Long Read: Competition and Libraries

Competition law and policy are not always high up the agenda for libraries. As public services, we are interested in overall approaches to the public sector. As part of the research and education infrastructure, we care about policies in these areas. As institutions depending on copyright exceptions and limitations to do our jobs, we care a lot about the rules that apply here.

However, competition law and policy do have a major effect on libraries and the world in which they operate. It is therefore an interesting angle for advocacy and lobbying work. It is also a contested area, with ongoing discussions about how to understand and promote competition.

This blog, therefore, sets out some key background, and identifies areas where the competition angle is worth bearing in mind in thinking about libraries and library advocacy.

 

Competition: Some Basics

The fundamental idea behind promoting competition (or anti-trust) is to prevent any one player – or group of players – making unfair use of a powerful market position. While the risk of companies abusing their power appears already in the writings of Adam Smith, concrete actions to promote competition really originate in the United States in the 19th Century.

There are a number of issues and questions to bear in mind in how we think about competition.

First, there is the question of how to define a market. This is a vital initial step in any assessment of whether there is competition. If you do this narrowly – i.e. for a very specific product, or area – then it is easier to create the sense that there is a risk of an abuse of competition. However, a bigger market will be more difficult to dominate.

For example, Apple is strict about only allowing people to acquire apps from its iStore, rather than any other supplier. This could be seen as anti-competitive if you define the market as being for apps on iPhones. However, you can also think about the market as being for apps on phones in general, in which case there are other phone companies and operating systems out there. In this case, Apple’s policy can be seen as less anti-competitive.

Second, there are different approaches to defining harm. Sometimes, it’s about harm to the consumer, who faces worse services or higher costs when companies do not need to worry about them leaving. For example, mobile phone companies in France were found to be cooperating in order to maintain higher prices. This helped protect their profits, but hurt individual users.

Alternatively, a dominant position can hurt competitors through creating barriers to entry (i.e. for new companies to come into a market). This is not always the same thing as harming consumers. Clearly a greater choice of providers, and an active effort to invent new and better products or services, can be better for individuals. However, in some cases it is arguably easier for consumers to have access to one or two bigger players who can act as one-stop-shops.

Third, there is the question of horizontal and vertical integration. Horizontal integration refers to situations where one company comes to control a large share of the market for a particular product. For example, a merger between two airlines can mean that there will be less choice in how to get from one place to another.

Vertical integration refers to situations where once company comes to control different parts of the production chain. For example, if a company both owns a search engine and an online shop, this gives them the possibility to influence their search results to benefit their shop over others.

Fourth, there is the growing phenomenon of double-sided markets, which appear when intermediaries are working at the same time with suppliers and consumers.

This creates a particularly complicated situation, where any reflection on competition needs to take account of the potential benefit or harm caused to both sets of actors. This evidence may be conflicting. Consumers may benefit from an intermediary who forces down prices, but this at the same time can drive producers out of business, or unfairly influence their choices.

While we associate such situations with internet platforms, it is arguably what supermarkets have done for a long time, working both with farmers or other producers on the one side, and consumers on the other.

Clearly, in all of the cases mentioned above, evidence of the potential of unfair practice is not the same as evidence of the practice happening, and whether it genuinely has a negative effect. Indeed, there are times that low competition can be helpful, for example in allowing one player to recoup investments made (the case for patents, although clearly this is not always the case).

However, on the assumption that an issue has been identified, there is the question of how governments can respond. A number of options are available.

One is simply to reject mergers between companies that would potentially create problems. This can affect both ‘horizontal’ and ‘vertical’ mergers.

Another is to impose conditions – for example that the new company sells (or ‘divests’) something. For example, if two supermarkets merge, meaning that in a given town, both supermarkets are only owned by one company, you can force the company to sell one to a competitor.

It can also be possible to make certain obligations. For example, bus or train companies can have a monopoly on services, but be forced to run services to poorer or more remote areas what they would not otherwise serve. Similarly, prices can be set to ensure that consumers are not hurt.

