Sarah Cardell: Ensuring digital market outcomes that benefit people … – GOV.UK

Uncategorized

We use some essential cookies to make this website work.
We’d like to set additional cookies to understand how you use GOV.UK, remember your settings and improve government services.
We also use cookies set by other sites to help us deliver content from their services.
You can change your cookie settings at any time.
Departments, agencies and public bodies
News stories, speeches, letters and notices
Detailed guidance, regulations and rules
Reports, analysis and official statistics
Consultations and strategy
Data, Freedom of Information releases and corporate reports
Sarah Cardell, Interim Chief Executive of the CMA, delivered her keynote speech at the British Institute Of International & Comparative Law (BIICL) and Linklaters Tech Antitrust Roundtable
Thank you for the invitation to speak to you today.
There has been extensive debate in recent years about the evolution of digital markets – and about the role that competition authorities can, and should, play in tackling concerns arising from incumbent market power. Often, the Competition and Market Authority’s (CMA) work has been central to that debate as we have sought to identify key areas of concern and explain why a new approach may be needed.
But in the complexity of that debate, it’s sometimes easy to lose sight of the underlying objective. The foundational purpose of the CMA’s work in digital, as in other markets, is to promote competitive markets and tackle unfair behaviour. And in doing so, we are motivated by 3 strategic outcomes:
It is a particularly good time to reflect on those objectives given the announcement, as part of the Autumn Statement this month, that the Digital Markets, Competition and Consumer Bill will be introduced in the third session of this Parliament. This will provide the CMA, and the Digital Markets Unit (DMU) that sits within it, with the powers it needs to take swift and effective action to ensure that digital markets work better for people, businesses and the UK economy.
In this speech I’d like to focus on 3 issues:
Digital markets bring enormous benefits. For people, they offer easier ways of keeping in touch, provide us with detailed information at our fingertips and offer quick access to a greater range of products and services – in many cases at lower prices. For businesses, these markets provide access to a wider range of customers, new business models and new tools to help them run more effectively. And for the economy as a whole, these markets can drive innovation and growth. The UK digital sector is growing faster than the rest of the economy, generating billions of pounds and millions of jobs. In 2021, the sector attracted £29bn of investment and our investment numbers this year are, for the first time, ahead of those of India and China.
This is a story of homegrown success – we now have 129 tech unicorns spread across 30 cities and towns across the UK. The pace and scale of transformation brought about by this innovation has been incredible, helping us all through some difficult times over the past few years.
But if digital markets are so beneficial, what’s the concern?
The issue in a nutshell is that the same features that drive many of those benefits also create, at least, the potential for significant harm to customers and competitors.
Let me give 3 examples.
First, digital markets may tend towards concentration where one or 2 very large firms come to dominate.
Features such as network effects, economies of scale and scope, and data advantages to incumbents, lie behind many of the benefits online platforms bring. But they may also tip the market towards dominance. For example, network effects mean people benefit from being on the same platform as each other: the more people who join a platform, the better the user experience may be. But this effect impedes people’s ability or appetite to switch to new platforms when they have lower initial user bases. Similarly, large platforms generate enormous amounts of data to improve and target products for customers, often using algorithms. But a lack of access to this data can then act as a barrier to entry for newcomers.
We then see markets tipping to winner-takes-most outcomes. Yesterday’s disrupters become today’s dominant incumbents – with little likelihood of effective challengers replacing them tomorrow. With a lack of competition come reduced incentives to innovate, improve quality, and keep prices low.
Which leads to my second example: technological progress can also be a double-edged sword. Algorithms can bring us great personalised content, and platforms can connect people and businesses better than ever before. But so-called ‘dark patterns’ can emerge whereby consumers end up paying more or being caught in subscription traps, and online fake reviews can significantly distort consumers’ choices. This can be particularly significant for consumers in vulnerable situations, who may already find it harder to access the benefits of digitalisation.
