COVER STORY • Digital Society — Issues & Challenges • 7

TInterview with Dr. Hiroshi Ohashi, Professor of Economics, University of Tokyo

he Digital Economy &Competition Policy

By Japan SPOTLIGHT
Competition policy is a key infrastructure in a market economy. It seeks to prevent monopoly power andachieve free and fair competition. In a perfectly competitive market, where price mechanisms function
well, deadweight loss is eliminated and economic welfare in society is maximized. In the real world,
however, the market is often distorted in the presence of market power. We observe many such cases inthe brick-and-mortar industries, and some claim that the situation is even worse in the digital economy.
The Organization for Economic Cooperation and Development (OECD), the Paris-based internationalorganization, has held discussions on a variety of topics related to innovation and competition over thelast decade. In January 2018, it organized a workshop for competition policy officials on digital-related
topics, in light of growing concerns over competition in major digital markets, including platform-based
business models being rendered more complex due to network effects and demand-side economies ofscale. Is the digital economy heading for pro-competition or anti-competition? How are these concerns to
be moderated? We are at the outset of an era when the digital revolution is proceeding at an
unprecedented pace, much faster than any other technological revolution in the past.
We interviewed Dr. Hiroshi Ohashi, professor of Economics at the University of Tokyo and a
distinguished expert on economics and competition policy in Japan, about this rapidly progressing
technology’s impact on competition policy.
(Interviewed on July 23, 2018)

New Issues Arising from
Digital Economy
in Competition Policy

particular related to artificial intelligence(AI) and Big Data. New technology
advances at nearly exponential rates, andthe changes brought about by innovation
JS: Digital technology has started
have big impacts on every facet of ourto influence many economic,
daily lives, both for good and for worse.
social and even political aspects
This rapid progress of technology isof our life. We call it the Fourth
primarily prompted by the availability ofIndustrial Revolution. Manyreal time data, obtained through web
economists, including in thebrowsing, smartphone and GPS usages,
OECD, say that among its
and so forth. Detailed and unstructured
effects, the impact on
Big Data are being actively utilized forcompetition policy should not be
ventures and new businesses to create
neglected. What consequences
new services and products.
do you think the digital economy
The second is the emergence of big
will have for competition policy?
platform providers (such as GAFA — i.e.
Will existing competition policies
Google, Apple, Facebook and Amazon —and laws work well in addressing
and BAT — Baidu, Alibaba and Tencent)this issue? If not, how should wethat find it easier to collect real-time data.
adjust our competition policies
These companies have begun to competeand laws to the digital economy?
with the retail business, such as Walmart,
Dr. Hiroshi Ohashi
as they directly mediate between
Ohashi: Existing competition policies andproducers and consumers through therelated laws face three new challenges.
Internet. Competition between the real world and digitalized
The first is the rapid and unprecedented rates of innovation, incyberspace is one of the big issues to be discussed in the light of
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COVER STORY 7

