Audio file
Oii podcast April_competition_Mix.mp3
Transcript
00:00:03 Veena McCoole
Hello and welcome to the Human Interface, brought to you by the Oxford Internet Institute at the University of Oxford.
00:00:10 Veena McCoole
This is a podcast about how developments in technology impact our work and life, as told through the research and insights of a brilliant roster of experts and industry practitioners from the university and beyond.
00:00:23 Veena McCoole
I'm your host, Thea McCool.
00:00:25 Veena McCoole
So we're more and more reliant on tech titans.
00:00:28 Veena McCoole
Google dominates search, Amazon is the go-to destination for online shopping, and Spotify is where many of us stream our music and podcasts.
00:00:38 Veena McCoole
But how good is that actually for the consumer?
00:00:40 Veena McCoole
And how do we keep these tech titans in check?
00:00:44 Veena McCoole
This is exactly what we're diving into in today's episode.
00:00:47 Veena McCoole
Tanya Vanden Brande is Senior Director of Digital Markets at the UK's CMA, that's the Competition and Markets Authority, where she contributes to the implementation of new regulation to address challenges to competition in digital markets.
00:01:03 Veena McCoole
Professor Greg Taylor is an economist whose research focuses on the digital economy, particularly online competition, competition policy, and regulation.
00:01:14 Veena McCoole
He is Professor of Digital Markets and Competition here at the OII.
00:01:18 Veena McCoole
Tanya and Greg, welcome to the show.
00:01:20 Greg Taylor
Very glad to be here.
00:01:22 Veena McCoole
Likewise, thank you.
00:01:23 Veena McCoole
So why does competition matter, particularly in digital?
00:01:27 Greg Taylor
We all benefit from participating in an economy where we can buy a wide range of goods and services from firms, but there are persistent fears that if those firms become too powerful, they might use that power in a way that distorts competition, distorts market outcomes in their own interests, but in a way that is of detriment to consumers and wider society.
00:01:49 Greg Taylor
And in particular, when we look at the world of technology, we see there are a lot of big firms there, and so this has been really a very present concern.
00:01:57 Greg Taylor
And those distortions in market outcomes often could mean higher prices or lower quality, but it could also mean less choice, or in a digital context, it could mean things like more invasion of people's privacy, less stringent policing of content, or having too many ads that interrupt the videos that people are trying to watch, for example.
00:02:18 Greg Taylor
And so society really has three lines of defense against such behavior.
00:02:23 Greg Taylor
The first is, if we have healthy competition in a market, that's going to allow consumers to vote with their feet, or if you like, with their wallets, by switching to different competitors, and that's going to make it difficult for any one firm to act in an exploitative way.
00:02:38 Greg Taylor
For example, if you're trying to buy a new mobile phone service contract and you find that the tariffs of your current provider are getting too high, then you can switch to another provider, another network, and that threat of losing customers is going to help to discipline your mobile provider.
00:02:55 Greg Taylor
The second line of defence is a set of tools that are called competition policy.
00:03:00 Greg Taylor
So this is a range of laws that are used to prevent firms from acting in a way that undermines that competitive process I talked about.
00:03:08 Greg Taylor
For example, firms might try to make an agreement with each other not to compete very hard and fix high prices, or they might try to decide and merge with their competitors.
00:03:17 Greg Taylor
And competition policy gives us the tools to prevent those kinds of behaviours.
00:03:22 Greg Taylor
And the third line of defence is to write new regulations.
00:03:26 Greg Taylor
So rather than waiting for anti-competitive behaviours to arise, we can write specific rules that require or prohibit particular behaviours to ensure good market outcomes.
00:03:37 Greg Taylor
So for example, if we stick with the example of mobile phone services, one impediment in the past to competition was that people were reluctant to switch provider because that meant you would get a new phone number and you would have to spend a lot of time informing people what your new number is.
00:03:53 Greg Taylor
And so we wrote a new rule in mobile number portability regulation that gave consumers the right to take their phone number with them.
00:04:01 Greg Taylor
And that makes switching much easier.
00:04:03 Greg Taylor
And we think that is going to really help to boost competition in that market.
00:04:08 Veena McCoole
Okay, so it sounds like with the mobile phone example, the fact that there are so many different providers is actually a really good thing for consumers.
