IoT and the Ages of Antitrust

Marco Ricolfi
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September 2017

In the last few years, antitrust lawyers have as usual split in their assessment of the impact of big data on competition. On the one hand, we had the “business as usual” guys; on the other hand the “this time it is different” guys.
This is normal; in a way it tells us more about the psychology of the people concerned than about the issue itself. Some three years ago Bocconi organized a seminar about information and antitrust.1 Herbert Hovenkamp, the doyen of American antitrust scholarship, was leading the Olympian bunch of scholars who said, well, it is a matter of empirical evidence and as yet we do not have evidence of dramatic shifts. I myself – si parva magnis componere licet – was in the opposite camp, contemplating the emergence of powerful intermediaries intent on building enduring dominance over ever expanding markets.2 But then I am afraid I am a quite excitable chap.
So why fall into the same trap again and ask the same question once more in connection with the Internet of Things? Well, unsurprisingly, because my idea is that this time it really is different. In which ways?, one may ask. To this I have three replies.
The first one has to do with quantities. The web as we have known it in the last thirty-something years was about connecting communication devices, like computers and (more recently) smartphones. IoT goes well beyond that: it is intended to connect things: smart, connected products, of which IT is an integral part.3 Thermostats, wearables, engines, fridges, tires, tennis rackets, lawnmowers, what have you. It is true that analytically all these are computers, as Bruce Schneier rightly points out4; but actually they are something else plus a computer; thus the amount of data they are bound to generate and connect via networks is in a different order of magnitude. In this connection we never should underestimate the power of exponential.5
The second one has to do with quality. We can get a feeling of the process under way referring to the notion of circular economy. Imagine what happens when a product is made available as a service: Rolls-Royce engines for aircrafts; tires for vehicle, and eventually self-driving cars, not to be sold but leased,6 so that in accordance with the tenets of what is designated as “predictive maintenance” the supplier, who retains property, constantly receives all the information required to optimize product life cycles, including repairs, maintenance, replacements, etc. Also, technology giants always benefited from network effects: the more users use a search engine, the more attractive it becomes to resort to it. Now the velocity, volume and variety of data generated by IoT bring with them a promise of extra network effects. As the Economist recently put it, “the more data Tesla gathers from its self-driving cars, the better it can make them at driving themselves”.7
The third reason why I believe that IoT poses a distinctive antitrust challenge has to do with scope. Originally, digital technology exploited the twin levers of zero marginal cost and of operating as platforms on two-sided markets to occupy a number of fields where powerful incumbents rapidly lost ground. This was no mean feat; and legacy businesses are still nursing the wound.8 My point is that the inroads were, after all, more limited than one thought at the time: more or less music, advertising and entertainment (only in part, though). During a conference in Torino a couple of years ago Luciano Floridi referred to the size of the advertising industry; and equated it to the size of the Swedish economy. What he meant is that the space taken over by digital was huge. My reaction was (and is) the opposite: here we are still talking small chips. Small chips, to come to the point I am making, if we have in mind what is the room for expansion enabled by IoT: cars, transportation systems, real estate, logistics and, yes, healthcare and education. We are no longer talking just of two-sided markets: big data amassed as a by-product of the activity in one area feeds and incites the expansion into X other sectors. Currently the incumbents which are in the sights of businesses harnessing technology – by which I do not mean only technology giants, but also incumbents who are smartening up to embed technology to transform their original business models – are no more only legacy businesses, but also the ancient sovereigns. The goods and services provided by the declining welfare State are the ideal hunting ground for smart businesses, feeding on the information voraciously collected by means of the IoT and made scintillating and gleaming through machine learning and artificial intelligence.