Competition and the digital economy: UK government draws up the digital agenda

On 13 March 2019, the UK Chancellor Philip Hammond announced that the Competition and Markets Authority (CMA) should take forward a market study into the digital advertising sector, as soon as possible.

The announcement came on the day of the publication of a report (the Report) from the Government’s Digital Competition Expert Panel (the Panel). The Report, led by former chief economic adviser to president Barack Obama, Jason Furman, sets out a number of recommendations to address competition issues across the digital economy.

The recommendations are broken down into strategic recommendations and recommended actions. Primarily, the Panel has called for the establishment of a Digital Markets Unit (DMU), an independent body tasked with designing and implementing pro-competition rules.

Other recommendations outlined in the Report include policies of data openness and ‘aggregator services’ that could allow users to switch between search engines and social media sites by transferring their data (such as search histories or friends lists). The Panel encourages the CMA to intervene more frequently and with greater force in merger scenarios where threats to consumer welfare and innovation are at stake. It also recommends that firms holding a ‘strategic market status’ in the digital sector should be placed under an obligation to report all proposed acquisitions. Where appropriate, the revised policy regime should be supported by legislative changes.

The Panel calls on the government to engage with regulators internationally in order to coordinate and develop a consistent approach to the regulation of international digital markets.

Finally, the Report addresses the potential anti-competitive and consumer welfare concerns raised by the development of machine learning algorithms and artificial intelligence, particularly through their use in:

  • the development of dynamic pricing models, and
  • the digital advertising market.

The Panel have recommended that these markets should be subject to ongoing monitoring to ensure that they do not create detriment to consumers or lead to anti-competitive activity.

EU antitrust chief Margrethe Vestager has echoed Hammond’s statement, noting at the annual International Conference on Competition held in Brussels that many problems in online markets would become “a matter of urgency” and that in the remaining months of her mandate, she wants to “pave the way for change”.

The government is now considering a number of the recommendations that have been set out in the Report. The recommendations are summarised in the table below:

RECOMMENDED ACTIONS
Strategic recommendation A: creation of a pro-competition DMU tasked with securing competition, innovation, and beneficial outcomes for consumers and businesses.
1. Work with industry and stakeholders to establish a ‘code of conduct’ which would apply to digital platforms designated with a ‘strategic market status’.
2. Aim for personal data mobility and open standards.
3. Data openness should be pursued where necessary and proportionate.
4. DMU should have powers to impose solutions and monitor, investigate and penalise non-compliance.
5. DMU should be able to impose measures where a company holds strategic market status – with enduring market power over a strategic bottleneck market.
6. Ensure DMU has specialist skills, capabilities and funding to successfully deliver its functions.
Strategic recommendation B: frequent and firmer intervention to challenge mergers that could be detrimental to consumer welfare through reduced innovation and competition, supported by legislative change where necessary.
7.  CMA should prioritise analysis of mergers in digital markets and closely consider harm to innovation and impacts on potential competition.
8. Digital companies that have ‘strategic market status’ should be required to make the CMA aware of all intended acquisitions.
9. Update of the CMA’s Merger Assessment Guidelines to reflect modern digital markets, to improve effectiveness and address underenforcement in the sector.
10. Legislative amendments to allow the CMA to use a ‘balance of harms’ approach which takes into account the scale and harm in mergers involving potential competition and harm to innovation.
Strategic recommendation C: CMA’s enforcement tools against anticompetitive conduct should be updated and effectively used.
 11. Evaluation of retrospective cases not brought (and decisions not taken) by the CMA, where infringements were suspected or complaints received.
12. Streamlining of the CMA’s processes.
13. The review applied by the Competition Appeal Tribunal to antitrust cases, including interim measures, should be changed to more limited standards and grounds.
14. Introduction of more independent CMA decision-making structures for antitrust enforcement cases, if appeal standards are changed.
15. Greater information gathering powers for authorities responsible for competition enforcement and consumer law.
16. Continued focus on consumer enforcement work in digital markets, and alert the government to any areas where the law is insufficiently robust.
Strategic recommendation D: monitor use of machine learning algorithms and how artificial intelligence evolves particularly in relation to vulnerable customers.
Strategic recommendation E: launch a market study into the digital advertising market, focusing specifically on competition and consumer harms.
Strategic recommendation F: international engagement on recommendations the government chooses from the Report, encouraging cross-border co-operation between competition authorities in sharing best practice and developing a common approach to international digital markets.
17.  Promote UK’s existing competition policy tools, including its market studies and investigation powers, as flexible tools that other countries may benefit from adopting.
18. The UK should use its voice internationally to prevent patent rights being extended into parts of the digital economy where they are not currently available.
19. Closer co-operation between national competition authorities in the monitoring of potential anti-competitive practices arising from new technologies and in the development of remedies to cross-border digital mergers.
20.  The government should work with industry to explore options for setting and managing common data standards and encourage countries to consider using pro-competition tools in digital markets.

For further information, please contact Satyen Dhana or Annalie Grogan.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.