What is an “unfair” competitive advantage?

First Published: 2015-05-05

Having not read newspapers for the duration of a two-week vacation (the reason for no posts), I eased myself back with the Wall Street Journal’s Europe edition on the weekend at the airport lounge on the way back home. In the front page there was an article about how “big data” gives Internet companies such as Google and Facebook “an unfair edge,” according to antitrust lawyers who deal with violations of Europe’s competition rules. These lawyers argue that the huge sets of people’s personal data the major Internet companies compile give them an unfair advantage because these data constitute an entry barrier to new competition. Quoting from the article: “… [These companies] might have developed such sophisticated profiles of consumers, and can target advertising with such precision, that new rivals cannot hope to catch up.”

So what if some companies are amassing huge data sets—big data—and use them to target their advertising more specifically? They have acquired the data legitimately from people who give it voluntarily when they use these companies’ free online services. The companies only get the data because they offer valuable services—Google’s various search functions and Facebook’s online social networking, for example—and have therefore earned it, on the principle of voluntary, mutually beneficial trade. They initiate no physical force or fraud to acquire the data, and it only benefits advertisers who offer products and services that consumers value and are willing to buy. (No matter how targeted the advertising is, it will not increase sales and profits unless what is being advertised is valuable to the targeted consumers).

Despite what the lawyers helping to enforce the antitrust laws would like us to believe, there is nothing unfair about the advantage the major Internet companies achieve by compiling big data. The new rivals who want to enter the Internet services market and are not putting together big data sets cannot claim that they have a right to the established companies’ data—they have done nothing to deserve access to it. By the same principle of trade discussed above, new rivals would have to buy the data—if it is for sale—or compile it themselves. As per the trader principle identified by Ayn Rand, you cannot get something for nothing but must trade value for value, by mutual consent.

The only advantage that is unfair is the kind that has not been earned by one’s own effort and voluntary trade, but through force. If the antitrust laws against “unfair” competition were used by the government to force companies like Google and Facebook to share their big data with their rivals who are not spending the money and effort to compile it, that would constitute an unfair advantage for the rivals. The government would take by force from Google and Facebook what they have justly earned and give it to competitors who do not deserve it.

Such injustice—unfairness—is possible only in a statist system, such as the prevailing mixed economies where the government initiates physical force (for example, by creating and enforcing non-objective laws like the antitrust legislation). The only way to eliminate any unfair competitive advantage is to reject statism and its non-objective laws and to embrace capitalism, a system in which companies compete freely to create and trade material values. In capitalism, the government’s role is not to initiate physical force by dispensing advantages and disadvantages to companies but to protect individual rights—including those of corporations—against the initiation of physical force.

First published at How to be Profitable and Moral: A Rational Egoist Approach to Business and posted here with the kind permission of the author.

Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada. She has lectured and conducted seminars on business ethics to undergraduate, MBA and Executive MBA students, and to various corporate audiences for over 20 years both in Canada and abroad. Before earning her Ph.D. from the Wharton School of Business, University of Pennsylvania, she helped turn around a small business in Finland and worked for a consulting firm in Canada. Jaana’s research on technological change and innovation, value creation by business, executive decision-making, and business ethics has been published in various academic and professional journals and books. “How to Be Profitable and Moral” is her first solo-authored book.

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