 

Competition and Libraries

As mentioned in the introduction, libraries are not necessarily closely associated with competition as an issue. However, recent years have seen a number of examples which underline the importance of understanding this as a theme.

The most obvious example is scholarly publishing, in particular in the light of the emergence of a small number of very large, very profitable companies each running a large portfolio of journals and imprints. In many markets, profit rates of over 30% would certainly be seen as highly suspicious, and indicative that something is wrong. Similarly, questions can be raised about practices such as ‘big deals’ which can benefit larger over smaller publishers, especially when rising prices forcing libraries to choose between these and a wider range of offers from others.

Nonetheless, it is not the case that any one company is dominant across the whole field (although this may be the case in individual disciplines). For the time being, therefore, there has not been any wholesale investigation into the potential anti-competitive behaviour of major publishers, although there have been attempts (this and this).

It is worth noting that criticisms of using size to exercise power has been turned against libraries. Elsevier did try to claim that, by working together, German universities were forming a cartel in trying to force a lower price. The German competition authority rejected this claim, on the grounds that even working together, German universities were only a small part of the global market.

One angle that has not been so strongly explored is that of vertical integration as a competition issue in scholarly publishing. When major publishers buy other services, such as providers of repositories, platforms for sharing pre-prints, services for storing and using research data, and impact calculation tools, there is arguably a situation of vertical consolidation.

Clearly this is an indicator of the potential of an issue, rather than proof of something happening, but there would be value in exploring what this means for researchers and others. In particular, how can we ensure that using one company’s data tools or platforms does not mean that a researcher is forced or influenced into using that same company’s publishing services, rather than that of a competitor?

Another area of uncertainty is around open access. Different business models are emerging here, with established players for example already able to charge higher fees for submissions to their journals than others. There are criticisms, also, that efforts to promote ‘transformative deals’ will benefit bigger players more than smaller ones.

A second example comes with library eLending. This has become an ever more important part of the offer of libraries in many countries over the last few years, with readers expecting to be able to borrow eBooks just as they have long borrowed physical books.

Yet, unlike physical book lending, this has not taken place with any kind of regulation, with the balance between libraries and publishers left to the market. As a result – and in the absence of any widely available data on the subject – publishers have tended to take a (very) cautious approach, much to the frustration of libraries.

Where does competition come into this? First of all, in the absence of regulation, publishers are effectively able to sell eBooks to libraries (or platforms) on different terms than to ‘ordinary’ consumers. This can mean higher prices, limited access (i.e. only for a certain period of time or number of loans), or simply a refusal to sell.

This situation has been explored in depth in the work of the eLending Project in Australia, which underlines the major variation in terms faced by libraries from one country to the next. Clearly, this may not always be the result of a conscious choice, but rather of the (over) caution mentioned above. Nonetheless, it represents a cost to libraries which risk effectively paying far more per loan of an eBook than they do of any physical book they lend, thanks to the choices made by publishers.

Furthermore, recent court decisions in the US and European Union about the potential to resell eBooks also seem to indicate that there is no potential for libraries to build up collections of eBooks through donations, as many do with physical books. This effectively gives publishers a further advantage in their dealings with libraries as consumers than they would have had otherwise.

Connected to this is the rise of eLending and eBook platforms, examples of the two-sided platforms mentioned earlier. In the library lending field, OverDrive has become a major player, building up a strong enough position to be able to negotiate with publishers.

Clearly libraries themselves can benefit – at least in the short term – from a single platform that can negotiate good prices from publishers. Publishers who are keen to access library readers may of course be less happy to have to receive less than they would like.

However, more questions emerge around whether a company like OverDrive really allows libraries to provide the reader advisory support that they would like, and the degree to which it provides the data that libraries traditionally rely on for decision-making. The company’s recent buy-out indicates that it also making a strong level of profit. This is why library-led platforms such as SimplyE are interesting, as they provide competition for commercial operations such as OverDrive – in other words, libraries can always go somewhere else.

