The CMA published a “refresh” of its Digital Markets Strategy (DMS II) on 9 February 2021. The first iteration (DMS I) was published in June 2019 but the CMA explains that “much has changed” in the interim, not least “significant developments in the political and regulatory landscape for digital markets.

Initial digital markets strategy

The CMA developed DMS I in response to “[t]he profound changes being brought about by the digital economy.” In particular, the CMA highlighted the expansive national and international reach of digital markets, the creation of entirely new services (such as social media, apps and online shopping) and the rapid pace of change in the sector. It also highlighted the continually increasing reliance that consumers place on digital services.

The CMA explained that its aim was “first and foremost ensuring that the enormous innovation and benefits brought about through digitalisation can continue.” Specifically, the CMA sought to ensure that all players can compete on the merits of their offering, that consumers trust online markets and that new competitors can enter digital markets.

DMS I identified five strategic aims and seven priority areas of focus.

Strategic Aims                                   Priority Areas of Focus
A.    Use existing tools effectively and efficiently 1.   Use existing consumer and antitrust enforcement and merger assessment powers to fullest extent possible (Strategic Aim A)
B.    Build knowledge and capability to understand digital business models 2.     The work of the Data, Technology and Analytics (DaTA) Unit, which supports the CMA with technical understanding of working with data and using algorithms (Strategic Aims A, B, C, D, E)
C.    Adapt tools to meet the challenges of the digital economy 3.   Conduct market study on online platforms and digital advertising (Strategic Aims B, C, D, E)
D.    Consider the case and options for regulation 4.   Review merger control standards applied to digital markets (Strategic Aims A, B)
E.     Consider potential future digital-focused remedies 5.   Consider the creation of a Digital Markets Unit, as recommended by the Furman Report[1] and accepted in principle by the Government (Strategic Aims D, E)
  6.   Support the Government on reform of enforcement tools to keep pace with the digital economy (Strategic Aim C)
  7.   International cooperation and collaboration (Strategic Aims A, B, C, D, E)

Pathway to DMS II

In the 18-month period since DMS I was launched, the CMA has undertaken “a significant amount of work” and there have been “significant developments in the political and regulatory landscape” related to digital markets. Among others, DMS II identifies the following examples.

  • The Government commissioned a Digital Markets Taskforce in March 2020, on the recommendation of the Furman Report, to provide advice to the Government on the design and implementation of a pro-competition regime for digital markets. Published in December 2020, the CMA Digital Markets Taskforce’s advice proposed an ex ante regulatory regime comprising three pillars: (i) an enforceable Code of Conduct for firms with Strategic Market Status (SMS); (ii) procompetitive interventions targeted at SMS firms; and (iii) SMS merger control rules.[2] The new regime would be administered by a Digital Markets Unit (DMU), which the Government agreed should be established within the CMA from April [3]
  • The Digital Regulation Cooperation Forum (DRCF) was established with the Information Commissioner’s Office (ICO) and Launched in July 2020, the DRCF aims to support cooperation and coordination between the constituent regulators on their respective responsibilities related to digital services.
  • The CMA’s DaTA Unit published in January 2021 a paper on algorithms research to be used (alongside any responses to the accompanying call for information) to inform the CMA’s work in digital markets through the DMU. The paper describes possible harms that could be caused to consumers by algorithms, and how algorithms can be used to exclude competitors and reduce competition.
  • The CMA has prohibited a number of mergers involving the digital sector, including Tobii/ Smartbox (concerning augmentative and assistive communication software and solutions), Sabre/Farelogix (concerning merchandising and distribution software solutions for airlines), and viagogo/Stubhub (concerning online secondary ticketing services). In addition, the CMA has taken enforcement action to tackle fake and misleading online reviews, non-disclosure of incentivised endorsements on social media platforms and “most favoured nation clauses” used by a price comparison website for home insurance
  • There is growing international consensus concerning the need to strengthen competition in digital markets. At EU level, the European Commission proposed a Digital Markets Act in December 2020 which, similar to the UK Digital Taskforce’s proposals, envisages an ex ante regime focused on large online platforms that are said to act as “gatekeepers” to the digital In the U.S., the House Committee on the Judiciary’s Antitrust Subcommittee investigated competition in digital markets in 2020 and made numerous suggestions to strengthen antitrust enforcement in a host of online markets. Having achieved many of the aims identified in DMS I, the CMA has issued DMS II to provide a new and “refreshed” strategy.

