Are “free” relevant markets actually free?

Two Woman and a Man Waiting for a TrainOne of the things we have started to get used to through Internet is the ubiquitous provision of free services. We can search information for free, we can receive and send messages for free, we can even talk with distant relatives for free, we can play games and watch movies for free, and so on.


This poses some challenges to competition and regulatory authorities. Some authorities have wondered if this zero price could be a case of predation, but fortunately for the users the idea has not progressed, at least for the moment. Others consider that a free market, being free, may not pose competition problems, as is the case of the European Commission in the acquisition of WhatsApp by Facebook.


In Telefónica’s recently published Regulatory Economics Brief, the nature of the transactions in these “free” markets is analyzed in order to assess if they are actually free, i.e., if it is true that the provided services are exchanged for nothing in return.


The paper starts from the concepts of direct (i.e. barter) and indirect interchange (using money to facilitate exchanges), going on to show that monetary transactions are just a subset of economic transactions, in which one of the interchanged goods is money. Of course, monetary transactions have been prevalent during the recent history of humanity and suppose the majority of transactions in any complex economy.


But with Internet new markets have flourished in which money is not used as part of the interchange, markets which seem of increasing relevance. In these markets, time and personal data are exchanged for several kinds of services.  They rely on economic non-monetary transactions, meaning that these are not free markets, but markets in which no money is used.


So, if these markets need to be analyzed for competitive or regulatory purposes, the unit of measure should be coherent with the kind of transactions going on in those markets. If time (or data) is the currency in those markets, then it just seems logical to use it for competitive assessment.


Of course, none of these processes seem easy, and plenty of obstacles lie ahead. But citizens deserve the same effectiveness of competition policy, regardless of them paying with money, with their time or with their data.


You can read the full Brief here.