competition and commercial laws and their enforcement.
By the way, some say that department stores are also mediators
between producers and consumers, so why should we care so muchabout Internet transactions? In the case of department stores, sellers
and buyers are physically on the same spots. However, in digitalplatforms, there is something that only the platform operators canobserve: activities such as who purchases what, and which websites
particular buyers search through to reach their purchases or nonpurchases. Those activities are recorded on their platform domain,and such information in the real-time Big Data has not been sharedwith other players involved in the platform. Thus, the platformers
could have strong negotiating power by taking advantage of theinformational asymmetry between platform operator and thosecompanies who use the platform, mostly SMEs.
Let us take an example. Uber provides a matching service for taxi
rides among passengers and taxi companies in the United States.
Should a traffic accident involving Uber happen, Uber might not be
responsible for the accident in Japan, because it has no legal
responsibility for taxi operations under the matching service. Such alegal framework differs from one nation to another, but digitalplatform operators’ activities are borderless, and goods and services
and also data are transacted beyond borders. While we are beginningto talk about this, we have little international consensus or rules that
handle many such issues involved in digital transactions. How weapproach sharing services in terms of the existing legal framework is
one of the urgent issues facing us.
The same question can be asked in competition policy. Issues
such as platformers monopolizing data or increasing their market
share in a certain service are those on which we don’t have clear
answers yet. For example, as a company monopolizes data, it canenlarge its business very easily as data and intangibles are scalable.
Thus, the economic impacts that the platform operator wields would
spread at a significant speed, so much so that the existing brick-andmortar business shops could possibly be expelled from the market.
In reality, there are more and more producers selling their products
only on the Internet, and not even displaying them at shops, to avoid
expensive transaction costs. We are coming closer to a world inwhich you have to buy goods only through a platform like Amazon.
Strong network effects imbedded in the platform business havedouble blades. One blade is to improve social efficiency: as theplatform business gets bigger, the platform itself would become
more efficient in operation to the level where a brick-and-mortar
business could never reach. This leads to the other blade, which issocially detrimental: because of the demand-side economies ofscale, the platform business tends to become monopolistic. A market
becomes winner-takes-all. Without facing viable competitive
platforms, the successful and monopolizing platform would become
a focus of attention with regard to anti-competitive conduct. As the
single platform could build up a sovereign state, a ruling platform
operator for example would conquer the whole business by forcing
each business entity to follow its Non-Disclosure Agreement (NDA).
All this mentioned above means that a platform has become
almost a public infrastructure. This leads to my third issue. Since
this public infrastructure is run by a private business, we may haveto discuss the issue of regulation for public utilities like gas andelectricity. In Europe, they are now trying to adopt a discipline to put
the conditions for transactions on equal and fair ground with the
SME businesses involved in platforms. They aim at preventing any
arbitrary change of contracts with those SMEs in favor of theplatform operator. In my view, the idea behind this discipline being
introduced is to make sure that the platform provided is operated ina transparent and fair way. Of course, there may be another interestof their own in the light of their industrial policy. Europe may havebeen interested in creating a digital platform for the interest of theirindustries. Thus, this issue of rulemaking for the platform businesscould become an issue of competition among nations’ industrial
policies.

Japan SPOTLIGHT • November / December 201829

COVER STORY 7

Need for International Rules on Platform
Business
JS: In that case, will we need to discuss and adopt

some international rules for the platform business atorganizations like the OECD?

Ohashi: It is not easy to achieve an international consensus at thismoment, as each nation has its own perspective and interests on thisissue. In my view, the Japanese perspective seems to be closer tothe European one. Though our anti-trust act was made after US law,in terms of its practice, our regulators are closer to the European
outlook. Our views on platforms would be also close to the European
one, and I think European policy development in this domain could
be helpful to the Japanese policy discussion as well. On the other
hand, the US view on free flow of data is an important concept for us
to keep in mind. How to strike a balance between the concept of free
data flow and that of the General Data Protection Regulation (GDPR)
is a crucial point for us to think about. By the way, China also has adifferent perspective on this issue, as it does not appear to havereciprocity in terms of free flow of data: it protects its domestic
market while asking the other nations for free flows.
JS: Through a variety of informal international

gatherings, we would need to achieve a consensus
by taking advantage of peer review pressure.

Ohashi: We should work on achieving consensus, preferably at amuch faster pace. Though the concept of free flow of data is to berespected, in the light of competition law it would be necessary to
avoid excessive dominance by data suppliers. Consumer rights
regarding data must be secured, since the data owned by the
suppliers originally come from the personal information of
consumers. It is not straightforward to find an answer as to whether
such data are to be monopolized by the platform operators or by
consumers. This is probably the philosophy behind European law forprotecting personal information, recently legislated as the GDPR, andit also depends on how we frame our growth strategy utilizing freeflow of data.
JS: After having heard your views, I think there would

be a similarity between Big Data and electricity. Will
we need regulations for Big Data as a public utility?

30 Japan SPOTLIGHT • November / December 2018

Ohashi: Whether Big Data is to be considered essential goods, suchas electricity or gas, could be up to how valuable specific data are forusers. The value of data could differ depending upon how the data
are used. It can be difficult to define the universal value of data ingeneral, which would make data uniquely different from electricity.
At this moment, if you have an Internet service such as a searchengine or map in Japan, you would need to provide your personal
information and thus you cannot control the outflow of your privacy
into the Internet. It would be far better if we could put a price oneach datum, since then consumers would know in advance that theywould be providing their personal information at a certain price andto whom. Whether you prefer your privacy flow into a public space tobe under control or not may depend on each person’s value
judgement.
JS: We will need to think about a balance between

privacy protection for consumers and the need for an
institution that would avoid harming innovation andentrepreneurship on the producers’ side.

