Alongside the forthcoming Digital Markets, Competition and Consumer Act – due in 2023 – the UK’s new Digital Markets Unit (DMU) aims to tackle the types of consumer harm and anti-competitive behaviour that risk becoming endemic when too much market power rests in the hands of too few companies – specifically ‘Gamma’ (Google/Alphabet, Amazon, Meta, Microsoft, and Apple).
These are areas where the Competition and Markets Authority (CMA) apparently lacks big enough levers to effect real change on its own. But that is a troubling state of affairs, given that most markets are, to an extent, now digital. So, might the real problem be that the CMA isn’t up to scratch for market realities in 2022? Indeed, could setting up a dedicated Digital Markets Unit be seen a 1990s solution to a 21st Century problem – almost quaint, in fact?
Whether or not recent UK moves are too little, too late is explored in my previous report. But what types of harms is the DMU supposed to address? In the view of Dr Stephen Macdonald, Head of Economics at Which?, weak competition in the mobile ecosystem is a key flashpoint area.
Just one of the issues that the CMA found is that Apple bans the use of any browser on iPhones apart from Safari, which means that no other company can build a browser that will be distinct from it. In turn, this means that Apple has less incentive to invest in its browser, which causes problems for developers and, ultimately, for consumers.
In the evidence that the CMA gathered for its study, among the most striking are submissions from app developers. Their testimonies demonstrate deep frustration and highlight consumer harms, and areas that we find uncompetitive, which include a low-quality user experience, less choice, and higher prices.
One developer explained how they have to compromise on functionality when building apps because common features are not supported, and lack of competition means users can't take steps to protect themselves and their clients from data security risks.
Fair enough. But browser wars? Could this BE any more 1990s or early Noughties? In Macdonald’s view, however, the ability of the DMU to test and refine remedies in these instances is likely to lead to better outcomes than any rooted in the CMA’s powers as they currently stand.
Ultimately, the superior ability of the DMU to promote competitive markets will help protect consumers from harm.
But it's not just strong competition that helps to protect consumers. There's a two-way relationship between competition and consumer protections. We need to recognize that effective consumer protections are necessary for strong competition.
If a market has a weak demand side with disempowered consumers, then it's impossible to have effective competition. Most markets need consumers who can shop around easily and have the confidence to make decisions based on accurate information. Only then is a consumer able to reward efficient and innovative firms that offer good products – and punish those that don't.
Someone urgently needs to explain this point to the government: more regulation, not less, aids market activity! At least, in the view of one consumer champion.
More widely, we believe that there is a need for digital platforms to have a legal responsibility to uphold consumer rights. The government should review their legal responsibilities and place a proactive duty on platforms to take action to ensure compliance with consumer law.
Interesting. According to Macdonald, therefore, it would seem that the CMA does have the ability to study digital markets, but it lacks the headroom, as it were, to explore dedicated remedies; hence the formation of the DMU.
Are digital markets actually that different?
But do we really need a bespoke digital-market solution when, as previously discussed, nearly all markets are now digital to a degree? Doesn’t the CMA simply need to modernize rather than create a discrete unit, which might be perceived as an almost retrograde step?
James Marshall is Partner at Washington, DC-headquartered legal multinational, Covington and Burling LLP. He explains:
We've seen an acceleration of regulatory focus on the tech markets. A huge range of reports, policy documents, commentary, and cases, all trying to understand how these markets work and to enforce competition law. Thinking through forward-looking policy.
If you look at the world that I inhabit with competition enforcement, we've seen a very significant number of cases against some of the biggest tech companies, the Gamma players, at EU level. A huge number of antitrust cases, which have resulted in enormous penalties, commitments, appeals, and ground-breaking law as well.
That's flowed down to EU member-state level, where we've seen some really interesting cases exploring new theories of harm. Meanwhile, the CMA has also been incredibly active in looking at digital markets, whether that's through merger controls, its own market study, or antitrust tools.
In some ways, it reminds me of the approach to the financial markets after the global crisis in 2008, when the investment banks and big market participants were the focus of antitrust enforcers globally. It seemed that everything was being a crawled over and investigated at EU level, and at national level under regulatory powers.
Part of that thinking there was the banks were, and are, systemic market participants, and so they're fundamentally tied not just to the financial markets, but also to the wider economy. And so, the importance of investigating and enforcing misconduct was very clear.
Digital markets also effect and, obviously, intermediate every aspect of economic activity. However, digital markets are prone to concentration [accumulation of power/influence in a single place] in a way that the financial markets are not. So, there are some distinct differences. And this has helped shape the regulatory regime that we're heading towards in the UK, and in Europe as well.
The sense that these markets are fundamentally different, and that normal competition rules can't adequately address the competition and consumer concerns that they raise. However, the DMU also has quite prescriptive obligations, and forward-looking compliance requirements, and arguably less scope for ex-post analysis, and less scope for thinking through the economic effects of conduct in a particular context.
But then he adds:
The traditional competition framework is actually pretty robust. It's pretty good and flexible and it can be applied. But of course, it does move slowly, and it needs to be targeted. But clearly, policymakers have concluded that competition law itself is not enough.
So, all of this means that digital markets are facing a very complicated few years trying to figure out what the regulators mean, while the regulators are having to figure out how to implement and apply the regulations. So, it's going to be an interesting period for the next five to 10 years.
But the key thing is to make sure that the balance is right, so we're not unnecessarily hampering innovation, and we're not unnecessarily hampering competition in the pursuit of perfect regulation.
I would argue that the CMA really needs to expand and modernize, rather than create a dedicated unit that regards digital markets as being distinct from other ones. Do the Big Tech behemoths really need a discrete unit to deal with them? Perhaps, but if the CMA can’t square up to digital markets itself, then what is it really for in 2022?