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The Competitive Effects of the GDPR

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  • Michal S Gal
  • Oshrit Aviv

Abstract

The GDPR is the Magna Carta of data protection, the importance of which cannot be overstated. Yet, as this article shows, the price of data protection through the GDPR is much higher than previously recognized. The GDPR creates two main harmful effects on competition and innovation: it limits competition in data markets, creating more concentrated market structures and entrenching the market power of those who are already strong; and it limits data sharing between different data collectors, thereby preventing the realization of some data synergies which may lead to better data-based knowledge. To illustrate its claims, the article analyzes the competitive dynamics created by the GDPR, focusing on how it affects the options available to firms for amassing the data necessary for their operations, and their resultant ability to realize economies of scale and scope in data analysis. It identifies seven main parallel and cumulative market dynamics that may limit data collection and data sharing, only some of which have been recognized so far. As shown, under some market conditions, the GDPR has unintended and so far unrecognized effects on competition, efficiency, innovation, and the resultant welfare. The dynamics identified in this article offer partial explanations for some of the troubling empirical evidence regarding investment in EU data-driven markets following the adoption of the GDPR. Furthermore, the analysis enables us to identify which effects are short-term and which are here to stay. The effects on competition and innovation identified may justify a reevaluation of the balance reached to ensure that overall welfare is increased. The article suggests some means of reducing harmful competitive effects, while still protecting the vital goal of privacy, including reaching a better balance between data protection and competition law, reducing uncertainty in the GDPR, creating certification mechanisms for GDPR compliance, and structuring of mandatory data-sharing obligations under other laws in a way, which is sensitive to the dynamics of data markets.

Suggested Citation

  • Michal S Gal & Oshrit Aviv, 2020. "The Competitive Effects of the GDPR," Journal of Competition Law and Economics, Oxford University Press, vol. 16(3), pages 349-391.
    • Handle: RePEc:oup:jcomle:v:16:y:2020:i:3:p:349-391.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhaa012
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    Citations

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    Cited by:

    1. Congiu, Raffaele & Sabatino, Lorien & Sapi, Geza, 2022. "The Impact of Privacy Regulation on Web Traffic: Evidence From the GDPR," Information Economics and Policy, Elsevier, vol. 61(C).
    2. Wolfgang Kerber & Karsten K. Zolna, 2022. "The German Facebook case: the law and economics of the relationship between competition and data protection law," European Journal of Law and Economics, Springer, vol. 54(2), pages 217-250, October.
    3. Yassine Lefouili & Leonardo Madio, 2022. "The economics of platform liability," European Journal of Law and Economics, Springer, vol. 53(3), pages 319-351, June.
    4. Alireza Fallah & Michael I. Jordan & Ali Makhdoumi & Azarakhsh Malekian, 2024. "On Three-Layer Data Markets," Papers 2402.09697, arXiv.org, revised Feb 2024.
    5. Alessio Tartaro & Adam Leon Smith & Patricia Shaw, 2023. "Assessing the impact of regulations and standards on innovation in the field of AI," Papers 2302.04110, arXiv.org.
    6. Wolfgang Kerber & Karsten K. Zolna, 2021. "The German Facebook Case: The Law and Economics of the Relationship between Competition and Data Protection Law," MAGKS Papers on Economics 202114, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    7. Meena Jagadeesan & Michael I. Jordan & Jacob Steinhardt, 2024. "Safety vs. Performance: How Multi-Objective Learning Reduces Barriers to Market Entry," Papers 2409.03734, arXiv.org.
    8. Christian Peukert & Stefan Bechtold & Michail Batikas & Tobias Kretschmer, 2022. "Regulatory Spillovers and Data Governance: Evidence from the GDPR," Marketing Science, INFORMS, vol. 41(4), pages 746-768, July.
    9. Patel, Pankaj C. & Oghazi, Pejvak & Arunachalam, S., 2023. "Does consumer privacy act influence firm performance in the retail industry? Evidence from a US state-level law change," Journal of Business Research, Elsevier, vol. 162(C).

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