Data Protection and Online Platforms

Tian Mao

1, a

and Qingchu Jiang

2, b

School of Law, China Jiliang University, Yiwu, Zhejiang, China

School of Foreign Language, Nanjing University of Science and Technology, Nanjing, Jiangsu, China

Keywords: Essential Facility, Antitrust Law, Data.

Abstract:

Everyone needs data to succeed in today’ s world economy. The information extracted from it form the

basis of competitiveness and growth for each player in the digital marketplace, and information built on the

disclosures made by individuals when using online services has become an important asset in the digital

economy. While digitization has contributed to the dynamic evolution of competition, the market position

has also become a growing concern. This paper focuses on whether data can be considered a key factor in

the creation of monopoly positions during the development of platforms, and suggests the introduction of

the essential facilities principle to mitigate the data monopoly phenomenon, promote market competition,

and facilitate industrial innovation and technological development.

1 INTRODUCTION

The emergence of the digital economy has brought

about new business models and opportunities. It has

brought about new market developments that have

impacted society as a whole. Unlike non-platform

companies that sell their products after assigning a

certain unit of value to each link of the distribution

chain, the platform creates value follows the

principle of triangular relationship (Vicente, 2020).

For example, Youku users will be exposed to non-

search-displayed videos and ads before they choose

to watch videos on their own. These ads will

potentially help create connections between users and

merchants. Through such measures to optimize

interactions, the cost of the platform is decreasing,

and strengthening the generation of network effects.

All in all, while digitization continues to contribute to

a dynamic evolution of markets, concerns are

increasingly raised about the alleged powerful market

positions of a number of key players.

(MONOPOLKOMMISSION, 2015)

2 PLATFORM MONOPOLY AND

BIG DATA

Providers can collect information about the profile,

behavior and interests of users, the increasing

collection and use of data has positive welfare effects

. However, the increased collection and use of data

can also result in negative welfare effects . In

particular, having control over and being able to

analyze large volumes of data may form a source of

power for incumbent market players

2.1 Switching Costs

The high threshold of switching costs using data is

currently an important means for Internet companies

to carry out monopolistic behavior. Switching costs

are divided into direct switching costs and indirect

switching costs, which are one-time costs incurred

when a customer switches from one supplier of a

product or service to another supplier. For

consumers, switching costs are incurred when

changing suppliers whenever a specific investment is

made in the current supplier that must be repeated for

any new supplier. And when switching to a new

product or service is costly, consumers will likely be

forced to stay with the initial supplier so as to

undermine consumers’ rights. For example, in the

case of social networking platforms, they seek to

discourage user churn by restricting users from

transferring their profiles and other content to

competitors.

228

Mao, T. and Jiang, Q.

Data Protection and Online Platforms.

DOI: 10.5220/0011733800003607

In Proceedings of the 1st International Conference on Public Management, Digital Economy and Internet Technology (ICPDI 2022), pages 228-233

ISBN: 978-989-758-620-0

 2023 by SCITEPRESS – Science and Technology Publications, Lda. Under CC license (CC BY-NC-ND 4.0)

2.2 The Network Effect

The network effect promotes the use of data by

platforms to carry out monopolistic behavior. As the

number of users in a platform gradually increases, the

analysis of consumer data becomes more in-depth

and comprehensive, and the services that platforms

can provide become more targeted. When the value

of products or services increases with the number of

users, the network effect is direct; When the number

of users of a commodity increases, so as to produce

more complementary products or services, thus

increasing its value, it is indirect. While network

effects benefit consumers in the short run by

increasing consumer utility, they can also make it

easier for firms to gain dominance and strengthen

barriers to entry. (WORLD ECONOMIC FORUM,

2011) In the case of social platforms, for example,

since more people can be reached through the same

platform, the value that users derive directly from

social networks increases with the number of other

users in the network. As more users join social

networks, the types of personal information available

increases, and compatible applications such as

service offerings on the platform increase. This

indirectly increases the value of the platform to users.

Thus, giving full play to the platform network effect

is a way for dominant Internet companies to

consolidate their monopoly position.