CMA’s aims and priorities under DMS II

DMS II is designed to “build towards a proactive new pro-competition regulator for digital markets in the shape of the DMU,” which is “altogether different and marks a step-up” from DMS I. The CMA’s goal is to “establish the DMU as a centre of expertise for digital markets.” The DMU will start work on 1 April 2021 and its powers are subject to legislation. Pending the introduction of such legislation, DMS II sets out four strategic aims and seven priority areas of focus. It explains that the CMA “expect[s] to be an increasingly active enforcer in relation to digital markets,” including because cases that previously fell to the European Commission are now within the CMA’s jurisdiction.

Strategic Aims                                   Priority Areas of Focus
A.    Use existing tools to maximum effect to address problems in digital markets 1.   Establish the DMU by working with the Government on its operational design and function, including supporting development of the new legislative framework (Strategic Aim C)
B.    Build knowledge and capability to understand digital business models 2.     Use existing tools to the fullest extent possible in digital markets (Strategic Aim A)
C.    Establish the DMU within the CMA and support the Government to develop a regulatory framework for digital markets 3.   The work of the Data, Technology and Analytics Unit, which is now fully operational (Strategic Aims A, B, C, D)
D.    Adapt existing tools to meet the challenges of the digital economy 4.   Work alongside Ofcom and the ICO through the Digital Regulation Cooperation Forum (Strategic Aims A, B, C, D)
  5.   International cooperation and collaboration, including via the Multilateral Mutual Assistance and Cooperation Framework signed by the UK in September 2020 (see UK Competition Newsletter, August- September 2020) (Strategic Aims A, B, C, D)
  6.   Support the Government on reform of enforcement tools to keep pace with the digital economy (Strategic Aim D)
  7.   Update CMA guidance to reflect the CMA’s current operating environment and approach (Strategic Aim D)

DMS II focuses on the rapidly evolving thinking around regulation of, and competition in, digital markets. The CMA’s Digital Market Taskforce Advice describes the duties of the DMU as the “lynchpin” of the ex ante regulatory regime for SMS firms, and states that it should have an “explicit focus” on “promoting beneficial innovation.” Speaking during an International Competition Network Virtual Spotlight Event on 2 February 2021, the CMA’s Chief Executive, Andrea Coscelli, noted that the extent to which the UK Government deviates from the EU in relation to the regulation of digital markets could be an “early test of Brexit.”[4]

While DMS II places significant emphasis on the proposed new regulatory regime for digital markets, the CMA will continue to look for opportunities to investigate and intervene in digital markets using its existing regulatory toolkit. The DMU will principally be responsible for the regulation of large digital platforms, whereas the CMA’s existing toolkit allows it to intervene across a wider range of markets. To this end, the CMA has indicated that it intends to work with Government to reform its existing powers to “keep pace” with the digital economy.

The other principal strand of DMS II is an apparent recognition by the CMA that its current guidance documents do not adequately reflect how the CMA analyses competition in digital markets. The recent reform of the CMA’s Merger Assessment Guidelines are one example of the CMA seeking to apply its existing powers more flexibly to take account of dynamic competition in digital markets. The CMA is also consulting on the application of competition law to vertical agreements, with a particular emphasis on online markets. It is possible that the CMA will also review other elements of its procedural and substantive assessment guidance to reflect an increased focus on competition in digital markets.

The publication of DMS II only 18 months after the CMA published DMS I confirms the importance attached by the CMA to enforcing competition rules in the digital sector and to sharpening its toolkit in anticipation of the introduction of the proposed new regulatory regime for digital markets.

[1]      J Furman and the Digital Competition Expert Panel, H.M. Treasury, Unlocking Digital Competition: Report of the Digital Competition Expert Panel (13 March 2019) (Furman Report), Chapter 2. See CGSH Alert Memorandum, “Unlocking Digital Competition: UK Expert Panel Publishes Report on Competition in Digital Markets”, 11 April 2019.

[2]      See UK Competition Newsletter, December 2020 for further details relating to the CMA Digital Markets Taskforce’s advice.

[3]      See the Government’s response to the CMA’s Online Platforms and Digital Advertising Market Study, paras. 21-23.

[4]      International Competition Network Virtual Spotlight, Leading your Agency through Change, 2 February 2021.