Third: problems in digital markets matter more given their staggering scale, scope and speed of evolution. Let me provide some perspective. The ‘GAMMA firms’, as they are sometimes called – Google, Amazon, Microsoft, Meta and Apple – have a combined market valuation of around £5.6 trillion, even despite recent slides in tech share prices. That is more than twice the size of UK GDP. And equally as mind-boggling is the breadth of these companies’ activities. Take Amazon for example: amongst other things it is now a retailer, a logistics provider, a driverless-car developer, a television and movie producer, a music distributor, a book publisher, a cloud services company, a fashion designer, a home appliance manufacturer, a payment services provider, and a grocer.
This unprecedented scale and scope afford these firms a strategic position creating a situation of dependency – and potential exploitation – for the people and businesses who rely on them, as well as the risk that they can act to deter innovative competitors.
Let me be clear: big isn’t bad per se. It is entirely right that successful companies should be able to grow and profit from their innovations – that’s an essential driver for effective competition. But as those companies grow over time it is important that they remain subject to effective competition, to spur on further innovation and ensure sustained good outcomes for their customers.
I’d like to say a word here about mergers in digital markets. I sometimes hear a concern that the CMA is out to block acquisitions by the major platforms. That’s simply not the case. We do think it’s right that we look carefully at their acquisitions, where we have jurisdiction to do so, given their existing positions of substantial market power. But we take an objective and evidence-based approach to each such assessment – and in fact while there have been hundreds of acquisitions over the past decade by GAMMA firms, to date we have only blocked one – Meta’s acquisition of Giphy.
But overall, we must be mindful of the risks that come from significant and entrenched market power – particularly in markets that have become essential for our way of life and commerce. For people, it creates risks of higher prices, less choice and having to give up more data than they would like. For businesses, it creates the risk that their new ideas may be quashed before they can get to market, that they may be unable to compete on a level playing field, and that they may be forced to accept unreasonable terms to reach their customers. And for the economy as a whole, it creates a risk that innovation and growth are lower than they otherwise could be over the longer term, potentially reducing investment in UK tech, and holding back growth at a time when it is sorely needed.
I’d like now to provide a brief overview of the way we have classified our areas of concern in digital markets and some of the casework we have undertaken to date. As we have reflected on our approach to digital markets cases, we have found it helpful to group potential concerns into 6 broad categories:
first, the market features that can lead to market power (for example network effects, single homing by users, economies of scale and large data set advantages – a number of which we identified as present in our digital advertising and mobile ecosystems market studies
second, the behaviours that can reinforce core market power (such as online choice architecture, data access and interoperability restrictions
third, the behaviours that leverage market power into a related market (such as self-preferencing, tying and bundling, and anti-competitive use of data to target new services – aspects of which were or are for example the subject of our Google Privacy Sandbox and Google’s Ad Tech competition act investigations as well as our competition act investigation into Amazon’s use of third party data
fourth, behaviours to block or restrict new markets and innovation (for example restricting access to APIs or hardware needed for complementary services – as reflected in our Competition Act investigations relating to Google’s Play Store and Apple’s App Store
fifth, behaviours that harm consumers directly without needing to result from market power (such as dark patterns and online choice architecture or the provision of false or misleading information which distorts consumer behaviour – for example our consumer protection work on fake online reviews and on hidden advertising by social media influencers
sixth, exploitation of market power (such as charging high prices, excessive data extraction, and platform access terms and conditions for business users – for example our market investigation into cloud gaming and browsers
Given that brief overview of the range of work we are already undertaking to tackle concerns in digital markets, why do we need a new approach?
Despite the progress we have made, there are limits to what we can do with our current powers, for 3 important reasons.
first, existing competition and consumer laws are primarily backwards-looking – tackling harms after they have occurred
second, in some areas, existing laws lack the specificity needed to address particular and emerging concerns in digital markets
third, our current toolkit tends towards one-off remedies and protracted adversarial processes rather than the targeted, more participative and iterative approach required to address the issues we see in rapidly evolving markets
So we need a new approach – and the government agrees.
