Competition reforms needed for digital markets, says panel

Out-Law News | 14 Mar 2019 | 4:50 pm | 3 min. read

A new digital markets unit should be established in the UK and given powers to force businesses with large datasets to share that information with rivals, a report prepared for the UK government has said.

Last year, the government asked an independent panel of academics to make recommendations on how the UK's competition regime could be updated to account for developments in digital markets. The digital competition expert panel published its report (150-page / 3.03MB PDF) on Wednesday.

The panel has put forward a series of recommendations for reform, including for the establishment of a legally-empowered "pro-competition digital markets unit" and in relation to the powers that unit should have.

According to its report, the unit should have the power to "use data openness as a tool to promote competition, where it determines this is necessary and proportionate to achieve its aims".

"There may be situations where opening up some of the data held by digital businesses and providing access on reasonable terms is the essential and justified step needed to unlock competition," the panel said. "Any remedy of this kind would need to protect personal privacy and consider carefully whether the benefits justified the impact on the business holding the data. But the ability to pursue data openness is an essential tool for the unit."

The panel said the digital markets unit should have further powers to impose personal data mobility or open standards in digital markets where it determines the measure would be "proportionate and effective", and that it should also work with online platforms to lay out "standards that define the boundaries of anti-competitive conduct in digital markets" in a new code of conduct.

The panel, whose work was led by former economic advisor to the US government Jason Furman, also urged further changes to be made to UK merger rules and the competition enforcement regime. The proposals have been welcomed by the Competition and Markets Authority (CMA) which last month tabled its own proposals for reform.

On merger policy, the panel said a "more forward-looking" approach that takes "better account of technological developments" is needed, and that this calls for updated guidance on how prospective mergers should be assessed by the CMA as well as legislative amendments to clarify "the standards for blocking or conditioning a merger".

The legislative changes would allow the CMA to "use a ’balance of harms’ approach which takes into account the scale as well as the likelihood of harm in merger cases involving potential competition and harm to innovation", according to the report.

On enforcement, the panel said the CMA should make greater use of interim measures to "prevent damage to competition while a case is ongoing", and said there should be more limited grounds with which to appeal CMA decisions to the Competition Appeal Tribunal (CAT).

The panel said there are limitations with the regulatory levers that can currently be deployed to address competition issues in markets, and that this calls for reform.

"Our central conclusion is that digital markets will only work well if they are supported with strong pro-competition policies that open up opportunities for innovation, and counter the forces that can lead to high concentration and a single winner," the panel said. "Solely relying on merger and antitrust enforcement can create delays and uncertainty that can be bad for large incumbents and small entrants alike. Neither is well designed for the intensive and ongoing work that needs to be done to facilitate competition and entry through making it easier for consumers to move and control their data, and for new digital businesses to interoperate with established platforms."

"An approach that uses these pro-competition tools can make it easier for new businesses to enter digital markets, give more predictability to all companies about the rules and standards that apply, spur innovation and provide consumers with higher quality and greater choice," it said.

In its initial response to the report, the government called on the CMA to carry out a formal market study into the digital advertising industry. Its formal response to the report's recommendations is scheduled to be published in the summer.

The Treasury said in a statement that the changes recommended in the panel's report would help new services "revolutionise how we use digital apps and programmes".

"For example, an aggregator service could bring together a person’s content and data from several social media platforms and make it easier to browse and message friends and family who use different apps," the government said. "Customers will be able to switch services more easily, taking their custom elsewhere and with greater control over their data. Lists of friends could be transferred to new social media sites and search histories could be transferred to a new search engine."

Andrea Coscelli, the chief executive of the CMA, said the panel's report "provides invaluable insight into these challenges and how they might be addressed by updating the UK competition framework". The regulator said many of the panel's recommendations reflect proposals to modernise the competition regime that it put forward in a report last month.

The CMA's plans include measures to stiffen the UK's merger control regime, provide it with scope for earlier intervention in markets and with new powers to impose fines on individuals in civil competition cases, and to limit the grounds on which appeals could be raised against its decisions by businesses to the CAT.