GovWire

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 Authoritys (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, its sometimes easy to lose sight of the underlying objective. The foundational purpose of the CMAs 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:

• first, we want people to be protected from harms and be able to select the products and services best suited to their needs
• second, we want businesses to have fair access to markets as both customers and competitors
• third, we want dynamic competition in digital markets to create an attractive ecosystem for investment and innovation

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 Id like to focus on 3 issues:

• first, the particular characteristics of digital markets that bring many considerable benefits but also present risks and challenges to people and businesses if left unchecked
• second, a taxonomy of potential concerns in digital markets and some examples from our current and past casework of action we are taking to address those concerns
• third, an outline of how the Bill will enable the CMA to make digital markets work even better for people, businesses and the UK economy as well as some of the practical steps we are taking to prepare for this

So what are the particular characteristics of digital markets?

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, whats 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 peoples 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. Yesterdays disrupters become todays 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 isnt bad per se. It is entirely right that successful companies should be able to grow and profit from their innovations thats 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.

Id 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. Thats simply not the case. We do think its 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 Metas 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.

A taxonomy of potential concerns and examples from our casework to date

Id 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 Goog

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