00:04:15 Greg Taylor
Right, that's the idea.
00:04:17 Veena McCoole
So Tanya, I'm curious to hear how the CMA fits into all this and what it is that you guys work on.
00:04:23 Tania van den Brande
So we are the main competition authority here in the UK.
00:04:28 Tania van den Brande
And in simple terms, our mission is to promote competition and to protect consumers.
00:04:33 Tania van den Brande
And so building very much on what Greg was explaining,
00:04:36 Tania van den Brande
Competition matters because businesses that have rivals are going to have to work hard in order to retain their customers.
00:04:44 Tania van den Brande
And that means they're going to take action that ultimately benefits us as households, but also growth in the economy more generally.
00:04:52 Tania van den Brande
So for example, if a business wants to win new customers, then it's going to have an incentive to keep its prices low because that makes it more likely that customers are going to come and buy their products.
00:05:04 Tania van den Brande
And where prices are low for consumer goods, that's good for all of us because that's going to ease pressures on the households' budgets.
00:05:13 Tania van den Brande
And that's a very live topic out there right now.
00:05:17 Tania van den Brande
But low prices can also be good for businesses.
00:05:20 Tania van den Brande
For example, if technology markets are very competitive, then prices for technology will be low.
00:05:27 Tania van den Brande
That means that technology can diffuse quickly across the economy.
00:05:31 Tania van den Brande
And we know that's going to create upside for productivity and that can support growth.
00:05:37 Tania van den Brande
Similarly, a business that needs to hold on to its customers is going to have an incentive to invest in its products, to really improve the quality of what they offer to customers.
00:05:47 Tania van den Brande
And they might actually look to innovate, right, and to launch entirely new products.
00:05:52 Tania van den Brande
So that competitive pressure is really creating an upside for us as consumers by ensuring we have a choice of a wide range of products that are of good quality.
00:06:02 Tania van den Brande
And it's also going to support growth because businesses have that incentive to invest and grow their business.
00:06:09 Tania van den Brande
Now that we know why competition matters, what we as a competition authority do is that we deploy our tools in order to support competition and competitive outcomes.
00:06:20 Tania van den Brande
And we've got a range of different tools.
00:06:22 Tania van den Brande
First of all, we're able to review mergers, and that's to make sure that businesses cannot buy their main rivals to try and undermine the competitive pressure.
00:06:31 Tania van den Brande
We're also able to review markets more generally and tackle any barriers to effective competition.
00:06:37 Tania van den Brande
For example, we're currently looking at VETS services.
00:06:41 Tania van den Brande
And a third tool allows us to prevent firms from what we call collaboration or collusion.
00:06:47 Tania van den Brande
And those are situations where companies might look to agree not to compete hard, right?
00:06:52 Tania van den Brande
So they might agree to keep prices high.
00:06:54 Tania van den Brande
And where that happens, we're able to step in and stop that kind of behavior and penalize it.
00:07:00 Tania van den Brande
Now, only very recently, the CMAs received new powers.
00:07:04 Tania van den Brande
And essentially, those powers are very much targeted towards the digital sector.
00:07:09 Tania van den Brande
And they are essentially dare to acknowledge that digital is very central to the way we live our lives today.
00:07:16 Tania van den Brande
And so it's important, particularly in those sectors, that competition works well.
00:07:20 Tania van den Brande
And essentially, in a nutshell, what the regime asks us to do is
00:07:25 Tania van den Brande
to step in where there are digital sectors where companies have established strong position of market power, right, where they essentially don't face that competitive constraint from rivals that Greg and I have been describing.
00:07:38 Tania van den Brande
And in those particular cases, the CMA is now able to take action very much to look to promote that competition and unlock all of those benefits in terms of lower prices and higher innovation.
00:07:51 Veena McCoole
Okay, that's really interesting.
00:07:52 Veena McCoole
I mean, the examples that were given there, mobile phone companies and vets, I can see how collusion, as you described, or collaboration can lead to maybe worse outcomes for the consumer.
00:08:04 Veena McCoole
But what does that look like for digital markets?
00:08:06 Veena McCoole
What makes digital different here?
00:08:08 Veena McCoole
And why are we more concerned about that?
00:08:10 Greg Taylor
Well, so far, our approach to regulating competition in tech has used those traditional tools that Tanya talked about.
