British competition authority sets off alarm bells on digital market

The CMA (UK Competition and Markets Authority) recently published a rigorous report about markets of digital platforms and online advertising [1], which, among other aspects, concludes that in this area of the economy “competition is not working well, causing substantial damage to consumers and society.”
Although many studies around the world have evidenced this phenomenon, what is striking in this case is that it is precisely the British Authority, one of the greatest defenders of the free market, which reaches this conclusion.
What changes does the report introduced by the British authority propose?
By: Gabriel E. Levy B. and Sergio A. Urquijo M. –
The UK Competition and Markets Authority (CMA) is a government entity in charge of promoting healthy competition for the benefit of consumers, both within and outside the UK. It has offices in the different British capitals: London, Edimburgo, Belfast and Cardiff [2].
Like many other regulators around the world, the CMA has faced pressure from sides that demand the most regulation of internet activity, while others ask for the least possible state intervention. For many years, and partly due to the open and supposedly libertarian origin of the network, the second option prevailed, even the document presented by the CMA [3], which states that platforms financed by digital advertising provide very valuable services, allowing people to find information in an instant and connect with family and friends around the world, without generating monetary costs for the consumer.
The report recognizes Google and Facebook as the largest platforms of this type and ensures that they grew up by offering better products than their rivals, which is totally legitimate. However, it warns that in 2019, only between two of them, they shared 80% of the 14 billion pounds invested in digital advertising in the UK.
Protected by such strong ownership advantages as network neutrality, economies of scale, and privileged access to user data, the report ensures that potential rivals can no longer compete on equal terms, affecting seriously the market balance and harming consumer interests.
“Weak competition in search and social media leads to Reducing innovation and choice, and consumers delivering more data than they would. Weak competition in digital advertising increases the prices of goods and services throughout the economy and undermines the capacity of newspapers and other media to produce valuable content, to the detriment of a wider society.” Fragment taken from the Report.
In another revealing conclusion, the document states:
“The variables that we have identified in these markets are so wide and self-reinforcing that our existing powers are not enough to address them, we need a new regulatory approach, one that can address a wide variety of concerns simultaneously, with powers to act quickly on all market sources.” Fragment taken from the Report.
This is particularly sensitive, since the statement arises in UK, one of the countries recognized for always being at the forefront in regulatory issues, as when it created the first convergent communications regulator in the world, OFCOM. The CMA is also a benchmark for the rest of the world, therefore, if its reports state that the current situation of the digital market exceeds its self-regulatory capacities it can be expected that the rest of the world will start to rethink it.
What the British report proposes
Perhaps the most daring and possibly unexpected proposal of the report is to create an ex-ante regulatory body of the situations before they occur – which intervenes in the digital advertising market in UK, since it is forcefully stated that the current scheme of regulation and sanctioning intervention ex-post which regulates actions already occurred- “it is ineffective”.
“Therefore, we recommend that the government establish a competition regulatory regime for online platforms. A Digital Markets Unit (DMU) that would be empowered to apply a code of conduct to govern the platforms behavior with market power, ensuring that concerns can be addressed quickly, before irrevocable damage to competition can occur. The DMU must also have scope to address the sources of market power and increase the competition promotion” Fragment taken from the Report.
This is not the first time that the need to incorporate new forms of ex ante regulation has been raised, in contract to the strong western and neoliberal tradition of ex post regulation. In fact, in February of this year we published an article called “Does the new stage of Artificial Intelligence have to include an ex-ante regulation?” [4], in which we reflected on the risks that ex post regulation of algorithms and artificial intelligence can bring to humanity. We even mentioned how the Office of the Privacy Commissioner of Canada – OPC – is consulting with various sectorial agents and with public in general about how privacy principles should be applied to artificial intelligence (AI), promoting a type of regulatory model that, according to the capacities of these technologies, foresees and models the possible consequences of each decision in order to establish actions to protect the market and users [5].
Although in these specific fields, such as Big Data, AI and algorithms, the incorporation of ex ante regulatory models has been proposed, it is the first time that a governmental authority of a democratic, capitalist economic power with a neoliberal tradition – and, as we mentioned, a global reference in regulatory issues – it proposes such an interventionist solution to the market. Years ago this would have been a kind of “heresy” for the orthodox of the regulatory doctrine, but given the current marker circumstances and the enormous power and growth of the large technological platforms, which have the traditional media on the brink of collapse – one of the pillars of modern democracy – and which process user data in a non-transparent way, violating their privacy, the proposal is not only logical and coherent, but probably necessary.
The report suggests that, under the new regulatory regime, the market should be intervened by reducing the Google and Facebook power with radical and specific actions, such as ordering Google to open data to rival search engines and, in the case of Facebook, to increase its interoperability with competing social media platforms and give consumers a choice on personalized advertising.
For the Argentinean academic Martin Becerra, teacher and researcher of the Universidad de Quilmes,
“Although the integral economic model of the platforms has been until now based on an inflexible logic of configuration, surely flexibility is an option that they have tried and they can enable it without entering into a crisis”. [6]
“The idea is as ambitious as it is complex, and it does hit one of the waterlines of the large platforms that, precisely due to the complexity of the issue, could negotiate conditions to sustain their core or part of the core. Martin Becerra” [7]

