Transportation Apps and Regulation of Competition in Paraguay

At the beginning of this year, the Comisión Nacional de la Competencia – CONACOM (National Competition Commission) published its Opinion D/RD No. 01/2021 on “Regulation of transportation services for people in vehicles hired through digital applications” (CONACOM, 2021). It analyzes and makes recommendations regarding the current regulatory framework of the MUV, Uber, and Bolt apps in Paraguay.

At TEDIC, we consider it extremely positive for public institutions to issue public policy documents with transparent and rigorous methods. After conducting a review of Opinion D/RD No. 01/2021 (from now on “the opinion”), we aim to expand the analysis developed, in order to generate a discussion and make trouble spots visible that we believe deserve the attention of CONACOM in the short and medium run.

Understanding traditional concepts in the digital field

Prior to discussing the issue of this article, we consider it important to review some concepts in the field of competition. Once this is examined, we will be able to better analyze CONACOM’s opinion.

Let’s start with the “market definition” concept, which is the process by which products and companies that may be affected by anti-competitive situations are determined (for example, abuse of dominant position). This definition does not follow the same logic online (Haucap & Stühmeier, 2016), because in many of these markets, people do not pay a price in money, but rather with theyr personal data.

Furthermore, economists recognize different market failures that justify limited state intervention (Brown, 2013). Amid them are negative externalities and asymmetric information. Negative externalities occur when an actor makes an economic decision that imposes costs on third parties (i.e. a company dumping its waste into a stream). Information asymmetries occur due to the lack of knowledge on how a certain market operates by actors interacting in it. For instance, consumers may have a limited understanding of how their personal data is used by a social network, in spite of using it.

It is key to know and understand these terms to assess a document from an economic and competition law standpoint. These disciplines interact when defining and analyzing a market, in order to determine if there is some type of market failure that threatens competition.

The Opinion

An important starting point to consider in the analysis proposed by CONACOM is that “the passenger transport service in vehicles hired through digital apps” is legal and is different from the taxi service (CONACOM, 2021, pg. 18). This interpretation is based on documents from competition authorities of other jurisdictions as well as opinions from local judges (CONACOM, 2021, pg. 21-22). This statement will not be analyzed in this article, as it requires a specific analysis based on more local and international jurisprudence.

Having said this, CONACOM considers that the absence of an applicable regulation and a disparity of criteria generate legal uncertainty and this does not allow for laying down clear conditions to develop this type of activities, discouraging the appearance of new players (CONACOM, 2021, pg. 19). This interpretation seems correct to us; however, we also consider that the absence of regulation does not necessarily discourage the appearance of new competitors. Sometimes, it also facilitates the appearance of other competitors who do not follow certain quality and safety parameters, evading minimum safety criteria that can end up harming the consumer. We will elaborate on this further.

CONACOM considers that this type of internet apps brings a series of benefits such as: i) knowing the identity of the driver and vehicle information, ii) ensuring a legal invoice or receipt for the rendered service, which is sent to the customer’s email address, and iii) driver evaluation, so that when the required standards are not met, measures can be taken (CONACOM, 2021, pg. 14).

We consider that there are distorted elements that end up being anticompetitive in practice. Regarding vehicle data, different testimonies shed light that when using Uber services, data on the vehicle’s license plate does not coincide with the one provided in the application (affecting the quality and safety of the service). Also, at least Uber and Bolt do not fully guarantee the issuance of a legal invoice, the only document that ensures accountability to the Subsecretaría de Estado de Tributación – SET (Undersecretariat of State for Taxation). This places other competitors who do make the effort to provide an invoice for their services at a disadvantage. CONACOM needs to address the issue of how these practices can generate potential anticompetitive prices.

The foregoing is complemented by a presentation made by Paraguayan company MUV, which alleges inequalities caused by its establishment in Paraguay, unlike its competitors, which neither possess legal domicile nor are constituted in the country. This affects a fair tax collection for the companies involved. The opinion suggests that this would be mitigated through a tax reform and the entry into force of Law No. 6380/19, which establishes that apps such as Uber and Bolt would be subject to a non-resident income tax, popularly known as a digital services tax (CONACOM, 2021, pg. 40).

However, despite the proposed solution, it could be argued that there is a prior process of market consolidation, both for MUV as well as its competitors, which occurred under adverse and unequal conditions for the national company. Remuneration mechanisms that aim to avoid a potential market dominance built on unfair advantages are yet to be determined.

CONACOM also mentions a series of market restrictions observed in transport system regulations mediated by technology, one of them being “high or unjustified amounts in the coverage of compulsory insurance policies”. The opinion mentions that, although the high amounts can ensure that drivers assume their responsibility for any event derived from the service, they can constitute entry barriers for drivers who cannot afford insurance, and can in turn increase the price of the service to the consumer (CONACOM, 2021, pgs. 28-29).

At TEDIC, we consider that this charge is absolutely necessary. In the unfortunate event when an Uber passenger who is still in litigation due to the fact that she has not managed to collect her money for an extremely low insurance policy, not even considering the fact that the driver is a fugitive, is a lesson that must be reflected in future proposed regulations (Última Hora, 2021) and that can mitigate negative externalities and asymmetric information of different degrees.

