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DIGITAL OVERLOAD: How the Digital Markets, Competition and Consumers Bill’s Sweeping New Powers Threaten Britain’s Economy

Summary

• The Digital Markets, Competition and Consumers Bill (DMCC or ‘the Bill’) endows the UK’s Competition and Markets Authority (CMA) with extensive new powers to tackle alleged anticompetitive practices in digital markets.
• The CMA will be able to both prohibit or require a wide array of conduct at an incipient stage and impose far-reaching remedies with limited accountability or consideration of consumer benefits.
• The DMCC’s powers are defined broadly, meaning the CMA will have significant discretion to direct the development of digital markets; this is unlike the European Union’s Digital Markets Act, which, although still far-reaching, contains more clearly defined thresholds, requirements and prohibitions.
• The CMA will be able to designate any large company satisfying certain criteria and undertaking ‘digital activity’ as having Strategic Market Status (SMS). That could bring hundreds of companies into the scope of the regime, empowering the CMA to exert substantial control over broad swaths of the economy over time.
• The DMCC empowers the CMA to take crucial decisions at every step of the process—g., in designating relevant activities, imposing conduct requirements and pro-competition interventions, investigating breaches, adjudicating wrongdoing and imposing significant fines — without full merits review.
• It will only be possible to challenge the CMA on process grounds under the judicial-review standard, giving it great power.
• The DMCC ignores important tradeoffs inherent to the proposed prohibitions and obligations, such as the privacy and security implications of requiring ‘interoperability’ or the convenience to users of ‘self-preferencing’.
• The ‘final offer mechanism’ backstop enforcement power marks a fundamental incursion on freedom of contract for private businesses, which could find themselves required to accept unfavourable terms in relation to third parties. The CMA will be asked to arbitrate commercial conflicts between large digital firms and their competitors, leading to a significant risk of rent-seeking behaviour by third parties, regulatory capture, and politicised decision-making.
• The regime will undermine investment in the UK digital sector, and associated innovation, because of the risk of cumbersome, unclear and ever-changing rules—along with a lack of accountability. New features could be delayed or not introduced for British users as firms seek to minimise the risk of falling afoul of the new regime and incurring hefty fines and stringent remedies. The UK’s position as a ‘science and technology superpower’ will thus be undermined.

Introduction

The Digital Markets, Competition and Consumers Bill (DMCC), introduced into parliament in April 2023, is the UK government’s response to alleged anticompetitive practices in digital markets.[1] But in its current form, the Bill threatens to do more harm than good.

In this paper we address Part 1 of the Bill, which concerns its provisions on digital markets.[2] In this area, the government’s underlying concern is that network effects, economies of scale and the accumulation of user data have led to the creation of monolithic technology giants that can exercise market power in ways that lead to higher prices and poor outcomes for consumers, and furthermore, that their power is entrenched, in the sense that their market position is very hard for new entrants to challenge. Advocates of the legislation believe that new regulatory powers are necessary to address these competition issues. The particular point that digital companies are heavily entrenched has been questioned elsewhere, for example by Baye and Prince (2020: 1287). They argue that technology markets are highly dynamic and that, while it may be tempting for policymakers to intervene in an attempt to remedy an immediate concern, history suggests that competition often permits new and superior technologies to supplant entrenched ones. This paper, however, is more narrowly focused on the DMCC, the powers it gives to regulators, the lack of procedural protections, and the issues this raises for the UK economy.

Part 1 of the DMCC will:

1. empower the CMA to designate companies as having ‘strategic market status’ (SMS) with respect to designated digital activities;
2. allow the CMA to design bespoke ‘conduct requirements’ for each SMS firm, dictating important aspects of the operation of its service, how customers are treated, and relations with other businesses in relation to designated activities (g., preventing a search engine from prioritizing its services in results);
3. allow the CMA to undertake what are presumed to be pro-competition interventions (g., requiring open data sharing);
4. mandate transparency in relation to mergers;
5. equip the CMA with extensive enforcement powers, including the imposition of large fines and a ‘final offer mechanism,’ as a backstop enforcement tool.

In practice, it endows the CMA, acting through the newly created Digital Markets Unit (DMU), with extensive new powers to categorically prohibit certain types of conduct at an incipient stage and impose far-reaching remedies with limited consideration of countervailing consumer benefits.

The CMA will also be able to take crucial decisions at every step of the process—e.g., in designating relevant activities, imposing conduct requirements and pro-competition interventions, investigating breaches, adjudicating wrongdoing and imposing significant fines—without full merits review. It will only be possible to challenge the decision-making on process grounds under the judicial review standard. In simple terms, courts will not assess whether the CMA was ‘right’, but whether the correct procedures were followed.

In addition, the procedural safeguards contemplated by the Bill may enable overenforcement in ways that hurt consumers. In practical terms, this could mean new products will not be developed in the UK and that new features could be delayed or not introduced for British users, as firms seek to minimise the risk of falling afoul of the new regime and incurring hefty fines and stringent remedies. This could, in turn, deter post-Brexit investment in the British economy and damage job creation in high-tech industries.

Granting extreme executive powers without sufficient oversight marks a departure in British governance from the rule of law in favour of expansive regulatory discretion, which is ill-advised on both principled—i.e., respect for the rule of law as a guiding democratic principle—and practical grounds.

To avoid turning the UK into a ‘tech turn-off’, it is vital that the DMCC be revised to narrow the CMA’s discretion and that meaningful procedural guardrails are incorporated to counterbalance its far-reaching powers. Absent this, the damage caused to the British economy may be hard to reverse.

[1] These issues were outlined in the government’s Digital Competition Expert Panel, also known as the Furman (2019) report, and the consultation on a new pro-competition regime for digital markets (DCMS and BEIS 2022).

[2] Shalchi and Mirza-Davies (2023) describe Part 2, and Conway, Fairbairn, and Pyper (2023) describe Parts 3-6.