Competition regulator outlines challenge in deciding whether to interfere in technology-disrupted markets

Out-Law News | 12 Sep 2014 | 2:49 pm | 2 min. read

Retaining a level of scepticism about the extent to which technological changes will influence consumer behaviours and business models is necessary to ensure competition is appropriately regulated, the head of the UK's main competition authority has said.

In a speech in Oxford Competition and Markets Authority (CMA) chief executive Alex Chisholm said businesses often argue against competition regulators taking action in their market on the basis that technological changes will act to disrupt the market and address any competition issues that are present.

However, Chisholm said that technological change does not always act to disrupt a market in a way that was predicted.

"Yes, there is a risk of underestimating the pace and the impact of technological change, but in my experience, the risk of over-estimating the impact of digital innovation is at least as great," Chisholm said in addressing the Regulatory Policy Institute's annual conference.

"At the risk of using a rather tired anecdote, recall that when BT was privatised in 1984 the expectation was that facilities-based competition would develop very rapidly and that price-cap regulation was only needed to ‘hold the fort’ for a little while. 30 years on, there are still economic bottlenecks in the UK telecoms industry that are subject to detailed, intensive ex ante regulation. And this is in electronic communications – an industry that one would expect to be particularly prone to rapid, disruptive technological change," he said.

'Ex ante' regulation concerns conditions that are imposed on certain businesses operating in defined markets.

Chisholm admitted that UK competition regulators previously "arguably misjudged the pace of technological change and its impact". He raised the example of the Competition Commission (CC) deciding against lifting price controls imposed on the Yellow Pages at a time when the company claimed that the market it was operating in was about to be disrupted by internet search companies. The market evolved shortly after the CC's decision and Yell's revenues had fallen by over 60% by 2012, it said.

"I do not think that the group was wrong to be sceptical about the potential for new entry given the evidence available at the time," Chisholm said. "I also do not think that the intervention was particularly harmful, even if it was unnecessary in retrospect. But this example certainly illustrates the difficulties of anticipating the pace of change in this type of market."

Competition law expert Angelique Bret of Pinsent Masons, the law firm behind Out-Law.com, said  the CC case involving Sky and pay-TV movies was another example of how the structure and dynamics of a market can change in a relatively short period of time.

"Alex Chisholm did not mention the CC’s investigation into pay-TV movies referred by Ofcom; in this case the CC decided that proposed remedies to address barriers to entry in the pay-TV retail market caused by Sky’s alleged market power were no longer necessary  around 6 months after the remedies were first proposed due to the growing impact of Netflix and LoveFilm and other developments in the market," Bret said.

In his speech, Chisholm said that markets do not always "self-regulate" and that the risk of "inappropriate regulatory intervention" can be addressed by ensuring regulators follow a "suitable process" for determining what, if any action, to take.

The CMA boss also said that the assumption that technological changes always bring about improved outcomes for consumers was misplaced. 

"To give just one example, there is a lot of work on how companies can use digital technologies to better exploit consumer biases; or how price comparison websites can limit competition between them by using clauses that constrain the suppliers’ pricing policies," Chisholm said.