How does the UK use market studies to tackle emerging competition issues?

Market study and market investigation tools provide flexible ways to investigate markets in the round, complementing existing competition and consumer enforcement tools. Andrea Coscelli outlines how these tools are used in the United Kingdom.

Andrea Coscelli is the Chief
Executive of the UK Competition
and Markets Authority.

Our two-phase markets regime – comprising market study and market investigation tools – was introduced in its current form in 2002 to enable the UK Competition and Markets Authority (CMA) and sector regulators to shine a light on the economy in recognition that competition was a key driver of productivity growth. These tools allow us to proactively examine market-wide issues and, where appropriate, develop remedies using open and consultative processes and dialogue with interested stakeholders. In 2018-19 the direct consumer benefits from the CMA’s interventions through the UK’s markets regime accounted for around £820 million annually.

The scope of these tools is deliberately wider than competition and consumer law. They can look at the behaviours of firms that, while problematic, might not be enforced against. They can and often do examine demand-side issues alongside supply-side issues as can be illustrated in our ongoing market investigation into the UK’s £2 billion funerals sector. Additionally, the markets regime allows us to consider the impact of regulation and government policy on market functioning.

A wide variety of markets has been examined including: residential care homes, legal services, digital comparison tools, groceries, aggregates, airports, local buses, private healthcare, statutory audit, energy and banking.

A key strength of the markets regime is that it is forward looking, in the sense that it is not about apportioning blame or sanctioning past harmful conduct. Instead, it is focused on designing and implementing remedies that will work in the future. One example is our 2018 market study into heat networks. Heat networks provide homes with heat and hot water from a central source. The UK heat network sector was at an early stage of development when we launched the study, but – given their environmental benefits – the government is seeking to expand the number of heat networks significantly. Unlike the rest of the energy sector, they were unregulated, and we found that many people on privately operated networks were getting poor deals in terms of price and service quality, and there was a risk that the problem could grow. The government accepted the CMA’s recommendations to establish a regulatory framework for heat networks, to stop the problems we found from escalating and increasing in prevalence, which would not only lead to direct harm, but would also shift the pathway of a growing sector.

With heat networks, we considered that the market study tool would get to the root of the issue in a way that competition enforcement would not have achieved. In our online platforms and digital advertising market study, we similarly felt that enforcement would not be sufficient to protect competition, given the self-reinforcing barriers to entry and expansion we identified. That is why we recommended the development of a new, pro-competition regulatory regime to address concerns around the market power of online platforms and to encourage competition and innovation. Using our information-gathering powers, we were able to examine a range of features of the market, which we found insulated Google and Facebook from competition, and assess the extent of consumer detriment. We published much of our evidence and analysis in our final report, informing the debate both domestically and internationally.

Unlike market studies, where the CMA is limited to making recommendations for change (unless it is making a reference), market investigations bring with them order-making powers, allowing the CMA to directly intervene in markets. This is a powerful tool and has been used in a wide range of ways. Examples include effecting structural change in markets (such as divestiture of airports in the Competition Commission’s investigation into BAA airports), introducing price caps (such as in the energy market investigation) and encouraging behavioural change. Our retail banking market investigation drove innovation with the introduction of Open Banking, the first major interoperability remedy for banking in the world. The aim of Open Banking is to deliver open and common API standards, requiring the largest banks to make data available using these standards to facilitate new and innovative services.

While the market investigation tool is effective where a one-off intervention is needed, it is not necessarily the comprehensive answer in rapidly evolving markets, where issues are changing over time, requiring the ability to amend and adjust interventions to reflect changing market dynamics. This was a key factor in our decision not to make a market investigation reference when we concluded our online platforms market study, instead making recommendations for a regulatory regime, which we are now taking forward through the Digital Markets Taskforce.

We have had the benefit of these tools in the UK for a long time now. The ability to look at markets in this way has great advantages. And, while there are limitations, we see them as core parts of our toolbox, working alongside our other powers.

The experience described by the United Kingdom contributes to the debate on the use of market studies to tackle emerging competition issues at the 2020 OECD Global Forum for Competition on 10 December 2020.

2020 OECD Global Forum on Competition Blog Series

Blog 1: How can competition law tackle misconduct in digital markets?

Blog 2: Can market studies be a more effective tool for tackling emerging competition issues?

Blog 3: Are digital markets bringing new challenges in abuse of dominance cases?

Blog 4: Economising economic analysis for mergers in smaller markets

Blog 5: How does the UK use market studies to tackle emerging competition issues?

Blog 6: How is Mexico using market studies to tackle emerging competition issues?

Blog 7: Economics in merger control: an invaluable tool at every step of the process

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