Are UK Ministers getting the innovation and investment friendly competition regime they asked for?
The UK Department for Business and Trade has published a consultation on changes to the competition regime.
While this is just a consultation for now, and industry will respond to the proposals constructively, the content is a worrying indication that Ministers may not have been able to secure the less intrusive, pro-growth direction they intended for competition policy.
In their summary, Clifford Chance notes some measures that might be positive. Sunset clauses for market remedies, for example, so they do not outstay their usefulness.
However, in other areas, the changes point to a more intrusive regime. The market investigation regime we have now rightly requires the UK Competition and Markets Authority (CMA) to establish an adverse impact on competition, a pretty basic bar to clear, and which should limit regulatory overreach. The consultation suggests that market investigations, with all the disruption they bring for affected companies, would instead be able to go ahead based on purported consumer issues, even where such an adverse impact on competition cannot be established.
There is also a proposal to extend the CMA’s investigatory powers, allowing the authority to require businesses to generate information about algorithms and conduct A/B testing. Similar measures are included in the existing Digital Markets, Competition and Consumers (DMCC) Act and are a real concern for businesses that might be forced to experiment on their own customers.
An expansion of the CMA’s investigatory powers, combined with the change to the bar for market investigations, could result in a much greater scope for the CMA. Often in such aggressive competition policy, “the process is the punishment,” and the results of such a process are damaging to the entire competitive and innovative ecosystem.
Besides the specific measures though, it is worrying that this consultation seems to reflect at best a stalling in the progress the Government had been making in securing a more pro-growth competition regime. In its introduction, the consultation states that: “the CMA has delivered tangible results through its ‘4Ps’ framework to improve pace, predictability, proportionality and process of engagement.” The problem is that progress on the 4Ps so far has been uneven and fragile.
The CMA has backed off from setting itself up as a global regulator of merger deals where the UK has a limited stake in the outcome, but that change is not yet ‘locked in.’ It has made some positive changes to the merger regime, but it has sometimes felt like two steps forward, one step back. In the new consultation, Clifford Chance notes that “the proposed clarification of the merger control jurisdictional tests appears largely to codify, rather than rein in, the CMA’s existing practice. For example, past cases of regulatory over-reach where the CMA asserted that the ‘share of supply test’ was met by businesses that had never supplied any products in the UK, but had some UK-based employees, could still occur under the proposed changes.”
It is still early days for the DMCC but there are worrying trends in the Strategic Market Status (SMS) investigations we have seen thus far: conduct requirements are broad and vaguely-defined, meaning that companies face extensive uncertainty across their business; intervention is often proposed despite evident innovation and high consumer satisfaction; technological disruption and dynamic competition are ignored unless they meet the unrealistically high bar of a service expecting to be replaced within 5 years.
There is clearly still work to be done ensuring that the CMA’s analysis matches the sophistication of modern digital markets. Only like-for-like competition is taken seriously in the search and mobile ecosystems SMS investigations, despite the diversity of business models in digital markets meaning competition in the aggregate across different segments and for “share of wallet” is often intense. Features of digital markets such as network effects and brands are only considered as advantages for more established businesses, versus the more nuanced approach developed in the literature.
Against that, the main practical impact of the 4Ps changes thus far has been the introduction of “road maps” for potential interventions. These have been something of a mixed bag in that, while they could provide useful information about the kinds of measures under consideration, in practice with many vaguely-defined interventions, they create huge uncertainty for those affected.
The job set by Ministers in their strategic steer to the CMA of delivering “investment, consumer benefit and economic growth” is plainly not yet done. Hopefully this consultation is not a sign that effort has lost steam, it is vital that the work of delivering a competition regime that supports innovation, investment, and growth continues.
