New regulatory initiatives in the UK for digital markets

On 2 July 2020, FIPRA International and Lexington Communications jointly hosted a webinar titled “Digital Markets in the UK – Time to re-set the balance?” A respected panel discussed the increasing reliance on online markets and services and the new measures in UK digital competition regulation which are now being put forward.

The panel of speakers was introduced and initially questioned by Mike Craven, Partner at Lexington Communications, with further questions from attendees then moderated by Rory Chisholm, Partner at FIPRA International. The three main speakers in the discussion were:

• Baroness Lucy Neville-Rolfe, former Treasury, BEIS and DCMS Minister
• Professor Philip Marsden, Member of Furman Review; former Senior Director, CMA
• Rocio Concha, Chief Economist and Head of Strategic Insight, Which?

The politics of competition and regulation

Baroness Neville-Rolfe said that the digitization of commerce is arguably a more important change than Brexit or even Covid19. This now affects every single sector and is a shift that won’t be reversed. Where wealth and business go, regulation and competition policy will follow, if sometimes only slowly. Today’s digital giants, whether Google, Facebook, Microsoft, Amazon, or Netflix are “knights in armour” with an almost unassailable consumer following, strengthened by Covid19 because of the competent job such firms have done in the crisis. These advances also pose problems in terms of regulation, with online fraud, for example, becoming an even bigger issue.

Yet Baroness Neville-Rolfe was not confident that recent proposals recommending that the UK Government should introduce legislation for a new Digital Markets Unit (DMU), with new powers to intervene and enforce Codes of Conduct for online platforms, would lead to action being taken quickly. Pointing out that new legislation often takes several years from concept to being introduced and implemented, Baroness Neville-Rolfe felt action against the US tech companies was unlikely in the near term. If the proposals from the Competition and Markets Authority (CMA) were to be taken forward on a statutory basis at all, the legislation planned for the coming year in the wake of the Online Harms White Paper could be the “most likely path”, particularly given that this was an area of wider popular concern.

Striking the right balance on regulation

Professor Philip Marsden felt a popular narrative about big tech was that the sky is falling in: that competition authorities have allowed too many mergers; that digital markets are tipping, preventing real competition; and that there are many harms to suppliers and consumers. This was being fuelled by what he said could be seen as an “anti-trust leave campaign” in this area: populist “leavers” wanted to leave the current relatively permissive approach, leave the consumer welfare standard, and take back control by reversing the burden of proof in mergers by digital firms, along with more intervention focusing on structural harms resulting from the economic dependency on these platforms, pushing for structural remedies like price caps, market share caps, or even break-up.

Yet there was also another movement: to “remain” and leave things alone. This message came from two different voices: from the large tech firms themselves, arguing competition is just a click away, plus a second voice from some regulatory and competition authorities, arguing anti-trust and merger control are fit for purpose, that evidence led inquiries using existing theories of harm remain the way to go – and that the only thing needed was more such cases (with more resources to match).

The Furman review had sought a different approach, aimed at “a true consensus based on the values of both movements”. The sky was not falling in; there were clearly immeasurable benefits from what the tech giants are offering. Yet competition is not just a click away and data is not sunshine, not in a world of walled gardens. Nor should competition authorities be ostriches: cases to date had been slow and few in number, with fines a blunt instrument. What was needed was “acceptable norms of competitive conduct on how firms with strategic market status should act with respect to smaller firms and the consumers who depend on them”. These should be meaningful and binding codes of conduct, real ex-ante regulation, aiming to get ahead of the problems rather trying to catch up.

This was why the Digital Competition Expert Review Panel had pressed for the establishment of a new DMU. There was no need and no will to have “a whole new quango” set up for this: a good model would be the Open Banking Implementation Entity: separate from the CMA but given powers from the CMA, and which engages with its sector every day. There should be arbitration to get quick results: demand led, complaints by small businesses, complaints by other platforms, a relatively quick arbitration with no fines but leading to a change in conduct. Once established, a new DMU using its powers would more likely to lead to quicker outcomes than if the CMA had embarked on a formal market investigation review into any particular platforms.

The UK should not be shy in taking this regulatory initiative forward. There was a strong degree of international convergence that something must be done and other countries were already taking forward their own actions. Doing nothing is not an option, not least since it could result in worse regulation that is not evidence-based or economically rational. If the tech companies were to resist such initiatives being proposed, they risked the sort of outcome as seen in India, which had simply banned one of Amazon’s main business models. But it need not be a one-way process and it could be done with a light touch. Competition authorities had not always done enough in terms of issuing guidance to industry. If some of the larger platforms wanted to draft up ideas of what they could adhere to, without this necessarily fundamentally changing their business model – and if that would help the DMU better understand why and how platforms operate – then all to the good.

A pro-competition framework is important for consumers but not enough

Rocio Concha said the aim should be to maintain and increase the very great benefits that the digital economy has delivered for consumers, while at the same time tackling the harms that consumers are facing when using online services. In terms of competition and digitalization, it was very positive that the UK Government had commissioned the Furman review and accepted its recommendations. The recommendations to set up the new DMU will now pass to the Digital Markets Task Force, hopefully building on the recent CMA report on digital advertising, which had gone a “superb job”. It will then be seen if the government will prioritize this by introducing legislation, which is needed.

Yet the harms are not just competition harms, but also direct harms for consumers resulting from the lack of control of data. A pro-competition framework is very important but not enough. Competition cannot solve all these harms. Scams are proliferating on online platforms. We are seeing a great number of fake reviews. This is not the work of a few individuals but organized criminal gangs. The online platforms need to take more responsibility on this. Educating and alerting people is important and the UK has excellent safety standards, but it is still very easy to mislead consumers.

The economy is being digitalized: what is therefore needed is not only a pro-competition framework, with the right powers and tools, but for all the various regulators to have the powers and tools to protect consumers in the digital world. Online harms cannot be tackled by having one regulator. The precise regulatory structure or institutional framework matters less than collaboration between the regulators. Regulators like the CMA, Ofcom, the ICO and FCA need to talk to each other to work effectively, so any new intervention is coherent and takes into account the knock-on effects in other parts of the economy. It is a good sign that many other jurisdictions are thinking similarly.

For more information or detail on the discussions, contact FIPRA’s Competition & Antitrust team.