Fiona Scott Morton, Theodore Nierenberg Professor of Economics at the Yale School of Management, is one of the leading North American scholars on competition. She has been a speaker at the lesson that this week has opened the academic year of the Faculty of Economics and Business at UPF.
Why is it necessary to specifically regulate the digital economy? Are the current laws not enough?
The challenge is to manage the new economy so that capitalism works for consumers. This includes digital, but also all these new services that have a high fixed cost and low marginal costs, such as media, finance or pharmaceuticals. Products in which innovation is important. But it is difficult to apply competition law when the products are very plastic and can change what they offer very quickly. Or when there are strong network effects because they create high barriers to entry and a lot of market power for companies that are already inside.
In technology, a few companies take all the cake.
Traditionally we have set access prices to some sectors, such as telecommunications. For example, years ago a cable entered my house, it was a natural monopoly and there were providers who wanted to access it. There was debate: do we let them have it for free? Do we choose an access price? What is the cost of maintaining that cable and maintaining it? Today we have a whole branch of regulators dealing with that sort of thing. Now we're going to have to start doing the same thing for the application programming interface. What about the Internet of Things?
What will happen..?
Suppose I buy a refrigerator and it has an Android operating system. Can I use Amazon grocery shopping with my fridge? Or do I have to use something Google Food Shopping style with my fridge? Or should there be a universal set of commands, so that the Amazon service can talk to my fridge?
Should these companies be broken up so they don't have as much power?
If we sell you the Google search engine now you would be the monopoly search engine. What good would that do? Suppose something more realistic like Google is not allowed to have a search engine. They could always build another one and sell it to someone. For example to Oracle, to say something. And the monopoly continues. So we want to think of something else. How do we get more competitors in search? How do we reduce the barriers to entry and search? So one thing that could be done is to prevent Google from buying exclusive positions by default on Apple phones and on its own Android phones. Today if you are an Android phone manufacturer you must, in exchange for software, put all Google apps on the first page and Google search must be the exclusive search engine. In this way, Alphabet keeps half of Apple's search revenue, which amounts to 12,000 million dollars.
There has already been some action against technology, right?
There was some intervention thanks to the application of the competition directive in Europe but the action is very slow, very, very slow. And the remedies available are mostly punishment. ‘You have broken the law, now we have found you. And you have a fine. But this doesn't help us achieve competence, because you have to stop doing what you did. Also now a network effect has been created where all the users are together: they are on Facebook and they use the dominant search engine: it is very difficult to break that.
But the European directive is not going in the right direction?
Well, the regulation is introduced in Europe and will come into force in January. Companies have to comply. The difficult thing will be to get data so that the regulator is sufficiently informed to be able to evaluate. For example, one of the rules is that the search cannot be biased. How do you know, if you're the regulator? How can you check it? You have to understand the algorithm and do some tests. This will be the hardest part.
What do you propose?
For example, it would be nice if the app developer didn't have to use only the Apple App Store, but could choose between different app stores with different prices and policies. Not only would these companies be given a variety of options to enter, but over time, some of them could become a replacement or substitute for another firm in the sector. For example the Amazon Fire phone project never got off the ground because there were no apps for it. If there were a new App Store that offered products to other companies, other operating systems could be launched.
In your opinion, is the consumer unprotected?
When the platform can find out through the data that you have broken up with your boyfriend and then wants to sell you makeup or ice cream to prevent you from getting depressed, or it can find out that you have a gambling addiction and send you gambling advertisements… these things happen. That is why you have to intervene.
Are there competition problems in social networks?
Social networks are not all in the same market, they are not all replaceable. I'm only on one platform, Twitter. And Elon Musk said some disturbing things last week, leaving a lot of economists and lawyers in my industry wondering: should we quit Twitter? We are not going to go to Facebook, that is to share the photos of your vacations. We don't go to YouTube either because you don't have antitrust conversations there, nor on TikTok. We could try LinkedIn, but everyone there is looking for a job, so I'm not sure it will work. The point is that when you ask if there is a substitute that allows me to do the same thing, in this case you find that these platforms are quite different.
In the US, how is the panorama?
We have nothing equivalent to the European directive. There are some bills that have substantial support among Democrats and even Republicans. But of course the platforms don't want these laws, so they're pushing quite hard against them. Many senators come from states like Tennessee, where there are companies, but which are not technology headquarters, which are in California and Washington. But we have so much turmoil in America right now about whether we're going to be a democracy... and things like that... I don't know if it's going to be possible.
But regulation goes against companies that create prosperity and jobs.
On the contrary: there is an entire economic literature that defends exactly this argument: if there is competition, then there is innovation. Look at the automobile sector, how many offers there are from manufacturers: 'let me give you a car that consumes less gasoline' or 'let me sell you an electric car that does not consume gasoline...'. When we can understand what quality is and measure it and see it, then we can move forward.