2.3 The Acquisition Strategy

The acquisition strategy is used to strengthen data

consolidation. The more important reason for

platforms to engage in monopoly behavior is to

maintain competitiveness. In a market that is often

characterized by dynamic competition and winner-

take-all, mergers are widely used as monopolistic

strategies for platform firms. When potentially

competitive start-ups emerge in the market,

acquisitions can effectively control the threat of

competition, refine the type of data mastery, and

have positive implications for the establishment of

diversified business lines. This kind of behavior is

also called Killer Acquisitions, which will inhibit the

competitiveness of the market.

(MONOPOLKOMMISSION, 2015) Taking

Amazon's acquisition strategy as an example, its

strategy has effectively protected and expanded

Amazon's market power in e-commerce and has

helped Amazon expand that power into other

markets. Over the past 20 years, Amazon has

acquired at least 100 companies. With more online

and offline consumer behavior data, Amazon's

acquisitions have started a self-reinforcing cycle that

has caused a widening gap between the platform and

its competitors.

3 REGULATE DATA

MONOPOLIES

Data is becoming a necessary input of production for

a variety of products and services competing with or

complementary to the services offered by incumbent

providers of online search engines, social networks

and e-commerce platforms. By refusing to share

information with potential competitors or new

entrants, incumbents may limit effective competition

to the detriment of consumers. In this context, the

question rises whether the denial of a dominant firm

to grant competitors access to its dataset could lead to

liability under the so-called Essential facilities

doctrine. In this context, the thesis contributes to

academic and policy discussions about how data-

related competition concerns should be addressed

under competition law.

3.1 Origin of The Essential Facilities

Doctrine

The essential facilities doctrine has in the past been

applied to physical infrastructures, including ports

and tunnels, as well as to intangible assets protected

by intellectual property rights. This doctrine attacks a

particular form of exclusionary anticompetitive

conduct by which a dominant undertaking refuses to

give access to a type of infrastructure or other form

of facility to which rivals need access in order to be

able to compete. (Maxwell Meadows, 2015) Because

of the particular nature of data collected by providers

and the new online platforms’ models that are

employed, potential refusals to share data give rise to

new competition concerns and may require a

different analysis under the essential facilities

doctrine.

3.2 The Possibility of Introducing the

Principle

Compared with the EU and the US, the current

Chinese regulations on refusal to deal in the abuse of

dominant position are mainly reflected in Article 17

of Anti-monopoly Law of the People’s Republic of

China, which restrict trading counterparts to transact

only with the business operator or only with

designated business operators without a valid reason.

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229

The relevant Chinese documents also include

operators controlling essential facilities in the

platform economy as one of the elements. It shows

the feasibility of introducing the essential facilities

doctrine into the Anti-monopoly law.

4 ANALYSIS OF THE

APPLICATION OF THE

DOCTRINE

From its inception to practice, the essential facilities

theory has been mainly applied to the real economy,

which determines that when it is applied to the

Internet, it should be adapted and modified to meet

the actual needs of data competition. As shown in

Figure 1, except for a few natural monopoly firms,

the traditional monopoly firms are in the stage of

diseconomy of scale on the right side of MC curve.

But this above theory is subverted in the Internet.

The Internet platform with market competition will

even maximize economic efficiency, fairness, social

welfare and economic growth. On the whole, the

bilateral market structure, of Internet platform

enterprises will have a unique impact on the

application of the essential facilities theory, which

will make the identification of Internet essential

facilities follow a new path and paradigm different

from the traditional essential facilities.

4.1 The Bilateral Market Structure

A bilateral market is relative to a traditional market,

specifically a market structure in which a market

operator offers a product or service to two or more

consumer groups at the same time, and the

consumers are related to each other. (D.S. EVANS,

2008) The asymmetry of market prices is one of the

essential characteristics of a two-sided market. The

bilateral market structure of the Internet has given

rise to a predominantly free service model, which has

led to a change in the way the relevant market

definition relied upon in determining the necessary

facilities (Rochet, 2006). Therefore, it is inconclusive

whether the free market can constitute an

independent relevant market, and the determination

of market dominance of Internet platform enterprises

faces difficulties in reality, and the traditional

essential facilities theory, which presupposes that the

owner of the facility has a monopoly position in the

market for the application of the theory, faces

difficulties in its application.

Hal Walian: microeconomics, Economic Science Press, 2010, P. 250.

Figure 1: Monopoly equilibrium model of traditional manufacturers.

Yang Dong: Anti monopoly regulation of digital platform, Journal of Wuhan University, 2021, Vol. 74 No.2, page 160-171

Figure 2: Economic structure.

