The UK Competition and Markets Authority (CMA) and the UK Digital Regulation Cooperation Forum (DRCF) published two horizon scanning reports on trends in digital markets and immersive technologies, respectively. This article draws attention to some of the key competition issues mentioned in these reports. 

Trends in Digital Markets

The CMA published its “Trends in Digital Markets: A CMA Horizon Scanning Report” on 14 December 2023. This report sets out the trends which the CMA believes will have an impact for and in digital markets over the next 5 years and beyond. 

This is the first publication from the CMA’s horizon scanning function, which is jointly led by its Data, Technology and Analytics unit (DaTA) and Digital Markets Unit (DMU). The research and analysis in this horizon scanner report will feed into continuing preparations for the digital markets competition regime and DMU, as well as the next phase of the CMA’s AI FM review (we wrote about the initial review report here). 

In the report, the CMA emphasises its forward-looking approach, and how “thinking about the new technologies and markets that may emerge in the future will ensure that people can be confident they are getting great choices and fair deals, that competitive, fair-dealing businesses can innovate and thrive, and the whole UK economy can grow productively and sustainably” – in line with the priorities outlined in the CMA’s Annual Plan 2023 to 2024.

The CMA also hopes its report will encourage other authorities to “stimulate discussions and create further insights at pace.” 

The trends are:

1. Rapid and widespread deployment of AI Foundation Models (FMs)
2. Increasing technology convergence (TC) enables the creation of new and disruptive products and services
3. Digital platforms increasingly integrate additional services
4. Digital firms continue to raise prices for API access
5. Growing incumbent and new entrant activity in the markets for CPUs, GPUs, and AI accelerators
6. Interoperability improvements are uneven but remain an important driver of market outcomes
7. Larger technology firms continue to expand into new markets
8. Increased application of digital twins
9. Increased development and usage of open-source software and hardware
10. Consumers continue to want personalised experiences but remain conscious of how their data is used

For a slightly more detailed summary of the trends, see the end of the article.

Immersive Technologies Foresight Paper

The UK Digital Regulation Cooperation Forum (DRCF) – which brings together the CMA, Ofcom (the communications regulator), the ICO (Information Commissioner’s Office, responsible for information rights and data protection), and the FCA (the Financial Conduct Authority) to cooperate on digital regulatory matters – produced its “Immersive Technologies Foresight Paper” on 13 December 2023. 

‘Immersive technologies’ encompass a wide range of systems and services including virtual reality (VR), mixed reality (MR) and augmented reality (AR). ‘Immersive environments’ are computer-generated ‘worlds’ where a user can feel as if they are present. This paper is a horizon scanning report on how immersive environments might evolve, the key uncertainties that could drive changes to them, and the potential regulatory implications. 

Some issues mentioned as being within the CMA’s remit (usually in collaboration with other regulators) include:

• Ensure effective competition, regardless of uptake: the need to ensure markets work well in the interests of consumers, businesses and the economy is a key focus for the CMA, but also relevant to Ofcom and the FCA as concurrent competition authorities.
• Immersive environments could see the rise of dominant players: incumbent tech firms could end up with strengthened positions and might levy a commission on third-party apps; dominant providers could acquire smaller businesses. 
• The exploitation of behavioural biases: the ICO and CMA have reviewed how online practices influence consumer behaviours and will need to continue doing so as immersive environments develop.
• Overlaps between competition and online safety: Ofcom and the CMA will need to consider potential interactions between competition in relevant markets and online safety. For example, the size of relevant organisations may influence their capacity to invest in online safety tools and the degree of supervision through the online safety regime.
• Interactions between competition and data processing: there is a need to ensure that data collected for the purposes of improving experiences, and thereby developing competitive offerings, will not negatively impact the data protection rights of users.
• The impact of privacy enhancing technologies (PETs)
• The role of AI: a need for a joined-up approach to AI has already been recognised, as demonstrated by the new DRCF advisory service to help businesses launch AI and digital innovations.
• Digital identity: this is of wider interest to DRCF regulators given linkages to issues such as consumer access and digital exclusion, competition, and age assurance.

Issues within the other regulators’ remit include:

• Privacy and online safety (ICO and Ofcom) 
• Collecting biometric and other data to create inferences about users (ICO)
• Novel forms of harm (Ofcom)
• New, convincing scams, financial crime and fraud (FCA)
• New channels for finance and payments (FCA)
• Convergence of immersive social media, retail and gaming might hinder redress 
• Digital divide/accessibility issues (Ofcom)

CMA Trends in Digital Markets (in more detail)

1.Rapid and widespread deployment of AI Foundation Models (FMs)

The report provides an overview of the work undertaken in the CMA’s AI FM initial review in September 2023 (which we have also written about here).

