The UK Government’s reponse to the CMA Market Study: Some good news with some remaining questions

Hand touches digital touch screen, a futuristic scene denoting the nature of digital markets

In July 2020, the CMA published the Final Report of its Online Platforms and Digital Advertising Market Study, which recommended the adoption of a new pro-competition regulatory regime to govern the behaviour of major platforms funded by digital advertising, like Google and Facebook. I was very pleased with this report as it, among others, shed some light to the opaque digital advertising field and identified the anticompetitive practices that Google has pursued in the ad tech sector, vindicating the work I have done with my colleague Dimitrios Katsifis in this area (see here and here). My only disappointment at the time was that the CMA had decided against proceeding to a full market investigation reference that would have allowed it to adopt remedies to fix the problems identified in the Final Report.

A few days ago, the UK government published its response to the CMA Market Study (the “Response”). There is much to like in the Response as the government agrees with all the key recommendations made in the CMA Final Report:

  • Recommendation 1: “The Government agrees that the introduction of an enforceable code for firms with substantial and enduring market power would protect competition in digital markets funded by online advertising.”
  • Recommendation 2: “The Government agrees that a dedicated Digital Markets Unit (DMU) is needed to introduce, maintain and enforce a code of conduct. We will establish the DMU within the CMA from April 2021, to build on the work of the Taskforce [the Digital Markets Taskforce] and begin to operationalise the key elements of the regime.”
  • Recommendation 3: “We agree that measures to govern the behaviour of platforms that have substantial and enduring market power should be mandatory and enforceable. A non-enforceable code would not provide sufficient incentives to deter anti-competitive behaviour.”
  • Recommendation 4: “We agree that pro-competition measures have the potential to tackle the underlying sources of market power and positively transform innovation and growth in the digital economy. The Government agrees in principle with giving pro-competition powers to the DMU. However, these interventions are complex and come with significant policy and implementation risks. More work is required to understand the likely benefits, risks and possible unintended consequences of the range of proposed pro-competitive interventions.”

Thus, the UK government supports the four main recommendations made by the CMA and will establish the DMU within the CMA from April 2021 (which is another victory for the CMA as it was not a given that the DMU would be part of it), with the only caveat that more work will have to be done to better understand the likely benefits, risks and possible unintended consequences of pro-competitive interventions proposed by the CMA (which could include company break-ups).

It does not therefore come as a surprise that the CMA was very pleased with the government’s response with its Chief Executive Andrea Coscelli saying:

We welcome the government’s response to the findings of our digital advertising market study.

Only through a new pro-competition regulatory regime can we tackle the market power of tech giants like Facebook and Google and ensure that businesses and consumers are protected.

The last remaining piece to the edifice will be the CMA Digital Markets Taskforce’s advice on the design and implementation of the regime, which is due by the end of 2020.

While the government’s response is largely positive, it raises some questions to which I have not been able to find an answer (despite asking several knowledgeable people):

  • First, it is not clear what the DMU will be able to do once it is set up as the government will need to bring forward legislation to establish the pro-competitive regime envisaged. Will the DMU’s work be limited to “strategizing” (and getting itself organized) until such time this legislation is passed or can it already start working on the codes of conduct?
  • Second, if legislation is needed, what is the calendar? The government is not very specific as it simply notes that it commits to “legislate to put the DMU on a statutory footing when parliamentary time allows.” Thus, while the government is taking an important step, this is only the beginning of a process, which will likely take time.
  • Second, section 17 of the Response says that “The Government agrees that the introduction of an enforceable code for firms with substantial and enduring market power would protect competition in digital markets funded by online advertising.” Thus, it seems clear that Google and Facebook will be subject to a code of conduct, but what will happen with other firms with such power but which are not (primarily) funded by online advertising such as Apple and Amazon? For instance, the App Store raises issues similar to those identified by the CMA in its Final Report with respect to Google and Facebook (e.g., as regards the arbitrariness of Apple’s policies), but it also creates others. The question is thus whether the CMA intends to deal with the competition issues raised by Apple and Amazon (which are both investigated by the European Commission) through codes of conduct or through traditional ex post competition law interventions. I would personally find it strange to not adopt codes of conduct to other digital gatekeepers, especially since the Furman Review suggested the use of codes of conduct to all firms having “Strategic Market Status.”

These are important questions on which the Digital Markets Taskforce’s recommendations may bring some light next month.

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