CMA Chief Executive Calls for New Regime to Regulate Digital Markets

Andrea Coscelli, CEO of the Competitions and Markets Authority, has outlined the regulatory body’s vision for a new, stricter regime for monitoring anti-competitive practice and abuse of market dominance in online commerce. In a speech given at the Fordham Competition Law Institute’s annual conference, Mr. Coscelli discussed the current approach taken in regulating digital markets and set out the regulatory powers and systems which the CMA considers may be necessary for their effective future functioning.

Market Dominance

Mr. Coscelli’s primary concern surrounded the strength of the market position held by large multinationals, in particular Google and Facebook. The speech argued that these firms have reached an ‘unassailable’ position in the digital advertising marketplace through their large user bases and status as consumer access points to the internet. Not only does the CMA consider that this allows them to set prohibitively high prices – CMA research found Google’s like-for-like prices to be some 30-40% higher than Bing’s – but the CMA are also concerned that it stifles innovation, as the CMA believe the dominant firms are able to set the market in their own image and undermine the business models of competitors and new entrants.

Pro-Competitive Intervention

The CMA believe that new powers are required to ensure the successful functioning of the digital advertising market. Mr. Coscelli suggested that a new ‘Digital Markets Unit’ should be established, with the power to require ‘SMS’ firms – those with ‘strategic market status’ – to comply with requirements which would benefit UK digital marketing competition. This would include requiring Google to share its click data with competitor firms, so as to improve the latter’s algorithms, and enforcing greater interoperability between Facebook and its rival social media outlets. It was also suggested that the ‘balance of probabilities’ basis for assessing competitive harm in proposed mergers may be insufficient for SMS firms – implying that a default assumption of harm to competition may be required to guarantee the protection of the market.

That said, it is important to note that the speech did not focus solely on measures to reign in the world’s most influential online companies. The Chief Executive also pointed to successful positive assistance practices in other areas of regulation that the new framework could explore. In particular, Mr Coscelli suggested that the new digital regulatory framework could learn from the FCA’s approach to fostering innovation in financial services, achieved by actively supporting innovative new businesses through the regulatory process and providing ‘sandbox’ trials to test new models without risk to the consumer.

Old Tricks

Despite the call for new powers, the CMA are also confident that much can be achieved with a new approach to regulation utilising their existing powers, especially in relation to mergers. Mr. Coscelli highlighted the improved document review capabilities of the CMA and foreshadowed far greater disclosure requirements for digital market acquisitions, as the authority seeks to discern the true intentions behind such transactions. Internal emails from Mark Zuckerberg recently disclosed in the U.S., which showed that a key motivation for the acquisition of Instagram was its threat level as a competitor, were highlighted as examples of the type of document the CMA would now expect to find and which could precipitate intervention.

Comment

The CMA’s focus on Google and Facebook in the digital marketing space will not cause much surprise. That said, the measures are guaranteed to meet with some level of resistance, particularly if they openly target specific companies.