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UK Digital Competition Report Builds the Case for Platform Regulation

March 13, 2019 , , , ,

The United Kingdom’s Digital Competition Expert Panel released its report, “Unlocking Digital Competition,” to the government yesterday. The report proposes policies that it says, “would create substantial benefits for UK consumers, businesses trying to start up and scale up in the UK, and greater predictability for the major digital companies.” The report argues that competition law and policy in the UK needs to be updated to address the current problems in the digital economy, but that additional tools beyond competition policy will have the biggest impact. “Strengthened antitrust enforcement, although having an important role, moves too slowly and, intentionally, resolves only issues narrowly focused on a specific case.”

Public Knowledge has also argued that antitrust and regulation aimed at improving competition will both be needed to address the challenges of concentration in digital markets, and that antitrust alone will not be sufficient. There is now broad international agreement that the hands-off approach to the tech sector is not working, and pro-competition reforms are needed. For example, the Australian Competition and Consumer Commission has also examined this issue.

The report is detailed, well-researched, and contains some useful recommendations. It’s an important read for those of us working on these issues. I’m particularly interested in their recommendations that data mobility and data openness, what we often refer to as data portability and interoperability or interconnection, can increase competition in digital markets. We advocate for similar policies. The report notes that government can work with industry to set up and continually manage common standards to facilitate this interoperability.

The Expert Panel has included several helpful fictional scenarios to explain the benefits of the regulatory program they propose. I point interested readers to the scenario discussed on pages 63-64. According to the scenario, a search engine with “strategic market status” owns a comparative shopping service that competes against similar services. The search engine gives prominent placement to its own shopping service and not others. Having a clear non-discrimination rule in place may actually deter this behavior, but if it were to happen, it could be resolved and remedied quickly and predictably without the need for a prolonged antitrust suit.

The report also calls for the creation of an expert regulator to implement the new proposals. In the United States, the Federal Trade Commission or Federal Communications Commission may be well suited for this new responsibility, or a new regulator may be needed. But we agree in general that using the regulatory process to address some of these concerns will be useful. Regulators can develop expertise and make the fact-specific analysis that is often necessary in this dynamic industry. There are often difficult policy trade-offs to be made here, so Congress must give clear instructions. Check out Harold Feld’s detailed introduction to our Platform Regulation series for more on this.

The report notes the power of a “strategic bottleneck” in digital markets, arguing that some remedies should be narrowly tailored to those companies and not others. This recognizes the potential gatekeeper power that digital platforms can have. For more on how to identify dominant digital platforms, read about Cost of Exclusion analysis. This means that there are some rules which are more appropriately applied only to dominant platforms, not across the entire industry. On the other hand, some rules need to be broadly applicable to be useful.

There are some very specific recommendations in the report for changing UK antitrust law. The report proposes that all mergers by designated dominant firms should be reviewed in advance. In contrast, the current U.S. law only requires advance review for mergers above a certain dollar amount, regardless of who the buyer is. It also proposes a new standard for merger review, since the cost of underenforcement, at least in digital markets, is now recognized to be higher than the cost of overenforcement. There are certainly other ways to incorporate this economic learning, but it’s useful to have a discussion of these proposals.

The report also advocates for a serious retrospective study of past conduct investigations in digital markets, not just mergers, to help improve conduct enforcement, which is crucially important in these markets. 

Importantly, the publication of the Unlocking Digital Competition report sends a message that the rest of the world will not wait for the U.S. to redefine regulation and governance in this space. The EU is already leading the privacy debate with the GDPR. The U.S. has the opportunity to lead on platform competition. If we do not, we may not like the decisions other countries make in that vacuum.