The CMA has recently published an overview of how it intends to operate the new digital markets competition regime as currently proposed by the Digital Markets, Competition and Consumers (DMCC) Bill. The CEO of the CMA, Sarah Cardell, also discussed this approach in her speech at the Concurrences Tech Antitrust Conference.
The CMA’s overview sets out the main categories of potential harm in digital markets, a summary of the digital markets regime, the 11 operating principles it proposes to follow, and its participative approach in building and applying its expertise in digital markets.
What are the main concerns?
According to the CMA, there are specific features of fast-moving digital markets that can lead to a small number of firms accumulating entrenched and substantial market power based on today’s most important technologies and using partnerships with FM developers to insulate themselves from competition: “In particular, companies that hold the critical inputs that foundation model developers need to compete also often hold powerful and profitable positions in markets that foundation models have the potential to disrupt.”
The CMA believes the existing competition framework is not set up to address such issues. While it acknowledges the benefits of such partnerships between big companies and FM developers, it wants to properly consider their potential for negative impacts on markets.
How will the digital markets competition regime work?
The digital markets competition regime has five key elements:
- Strategic Market Status (SMS): these are firms with have substantial and entrenched market power in a digital activity, a position of strategic significance, and which have a global turnover of over £25 billion or UK turnover of more than £1 billion.
- Conduct Requirements (CRs): these tailored requirements will guide the behaviour of SMS firms, but must be proportionate for the legislative objectives of fair dealing, open choices, and trust and transparency. The DMCC Bill requires the CMA to publish a notice explaining its reasoning and the benefits of any CRs set. The CMA has also set out its own four principles when setting CRs (e.g. generally setting higher-level requirements based on the permitted types set out in the legislation).
- Pro-Competition Interventions (PCIs): the CMA can directly order an SMS firm to take (or not take) certain action and has the power to require them to undertake testing or trialling or help determine the most effective remedy. PCIs are intended to address factors underpinning the SMS firms’ market power in a particular activity. The CMA is required to first undertake an investigation within a 9-month timeline. These investigations will also help the CMA to build a detailed understanding as to how the market operates and the factors leading to any competition problems.
- Merger reporting: SMS firms will have to report mergers to the CMA before their completion where they have a value of £25 million or more and a UK connection.
- Enforcement: the CMA intends to adopt a participative approach in which it will engage constructively with both SMS firms and other stakeholders, but this will be complemented by formal enforcement action where needed (e.g. director disqualification, financial penalties of up to 10% of an undertaking’s turnover).
How does the CMA plan to tackle market power in digital markets?
The CMA has set out 11 proposed principles to inform its approach, which can be grouped under 4 broad themes (see table below).
CMA’s Proposed Operating Principles
1. Targeted, evidence-based and proportionate approach to implementing the new digital markets regime.
2. Promote competition as the route to deliver better outcomes for users.
3. Ensure digital markets regime complements CMA’s existing tools, and coordinate with domestic and international partners.
4. Engage widely with a range of stakeholders (from major tech players to challengers and users)
Some examples of what the CMA states it could do to tackle market power in digital markets and associated harms under the new regime include:
- Ensuring markets stay open. For example, by (where appropriate and proportionate) preventing SMS firms from engaging in anti-competitive tying, bundling or self-preferencing of products and services, or by mandating SMS firms to provide competitors with greater access to data or functionality controlled by SMS firms.
- Seeking ways to increase competition in the core platform markets where this is feasible. For example, by (where appropriate and proportionate) requiring SMS firms to allow the products and services of other firms to interoperate with their own, or ensuring SMS firms provide their users with effective choice screens.
- Tackling misuse of market power more directly where competition does not provide an adequate constraint. For example, by (where appropriate and proportionate) requiring SMS firms to trade on fairer terms or requiring them to increase transparency with respect to aspects of their algorithms.
Reviewing the CMA’s decisions
The DMCC Bill establishes that all CMA decisions under the digital markets regime (such as whether a firm has SMS, the impositions of CRs and PCIs, and whether a CR has been breached) will be subject to an appeal applying judicial review principles. For fines imposed, the DMCC Bill allows firms to separately challenge such fines on the merits.
Stakeholder input: in the spirit of openness and transparency, the CMA emphasises that input from consumers, businesses, investors and wider third parties will be crucial as the CMA wants to understand the concerns such parties have about potential SMS firms. The CMA reassures stakeholders of its legal obligations to protect the confidentiality of information it receives and the identity of whistleblowers. The CMA advises firms against imposing NDAs aimed at preventing business partners or customers from engaging with antitrust agencies.
Regulatory coordination: the need for regulatory coordination will also grow. The DMCC Bill requires CMA to consult with other regulators when making decisions relevant to their remits (e.g. Ofcom, ICO, FCA, PRA, Bank of England).
Building and applying expertise
The CMA has spent several years building up strong expertise and understanding to ensure it is well-placed to act when the new regime comes into force.
- The CMA appointed 9 tech experts last year, who have been assisting the CMA in preparing for the new regime.
- The CMA plans to convene groups representing UK consumers, businesses and tech professionals that will be consulted and help prioritise its work.
- The process of building a detailed understanding of how the market operates will continue via the investigations that will be conducted prior to the imposition of a PCI.
- A new CMA Non-Executive Board with members with skills in a range of areas, including digital and technology will be appointed.
The CMA published an indicative timeline (see below), which expects the DMCC Bill to come into force in April 2024, and the regime to commence from October 2024. The CMA expects to initiate approximately 3-4 SMS investigations in the first year of the new regime.
Once the digital markets regime comes into force, the CMA will release more detailed draft guidance for consultation.
The CMA is therefore getting itself ‘match-fit’ for the advent of the much-anticipated DMCC Bill coming into force. We will keep developments under review and keep you posted.