September 2022
The annual conference of the European Association for Industrial Economics was held on August 25 and 26, 2022 in Vienna, Austria. On this occasion, Patrick Waelbroeck presented the paper “Privacy and Competition” co-authored with fellow economists David Bounie and Antoine Dubus.
Patrick Waelbroeck had detailed this research work at the 41st “Privacy and Competition” workshop organized by the VP-IP Chair at the CNIL on May 10, 2022. Aymeric Pontvianne, Finance and Innovation Advisor at the CNIL, and Yann Guthmann, Head of the Digital Economy Department at the French Competition Authority, commented on the study.
Respecting privacy and maintaining competition are two major challenges facing the digital economy.
On the one hand, digital companies occupy a dominant position in many sectors of the digital economy, such as online search, e-commerce and social networking. They are also active in many other markets, such as advertising and online payments. Their success is largely based on the collection and use of huge quantities of personal consumer data. Data has thus become a competitive asset, with companies' ability to collect and use it strategically now shaping the competitiveness of all types of market.
On the other hand, given the importance of data to digital companies, they are now making huge efforts to acquire the largest possible volumes of relevant information. Companies are prepared to collect increasingly precise information on their consumers, threatening their privacy in the process.
Personal data law and competition law have mainly been applied separately. However, a new line of reasoning has emerged following the German Competition Authority's decision to limit Facebook's collection of personal data in 2019. If the data offers a competitive advantage, but has been acquired illegally, then the competitive advantage provided can be considered illegal. In this way, the protection of personal data can strengthen competition between companies.
The article “Privacy and Competition” addresses the following research question: do competition law and personal data law reinforce each other or, on the contrary, do they clash?
Patrick Waelbroeck, David Bounie and Antoine Dubus explore the relationship between consumer privacy, market competition and consumer surplus, defined as the difference between what a consumer is willing to pay for a product and what he or she actually pays. Companies can collect personal data that enables them to price discriminate against consumers in a competitive product market. They strategically choose which consumers they price discriminate against, as well as the amount of consumer data they identify.
The researchers thus distinguish the extensive margin of privacy (i.e. the number of consumers identified by companies) from the intensive margin (i.e. the “number of data points” per individual). This new conceptual distinction enables them to better understand the effect of competition on these two aspects of privacy, and the effect of personal data protection on competition and consumer surplus.
They base their analysis on the observation that information can have two opposing effects on consumer surplus.
On the one hand, when companies have more information about a consumer, they can engage in price discrimination. This consists in charging consumers a personalized price, which reduces the surplus of targeted consumers.
On the other hand, if several companies collect information on a given consumer, they will each propose increasingly attractive offers. In this case, the information is beneficial to the consumer and increases his surplus: he thus benefits from prices that are tailored to his needs. On the other hand, protecting the intensive margin of consumer privacy, i.e. limiting the personal data that companies hold on them, reduces companies' ability to price discriminate. This increases consumer surplus.
However, protecting the extensive margin of privacy leads to a trade-off in terms of competition: if fewer consumers are identified in equilibrium, then competitive pressure is weaker.
Returning to the main research question, competition law and personal data law are mutually reinforcing, except when data protection results in lower competitive pressure between firms. In the latter case, the two laws come into conflict.
Patrick Waelbroeck, Professor of Industrial Economics and Econometrics at Télécom Paris, co-founder of the Values and Politics of Personal Information Chair.