The report also suggests that the organization data collected by the dominant platforms should be done in different blocks and structures, which in the case of Facebook would force the company to structure separately user data and movements in its different services and applications (Facebook, Instagram, and WhatsApp).

In this regard, in his analysis Becerra recalls that “this was a commitment by Facebook when it bought WhatsApp and a condition to approve that concentration that various European countries put in place…. And which Facebook failed to comply with. Recreating a more competitive scenario would require dusting off and specifying those commitments” [8]

Self-regulation is not working on the internet

Recent years have shown the growing concern of governments and civil society with the excessive power and influence of platforms that, in some cases, have proven not to be responsible with the use of data they operate. The serious Cambridge Analytic scandal [9] proved how unreliable the self-regulatory proposal of such powerful companies is.

Even more serious, is the recent report published by The Wall Street Journal, entitled “Facebook Executives Shut Down Efforts to Make the Site Less Divisive” [10], which is denounces that this social media had evidence that its algorithms polarize and confront users, “exploiting the attraction of the human brain to confrontation”. However, the company’s directors ruled out solutions considering that the polarization notably increases the use of social media [11]. Issue that we analyzed extensively in the last article: “Facebook and global polarization” [12]

In conclusion, although it is premature to evaluate the scope of the proposal presented in the CMA report, there is evidence of a notable change of position with regard to what they recognize as a situation is an overwhelmed situation that has gotten out of control, an alarm that, although it is late for many media and digital platforms which have disappeared due to market constraints, for many others that still manage to survive, this could be a lifesaver, while creating the conditions for new competitors to emerge to make competition dynamic again.

Although the British report is a first approach and it is necessary to be careful, since over-regulation can also be dangerous due to distortions it can cause. For now, the CMA proposal shows an adequate balance between the State obligations and the market needs, seeking to promote that new actors have real options for competition and traditional social media can survive, promoting mechanisms that allow users greater diversity and quality of options, content, information and services, while seeking to protect basic pillars of modern democracy.

We will have to be very attentive to the development of this new debate that the British are opening and that the rest of Europe will very surely try to incorporate into the community regulatory agendas in the coming months, while the authorities in Canada and Australia likely to be Iining up on the same route.

[1] Report published by the UK Competition and Markets Authority
[2] Website of the Competition Authority and the UK Markets
[3] Report published by the UK Competition and Markets Authority
[4] Andinalink article – Should the new stage of Artificial Intelligence include ex-ante regulation?
[5] OPC Canada Office Consultation
[6] Analysis carried out by Martin Becerra to the report presented by the British Competition Authority
[7] Line of Trines published by the Argentinean academic: Martin Becerra
[8] Line of Trines published by the Argentinean academic: Martin Becerra
[9] BBC article: 5 keys to understand the Cambridge Analytic Scandal
[10] The Wall Street Jornual article: Facebook Executives Shut Down Efforts to Make the Site Less Divisive
[11] Business Insider article about the polarization of Facebook
[12] Andinalink article: Facebook and Global Polarization

Disclaimer: The published articles correspond to contextual reviews or analyses on digital transformation in the information society, duly supported by reliable and verified academic and/or journalistic sources. The publications are NOT opinion articles and therefore the information they contain does not necessarily represent Andinalink’s position, nor that of their authors or the entities with which they are formally linked, regarding the topics, persons, entities or organizations mentioned in the text.