Regulation and competition enforcement in digital markets are hot topics as regulators become increasingly concerned about the market power and growing influence of large digital platforms. Philip Marsden shares his thoughts on how best to deal with anticompetitive conduct and transactions in digital markets and the role the OECD can play in designing effective rules and enforcement initiatives.
Digital regulation: Are we moving too fast? No, and we need to speed up.
Will we repeat the mistakes of past utility regulation? No; straw man alert.
Can we design targeted pro-competitive interventions in digital markets?
Yes we can!
One of the most debated topics in digital competition concerns ex ante rule-making. One argument that arises alleges that those proposing regulation lack humility; that they lack evidence that such rules are needed to prevent harms, and that their hubris also risks harming innovation. I take the opposite view: the evidence-base for intervention is already strong and growing. Those trotting out the rhetoric that we need to ‘learn to walk before we can run’ are vastly behind the pace. If their argument was that new rules would only possibly benefit competition, but would probably harm innovation, then that would merit caution. But the evidence goes completely in the opposite direction. Real harm is happening. Clear ‘do’s and don’ts’ would prohibit the most exclusionary and exploitative practices, while providing a better legal and economic system for true innovations to thrive. Critics of such ex ante pro-competitive rules ignore the fact that innovation flourishes in economic diversity, fed by a plurality of ideas, and competing methodologies, not monoliths to convenience, data silos and consumer somnambulism.
The OECD is peerless as a platform for learning from a diversity of economic systems and plurality of approaches to rule-making. Discussion papers and exchanges of views here are an incubator for rational, evidence-based developments in competition law and regulation around the world. Based on the OECD’s vast experience and wealth of research, discussions here could most help in ensuring debates catch up with actual developments. Many so-called experts are fighting yesterday’s battles, or raising straw men about utility regulation as a bad model for digital, none of which are remotely relevant to the problems and proposed solutions of today and tomorrow. Without forward momentum towards ‘how’ to regulate – rather than ‘whether’ to do so – government discussions will just spiral into irrelevance – maintaining the status quo to the benefit of the digital giants and their well-paid acolytes. The governments that are regulatory innovators are not the problem; it is the ones that sit back, doing nothing. Such economies will not only continue to suffer from having anti-competitive markets, or innovation set at the level of duopoly. They are also prey to being blind-sided by stronger and truly populist regulatory movements that are not evidence-based and likely would genuinely harm innovation. Like it or not, some regulatory control of digital markets is here and much more is coming. I for one would rather be (and see the OECD be) part of ensuring that reforms are targeted to the real problems, and that they foster rather than harm pro-competitive business models.
After all, most OECD countries and others are not sitting back and studying whether ex ante regulation is needed or wise. We have had years of studies and reports. Legislation is being developed. Ex ante regulation is already being applied in some jurisdictions. Many governments have already decided to ‘learn by doing’, and the OECD’s greatest contribution – as ever – is to bring participants together to learn from one another, about what works best and what does not, so that governments all over the world can make their own better-informed decisions on how to adapt their own laws and policies. International co-operation in enforcement itself will be crucial to handle problems caused by global agents and the OECD has a wealth of experience in that regard. Helping to maintain the forward momentum, and to channel thinking into sensible substantive rules and effective enforcement initiatives is where all of our attention on digital competition should be focused.
We are not moving too fast
Some claim the digital regulatory initiatives are racing ahead without sufficient forethought. This is preposterous. We have waited far too long for regulatory reform, and even now it is not moving all that quickly (particularly not considering the pace of the problems to be addressed). The reforms underway are based on a huge wealth of evidence of the need to act and to act in new ways. Calls to slow down are either suspect and self-serving or wildly out of touch with the obvious need for restoring balance in digital competition. Both structural features of these markets and exclusionary and exploitative behaviour have been identified as in need of remedy. If anything, entreaties for even more study will only serve to delay action….and further entrench gatekeeper power. There is already a clear bias for action and that is where further analysis and research can be helpful.
Some remind us that even then we need to walk before we run. That is good advice for a toddler but competition authorities and regulators are all grown up now and some have already been chasing after anti-competitive practices, and have still fallen behind. The consensus now is that we need to need to speed up and leap ahead in enforcement action. Fortunately, firm stepping stones have already been laid-down in Australia (bargaining models between platforms and those dependent on them), France (injunctive relief, linking neighbouring rights such as privacy and copyright to antitrust initiatives), Germany (new competition legislation directed at platforms) and the UK (Meta merger block, market studies of mobile ecosystems and new Digital Markets Unit). Regulatory and antitrust initiatives are offering natural experiments in legislation, as well as legislating for pro-competitive interventions directly. Where more study can be helpful is in learning from these existing natural experiments, to better hone how digital regulation should be developed, interpreted and enforced. The goal of ex ante regulation, remember, is not to catch up with problems, but to get ahead of them and preventing harm in the first place.