00:08:17 Greg Taylor
And we have had some success.
00:08:19 Greg Taylor
We've seen some landmark cases there in the US, in the EU, also here in the UK.
00:08:24 Greg Taylor
So we know that traditional interventions can be useful.
00:08:28 Greg Taylor
But we also continue to see persistent dominance of a lot of digital markets.
00:08:33 Greg Taylor
And that has been increasingly linked to a number of important economic forces that we think are special to those digital markets.
00:08:40 Greg Taylor
So to give you a few examples, many digital goods become more valuable when lots of people use them.
00:08:47 Greg Taylor
That's A phenomenon that we call network effects.
00:08:49 Greg Taylor
For example, if you have a social media service like Facebook or WhatsApp, it's only useful if you can use that to connect to the people that you know.
00:08:58 Greg Taylor
And so that means if you have a big platform with a lot of users, you already have an advantage over a smaller one with much fewer users.
00:09:05 Greg Taylor
Similarly, if you have a software platform like Windows or Android that has a lot of developers making apps for that platform, that's going to give you an advantage over a competitor who doesn't have that same app ecosystem.
00:09:17 Greg Taylor
A second big force that we see all the time in tech markets is that firms face big upfront costs that mean it's only economical to act in that industry if you can spread those costs across many customers.
00:09:30 Greg Taylor
And we say that those markets are subject to economies of scale.
00:09:34 Greg Taylor
An example here would be something like the provision of cloud services, where you've got to build this huge data center in order to get into business.
00:09:42 Greg Taylor
And it's not really realistic that we have very many firms making that sort of investment.
00:09:46 Greg Taylor
So again, there's this inherent mechanism that sort of advantages already large firms or puts a natural ceiling on how much competition we can think we can have in a market.
00:09:56 Greg Taylor
And then thirdly, if we go back to the mobile phone example, that was one where there are costs of switching between products, and those sorts of costs are really endemic to many tech markets.
00:10:06 Greg Taylor
So if you think about the kind of software tools that businesses use, for example.
00:10:10 Greg Taylor
If they want to switch provider, that will often mean not only buying the new software, but also changing out all of their hardware infrastructure, retraining their staff, resolving any filing compatibilities.
00:10:22 Greg Taylor
So there are huge frictions in switching between providers, and that's going to mean those providers feel under much less competitive pressure than they would if switching was very easy.
00:10:33 Greg Taylor
So these forces have been linked to the high levels of concentration that we see in many digital markets.
00:10:39 Greg Taylor
So in markets like search, social media, computer operating systems, we see that there are really often just one or two big firms that dominate those markets.
00:10:48 Greg Taylor
And that kind of concentration itself isn't necessarily a problem.
00:10:52 Greg Taylor
Indeed, if we take the example of something like the iPhone, which very quickly came to dominate the market when it was introduced in 2007,
00:11:00 Greg Taylor
I think that wasn't because anything anti-competitive was going on.
00:11:03 Greg Taylor
the contrary, it's because Apple did something very competitive, which is to introduce an innovative, revolutionary new product that consumers really liked.
00:11:12 Greg Taylor
But what we know is that when the market does become highly concentrated and the few firms in that market become more powerful, it does open the door to the sorts of exploitative behaviours like high prices that we might be worried about.
00:11:25 Greg Taylor
And that's where Tanya and her team really have scope to try to intervene.
00:11:30 Veena McCoole
Okay, so what I'm hearing is it's almost...
00:11:33 Veena McCoole
a double-sided issue where on the one hand, it's fair game to reward a private company for its innovation.
00:11:40 Veena McCoole
And if customers are responding by buying the iPhone because they really like it, that's great.
00:11:45 Veena McCoole
But then the risk that comes with that is the possibility that, I guess, these anti-competitive behaviors that you've talked about then come into play by the company.
00:11:53 Greg Taylor
Exactly.
00:11:54 Greg Taylor
We want to reward stringent competition, not anti-competitive behavior.
00:11:58 Tania van den Brande
There's a number of digital sectors.
00:12:00 Tania van den Brande
that have become really central to the way that people live their lives and the way that businesses operate day-to-day.
00:12:07 Tania van den Brande
And so that means those sectors have become quite strategic in a sense.