Moreover, the opinion considers that transport services such as taxi have greater bargaining power vis-à-vis users when determining the price of the service, benefiting from transaction costs and asymmetric information (CONACOM, 2021, pg. 29). It argues that apps such as Uber and MUV have greatly reduced the asymmetric information regarding the cost of the service, since they allow for the user to know the price of the trip beforehand, allowing for price comparison. In addition, they work with a system of algorithms that reflects a dynamic rate based on real-time supply and demand and other conditions of the moment and place (CONACOM, 2021, pgs. 30-31).

Whilst it is true that the cost of the transport service is visible upon hiring it, this does not account for the disappearance of asymmetric information. Transport apps operate with closed algorithms, which are not transparent, understandable, or auditable, so they work in total murkiness. Assessing technology from its integrity, and not only from what is immediate and visible (for instance, a decision or a price), is vital for CONACOM to assess this type of systems, and to be able to effectively determine potential market failures and harm to the consumer.

Lastly, CONACOM argues that very high safety and quality requirements that exceed the minimum requirements to obtain a vehicle authorization, can go against the user. Consumers may want to opt for less comfortable cars at a lower price. A strict regulation in this regard could prevent such options from existing (CONACOM, 2021, pg. 28).

We consider that this analysis leaves out a number of important elements. First, it does not consider negative externalities associated with an overpopulation of cars with many years of usage that end up being harmful to the environment and potentially unsafe for the driver, the costumer, and society in general. Secondly, whilst rating is considered sufficient guarantee, the reality is that many automobiles operate with licenses from different departments to where they provide service. This makes it extremely difficult to standardize the minimum criteria for cars suitable for circulation, and the potential effect of a market that allows very low prices in certain apps but does not take into account negative externalities and asymmetric information.

This situation is aggravated by the fact that Bolt – perhaps in an effort to build a customer base – currently does not have many requirements for accepting drivers. According to testimonies, it only requires certain personal data of the driver and the car model to be used. This potentially has a huge effect on the final price of the service they offer, compared to their competitors MUV and Uber, which need to be addressed by CONACOM in order to determine if there is any indication of unfair competition.

Seeking to expand the tools of Competition Law

The ubiquity of digital technologies in human economic activity represents a disruption to traditional ways of conceiving and applying laws and regulations. The right to competition is not exempt from this break. There are very interesting debates going on about this within the European Union.

Personal data in digital services has had a role that deserves particular attention in this debate: how the right to competition should include the handling of personal data in its market evaluations, as well as use this parameter to determine potential damage to the consumer.

Academics such as Just (2018) have exposed the need for the right to competition to go beyond the traditional definition of the market, which only recognizes its existence where there was monetary exchange (Just, 2018). Costa-Cabral & Lynskey (2017) state that the value of personal data is such that companies can waive monetary payments for the use of their services, in order to access them. This shows the importance of personal data in this type of market (Costa-Cabral & Lynskey, 2017).

Given that the usual economic practice observes traditional competitive parameters such as price, choice, quality and innovation when evaluating the competition of companies (Costa-Cabral & Lynskey, 2017), these authors consider it important to explore ways in which privacy and personal data protection can be integrated to better develop theories of detriment in digital markets. The European Commission has indicated that a potential quality standard of a product or service could be determined by its level of data protection and privacy (Lynskey, 2018).

Finally, and in a way to begin implementing this broader approach to competition law, Lianos (2019) points out that it is necessary to adapt conceptual and methodological tools that combine different areas of law and regulation and that broaden the narrow definition of market power that is currently used (Lianos, 2019). The European Data Protection Supervisor has proposed that competition law enforcement should consider consumer data protection and intervene to control market power in the digital economy (Costa-Cabral & Lynskey, 2017).

This debate is necessary and useful for CONACOM when analyzing behavior in digital markets, and guaranteeing a comprehensive analysis that identifies and firmly argues the existence of abuse or damage in a given market. We invite CONACOM to participate in the presentation of the draft of the Personal Data Law this Thursday, January 28, and find ways to participate in the discussion.

Conclusion

The emergence of new services that have redefined the way in which people mobilize is a process that has acquired its own momentum. It will be the subject of debate until a balance is found that allows for a fair model of coexistence between national and foreign companies, as well as with traditional transport services.

The right to competition is definitely a key tool in exploring this balance. However, it is necessary to be very cautious in the face of a potential techno-solutionism that tends to receive digital services and innovations with arms wide open, without asking questions about the type of data collected, potential negative externalities such as environmental and social damage, unfair situations of tax evasion, and new forms of asymmetric information.

We consider it necessary for CONACOM to begin assessing ways to include the handling and protection of personal data in its analysis, in order to identify potential abuse of dominance and harm to the consumer, as well as to establish service quality thresholds based on responsible personal data management.

Finally, we call for the production of knowledge from different disciplines, in order to fully understand how these new services affect the different rights in our country. This also includes CONACOM itself: it is necessary to generate data that follow a scientific collection method, and thus be able to continue producing evidence-based quality reports.

In order to contribute to the debate, we leave an article called “When your boss is an algorithm”, published by TEDIC in 2019 that addressed the issue from a human rights perspective as well as vulnerabilities that may arise in the workplace.

Bibliography

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CONACOM. (2021). Opinión D-RD No. 01-2021 «Regulación de los servicios de transporte de personas en vehículos contratados por medio de aplicaciones digitales». https://drive.google.com/file/d/1VVSYRpQ_Ix4n-fV4M8FvsmzWlIttY84p
Costa-Cabral, F., & Lynskey, O. (2017). Family ties: the intersection between data protection and competition in EU Law. Common Market Law Review, 54(1), 11-50.
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