The British Government has this week opened its consultation and is calling for feedback on how it can effectively crack down on unfair practices in digital markets. Launch of the consultation follows the recent news that tech giants will be given ‘Strategic Market Status' in the UK and forced to follow a code of conduct, which we have got more details of this week.
The consultation document is lengthy and worth reading in full, but simply put the government is seeking guidance on how it can tackle what it describes as the "unprecedented concentration of power amongst a small number of digital firms", which is holding back innovation, growth and is having negative consequences for consumers.
In a joint ministerial statement, Secretary of State for Digital, Culture, Media and Sport, Oliver Dowden, and Secretary of State for Business, Energy and Industrial Strategy, Kwasi Kwarteng, said:
We are unashamedly pro-tech and want to be the most innovative, pro-enterprise government ever, unlock a new era of digital-driven growth that will fuel our recovery, help us build back better from the pandemic, and level up the entire UK.
Competition is the key to this vision. The healthiest economic environment is the most competitive one: one that inspires companies and entrepreneurs to keep innovating and improving their products and services, and one that incentivises them to provide better deals and drive down costs for their consumers.
However, there is a growing international consensus that the concentration of power in a handful of the largest digital companies is crowding out competition by erecting entry barriers for other firms. That is bad for digital markets, it is bad for businesses, and it is bad for consumers.
So today we are taking action to open competition in digital markets to make it fairer for smaller businesses, entrepreneurs, and the British public.
The Ministers added that the government's new pro-competition regime will help prevent abuses of power, making sure that smaller firms are not unfairly pushed out of the market. This is a big ambition, given that many of these ‘giants' have now been operating for decades and effectively have a monopoly in some areas.
And of course, the ambition for the UK, particularly post-Brexit, is to create an environment that encourages growth amongst tech firms locally.
A new Digital Markets Unit
As noted above, the government is planning to designate ‘digital offenders' with Strategic Market Status, but has said that the new regime will be proportionate and targeted towards firms and activities where the risk of harm is greater.
The consultation notes that an "evidence-based assessment will be used to identify those firms with substantial and entrenched market power, in at least one digital activity". A newly created Digital Markets Unit will have a range of powers to monitor and enforce the new regime.
It adds that whilst the priority will be on resolving concerns through "constructive engagement", the Digital Markets Unit will be given "robust powers" to deter and tackle non-compliance.
We at diginomica have previously highlighted some of the characteristics the Digital Markets Unit will be looking at to identify abuse of power, which include:
Network effects and economies of scale
Unequal access to user data
Consumer decision making and the power of default settings
Lack of transparency around complex decision-making algorithms
The importance of ecosystems
The consultation document released this week states:
It is our view that the statutory duty of the Digital Markets Unit should be to promote competition (which includes promoting competitive outcomes) in digital markets for the benefit of consumers. Competitive markets drive better services, greater choice and lower prices for individuals and businesses. The Digital Markets Unit should not simply promote rivalry between firms for its own sake, but pursue competition for the benefit of consumers.
It is also our view that the Digital Markets Unit should support innovation when promoting competition. The promotion of innovation and competition often go hand in hand. Competitive pressures spur firms to innovate, while innovation itself can intensify competition in a market.
Details on the new code of conduct
As previously mentioned, those firms that have been given Strategic Market Status will be forced to follow a new code of conduct in the UK. The details of that code of conduct have emerged in the consultation document, for which the government is seeking feedback.
It notes that the code of conduct will "manage the effects of market power by setting out how firms with Strategic Market Status are expected to behave". The aim being that it will offer clarity to both users and firms, whilst aiming to influence the firms' behaviour.
The code's principles, the consultation adds, should be evidence-driven and targeted, preventing harmful behaviour without limiting positive or benign behaviour. They should also provide clarity and consistency, minimising complexity and burden on stakeholders. Moreover, they should be flexible and forward-looking in order to adapt to digital markets, which evolve rapidly over time, without dampening innovation.
The proposed principles include:
Fair trading - trading on fair and reasonable terms; not applying unduly discriminatory terms, conditions or policies to certain users; and not unreasonably restricting how users can use a firm's services.
Open choices - not unduly influencing competitive processes or outcomes in a way that self-preferences or entrenches the firm's position; not bundling or tying services in a way which has an adverse effect on users; taking reasonable steps to support interoperability with third party technologies where not doing so would have an adverse effect on customers; not imposing undue restrictions on competitors or on the ability of users to use competing providers; and not making changes to non-designated activities that further entrench the firm's position, unless the change can be shown to benefit users
Trust and transparency - provide clear, relevan , accurate and accessible information to users; give fair warning of and explain changes that are likely to have a material impact on users; and ensure that choices and defaults are presented in a way that facilitates informed and effective customer choices, ensuring that decisions are taken in users' best interest.
Those interested in responding to the consultation can do so here and have until 11.45pm on 1 October 2021 to make submissions.
As I've said previously, some of what the government is trying to do here is admirable. But again, the UK tackling this in isolation will not amount to much. It can try and lead a conversation about appropriate market activity, but it will need global cooperation in order to drive real change.