Platform

AlgorithmData

Competition

Damage

Market

Power

Monopoly

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230

4.2 The Lock-In Effect

The lock-in effect of Internet platforms raises the

technical difficulty for the application of the essential

facilities theory. In the Internet platform economy,

the use of Internet products and services by Internet

users as consumers creates huge sunk costs. In detail,

when network users leave the original Internet

platform and seek new similar services, they create

serious switching difficulties because of the sunk

costs.

Under this condition, the criteria for judging

whether the facilities can be rebuilt and replicated

become complicated and confusing: if it is only

technically possible to judge whether it is possible to

build an Internet platform, then most platforms are

difficult to be defined as necessary facilities, even if

BAT, they are not particularly difficult to be

replicated technically by Internet enterprises; on the

contrary, if we consider the consumer conversion

brought by the lock-in effect of Internet platforms On

the contrary, if we take into account the sunk cost of

the Internet platform locking effect, the real

economic reconstruction of the platform is very

difficult, which in turn will make the threshold for

judging the necessary facilities too low and may

result in over-regulation. In this sense, the application

of the essential facilities doctrine in the Internet

industry cannot stick to the traditional mode of

thinking and identification criteria, but must make

certain theoretical innovations and institutional

breakthroughs.

4.3 Dynamic Competitive Monopoly

Structure

The dynamic competitive landscape of the Internet

economy increases the uncertainty of antitrust

regulation of Internet platform enterprises. Under the

dynamic market competition pattern of the Internet,

the application of the essential facilities doctrine may

cause excessive interference with the normal

competition of Internet enterprises. The Internet

industry is also characterized by innovation, and the

monopolist in the market may be replaced by the

innovator at any time. In short, the Internet market is

a dynamic competitive monopoly structure.

In such a competitive market, the monopolist's

position is not only gained by its own innovation, but

also may be lost at any time due to competitors'

innovation. Therefore, requiring Internet platform

companies to open up their facilities may result in

over-regulation of the market and encroach on the

residual profits of Internet innovation. In this case,

there is a view that if enterprises are unilaterally

prohibited from using their own traffic pools for

"free-rider" promotion, it will result in a situation

where the Anti-monopoly Law forces enterprises to

help competitors grow.

5 REGULATORY FRAMEWORK

FOR NECESSARY FACILITIES

As mentioned above, we should adopt prudent

criteria for the essential facilities and restraint or

regulate the competitive behavior of the

corresponding platform enterprises. Of course, this

paper is not advocating the excessive expansion and

abuse of Internet antitrust activities. Based on the

consideration of maintaining dynamic competition on

the Internet, the determination of Internet essential

facilities should have its own threshold. In the real

economy, the application of the essential facilities

doctrine usually focuses on such key issues as

whether the facilities are necessary for effective

competition and whether it is possible to replicate

and rebuild the facilities, and these issues are usually

limited to whether they exclude or restrict

competitors. In the determination of necessary

facilities in the Internet, in addition to the criteria of

whether they prevent effective competition, they

should also be applied or refined to increase the

relevant criteria based on the special characteristics

of the Internet industry.

5.1 Functional Positioning of the

Theory

The monopolistic behavior of the Internet platform

has caused serious damage to the effective

competition in the market and to the consumers, the

antitrust regulation of the Internet industry has

become imperative. The theoretical framework and

regulatory path of traditional antitrust law have

shown obvious inappropriateness when dealing with

the Internet competition field, and the introduction of

the idea of Internet necessary facilities can help

realize the breakthrough of regulation.

At present, the determination of the abuse of

dominant market position of Internet enterprises is

still on the definition of the relevant market. In

traditional antitrust theory and practice, the definition

of the relevant market usually relies on the analysis

of commodity substitution due to price changes,

which is known as the SSNIP. The so-called SSNIP

is a test conducted mainly by means of prices, and

Data Protection and Online Platforms

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the premise of the effective test is that the test should

be conducted for products with sufficient competition

in the current market price, which implies the basic

premise of setting a certain price mechanism for the

products. However, in the Internet, operators usually

do not rely on charging for basic services to make

profits, and the majority of Internet users usually use

Internet products or services free of charge.

Conducting the SSNIP test on a product or service

that does not involve prices completely violates the

basic assumptions of the application of the test tool,

and thus the conclusions reached are hardly accurate.