2. Increasing technology convergence (TC) enables the creation of new and disruptive products and services

The CMA notes one paper that argues the source of competitive edge for companies is no longer related to economies of scope, scale, or expertise, but rather the ‘economy of convergence’.

The CMA states there are benefits for consumers but also potential risks, such as market disruption or the ability of some firms to leverage existing capabilities. However, the CMA found limited information on competition and consumer elements during its research. 

The report mentions new techniques are being used to identify TC and the emergence of new markets (e.g. deep neural networks and machine learning approaches to analyse patent data or Wikipedia). 

Possible future developments are also mentioned, such as: neural technologies combined with AI; AR/VR converging with IoT, digital twins, AI and/or robotics; and the convergence of nanotechnologies, biotechnologies and information technologies.

3. Digital platforms increasingly integrate additional services

The report notes although integration can provide convenience for consumers, there are also potential concerns from consumer lock-in and competition (e.g. barriers to entry), to data privacy.

The report also mentions media reports of X’s ambition to become the ‘everything app’, similar to WeChat, which combines social media, messaging, gaming, marketplace and payments. 

4. Digital firms continue to raise prices for API access

The report notes there has now been a shift in APIs being thought of as tools for direct revenue generation, instead of a tool for platform expansion as has often previously been the case.

The report also explores the interaction between AI FMs and APIs – FMs using large amounts of data accessed via APIs for training and development could drive firms to increasingly seek to turn their APIs into a key source of revenue.

The CMA highlights the increasing importance of maintaining a balance between accessibility and innovation.

5. Growing incumbent and new entrant activity in the markets for CPUs, GPUs, and AI accelerators

The report notes that new entrants in core logic chip markets may not meaningfully disrupt the wider market or could possibly be subsumed in future industry consolidation. Alternatively, if some of the larger technology companies succeed in creating competitive products, there may be potential risks arising from vertical integration.

This section also looks at the impact of microchip supply and price volatility.

6. Interoperability improvements are uneven but remain an important driver of market outcomes

Horizontal interoperability has been seen as a potential way to mitigate market ‘tipping’ in digital markets (i.e. when product/service benefits from such strong network effects that it dominates a market). Vertical interoperability can unlock access to markets downstream of platforms or services, especially in ecosystems that remain ‘closed’ or heavily vertically integrated, which could allow new entrants to compete on more equal terms with vertically integrated products, increasing competition.

The report notes that interoperability in digital markets has been improving through regulatory intervention (e.g. the EU’s DMA mandates increased interoperability in digital markets through the obligation for gatekeepers to ensure fair, reasonably and non-discriminatory general conditions of access to app stores, online search engines etc; the UK’s DMCCB gives the CMA the ability to impose conduct requirements on SMS firms for the purpose of “preventing a designated undertaking from … restricting interoperability between the relevant service or digital content and products offered by other undertakings”) and industry initiatives. 

However, interoperability may be constrained in some markets due to technical factors and market incentives (e.g. resistance from tech companies who may want to preserve the competitive advantage they have from certain data or technology not being shared more widely). 

7. Larger technology firms continue to expand into new markets

The report focuses on ‘HealthTech’ (e.g. Oracle’s purchase of Cerner) and finance (e.g. Meta’s attempt to launch its own cryptocurrency) as these sectors came out most prominently in its scanning. 

Involvement of larger firms with access to data, technologies or computing power could create opportunities for new technologies or treatments in health, and could in turn lower costs, but it could also pose competition risks and consumer issues such as data privacy, algorithmic biases, and the reliability of new technologies.

8. Increased application of digital twins

The report references the close interaction between digital twinning and AI. 

While digital twinning may create opportunities for new services and for new entrants, firms with existing capabilities and resources may be in a stronger position to benefit. 

9. Increased development and usage of open-source software and hardware

The CMA states that open-source software has potentially lowered barriers to entry by providing critical inputs, reducing total costs of ownership, and preventing vendor lock-in.

However, there are concerns over how open-source functions, particularly in sustaining how open-source projects are maintained, and in ensuring they are fairly advertised.

10. Consumers continue to want personalised experiences but remain conscious of how their data is used

The CMA believes that developments such as privacy enhancing technologies could potentially help balance efficiencies, competition and privacy. In line with the CMA-ICO joint statement, the ability for data-driven personalisation to augment a healthy competitive environment is best served when there is not differential access to data.

It is possible that firms may come to compete on the quality of their personalisation services. Firms may also compete on how they are able to personalise their overall offering to suit consumer needs. This may favour established firms, or this may encourage smaller businesses to innovate and to leverage specialised offerings. 

If you need more information or further guidance on competition issues in the technology sector and digital markets, please contact Dr. Saskia King and Quinn Liang.

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