In the more commercial arena, we have already seen a successful competition case against Apple and major publishers for setting artificially high eBook prices. The big focus now seems to be Amazon, which both has a very high share of the eBook market in many countries, as well as running its own eBook reader (Kindle).

Publishers – and many librarians – are concerned about the impact that this has on their own revenues, and its unwillingness to share data which could help others compete. Clearly the major publishers are not the only players here, although are certainly leading the charge to try and identify issues. Amazon certainly has provided a means for a lot of independent, self-published authors to build an audience and a reputation, which is a positive.

However, there would certainly be merit in trying to understand more the impact of Amazon’s position and activities on consumers, including libraries. With its strong engagement in the publishing, distribution and reading of eBooks there are many questions to consider, even if (as always) this can only ever be an indicator of a potential issue, rather than proof of anything wrong.

A fourth example is that of library suppliers themselves, other than those providing eBooks, or involved in scholarly communication. As highlighted by Roger Schonfeld following Ex Libris’ purchase of Innovative, there may only be a small number of companies offering dedicated services to libraries, either due to consolidation (mergers between companies), or a lack of interest from others in the market.

This is perhaps the most straightforward question, with a need for libraries to be conscious of whether they are getting good value, and to be ready to question situations where services are expensive, poor-quality, or there is no real choice.

Collective management organisations (CMOs) may also raise competition issues, insofar as their decisions about licensing of works for which they hold rights can lead to harm. In particular where they have an official or unofficial monopoly, there is a need for regulation in order to ensure that this does not lead to higher prices than necessary.

For example, in Latvia and Spain, cases have seen CMOs punished for unfair practices. In both cases, of course, the challenge concerned the sale of licences to commercial operators, rather than libraries. Nonetheless, when libraries do feel like they are facing unreasonably high prices or a refusal to provide licences, it may be worth considering if there is a competition issue at hand.

Finally, there is the emerging – and complex – question of competition on the internet in general, and how this affects the creation and sharing of, and access to and use of information. As mentioned in the first section, internet platforms in particular raise various questions. The case mentioned – of a search engine giving results associated its own online shop a higher visibility than those of other online shops – is a real one, ongoing in Europe at the moment.

Similarly, the long discussion over upload filters and press publishers’ rights in the context of the EU copyright reform were, arguably, competition issues. Unfortunately, under pressure from rightholder lobbies, the EU chose to try and use copyright to address these, with the resulting mess already becoming clear.

The big question is what happens next. There is a clear ‘techlash’, with growing calls for technology companies to be made responsible for addressing real and perceived ills online. Yet tougher regulatory requirements – for example for filtering, or maximum times to respond to reports of illegal content – are likely to increase operating costs and give more power to the bigger players. Maybe this is something we are willing to accept, but it is important to realise that this also means less room for competitors, and less choice for consumers.

Greater awareness of what can be done with data is also an issue. The bigger the platform, the more data it can amass, and the more powerful the analysis it can perform. While this may mean more targeted services, it also advantages larger over smaller players, hurting newcomers and consumers who want a wider choice.

There are ongoing questions around net neutrality of course. Rules protecting this – and so preventing internet service providers (ISPs) from favouring one type of content over another – were repealed by the US Federal Communications Commission. With many ISPs connecting with content providers, for example, there is a risk of this leading to unfair practice.

These are clearly only a few examples – we are likely to see more, with the Unites States seeming readier to adopt the more aggressive attitude that the European Union’s competition authorities are taking.

 

This blog has covered a lot of issues and themes, but hopefully provides the necessary background for looking at a number of the key issues faced by libraries today from a new perspective – that of competition.

This is not always the easiest route to find solutions, but as has already been highlighted, competition interventions can be a more accurate tool than others, and have the merit of not requiring legislation to be effective. We would welcome any examples of cases which have impacted libraries.

As a result, as part of any comprehensive advocacy strategy around libraries, it is worth at least thinking about whether there is a competition angle, and indeed, whether competition tools could be an effective means of achieving a better environment for libraries.

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