Post Brexit, the UK and EU’s rules on digital monopolies are diverging. Both understand the consequences of digital monopoly power, whether that is in online harms (behaviour online which may hurt a person physically or emotionally), abuses of privacy, or boosting of profits at the expense of smaller rivals and business customers. However, competition policy in both jurisdictions has lagged behind the changes that digitisation has brought to many industries. This post considers the diverse interventions in the EU and the UK that attempt to address digital monopoly power, namely the new EU Digital Markets Act (DMA) and of the UK Competition and Markets Authority.
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In recent years, digital platforms have experienced unprecedented growth of their market power as the products and services they provide become central to our everyday lives. This has led to significant negative outcomes for users, who are being exploited as products rather than served as customers. Globally, individuals and governments have grown more vocal about the need to tame excessive market power in the digital fields.
Post Brexit, the UK and EU’s rules on digital monopolies are diverging. Both understand the consequences of digital monopoly power, whether that is in online harms (behaviour online which may hurt a person physically or emotionally), abuses of privacy, or boosting of profits at the expense of smaller rivals and business customers. However, competition policy in both jurisdictions has lagged behind the changes that digitisation has brought to many industries. This post considers the diverse interventions in the EU and the UK that attempt to address digital monopoly power, namely the new EU Digital Markets Act (DMA) and of the UK Competition and Markets Authority.
Digital monopolies – opportunities and challenges for competition policy
As ORG notes in this background paper, traditional competition policy has concentrated on protecting consumers from price increases. Digital monopolies do not manifest their market power in such a way, not least because many of their services are funded through advertising rather than user fees.
Instead, digital monopolies have focused on long-term dominance over multiple actors in these markets, such as advertisers, suppliers, and consumers, which has enabled greater profits and reduced consumer choice over time.
Regulators and policymakers in both the UK and EU have understood that the markets are malfunctioning, and that traditional competition measures struggle to address this. They have also understood that even more challenging is the spread of digital monopolies into traditional physical markets, such as retail, banking, and manufacturing.
Strengthening digital competition also has the potential to improve the dynamics of content and safety. Currently, platforms do not need to fear losing users so long as their service offers a compelling reason for people to engage with them. It is widely understood that social media engagement can drive unwanted content and interactions, since controversy generates interest.
However, if users want agency in shaping their engagement on a platform, they have limited options. Exiting a platform can be extremely painful for a user, as investments in building personal networks are necessarily sacrificed. Thus, when content regulators intervene to inhibit only the worst aspects of digital monopolies, regulation ends up swimming against the tide of the market and ultimately having only marginal impact.
Interoperability – a missed opportunity?
Digital competition policy can provide ways to break this dynamic. By allowing users to choose different aspects of their digital experience – recommendation engines, perhaps; or allowing users on a new platform to interact with users on an established platform – users can start to exercise their own power. Poor user experiences then become a greater incentive to switch to other services without necessarily endangering established networks. These are known as interoperability requirements: addressing competition within a service’s offering (vertical interoperability) and across the market (horizontal interoperability).
In the UK, regulations have opened up personal and small business current accounts with interoperability requirements known as ‘Open Banking’. Transaction data and payments can be transferred across services, enabling competition. In the EU, the new DMA has provisions for interoperability of Information Management (IM) systems, app stores, search engines, and operating systems.
Both the UK and EU have missed some opportunities to expand the use of interoperability requirements. The UK has delayed legal reforms to digital competition powers, despite ongoing consultations about them. The European Parliament demanded wider requirements in the Digital Markets Act to address social media platforms, but did not manage to secure them.
Divergence and Cooperation in Digital Competition Policy
Despite – or perhaps because of – slow progress, there are good reasons for the UK and EU to work closely on digital competition. Both need to think carefully about the possible interventions to see which deliver the greatest benefit. Resistance from the largest firms to interoperability and similar interventions is strong precisely because they threaten the power of these companies.
Their arguments against interoperability interventions need to be considered in this light: concerns with security, privacy, data protection or content compliance do not correspond to the practical experience of existing interoperable systems. From email through federated social media (Mastodon), federated encrypted IM (Matrix) to the large scale transfers of personal information under consumer control in Open Banking, these examples show that such problems exist, but are not insurmountable.
Competition policy applied to global corporations may still be hard to implement if the reach of the authorities is relatively small. The UK may find it harder to impose changes than the EU, because technical changes like interoperability requirements are not country-specific.
Nevertheless, there is an opportunity to craft in the UK a regulatory framework which would posit itself as a countervailing power to the EU’s DMA. The DMA imposes a set of specific ex ante (before the event) obligations on the largest digital players, including interoperability and data access. Concerns therefore remain as to its flexibility as well as how the wording of some obligations could give rise to interpretational issues that would potentially impair smooth execution. The UK framework, centred around the Digital Markets Unit (established within the Competition and Markets Authority), could be more flexible, readily available and future-proof enabling a targeted approach to identifying emerging concerns and harms in the digital markets. Acting swiftly would also re-affirm the UK as an important regulatory jurisdiction, which would be closely monitored and consulted by other main players, including the EU.
The greater experimentation that is possible for the UK could be an advantageous for the EU, as well, a dynamic that is possible because both the UK and EU (at least theoretically) share the same goals of a competitive, customer-focused and responsible online ecosystem.
