Reforming the UK Competition Regime
Author: Michelle Meagher, Senior Policy fellow, Centre for Law, Economics and Society
These remarks were delivered on 4th July 2019 at the Women@UK Spotlight Sessions event. The text has been lightly edited for clarity
On the outskirts of Phoenix, Arizona, there sits a nondescript office building. Over 1,000 people work there, and although their workplace has been described as “teetering on the brink of chaos” they are in fact performing an essential function for one of the world’s biggest companies. It is a place where workers report that they have become traumatised, even radicalised, with little support from the mother ship. This is where some of the 15,000 Facebook content moderators worldwide are paid $15/hour to purge the platform of hate speech, graphic depictions of violence and posts inciting people to commit acts of terrorism. Each moderator reviews over 400 such posts a day, spending less than 30 seconds on each.
But Facebook’s self-regulating standards often get it wrong. It failed to detect a systematic campaign by the military in Myanmar to use the platform to garner support for ethnic cleansing of the Rohingya people. What happens on Facebook, it turns out, does not stay on Facebook.
We in the UK know this better than most with the reported impact of the Cambridge Analytica data breach on the EU exit referendum. Abuses of user data on the platform affect you even if you personally do not use Facebook. The tracking of data and how that is used to discriminate against you as a user is also troubling – and it is a practice Facebook that ramped up only after Google exited the social networking space and Facebook no longer faced meaningful competition.
Behind all this is the power. The mind-boggling profits – 99% of which comes from advertising -- the power not to respond when governments all over the world want to ask pertinent questions about business practices, the lobbying, the power to leave up your transgressions on the web for all to see and the power to make you disappear. And this power is held by Facebook the corporation, owned publicly by many of our pension funds but controlled privately by Mark Zuckerberg due to its dual class share structure.
How should we react to this power? Is the job of competition policy to respond?
In February this year, Lord Tyrie, the chairman of the CMA released a radical set of proposals for overhauling the UK competition regime, designed, it seems, to tackle the emergence of just this kind of locus of power.
The reforms are centred around a new overriding “consumer interest” statutory duty which would, Lord Tyrie says, give a “clear and unifying purpose” to UK competition law, which he currently accuses of ineffectiveness and impenetrability for non-specialists. It would help to address what he identifies as “new forms of consumer detriment”, a phrase also used by Andrea Coscelli when responding to the Furman Review.
The proposals have clear implications for enforcement priorities but what is less clear is exactly how cases would be done differently under this new standard, and the Digital Markets Strategy released by the CMA in July 2019 is notably silent on this.
Lord Tyrie’s letter to the Secretary of State is packed full of proposals. In this article I will focus on two elements: firstly, the substance of the “consumer interest” duty, and second the collective impact of the various proposed changes to the process of investigation.
On the substance, what is most intriguing about the “consumer interest” duty is that it moves in precisely the opposite direction to proposals for reform in the US. There the New Brandeis School and the Roosevelt Institute want to move towards a “process of competition” test. In the UK we already have the “promotion of competition for the benefit of consumers” as the CMA’s duty. In the US the concern with consumer interest stems from a growing realisation that if you focus on consumers then you go from assessing the anticompetitive conduct of companies to assessing only the outcome, known as “consumer welfare”, which means that companies can use “efficiencies” as a defence, even if they have market power. If we are neutral as to process and care only about the outcome then power is effectively removed from the discussion. This is the real impact of the “Chicago School” of antitrust.
Bearing in mind this risk, how could “consumer interest” in the UK take account of the new forms of detriment with which Lord Tyrie is most concerned?
It seems that we would do well to readmit power into our analysis, specifically the power to do harm. Companies are not just vessels of innovation and efficiencies as the neoclassical theory of the firm supposes. Their drive to maximise profits has the potential to benefit us all, with low prices for consumers and the positive externality of efficiency across the economy. But companies choose how they generate profits and how these profits are distributed – and both decisions have a huge impact on our economic reality.
Looking at harms means looking at the externalities imposed on society, whether the subversion of the democratic process via an online platform or pollution by an industrial manufacturer, and also looking at the costs embedded within the bargain between the producer and the consumer or the producer and the worker. There have been some attempts to incorporate these costs into our analysis, framing privacy as a “price” that internet users pay for the use of otherwise “free” services. But we find ourselves contorting our language, attempting, for example, to tackle monopsony labour market power within a consumer-focused framework. We might be better off being more upfront and saying we care about the costs of power and the harms and externalities that can accompany even fierce competition.
We already take account of efficiencies within competition analysis, making assumptions about how these are passed on to consumers and society, but we take no account of spillovers, unless they happen to accrue to the same consumers as well. This is an oversight.
But, you may say, that this has little to do with antitrust. It is a matter for regulation. The Furman Review took that approach, with the central proposal of the report being the creation of a digital markets’ regulator. But we should ask what hope such a regulator will have if competition law continues to supervise the mass consolidation of power in the digital sector? It may be necessary to level the playing field between the regulator and the regulated, and this is precisely what the bulk of Lord Tyrie’s proposals, and some of the supplementary proposals in the Furman Review, seem designed to achieve.
Most of Lord Tyrie’s proposed reforms can be seen as designed to allow the CMA to act faster and with more leeway and discretion, allowing the agency to respond earlier and more robustly to a wider range of consumer concerns with greater powers of investigation, the ability to fine companies for non-cooperation, enlisting backup from whistle-blowers, directors and auditors on compliance, all with less stringent review by the CAT.
We have a strong tradition of rule of law in the UK and it is one of the reasons that companies are so keen to do business here. So we would be right to question departures from that norm that increase uncertainty and regulatory discretion, particularly when the government press release announcing the reforms blames bureaucracy for the lack of responsiveness of UK competition enforcement. We are left with the impression that the CMA would very much like a carte blanche to take enforcement action as it sees fit with few questions asked.
But again we should consider these wide-ranging reforms in the context of power – and understand them as an attempt to rebalance power between companies and the competition authority. We should consider not just rising market power and the associated rents accumulated by dominant companies but also political and economic power, and in particular the information asymmetry between the regulator and industry, perhaps especially in mergers where the acquirer will know much more about the competitive threat posed by the target.
We can see the proposals to expand the markets regime as part of an exercise of rebalancing. So too with the suggestion of introducing mandatory notification for substantial mergers and the proposed use of interim measures by the CMA, as modelled in June 2019 by the Commission in the Broadcom case.
Part of the challenge set by BEIS to Lord Tyrie was to restore public confidence in markets, leaving unspoken what might happen if such confidence is not restored. This does not mean that antitrust is the only tool, but if we can find ways within our analysis to look more directly at corporate power and stakeholder detriment then competition policy could be part of the solution.
So when Facebook announces that it is going to create its own currency – that is a regulatory issue of course, it is an issue of corporate power and it is also a competition issue waiting to happen – just imagine Facebook controlling the currency of all online commerce, removing control of monetary policy from sovereign governments and the potential for exclusionary abuse. Competition law is not separate to regulation, they are complements not substitutes and should be better integrated.
Interestingly Facebook itself has called for more external oversight, although stopping short of true accountability. We can continue to ask ourselves whether we should do something about growing corporate influence but I would argue that the time has come to ask what we can do and how we can do it as individual nation states and national competition authorities, what will the US authorities do and what will they not be prepared to do, and how can we in the UK, as one of the leading jurisdictions on competition policy, help to fill that gap?