Static Ideas of Competition in the Information Age: If data portability is the solution, what's the problem?

AuthorLenard, Thomas M.
PositionTELECOMMUNICATIONS & TECHNOLOGY

As the large tech platforms are pilloried daily in the press and the halls of Congress, some form of internet regulation is becoming increasingly likely. Among the most prominent proposals is a requirement for "data portability."

Proponents argue that data portability--being able to move one's personal data to a competing platform easily, perhaps together with the related requirement of "interoperability"--is necessary to promote competition between the major digital platforms. In most cases, however, consumers can use new services relatively easily without transferring their data. This suggests that data portability would do little or nothing to encourage entry.

Moreover, the notion that data portability and interoperability are pro-competition and pro-innovation is based on a misconception of the dynamic nature of competition in digital platform markets. In these winner-take-all (or -most) markets, firms make risky investments in order to earn large profits if they "win." Proponents of data mobility and interoperability requirements say they want to make switching between platforms as frictionless as possible. While this may have short-term benefits, it would also reduce potential returns for market winners and therefore the incentive to invest and innovate. Investment in existing platforms may decline because the benefits of those investments would be shared with competing platforms.

Finally, implementing data portability and/or interoperability mandates would entail a complex set of regulations and standards. The process of developing these standards would be lengthy and costly and would almost inevitability favor large incumbents.

DATA PORTABILITY HAS BROAD SUPPORT

Data portability has, in a short period of time, become a rare point of widespread agreement. The right to data portability is one of eight rights included in the European Union's General Data Protection Regulation (GDPR). Data portability for tech platforms is also a central requirement of proposed legislation dubbed the "Augmenting Compatibility and Competition by Enabling Service Switching Act of 2019" (ACCESS), recently introduced by Sens. Mark Warner (D-VA), Josh Hawley (R-MO), and Richard Blumenthal (D-CT). (ACCESS would also require platform interoperability.) Data portability is even part of Facebook CEO Mark Zuckerberg's four-part internet regulation proposal outlined in a March 30, 2019 Washington Post op-ed.

While advocates suggest portability has privacy benefits by giving individuals more control over their data, their main argument is that it would encourage entry and competition with incumbent tech platforms that are deemed to have too much market power. In this view, moving from a large tech platform to a competitor is difficult because incumbents hold consumers' data. The combination of incumbents' trove of data and competitors' lack of data is said to create high switching costs for consumers and entry barriers for the competitors. Making data easier to "port" could, depending on the service, make it easier for consumers to switch to a competitor.

Three major reports on digital platform competition issues published in 2019--by the European Commission (EC Report), the United Kingdom Digital Competition Expert Panel (UK Report), and the Stigler Center at the University of Chicago (Stigler Report)--endorse a data portability requirement. These reports also endorse some form of interoperability, sometimes in the form of "open standards." Variants have also been proposed by University of Toronto economist Joshua Gans and by University of Chicago professors Luigi Zingales and Guy Rolnik, as well as several advocacy groups.

To think through the possible implications of data portability, it is important to consider what the concept...

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