The right sort of competition

Last week we completed our submission to the UK Government’s consultation on its proposed new Digital Markets Unit. It was an interesting exercise.

What is competition policy for?

Competition policy is the area where the belief system called free market economics gets its purest expression. Under this belief system, there is an invisible, mystical, magical entity called ‘the invisible hand’ of market forces (e.g. innovation and competition) whereby, if left perfectly free from any ‘interference’ from ordinary mortals (such as policy makers and regulators), always, without fail, automatically produces the best of all possible worlds.

In such a world, the main job of a competition regulator is to intervene if and when there is a ‘market failure’: where for one reason or another, the invisible hand is being stopped from working its magic wonders. Because markets are seen as places where money is exchanged for goods and services, the main test for market failure is the existence of monopolies where, by restricting innovation and competition, monopolists get away with charging excessive prices.

But because companies like Facebook and Google offer their services for ‘free’ — making their money via the different currency of personal data they haven’t been classed as monopolies. So for decades, they have been left free to do pretty much whatever they liked.

Wrestling with reality

To its credit, a few years back, the Competition and Markets Authority looked at reality, rather than operating on the assumption that fairy stories are facts. Its final report, published in early 2021, opened the door to a new approach to regulating ‘digital markets’.

The report recognised that rather than relying solely on ‘ex post’ interventions (e.g. after a market failure has been proved to exist) regulators should be able to intervene ‘ex ante’ (e.g. before problems occur, with policy goals in mind); and that rather than tackling each isolated abuse separately, one by one, they should be able to “address a wide range of concerns holistically”.

Specifically, they identified five key issues which need to be addressed:

• Network effects and economies of scale — where a platform’s power increases with the number of people using the platform, making it effectively invincible.
• Unequal access to user data — “digital platforms collect vast quantities of unique user data, which gives them a significant competitive advantage when providing data-driven services”.
• Consumer decision making and the power of defaults — where platforms’ control over default settings effectively gives them control over what choices consumers are presented with; which may be used to “influence the platform’s ability to collect users’ data”.
• Lack of transparency around complex decision-making algorithms.
• The importance of ecosystems — where large collections of integrated, complementary products and services are designed in a way that favours the firm’s own services.

What we said

The Government’s consultation was on the scope and powers of the resulting new ‘Digital Markets Unit’. Most of our response was devoted to questioning the Government’s apparent assumption that by definition, all ‘innovation’ and all ‘competition’ is a good thing. It’s just not so. For example, fraudsters constantly innovate in very clever ways to con people out of their money more effectively. Improved competition in the market for the modern slave trade is a bad thing, not a good thing.

Our particular focus was innovation and competition around the issue of ‘unequal access to user data’. Here, we pointed out, there are two possible types of innovation and competition. The first is innovation and competition around who is most efficient and effective at hoovering up individuals’ personal data and monetising it to line the pockets of their shareholders. The second is innovation and competition around who is most efficient and effective in enabling individuals to access and use their own data for their purposes.

In other words, the issue is not ‘innovation’ and ‘competition’ in the abstract, but what sort of innovation and competition the Digital Markets Unit chooses to ‘holistically’ address. One of the core suggestions we made therefore is that the DMU should be required to develop a set of criteria — open to public debate and scrutiny — that defines whether any particular innovation is desirable and therefore to be encouraged, or not.

Unfortunately, the way the UK Government’s questions were framed in this consultation give the impression that the only market it really has in mind is that of more efficient, effective data monetisation and exploitation. Operating on this assumption would take us back to where we were before the CMA wrote its report.

We did our best to explain why this would be a terrible idea; why empowering individuals with their own data is the only sensible, fair and economically efficient way forward. This issue lies at the heart of everything the Government does in this space, including the shape and content of its new National Data Strategy. It has yet to be resolved. And it’s not going to go away.

Joining the dots

This is all the more important given the proliferation of other consultations and initiatives currently under way, all of which raise the same core question. These include:

• Data: A New Deal consultation to reform data protection regulations
• National Data Strategy
• Single Login for Government
• National Identity and Attributes Trust Framework
• Open Finance
• Pensions Dashboard programme
• Modernisation of Lasting Power of Attorney
• NHS consultation on data sharing
• Scottish Attribute Provider Service

Is there anyone in Government joining the dots between these different initiatives? If not, is there any chance of the UK ever developing a coherent, positive strategy for personal data?