The New European Tech Doctrine Part 1: Why Silicon Valley is starting to feel the burn from European regulators

On March 30th, the European Union’s Competition Chief Margrethe Vestager ordered the tech-conglomerate Google to pay a $1.7 billion fine for ‘abusing its position in online search advertising’. The European Commission reported that Google had aimed to shield itself from competitive pressure; the firm had imposed restrictive exclusivity clauses in AdSense contracts, blocking its rivals from placing ads on 3rd Party websites. The penalty was the third in a series of billion-dollar antitrust violations delivered by Europe to Google since 2018, and indicative of a wider-trend of European regulation against rapidly-growing technology companies such as Facebook, Google, Apple, and Amazon.

“Google has cemented its dominance in online search adverts and shielded itself from competitive pressure,” –Margrethe Vestager, the European Commissioner for Competition, said in March, commenting on the necessity for additional regulation to combat the excess power of big-tech.

Western Regulators have come into showdown with technology firms over anti-competitive behaviour before, with famous examples including IBM in the 1960s and Microsoft in the 1990s. Nevertheless, crimes which today’s tech firms have been accused of go far deeper than anti-competitive behaviour, including impeding electoral democracy through permitting misinformation campaigns and abusing individual privacy. As technology firms become ever-dependent on machine learning models obtained through vast user data-collection, new complex questions therefore arise. To what extent can data collection be justified? Who should control this data? And is vast data-storage turning dominant tech firms into effective monopolies, necessitating government-intervention?

margrete

Margrethe Vestager, EU Commissioner for Competition

European regulators have thus begun pioneering a new technology-doctrine which combines existing data-privacy concerns with antitrust legislation to prise open up tech-firms to new competition, whilst giving users more control over their own information. If successful, this doctrine could help reduce the unchallenged market-power of technology firms worldwide, allow for innovation, and empower millions of users worldwide with additional consumer-freedom.

The economic rationale behind combining competition and privacy concerns centres on the tight-control which tech companies possess over user-data, which has turned them into established incumbents with unrivalled dominance in their respective industries. Andreas Mundt, head of the German competition authority, has argued that ‘ no firm can replicate Facebook’s vast knowledge of user personal-data, nor compete with Amazon’s trove of purchase-history data’. In a 300-page ruling against the company, this analysis was used to justify strict new legislation including a ban on ‘meshing together’ user data from Instagram and WhatsApp and tough restrictions on user-tracking capabilities.

Technology firms’ data-collection is doubly troubling due to the network effect experienced by social networks. The value of a technology service increases according to the number of others using it; each additional user adds a positive externality for the third party in a virtuous cycle. This can include direct network effects, such as the additional value when users’ friends join the network, as well as indirect network effects where a large user-base attracts complementary products and services and generates additional net value to the platform. Unrestricted data-gathering by technology firms can thus create a significant barrier to entry as users are continually funnelled to a few singular firms offering the most individualised recommendations and personalisation.

However, European regulators have been chastised for prioritising ‘disrupted’ European media groups, carmakers and telecommunications companies over disruptive technology firms such as Uber and Amazon which originate from abroad. Regulation deemed over-zealous has been largely placed upon foreign firms making them more palatable to the public and politicians alike. An example comes from April 15th, with the EU passing sweeping new copyright rules under Article 13 enforcing more  rigorous new standards for infringing internet content. These rules have been publicly opposed by several leading technology-companies such as Google as restrictive to freedom of speech online and providing a pathway to stricter internet-censorship.

google 1.5 bn

The EU has fined Google $8.2 billion since 2017 for antitrust violations

Moreover, Europe’s recent rampant regulation against technology firms have been criticised by lobbyists as overly-punitive and antithetical to innovation. Evidence for these claims comes from the fact that Europe is not an impressive performer for technology behemoth creation; the region houses just 8 of the top 200 worldwide internet companies. Europe’s keenness to regulate may be a barrier to the growth of tech firms in comparison to the hands-off American approach. Complex regulatory policies may particularly harm tech start-ups with limited resources devoted to compliance.

Whilst these criticisms are certainly valid,  it is undeniable that technology-firms’ near-monopoly control obtained via vast quantities of user-data is a threat to competition. As Ms Vestager has argued, these vast user knowledge-networks are analogous to the irreproducible system of power lines offered by electricity utility companies; both require stringent regulation to prevent abusive market-dominance. ‘You might not pay in cash but you might as well do’ Ms Vestager explained, chastising the significant amount of individual personal-information sacrificed to technology firms to generate revenue through personalised digital-advertising.

Big-tech has often been praised for being more socially responsible than the financial sector, offering rapid-growth and much opportunity to nations in the form of skilled-labour. Nevertheless, the near-monopoly power held by tech-firms through unregulated data-collection is ultimately detrimental to consumer freedom. A tide of market reform is urgently needed to level the playing-field.

Thomas Kurian

 

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