Who's watching the watchmen?

17 May 2023

In this article, first published in this week’s ThoughtLeaders4 Competition journal, DRD’s Ed Bowie examines whether competition authorities have the right focus.

One notable feature of the UK’s post-Brexit regulatory settlement has been the approach taken by the Competition and Markets Authority (CMA) to its role.  The general sense is that it has exhibited an increasingly expansionist and interventionist style, although new CEO Sarah Cardell has worked hard to assure markets on the importance of certainty and predictability.  Nevertheless, actions speak louder than words and it is clear there is a new direction and momentum at play.

One important illustration of that new thinking was release in February of its draft guidance on the application of competition law to environmental sustainability agreements.  The material presents a practical toolkit for how competing businesses can collaborate without infringing competition prohibitions.  Importantly, it helps to align the UK’s legal framework with its vital policy goals around reaching net zero.

The arrival of the draft guidance hardly arrived too soon, and is welcome.  However, a broader question must be considered: that is, whether the UK’s competition and wider regulatory framework is truly working in the interests of consumers.  Its publication represents a positive development, no doubt – but the focus and priorities of competition regulators more generally is in desperate need of scrutiny.

Conscious cooperation

The draft guidance is intended to apply to agreements or practices between competitors that are designed to prevent, reduce or mitigate the adverse impacts on the environment from their economic activities.  It brings the CMA into league with the EU Commission, plus its Austrian, Greek and Dutch counterparts, in recognising that bringing emissions down may require sectoral collaboration – an activity than can ordinarily fall foul of competition law.

Practical examples are helpfully provided, such as where several housebuilding companies participate in a pilot to develop zero-energy housing using an innovative technology.  The CMA notes that some companies may be unable to individually advance this sort of project, making collaboration a necessity if progress is to be made.  In those circumstances, the CMA has clarified that cooperation is unlikely to raise competition issues.

Big focus on Big Tech

The draft guidance’s real value, however, is in the fresh and bold thinking it represents on a tangible issue facing the globe.  And that thinking is well overdue, given the near-obsessive focus from competition regulators in tackling Big Tech in recent years.

Their collective failure to spot the emergence of these giants has resulted in serious overcompensation.  Competition regulators appear so singularly determined to make up for their lax oversight of what were nascent innovators in the 2000s that they are now stretching theories of harm and clamping down.  This is to the detriment of preserving bandwidth to undertake work that would be more demonstrably valuable for the consumer.

The inquiry into Facebook/Giphy (a GIF is a video or sticker digital file showing a short looping, soundless video) is a case in point, having sucked up valuable resource since attracting an initial enforcement order in June 2020 and a final order being issued in January 2023.  The CMA found a loss of potential competition in display advertising where Facebook already had significant market power.

It is unsurprising that the competition regulator would like to avoid this sort of outcome – but the person on the street could be forgiven for wondering how this work helps make their weekly grocery shop any easier.

A stream of other tech mergers have been examined, including Facebook/WhatsApp, Facebook/Instagram, Facebook/Kustomer, Google/Fitbit and Google/Looker, each drawing on – and diverting – regulators’ valuable resources.

A broader question must be considered: that is, whether the UK’s competition and wider regulatory framework is truly working in the interests of consumers. The focus and priorities of competition regulators more generally is in desperate need of scrutiny.
Meantime in the real world

While competition authorities busy themselves on the antitrust implications of various tech-driven developments, inflation remains rampant and families struggle to get ahead.

At Keystone’s Brussels conference in March, the absence of any analysis on how competition law could be used to bolster the purchasing power of struggling consumers was striking.  Dominance in the provision of the energy, food, transport infrastructure and petrol sectors – to name just a few – did not receive even a passing mention.

Margrethe Vestager, the European Commissioner for Competition, delivered a laudable speech on the powers contained in the new Digital Services Act.  Later that day in the same room, the US Department of Justice’s Assistant Attorney-General, Jonathan Kanter, discussed the work of his team in bringing enforcement action in relation to – you guessed it – digital advertising.  Competition issues that may stem from the metaverse were the theme of a whole panel discussion.

In each case, consideration of life for the average family was missing from the frame: enforcers putting their digital smarts on display was the name of the day.  Reinforcing perceptions of competition law as being a narrow and somewhat esoteric area of the law, the absence of any meaningful grounding of its application in the real world was notable.

Giphys v bread and butter

Giphys may matter – but in the midst of a cost of living crisis, it is surprising the degree to which regulators allow themselves not to focus on bread and butter issues.  With the Labour Party quietly musing about providing greater strategic direction to the CMA, a change in tone may not be far off.

A scattering of work impacting the real-world is, to be fair, underway.  The recent launch of the CMA’s Market Study into housebuilding being a welcome example, as is its work on green claims in household essentials.

The very clear direction of travel, however, is pulling in the opposite direction.  The forthcoming Digital Markets, Competition and Consumer Bill, which will give the Digital Markets Unit a statutory footing, is just what the competition community has been asking for – a shiny and new toy for the lawyers, economists, academics and consultants to play with.

But whether it will do anything to bring down the price of everyday items on which we all rely is another question entirely – and not one the CMA can confidently answer right now.