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21 October 2020

Coscelli: Time To Unite To Tackle Platforms’ Exploitation of Digital Markets

The chief executive of the Competition and Markets Authority has renewed the regulator’s call for a new digital markets regulatory regime to tackle Google and Facebook’s exploitation of consumers. 

In a speech at New York's Fordham University about the need for digital reform and the latest thinking on a new regulatory regime, Mr Coscelli called for competition authorities across the world to cooperate “to tackle these problems together.”

Referencing the CMA’s year-long market study into online platforms and digital advertising, which was welcomed by the NMA, Mr Coscelli said: “Our work found that large multinational online platforms such as Google and Facebook now have a central role in the digital advertising ecosystem and have developed such unassailable market positions that rivals can no longer compete on equal terms.

"In particular, their large user base is a source of market power, leading to weak competition in search and social media.

“This matters to consumers who receive reduced innovation and choice but also will be paying higher prices for goods and services when producers pass the high cost of advertising onto consumers. We found that Google 's prices are around 30 per cent to 40 per cent higher than Bing when comparing like-for-like search terms on desktop and mobile.

“Furthermore, we are concerned the largest platforms are increasingly acting as a brake on innovation, setting the terms of competition in a way that tips the balance in their own favour and undermining the business models of new entrants and potential challengers alike.

Separately, in a piece in The Times today, former Culture Select Committee chairman Damian Collins MP called for action to be taken to protect journalism from the tech giants. 

Mr Collins said: "Last week was Journalism Matters Week – a timely reminder that independent, trusted news sources are crucial to a thriving democracy. But we need to make sure that journalists, producers and publishers get properly paid for their work if we don’t want to see more outlets fold up - and this means standing up to the big social media platforms.

"The undeniable trend is that brands and advertisers are investing less in print, and more in digital ads; so newspapers have to rely more and more on being able to sell digital ad-space, as well as on the website traffic generated by their content being seen on social media platforms. The CMA found that Google and Facebook dominate 80 per cent of that market.

"This, on its own, could be natural; big players always emerge in competitive markets. But it’s when the market isn’t competitive, with no real chance for any challengers, that the consumer suffers.

"The CMA clearly stated that Google and Facebook’s practices, for example offering to target individuals with ads based on their user-data at a level of precision that traditional newspapers and smaller platforms just don’t have access to, shows both a lack of transparency and a barrier to entry to the market. This is anathema to a liberal, free market economy.

Speaking about moves in Australia to regulate the platforms, Mr Collins said: "Funnily enough, Facebook and Google have both responded by threatening to remove all news from their platforms if Australia goes ahead, demonstrating just how much they value a free press. For what it’s worth, in my years of holding platforms to account for enabling disinformation, they always say something is technically and economically impossible, until it suddenly isn’t.

"I hope that Australia pushes on, regardless of the tech giants’ bullying; and that following the CMA’s report, the UK Government establishes a similar code of conduct. We must uphold our reputation as a champion of the free press – at home as much as abroad."

The CMA’s key recommendation was that a new regulatory regime is required in the UK to ensure these markets continue to deliver benefits to consumers, businesses and the economy as a whole.

Mr Coscelli added: “For me, the case for regulation is clearly made. We have firms with very substantial and enduring market power, protected by strong network effects, who are able to leverage into adjacent markets, and who can engage in envelopment strategies that further protect their core sources of market power.

“In the course of our work we heard from many companies who told us that the significant market power of some online platforms poses an existential threat to their businesses. We believe that, without reform, existing market dynamics in these industries will mean that the next great innovation cannot emerge to impact our lives in the way that previous advances in digital markets have done in the past.

He concluded: “I wanted to end with a word on international cooperation. The international nature of these ‘borderless markets' means that it is essential for competition authorities to work with each other to share knowledge and expertise, intelligence and where possible, to tackle these problems together.

“Many of the problems we observe are common across jurisdictions. The more we can come to a common view of these problems and work together to deal with them, the more efficient and effective this is likely to be.”