The Digital Competition Expert Panel, led by Jason Furman, has published its long-awaited report into the state of digital competition in the UK.
The report, entitled “Unlocking digital competition”, recommends the establishment of a digital markets unit, with tools and a framework that will support greater competition and consumer choice in digital markets. The unit would have three functions:
- To develop a code of competitive conduct, with stakeholder input, to be applied only to “particularly powerful companies” which have “strategic market status”.
- To enable greater personal data mobility and systems with open standards where consumer choice and competition would be increased.
- To advance data openness, in order to facilitate access to anonymised or non-personal data to potential entrants, thus reducing barriers to entry in digital markets.
The recommendations also update merger policy . The report suggests that merger control can be more forward-looking and take better account of technological developments. This will require updated guidance about how to conduct merger assessments based on the latest economic understanding, and updated legislation clarifying the standards for blocking or conditioning a merger. This means more merger enforcement. The report is critical of little scrutiny and no blocking of an acquisition by the major digital platforms.
The report recognises that dominant companies have a particular responsibility not to abuse their position by unfairly protecting, extending or exploiting it. There is a welcome acceptance that Existing antitrust enforcement, however, “can often be slow, cumbersome, and unpredictable.” And” This can be especially problematic in the fast-moving digital sector”. It recommends changes that would enable more use of interim measures to prevent damage to competition while a case is ongoing, and adjusting appeal standards to balance protecting parties’ interests with the need for the competition authority to have usable tools and an appropriate margin of judgement. The goal is to place less reliance on large fines and drawn-out procedures, instead enabling faster action that more directly targets and remedies the problematic behaviour.
At present, merger assessment only considers how likely a merger is to reduce competition. If a substantial lessening of competition is more likely than not to result, a merger may be blocked. Although in many situations this is a reasonable approach, the report says this does not adequately allow the scale of any harm (or benefits) to be accounted for alongside their likelihood as they would be in economically sound cost-benefit analysis. For digital mergers, this can be a crucial gap. For example, take a large platform seeking to acquire a smaller tech company based on an attractive innovation that gives it a real chance of competing for consumers. For the sake of the example, assume that if the companies merge, there would only be a modest efficiency benefit. But if the smaller company would otherwise have become a serious and innovative competitor, the resulting competition would have generated far greater consumer benefits. The Panel is concerned that, under the system as it stands, the CMA could only block the merger if it considered the smaller company more likely than not to be able to succeed as a competitor. This is unduly cautious. The report recommends that assessment should be able to test whether a merger is expected to be on balance beneficial or harmful, taking into account the scale of impacts as well as their likelihood. This change would move these merger decisions to a more economically rational basis, and allow big impacts with a credible and plausible prospect of occurring – critical in digital markets – to be taken properly into account.
As a matter of central philosophy, the report suggests no change to consumer welfare objective – this is an opportunity lost. Consumer welfare is a good thing but the approach has been used in practice in the past to allow mergers it take place increase short term consumer welfare – so an efficient firm can justify buying up a rival because the new organisation will offer consumers the combined entity’s products at lower prices. But users may be better off with more choice -not short term low prices and less choice. The process of competition and rivalry should both drive lower prices and innovation – and the consumer welfare standard has undermined innovation.
A pro-competitive test for policing the tipping point in digital markets would be one that actively promoted competition, and protected the process of competition , not just consumer welfare. Indeed the focus on consumer welfare (as happens in the US )is not required by our law or our policy -suggesting a continuation of such focus is misguided and misplaced and needs to change.
Preiskel & Co Partner, Tim Cowen, co-authored a paper, Technopoly, which triggered the review, and highlighted many of the issues prevalent in digital markets which the report accepts and aims to mitigate via its recommendations. However, the solutions proposed are far from clear. A code of conduct is a classic British obfuscation, and given the behaviour of certain tech platforms to date, is likely to be as useful as a chocolate fireguard. Technopoly called for clear recognition of rights to data, the report recognises the problem, but the solution is more exhortation than clear and implementable action. Likewise, the recognition of the problem of lack of enforcement action is clear; but instead of clear actions and enforcement, the report recommends a new body; it is unclear how further bureaucracy wil help.
Please contact Tim Cowen if you have any questions on the topic.