The government has come up with a clever new way of regulating the digital marketplace – but will it ever become law?
On Tuesday, in a rare break with recent practice, a branch of the UK government did something clever. The Competition and Markets Authority (CMA) outlined plans for an innovative way of regulating powerful tech firms in a way that overcomes the procedural treacle-wading implicit in competition law that had been designed for an analogue era.
The proposals emerged from an urgent investigation by the Digital Markets Taskforce, an ad hoc body set up in March and led by the CMA with input from the Information Commissioner’s Office and Ofcom, the telecommunications and media regulator. The taskforce was charged with providing advice to the government on the design and implementation of a pro-competition regime for digital markets. It was set up following the publication of the Treasury’s Furman review on unlocking digital competition, which reported in March 2019 and drew on evidence from the CMA’s previous market study into online platforms and digital advertising.
This is an intriguing development in many ways. First of all it seems genuinely innovative – unlike this week’s antitrust lawsuits brought against Facebook in the US. Hitherto, competition laws have been framed to cover market domination or monopolistic abuse without mentioning any particular company, but the new UK approach for tech companies could set specific rules for named companies – Facebook and Google, say. More importantly, the approach bypasses the sterile arguments we have had for years about whether antique conceptions of monopoly actually apply to firms that adroitly argue that they don’t meet the definition – while at the same time patently functioning as monopolies.
Rather than being lured down that particular rabbit hole, the CMA proposes instead to focus attention on firms with what it calls strategic market status (SMS) – firms with dominant presences in digital markets where there’s not much actual competition. That is to say, markets where difficulty of entry or expansion by potential rivals is effectively undermined by factors like network effects, economies of scale, consumer passivity (ie learned helplessness), the power of default settings, unequal (and possibly illegal) access to user data, lack of transparency, vertical integration and conflicts of interest.
At the heart of the new proposals is the establishment of a powerful, statutory digital markets unit (DMU) within the CMA. This would have the power to impose legal codes of conduct on SMS firms. The codes would, according to the proposals, be based on relatively high-level principles such as “fair trading”, “open choices” and “trust and transparency” – all of which are novel ideas for tech firms. Possible remedies for specific companies (think Facebook and Google) could include mandated data access and interoperability to address Facebook’s dominance in social media or Google’s market power in general search.
It would be odd if, in due course, Amazon, Apple and Microsoft don’t also fall into the SMS category of “strategic”. Indeed it’s inconceivable that Amazon would not, given that it has turned into critical infrastructure for many locked-down economies.
We can now look forward to frantic corporate lobbying from Facebook and co as they seek to derail the proposals
Selected by softengoxford