BIG DATA & ANTITRUST

Privacy as an Element of Product Quality in Assessment of Data-Driven Mergers

The current approach to data-driven mergers largely ignores the potentially detrimental effects of concentration of personal data on consumers. However, there must be a route that enables the integration of privacy concerns into competition law analysis to ensure that privacy, considered as a fundamental aspect of consumer welfare, is not degraded by the merger.

By Nathalie Alquati Bonisoli

April 14, 2021

In the debate on the intersection between big data, privacy, and antitrust, one of the main issues is that the current approach to data-driven mergers largely ignores the potentially detrimental effects of concentration of personal data on consumers.

Competition authorities constantly assess the role of data as a source of market power, and how the aggregation of data by the merging parties could potentially constitute a barrier to market entry for competitors. When it comes to privacy-related issues, the present assumption is that it does not constitute an antitrust concern, and it should be addressed only by consumer protection laws or privacy legislation.

This view equates privacy and personal data protection as other non-economic interests and therefore falls outside the scope of competition law analysis. Several attempts have already been made to address the detrimental effects of the accumulation of data by advancing theories consumers’ harm as a method to include privacy concerns in the competition law analysis. One of these arguments was pursued by analyzing the harm to consumers due to the diminution of product quality.

Consumer Protection in the European Competition Legal framework

Consumer protection is an inherent feature of competition law. In the European legal framework, the prohibition of abuse of dominance entails an extension of the consumer-protection function, with a further focus on consumer choice and implications for innovation.

Accordingly, also the European Merger Regulation refers to consumer welfare: when conducting a merger review, the Commission should take into account the interests of consumers, and that the technical and economic progress brought about by a merger is to the advantage of consumers.The areas of abuse of dominance and mergers are intertwined, as the legal test applicable to mergers is based on the creation or strengthening of a dominant position following the merger. 

Privacy as an element of product quality

The root to comprehend privacy and data in the scope of competition law is to consider privacy as an element of product quality, which constitutes a significant non-price parameter of competition in online markets.In this respect, the EU already highlighted the importance of non-price parameters of competition, such as product quality within the scope of merger analysis. The ECJ confirmed this approach in Microsoft/Skype where it assessed the merger’s potentially detrimental impact on non-price competition in the form of degradation of innovation and service quality.

However, competition authorities are still reluctant to block a merger on the sole ground of its negative effect on product quality or other parameters of non-price competition.The Commission approach in  Facebook/WhatsApp case clearly reflects this line of thought. After the merger, Facebook changed WhatsApp’s privacy policy to enable it to combine WhatsApp user data with Facebook user data. Consequently, WhatsApp users received a notice that WhatsApp would transfer their data to Facebook in a take-it-or-leave-it choice.

Whereas the Commission acknowledged that privacy is increasingly valued by consumers, it still refrained from actually assessing whether the merger would lead to a decrease in the future quality of the privacy offered by both undertakings.In this respect, the EU Commission stated that any privacy-related concerns deriving from the data aggregation within the control of Facebook do not fall within the EU competition legal framework.In this case, the Commission pointed out that the merged entity will continue to be bound by EU data protection regulation after the merger. This case is emblematic in showing that instead of looking in potential privacy-related damage on consumer welfare in the merger, the Commission stated that privacy concerns should not fall under the competition law framework.

The Facebook/WhatsApp case illustrates how the present antitrust authorities lack the adequate tools and methodologies to account for privacy as a non-price dimension of product quality. It could be argued that, by following this theory of harm to consumers, competition authorities face the problem that product quality is difficult to measure and might give rise to imprecise and complex comparisons. On one hand, it could lead to harm to consumers who value privacy as product quality. On the other hand, the benefits that consumers will derive from a merger must be evaluated, as access to more user data may also enable an online platform to improve the overall product quality.

For this reason, what can be understood is that under the current legal framework, degradation of the quality of privacy is primarily perceived as relating solely to consumer laws and data protection regulations. However, the focus of consumer law is on advertising and on quality, hence it would not be a proper tool in this context, as it is not equipped to deal either with monopolistic powers or with mergers.Accordingly, privacy-related consumer harm should not be conceived as irrelevant in the competition assessment, as a merger which entails a decrease in privacy protection will not necessarily violate EU data protection laws.

Concluding Remarks

Since the volume and variety of data aggregated by technology companies entail broad societal implications it is necessary to broaden the scope of competition assessment in data-driven mergers. What is now desirable is to find a route that will enable the integration of privacy concerns into competition law analysis to ensure that privacy, considered as a fundamental aspect of consumer welfare, is not degraded by the merger. This article presented one of the theories on the appropriate role of data and privacy in the competition law assessment which will empower competition authorities to integrate potential consumer harm arising from a decrease in privacy protection into their merger assessment.

Nathalie Alquati Bonisoli is currently completing Master of Laws degree in European Competition Law and Regulation at the University of Amsterdam. As an undergraduate, she studied European Law at Maastricht University where she graduated with the Business Law specialization. During her bachelor's she participated in the Erasmus program in London where she studied English law at Westminster University. She is fluent in Italian and English and can communicate in Dutch, French and Chinese.