The Digital Markets, Competition and Consumer Bill will allow the CMA to better manage the risks of digital markets by establishing a more flexible, collaborative and forward-looking approach enabling us to identify and address concerns more rapidly and effectively than with our existing powers. But this isn’t simply about making our life easier – it is critical to ensure that we effectively deliver the strategic outcomes for people, businesses, and the economy as a whole, that I mentioned at the start of this speech.
The government has committed to introducing this legislation in the third session of this Parliament and we are supporting this process by providing up-to-date evidence and advice on the final shape of the legislation, to play our part in informing government and Parliament about these issues.
The proposals are in 2 parts:
one bringing in new powers for us to tackle harms in all markets (including digital ones)
another giving the CMA’s Digital Markets Unit (DMU) powers to oversee a new regulatory regime for the most powerful firms – those that have significant and entrenched market power giving them Strategic Market Status (or SMS).
The first part of the reforms will for example: give us even more effective powers to tackle online fake reviews and subscription traps; allow us to trial and iterate novel remedies in digital markets; and equip us to more quickly challenge law-breaking and respond with direct enforcement and penalties where necessary.
The second part, the SMS regime, will establish a new ex-ante approach to regulating the largest firms in digital markets, allowing us to shape behaviour as markets evolve, and quickly bring anti-competitive conduct to an end. This will be delivered through 3 key pillars:
first – legally enforceable conduct requirements that set out clearly how an SMS firm is expected to behave in relation to the particular activity in which it holds Strategic Market Status. The aim will be to manage the effects of market power, for example by preventing practices which exploit consumers and businesses or exclude innovative competitors
second – pro-competitive interventions (PCI) to address issues such as personal data mobility, interoperability and data access. PCI’s will be used to address the factors which are the source of an SMS firm’s market power in a particular activity. These interventions seek to drive longer-term dynamic changes in these activities, opening up opportunities for greater competition and innovation
third – earlier visibility of mergers most likely to lead to competition concerns affecting UK businesses and consumers, given the particular risks and potential consumer harm arising from these transactions
Where the evidence is clear that intervention is needed, we will act, but this will always be in a way that is proportionate to the harms to businesses and consumers. And of course, many other jurisdictions around the world are also taking steps to introduce similar rules – from the EU to South Korea and Australia. The US administration has also signalled its desire to get to grips with digital markets, and there are several major legislative proposals under consideration.
In preparation for these changes in the UK, we are developing the organisational design for the expanded DMU, including staffing, skills and specialist support. We have a strong foundation of legal, economic, and policy specialists in the CMA, and we have established a specialist Data, Technology and Analytics Unit. The DMU will have a hub in Manchester as part of the CMA’s wider and growing presence there. The city offers a diverse and highly skilled labour market for tech but also legal and financial roles.
We are also appointing external digital experts to advise across several specialisms, ranging from competition and regulation issues, industry knowledge on digital firms’ strategic priorities and decision-making processes, and technical expertise relating to digital technologies.
To operationalise the new regime, we will need to designate specific firms as having strategic market status, draft the bespoke conduct requirements that they will have to comply with, and publish guidance on how those conduct requirements will work in practice. We will know more about the time-frame for completing that work in the coming months.
In conclusion: at the CMA, we want to ensure people and businesses can continue to enjoy the many benefits of digital markets whilst limiting any harms that may arise. And we want to ensure that competitive digital markets continue to attract investment and drive the growth and innovation that is so important for the UK economy. The ex ante regime will offer a consistent and predictable regulatory environment for major tech firms to operate in, which will support these aims.
We believe the proposals in the Digital Markets, Competition and Consumer Bill are needed for us to adopt an approach to these issues that is faster, clearer, more proportionate, and more collaborative.
I am sure that there will be plenty of opportunities for us to continue this conversation as the Bill makes its way through Parliament.
Don’t include personal or financial information like your National Insurance number or credit card details.
To help us improve GOV.UK, we’d like to know more about your visit today. We’ll send you a link to a feedback form. It will take only 2 minutes to fill in. Don’t worry we won’t send you spam or share your email address with anyone.

source

Leave a Reply

Your email address will not be published. Required fields are marked *