My recommendations for discussions at the OECD – let’s not waste time in discussing whether ex ante regulation is a good idea; it is, and is already happening. Focus efforts on the real question: how best do we design such regulation?
We are not repeating past mistakes
On design of such rules, some argue that ‘utility/common carrier regulation has been a nightmare so let’s not do it with digital’. I agree but the comparison is flawed. The proposed variants of pro-competitive rules for digital are not remotely like utility regulation. Nor are they based on old norms or sunset industries. The proposals are not even all that new. What we are seeing is similar to a range of other real-time regulatory initiatives focusing on ex ante control. And the nearest comparison for me is financial services regulation. Competition experts seem to lose their minds when they are asked to contemplate bans on self-preferencing, for example, or assessment of the impact of algorithms. But such rules and systems already exist in financial services. Yes, the sector is different from other digital services, and rests on a huge body of detailed regulation of an entire industry. But the similarities ring true as well. In digital and in finance – and the two are increasingly inter-linked: clearly all platforms and all businesses can benefit from clear rules and close supervision. Financial Services regulations impose and enforce fair dealing obligations, ban self or insider trading, and require all traders to be provided with access to data in real time. And there is real time monitoring of platform activity. Instead of dismissing financial regulation, we should be learning from some of their core concepts to see what works well in digital platform markets.
I should also mention the UK Competition and Market Authority’s work on Open Banking here: this is an ex ante regime of interoperability and data portability obligations on platforms that I helped architect as part of a competition market investigation. Contrary to what some critics thought, our intervention did not require structural break-ups of the platforms to work; nor did our pro-competitive ex ante rules cause the sky to fall in on such a crucial sector. The market adjusted and evolved in the direction of expected innovation … just more quickly. And with more choice and innovation. But it required a careful evidence-based market investigation, and to incorporate our remedies, we needed regulatory cooperation with the financial regulator, and a new mini regulator – the Open Banking Implementation Entity – to implement our remedies and hold the main financial platforms to account on an almost daily basis.
My recommendations for discussions at the OECD – Regulatory design models already exist, and should be stress-tested and compared. Bring an inter-disciplinary approach to consideration of new pro-competitive rules, including financial services, privacy and competition experts.
We do have some design principles already
In reports from Furman to Cremer to Cicilline, there is already an evidence-based and principles-based road for reform. And not everything requires legislative change. Within competition law and policy itself, we need to take a more dynamic view of markets rather than the price-based snap-shots we are already so good at. We also need to expressly consider the benefits of and harms to innovation from business activity within our remit, and of our decisions themselves. We can make more use of interim measures, and much would be gained by implementing a balance of harms test in merger control. But as important as these changes are, they are but tweaks.
The most relevant pro-competitive interventions introduce interoperability and data portability in digital markets. Opening platforms up to other innovators, and allowing greater freedom of movement for users themselves, can spur competition and boost innovation. Entry is fostered, competition on the merits has a chance to operate, and consumers and platforms become more engaged with each other. Ensuring that pro-competitive interventions are tailored to the business model at issue is crucial to ensure that innovation is released, not hampered. Tailoring such interventions also ensures that we ‘code for compliance’ on Day 1 of a new digital regime and can engage and amend our interventions to ensure their effectiveness as markets evolve. Broad general rules, on the other hand, risk becoming the subject of arguments over compliance reports, or worse, could create a regime that ‘codes for infringement’ on Day 1 with resulting litigation – which, effectively, just shunts all the policy work to the courts, with resulting delay. Litigation is not the way to reform these markets; what we need is regulatory dialogue to identify problems, suggest practicable changes and A/B test remedies to ensure the right fit.
My recommendations for discussions at the OECD – Designing regulatory models fit for purpose and tailored to the business model at hand takes expertise and engagement. The OECD can convene expert bodies to suggest best practice guidelines for such models, and for their enforcement.
Philip Marsden is an invited speaker at the 2022 OECD Competition Open Day’s panel on Regulation and Competition Enforcement in Digital Markets on the 23 February 2022. Access the platform to register, see more materials and join the discussion at https://oecd-events.org/competition-open-day-2022.
The present article expresses the author’s personal views. It does not reflect the position of the Organisation for Economic Co-operation and Development, or any of its Member Countries.