Moreover, the SSNIP test is only applicable to the

definition of homogeneous product markets, and is

not fully applicable to differentiated product markets,

and its importance gradually decreases. The basic

profit model of the Internet market relies on the

promotion of free basic services, paid value-added

services or other forms of paid goods. If the

hypothetical monopolist testing tool is used to test

only the free side of the market, while ignoring the

more important differentiated product, this testing

approach completely deviates from the focus of the

profitability of the business model and the core of the

competition. Under the path dependence of test, the

relevant market of Internet competition is easily

defined too broadly or too narrowly, which leads to

imprecise regulation. By scientifically setting the

criteria for determining the necessary facilities of the

Internet, the Internet necessary facilities theory can

bypass the reliance on the definition of the relevant

market for the determination of market dominance in

the traditional antitrust procedure and avoid the

instrumental defects of the existing antitrust

regulation system in the determination of the relevant

market of the Internet, thus realizing the

breakthrough of China's Internet Anti-monopoly law

regulation.

5.2 Judgment Criteria for Internet

Essential Facilities

Due to the virtual nature of the Internet economy to

a certain extent, the criteria for judging the necessary

facilities of the Internet should be different from the

traditional criteria for determining the necessary

facilities mainly applicable to the real economy.

Among them, the most important is the transition

from the standard of "effective competition" based

on the irreproducibility of facilities to the standard

of "data base" based on the locking effect. Whether

the Internet platform facilities occupy a sufficient

amount of data base, and whether a very high

percentage of users have developed inertia to use the

platform, so that it is easy to superimpose market

advantages on this basis, should become the basic

criteria for judging the necessary Internet facilities.

At this point, whether the use of a platform occupies

an overwhelming position in the Internet user base,

and whether a strong user lock-in effect is formed as

a result, will become the basic criterion for

determining whether it constitutes an Internet

essential facility, while whether the platform

specifically dominates in terms of market share

percentage is no longer important.

First, digital platforms have a lock-in effect on

users. As mentioned above, because of the sunk

costs involved in switching between Internet

products or services, consumers are dependent on

the prior Internet operator and find it difficult to

freely choose between various types of Internet

products and services. Moreover, due to the network

effect of the Internet industry, the more Internet

consumers of a particular Internet product or service,

the greater the utility of the product or service to

consumers, and thus the easier it is to attract

potential Internet users to the product or service,

under the effect of demand-side economies of scale

and network externalities.

Second, the standard of irreproducibility of

facilities in the traditional essential facilities theory

is difficult to accomplish. In the Internet industry,

the core challenge for competing companies to

compete in the market is not the inability to replicate

or rebuild the Internet platform of the dominant

company, but the inability to attract online

consumers from the dominant Internet platform

company in a normal market situation. In this sense,

in the Internet field, irreproducibility cannot be a

reference factor for determining whether an Internet

platform is dominant, let alone a basic criterion for

determining whether an Internet platform is

necessary for effective competition in the relevant

market. It is the data base based on network users

that is the basic criterion for judging whether an

Internet platform has a monopoly position in the

market, and thus whether the Internet platform is

necessary for competition in the downstream market.

Third, in the bilateral differentiated market of the

Internet, how to accurately define the relevant

market is a difficult problem that has not been

effectively solved by the current antitrust regulation

theory and practice. Under the standard of data base,

as long as the data base in the hands of the Internet

operator reaches the standard of forming the network

locking effect, it can be found to have a dominant

market position, which can bypass the problem of

the need to determine the dominant market position

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of the Internet and the inability to accurately define

the relevant market of the Internet products.

6 CONCLUSION

The booming Internet industry led by BAT is

becoming an important engine for China's economic

development and will gradually become one of

China's core competencies in the international trade

and economic market. However, China's Internet

industry has gradually formed an oligopoly market

structure, which will lead to more difficulties and

challenges for effective competition and consumer

protection. Against this background, the thesis

explores how existing competition tools and concepts

can be applied to data-related competition concerns

in digital markets. The governance of the digital

platforms requires the joint efforts of themselves and

the executive agencies. Under the essential facilities

doctrine, platforms, which are commonly referred to

as the 'gatekeepers' of the Internet, they need reduce

monopoly risk, and the executive agencies need do a

good job in external supervision, so as to make the

digital economy develop soundly and rapidly.

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