Big data: A sword to wield or a knife in the back?
- Liberty Mncube and Imraan Valodia
Competition policy will determine if big data is a tool for inclusion or exclusion.
Do you have a smart phone, wearable fitness device or retail loyalty card? Do you have presence on social media? Do you order food on an online platform? Are you a member of a medical aid scheme? If you have answered “yes” to any of these questions, like most of us, you are generating data. With advances in computational and statistical methods (or algorithms), huge quantities of data can be examined to identify correlations, make predictions, draw inferences and bring together new insights. This is big data.
Big data: A double edged sword
Big data has the ability to save lives. For example, doctors are using big data to determine when premature babies are likely to develop an infection. Big data promises to help solve important societal challenges such as improving education and enhancing government service delivery. In the economic sphere, big data is increasing marketplace efficiency and boosting economic productivity. Its promises do not stop in the present. In the near future, connected and driverless cars may make driving between Johannesburg and Pretoria much safer for all of us.
But the same analytic power that makes it easier to predict the outbreak of a virus, or identify who is likely to have been exposed to Covid-19, also has the capacity to reinforce disadvantages faced by the poor and marginalised, increase the dominance of powerful groups, increase prices and undermine innovation in the economy.
For all of its potential, the complex and opaque algorithms that mine big data can also be used in ways that are socially and economically harmful. How, for example, search algorithms decide what to reveal, what to hide, and what to prioritise has huge implications.
Google goes shopping
A few years ago, the European Commission investigated a complaint in which an algorithm in a search engine made it harder to find rival firms’ products. This conduct denied rivals the chance to compete, and reinforced the power and economic interests of the company that owned the search engine. As a result, consumers faced higher prices and less choice. This was the famous Google Shopping case.
We think of Google’s search engine as a no-cost resource that generates independent and unbiased results. The European Commission was concerned that Google’s algorithms may have given its own comparison-shopping service more prominent treatment than it gave to competitors.
In other words, when an individual searched for a particular consumer product using Google’s search engine, the results gave higher priority to Google’s Shopping service and ranked rivals’ products low down in the search results. Since no one looks beyond the first few pages of a search result, rivals were excluded. The European Commission fined Google €2.42 billion for abusing its dominant position as a search engine by giving anti-competitive advantage to Google Shopping, and excluding rivals. There are a number of similar cases being investigated by competition authorities globally.
From a competition point of view, what matters is how algorithms are actually used. One important issue is algorithms that determine prices. Pricing algorithms raise two important issues. First, they may increase the effectiveness of cartel conduct. Second, they may enable price discrimination strategies that lead to higher prices for certain groups of customers.
Cartels – where firms collude to fix prices – are a particular concern for competition authorities. Traditionally, such cartels operated through formal and informal meetings where cartel agreements were reached. In the digital age, it is now possible to design algorithms to fix prices without meetings ever occurring. Algorithms that charge different consumers different prices for the same goods, or raise prices without limit, provoke important competition and moral questions. Is it acceptable and pro-competitive, for example, for an online shopping platform to use your search history to steer you toward purchasing products that have higher prices rather than lower prices?
If competition authorities, policymakers and the public are alert to the risks presented by algorithms and big data, they will be able to take steps to guard against them. This will help ensure that big data can be a tool for economic inclusion, and not exclusion.
There are several reasons to be cautious against assuming that the possession of big data automatically gives firms the ability to exercise market power. First, many types of big data are readily available and replicable. Second, multiple firms can often collect and use the same set of data without creating barriers or strengthening entry barriers and market foreclosure concerns. Third, big data can quickly become obsolete. In general, competition authorities must determine whether big data creates a competitive concern on a case-by-case basis.
On 4 April 2020, the Economist noted, in relation to the Covid-19 crisis, that “the pandemic will have many losers, but it already has one clear winner: big tech”. Online platforms have been largely unaffected by (or have benefited from) lockdown restrictions. In the long term too, it is plausible that the Covid-19 crisis will accelerate the trend toward online shopping.
Without regulation, big data will either be immensely beneficial to individuals and society or profoundly detrimental – or will undoubtedly be a mixture of the two. As we navigate the game-changing terrain of big data, it is vital that competition authorities work to ensure that big data benefits all citizens, whatever their backgrounds.
- Liberty Macebo Mncube (left) is an Associate Professor of Economics at the School of Economics and Finance at Wits University and he is also a Managing Director at FTI Consulting. His teaching and research focus on industrial organisation, competition economics and competition policy. Mncube is a Member of President Cyril Ramaphosa's Presidential Economic Advisory Council – appointed 1 October 2019 for 3 years. He is a former Chief Economist of the Competition Commission of South Africa, serving as Chief Economist from January 2014 to February 2019.
- Professor Imraan Valodia is Dean of the Faculty of Commerce, Law and Management. He holds a doctorate in economics and his research interests include inequality, employment, and competition policy. He led the establishment of the Southern Centre for Inequality Studies at Wits and he is a part-time member of the Competition Tribunal. He advised the Minister of Economic Development on amendments to the Competition Act, legislated in 2019. In 2016, President Cyril Ramaphosa appointed Valodia to chair the Advisory Panel on the National Minimum Wage, introduced in 2019.
- This article first appeared in Curiosity, a research magazine produced by Wits Communications and the Research Office.
- Read more in the 11th issue, themed: #Viral. Inspired by the SARS-CoV-2 global pandemic, content relates to both the virus that causes Covid-19, as well as the socio-economic, political, and environmental ramifications.