In “TECHNOPOLY” and what to do about it: Reform, Redress and Regulation, ResPublica, with the support of the Big Innovation Centre, outline proposals for a radical overhaul of current regulation of the technology sector, which we argue is unfit for purpose, incentivises bad behaviour and has failed to address ethical questions around Big Data and its use. An Executive Summary and Recommendations Overview is available to view here.
The detailed and technical report, warns higher consumer prices are a problem in the sector as well as dominance by internet giants of advertising revenue, data and even the provision of news.
The contention and argument of this report is that something has gone wrong with our markets and something has gone wrong with our competition law. We argue that an active competition policy is critical for raising living standards and improving economic growth, as called for in the Government’s Industrial Strategy.
Markets matter as they allow more people to own and trade, and monopolies are an evil that restrict such ownership and trade. They illegitimately crush rivals and funnel the rewards their dominance creates to themselves and they expand relentlessly unless stopped. Economic concentration also hinders innovation and productivity, and if unchecked it can predetermine not just the economic fate of individuals, but also of nations. It is not too extreme to say that we increasingly risk re-feudalising society, where ownership in any substantial degree has become an unrealisable dream for too many. This rentier society has created a new digital road to serfdom and unless or until we chart a different path, we risk recreating the market dynamics of the middle rather than the modern age.
This report highlights higher levels of concentration across a range of industries, a rise in economic rent, a fall in new market entry and a corresponding and evidenced threat to innovation. We do not claim original research or unique insight – such data as exists is assembled in this report and is public for all to see.
We argue that these outcomes have arisen in part at least because of a conceptual failure of competition law and policy to grasp the problem, lack of appreciation of the importance to the fabric of society of a diverse and competitive market, insufficiency of the tools used for analysis, especially the narrow focus on the consumer welfare standard as currently understood, and an ineffective system of merger control and lack of enforcement of the laws on vertical restraints.
Understanding levels of concentration and the importance of market structure requires the measurement and monitoring of markets in practice. We speak to the legal thresholds, methodology and management practices and policies which have contributed to these outcomes and which need to be changed. To exemplify and make our case we focus on the most egregious and telling issues and cases in the technology and media markets, providing examples of cases of assessment failures and highlighting the wider consequences of a failure to act and very real threat to future economic freedom from a monopolised market place.
Part I of this paper outlines the issues and problems we face in the broader economic context, followed by proposals for reform in Part II. As highlighted on the right of this page, we provide 10 recommendations on changes that can be made to address the problems identified.
Current competition law is not fit for purpose, regulators follow pro-monopoly standards
Consumer choice and innovation should be the new norm, not just consumer welfare
Competition law needs to stop privileging big business and focus on the benefits of small businesses and market structure
Regulators should strip the wrongdoer of their profits for their wrongdoing
Social media is media, and should be regulated in the same way as traditional media
Current merger controls should be changed to meet challenges of the digital age
Current UK inaction on merger controls is unsustainable
Phillip Blond, Director of ResPublica said:
“This is an exciting time in the sector, as companies seek to exploit the potential of AI, which could double economic growth rates in industrialised countries like ours – But the dominance of the current behemoths puts this at risk.
“By tolerating anti competitive strategies, failure to penalise bad behaviour and make law breakers pay, we are damaging innovation. This is why we propose a pan European approach to dealing with the sector, support for small and medium size enterprises to gain market entry and the use of the states’ purchasing power to ensure greater choice and diversity.”
Tim Cowen, EU competition law expert and co-author of the report commented:
“What we are calling for is a radical overhaul of how the sector is regulated as the concentration in the market continues at an alarming pace. Since 2001, Google alone has bought up 215 companies. Worryingly the pace of these aggressive acquisitions is increasing – 167 companies since 2008.
“While Facebook, which enjoys a virtual monopoly, with its 2 billion users has hoovered up 69 companies since 2007. Given the massive investment and high barriers to entry, this would meet almost any definition of a sector in crisis, but until the Cambridge Analytica scandal, few in power showed any concern – Even fewer understood the business model, which saw affiliates profiteering from the large scale harvesting and mining of personal data.”
Published: 19 June 2018
Key recommendations of the report include:
1. Assess consumer welfare but also give equal weight to innovation and consumer choice when examining transactions and competition matters.
2. Restoration of society’s interests. The Government’s Strategic Steer should promote greater enforcement of the law, especially in the technology sector, to promote innovation and customer choice. This would recognise the importance of market structure and small business to the economic and social wellbeing of the UK, and people’s views of how they see the world and what it means and can mean to them.
3. We recommend that outcomes should be measured by the authorities. Measurement of outcomes should be used to review the authorities’ performance.
4. The current merger control system does not properly address innovation mergers: we recommend that the current thresholds should be changed. Assessment practices toward transactions and assessments of market power also need to change.
5. We suggest that the current CMA notification system should be enhanced, and smaller businesses encouraged to obtain safe harbour protection under CMA administrative guidance.
6. We recommend that the role of the state, in addressing market failure in R&D and helping businesses cross the “Valley of Death” from invention to commercialisation, be enhanced and that state aid and public purchasing can be used to address the innovation deficit with other countries. We also recommend that Intelligent Purchasing can be used to support innovation and competition.
7. Enforcement of the law needs to be swift and meaningful. We recommend prioritisation of enforcement against abuse of dominance in the tech sector.
8. We recommend that the current Ministerial Steer should be overseen and monitored against outcomes.
9. We recommend that breach of the law should, in addition to compensatory damages, be able to strip the wrongdoer of the profits of their wrongdoing. The CMA should be empowered not only to take enforcement action in the public interest, but to coordinate and support action for harm and damages claims by government bodies.
10. Establish data ownership clearly in law – enabling end users to trade their data.
Tim Cowen is an equity partner at Preiskel & Co and is independently recognised as one of the leading telecoms and technology regulatory/competition lawyers in the EU. Tim led BT’s competition law and public policy team for many years and...
Phillip is an internationally recognised political thinker and social and economic commentator. He bridges the gap between politics and practice, offering strategic consultation and policy formation to governments, businesses and organisations across the world. He founded ResPublica in 2009 and...
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