offers may adversely impact on vulnerable consumers. However, the CMA noted that it had not seen clear evidence of use of price discrimination (based on consumer data) that was detrimental to consumers.
- Other types of discrimination
Companies may discriminate between consumers on the basis of other factors, such as quality. Consumer data may enable companies to determine the lowest quality acceptable to consumers, enabling companies to exploit consumers by providing lower quality products at the same price as higher quality products.
3. Key market indicators
The CMA stressed that consumer data is used in different types of markets, and is used in different ways. As a result, it is essential to understand the specificities of each type of market in order to take a view regarding the impact of the collection and use of consumer data on competition. That said, the CMA identified a number of indicators that increase the likelihood of competition concerns:
- Markets in which data is a significant input into products and services produced (in the same or in a related market). Companies operating in these markets tend to have the ability and stronger incentives to exclude competitors by denying access to data. Further, barriers to entry are often stronger.
- Markets in which there are few substitutes for the data collected by firms. Companies operating in these markets may be able to more easily prevent or restrict access to (and use of) consumer data by rival firms, thereby excluding them from the market.
- Firms with market power that control the collection of consumer data in a market. Such firms have the ability and stronger incentives to further exploit their power over the collection of consumer data.
- Markets in which firms do not compete in relation to data privacy and transparency of their uses of consumer data. Privacy is seen by some as a non-price dimension of competition. However, the CMA found that because consumers do not always understand the value of their data and how their data is used, companies may have less incentives to compete in relation to the protection of privacy. This may manifest itself in failures to deliver the services that consumers want.