Canada’s competition laws do not need to be fundamentally rewritten for “big tech.” The best approach to ensuring Canadians benefit from digitization lies, not in devising new competition principles targeting a few large players, but in modernizing the application of principles we already have.
Data has always been at the heart of relations between businesses and their customers and suppliers. There has also always been a market for the attention of potential customers. What digital technologies have done is massively enhance our ability to collect and analyze this kind of data. Businesses can reach customers and suppliers on a previously unimagined scale, yet with pinpoint precision, an effect called “mass customization.” New business models based on digital technologies have challenged incumbents to do better in a wide range of industries.
These types of applications have proven very popular with Canadians. For some critics, it’s a short step from this popularity to allegations that “big tech” has become too big and is a threat to competition, innovation, and even the growth of small businesses. But these critics don’t show why that would be the case — largely because of three fallacies.
The first is the implicit assumption that the firms that make up “big tech” all have a similar impact. In fact, their business models differ a lot. Some compete in highly concentrated markets: Microsoft’s Windows and Apple’s MacOS together hold more than 90 per cent of the global market for desktop computer operating systems. That contrasts with other sectors, like retail, where traditional operators like Loblaw and other “bricks and mortar” retailers have taken on Amazon and other online marketplaces by making customer data, accessed digitally for example through loyalty programs, a cornerstone of their strategy. Consumers are constantly shopping around and switching stores to get the best deal.
Given all this variety, it should be clear that policy proposals directed at “big tech” need to be considered on a case-by-case basis.
The second common fallacy is an excessive appeal to the ideal of perfect competition. Innovation is often driven by companies that seek to stand out in the marketplace by offering potential customers better, more convenient alternatives. Online advertising now constitutes over half of the advertising market in North America. It is led by Facebook and Google, who therefore now hold a sizeable share of the overall advertising market. Other media who relied on advertising for revenues have had to adjust their business model, sometimes in ways they’d rather not. But analysts and policy-makers should not confuse a successful technology or a popular offering with unfairly exploiting market power. Being big is not always the result of being bad.
The third fallacy is that digital offerings somehow inhabit their own markets. This approach abstracts from both substitutability and complementarity between digital offerings and traditional modes of delivering goods and services. Both need to be looked at as part of a single market. The future is very likely to be “omnichannel”: from retailing to food delivery services, there is a rapid convergence of different modes of offering services by the same business. Consider how “big box” stores are now offering sophisticated online shopping alternatives, or traditional restaurants providing deliveries through their own web site or apps.
A serious discussion about competition in the digital age requires recognizing that these fallacies are just that. The important point is that making sure markets are contestable and the rules of competition are fair remains as salient in the digital age as it has always been — but not any more salient.
Although competition authorities don’t need new laws, they do require the tools and resources to enable them to detect and impose remedies for anti-competitive behaviour, including blocking or modifying proposed acquisitions that would reduce competition. In an era of fast-paced and complex corporate decisions enabled by digital technologies competition authorities need what it takes to keep up.
The digitization of business, research and government activities in Canada has had a positive impact on productivity. It has contributed to employment and economic resiliency during the pandemic. We have an economy in which almost every player with the connectivity and required skills — across many industries — is now able to reach customers through various technologies that allow them to collect, analyze and leverage data. Our approach to competition in the digital age needs to reflect that reality.
Daniel Schwanen is Vice President of Research at the C.D. Howe Institute.