Liability rules as antitrust remedies for digital platforms

The paper ”Liability rules as antitrust remedies for digital platforms” (Hoffmann, L. J.) will be presented at the 11th FSR Annual Conference “From Data Spaces to Data Governance” (9-10 June, 2022).

Abstract:

This paper examines antitrust interventions regarding contentious data usages by major digital platforms. I identify a missing markets problem in tipped markets and look at whether a choice of a particular legal rule can help remedy it.

The missing markets problem arises out of the unequal bargaining relationship between digital platforms and users. Every day, entitlements over personal data are exchanged in this context. Many studies focus on transactions where a platform acquires data from users. But a second type of transaction appears to be out of the picture: transactions in which users acquire data entitlements back so that the platform does not make certain usages of a data set, for example to protect user privacy. Most terms and conditions of platforms do not foresee this type of transaction. In tipped markets, this is unlikely to change, although it might be highly valued by users. When such a missing markets problem has at its source the abuse of market power, then it is a candidate for an antitrust intervention.

To encourage transactions, an antitrust enforcer can choose among different remedy regimes. This paper classifies them under property rules, liability rules, and inalienability rules, according to Calabresi & Melamed’s work.1 Under property rules, the holder of the use rights
can decide on the selling price and can veto any transaction. Under liability rules, the nonholder of use rights can unilaterally decide to “acquire” them but must pay a compensation which is fixed by a state organ. Under inalienability rules, the entitlement is distributed by a state organ to one party or to no party at all, but no transaction can take place even with a willing buyer and a willing seller.

Current antitrust policy often makes use of inalienability rules, simply prohibiting certain exercises of entitlements. This can have distributional and efficiency trade-offs, and it might not reflect consumer choices. On the contrary, liability rules could empower business and end users to evaluate individually if acquiring the data use rights in exchange for an explicit price makes sense for them. Liability rules are a middle ground between a hard duty to share data entitlements and strong private property entitlements. The price setting enables the regulator to interpolate between both extremes, favouring rather one or the other party of the transaction if that is desired. If few users decide to make use of the remedy, it provides a learning outcome for the competition agency: apparently, the use right in question is not desired or too expensive. Because the choice to execute the competition remedy is in the hand of each user, liability rules raise the legitimacy of antitrust intervention into markets. Finally, liability rule remedies are not science fiction: the technology for microtransactions over data use rights is immediately available to digital platforms.

The paper uses two case studies, the German Bundeskartellamt case against Facebook/Meta regarding certain usages of personal data (2020), and the European Commission investigation into Amazon’s usage of seller data (2020). In each case, possible remedies inspired by different legal rules are compared.