Ohashi: If we wish to continue enjoying the merits of the existing
Internet service, a balance must be struck between the consumers’
benefits in letting the data be used by others, and the need for theirprivacy protection. Though the time span of new technology might
be short and the platform operators could be replaced by othersquite often, I think it reasonable to say that the platform business is
considered to be a social infrastructure. We would need public policy
consideration in providing such a public good. If the platform market
tends to be monopolized, and the market also features a kind of
public good, we need in theory some type of regulation to avoid
market power that could be exercised by a platform provider. How tofind a balance between social efficiency achieved by a monopolizing
platform provider and the abuse of market power exercised by it is
an important issue to discuss both domestically and internationally.
If Japan promotes a radical reform for privacy protection unilaterally,
platform businesses will avoid providing their services in Japan. We
should work on a reform proposal that other nations could support
in some international policy discussion venue like the G20.
JS: Could the WTO be revitalized by being a venue forrulemaking for the digital economy?

Ohashi: Yes. This is certainly a hot issue and I think it would bedesirable to put competition up for international discussion,

COVER STORY 7

including trade aspects. In the Cancun Round they tried to discuss
the issue of trade and competition, but in vain. Many years after thisfailure, each nation is now implementing its own competition policy
with little harmonization effort. There are, I believe, two large
downsides of this current implementation of national competition
policy.
One is the issue of mergers. A review of cross-border mergers iscurrently organized by each nation in which companies are involvedin the merger. The format of the review is provided in the native
language of each jurisdiction. In this case, the legal costs for theprospective merging parties must be enormous. I think it would be
far better to have a common and universal format for a review or forjudgement criteria. The existing review system could cause
enormous waste of resources and one country’s negative judgment
on mergers and acquisitions could lead to a failure of the wholeprocess. I think this could be modified by harmonization efforts oncompetition policy across countries.
The other issue is related to cartels. Since each nation’s anti-trust
laws are applied in an extraterritorial manner to an international
cartel, the surcharges levied differ from nation to nation. Thus, thesum of these surcharges altogether would work as double taxation.
There is no perspective on whether these fines are to be balancedwith the deadweight loss in social welfare caused by the cartel andthe effects of future deterrence. This is how independent
implementation of a nation’s anti-trust laws could cause enormous
costs for a company. I think it would be better to harmonize
competition rules internationally in the WTO or other international
policy forums in order to save these societal costs. We have informal
policy platforms like the International Competition Network (ICN), theOECD or UNCTAD but they may not be venues for rule-making.

Less Equality
JS: Each platform seems to realize what we call the“sharing economy” — such as in the case of Uberwhere more people can be a beneficiary of a taxi
service by sharing a ride. Will this lead to a correctionin the expansion of inequality under capitalism?

Ohashi: No, I do not think so. The information gap between theplatform operators and its users as I explained above would be
expanded. In this regard, I think inequality will increase, not decrease.
Looking at the changes in company rankings over, say, 30 years, you
can see that the distribution in market capitalization values has beenskewed. For example, in 2007, the top three companies were Exxon
Mobil ($489 billion), General Electric ($387 billion), and Microsoft($294 billion), and now (in 2017) they are Apple ($796 billion),
Alphabet, the holding company of Google ($675 billion), andMicrosoft ($539 billion). We can see the third placed company in2017 has larger market capitalization than Exxon Mobil in 2007. Also
we should note that the distribution gap in the top group is also
expanding. It might be intriguing to see if this can be compared to theenormous inequality between capitalists and labor in the 19th century.
I would not be surprised if someone says that the kind of society
described in Das Kapital by Karl Marx is emerging again.
JS: In this regard as well, will we need to fix rules forprotecting consumer rights?

Ohashi: In particular, in the case of Japan, we will need to reduce
information asymmetry between the platform operator and theSMEs. To achieve this promptly, I think one idea would be to follow a
European-type discipline such as the GDPR or a regulation on
promoting fairness and transparency into Japanese law. This might
be a good solution for domestic business and SMEs. As forinternational rule-making, we may need to think about othercountries’ practices, including China, and try to achieve more
rigorous rules based on an international consensus.
Written with the assistance of TapeRewrite Corporation. Japan SPOTLIGHT
takes full responsibility for the translation of this interview which was
conducted originally in Japanese.

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