00:12:12 Tania van den Brande
They are quite core to how we live our lives and how we enjoy our lives.
00:12:17 Tania van den Brande
And so for those reasons, it's really important that those sectors and those markets work very well and we get all those upsides that Greg and I were talking about earlier.
00:12:26 Tania van den Brande
And I just want to highlight some of the ways in which digital sectors have impacted our lives and that we think about as an authority when we look at this kind of big BLOB of many things.
00:12:39 Tania van den Brande
First of all, there are sectors that have really revolutionized how we as consumers connect with businesses.
00:12:46 Tania van den Brande
So think of our mobile phones.
00:12:49 Tania van den Brande
we're able to use our mobile phones to go to the app store and buy any app that's available there at the click of a button.
00:12:57 Tania van den Brande
It's immediately available and we can start using it on the go.
00:13:00 Tania van den Brande
So really mobile platforms have changed the way we as consumers connect with businesses and engage with their content.
00:13:09 Tania van den Brande
Digital sectors have also revolutionized how audiences are connected to content.
00:13:15 Tania van den Brande
Think, for example, of search services, right?
00:13:18 Tania van den Brande
They allow us to find content on the internet that we want to engage with.
00:13:23 Tania van den Brande
It might be a news article.
00:13:24 Tania van den Brande
It might be trying to figure out what the capital is of a particular country.
00:13:28 Tania van den Brande
It almost doesn't matter what question it is.
00:13:30 Tania van den Brande
Google Search particularly is a place we go to discover the world and the digital world.
00:13:37 Tania van den Brande
And thirdly, digital services are going and gradually revolutionizing business processes.
00:13:44 Tania van den Brande
So the way businesses in the UK operate.
00:13:47 Tania van den Brande
And a good example of that is how advertising has evolved in the digital world, right?
00:13:54 Tania van den Brande
There is this market called the ad tech market, which essentially puts advertising next to content on the internet at a huge scale every second of the day.
00:14:06 Tania van den Brande
And interestingly and importantly, in this sector, it's possible to target advertising at users that you think might particularly want to engage with those ads.
00:14:16 Tania van den Brande
And so the scale at which advertising content is placed and the way it's targeted at individuals is really what's new in that digital world.
00:14:25 Veena McCoole
Okay, so it's not like there's something on a billboard that you happen to drive by.
00:14:29 Veena McCoole
It's now, oh, I've actually just looked up a holiday for the summer.
00:14:34 Veena McCoole
And now suddenly, whenever I'm online, I'm being bombarded with advertisements for holiday packages.
00:14:39 Tania van den Brande
Exactly.
00:14:40 Tania van den Brande
And interestingly, when you're using your search services, you don't just do it for the holiday, you do it to find an update maybe on what's happening with a particular story that you're interested in.
00:14:52 Tania van den Brande
You might discover new music or a book that you'd want to read.
00:14:56 Tania van den Brande
And essentially what's so central to search is that it helps us find what we want across all of the things that we're interested in life.
00:15:04 Tania van den Brande
And that gives you that sort of sense of breadth of impact that sector has for us.
00:15:09 Tania van den Brande
And it's still changing, right?
00:15:12 Tania van den Brande
With the advent of AI, but maybe more importantly right now, large language models getting embedded into products is just creating much more scope for new products to be launched and existing products to be improved.
00:15:25 Tania van den Brande
So we sort of expect much more change to come, if you like.
00:15:29 Tania van den Brande
And typically when markets are changing in this way, you end up having a debate on whether regulation should
00:15:37 Tania van den Brande
or should not be part of creating the right environment for technological change to really support that prosperity for people and the economy more generally.
00:15:47 Tania van den Brande
And you might have seen debates around online safety, around privacy, and competition is sort of a third area of debate on whether or not regulation should come in and support competition.
00:16:00 Tania van den Brande
And so
00:16:01 Tania van den Brande
Essentially, what we've done at the CMA is done extensive work looking at a range of different digital sectors to really understand why competition is not necessarily working well.
00:16:13 Tania van den Brande
And what we've seen is that in several digital sectors, the largest tech firms essentially have established positions of what we call substantial entrenched market power.
00:16:23 Tania van den Brande
And what that means in practice is that they face limited competitive pressure from rivals.
00:16:30 Tania van den Brande
So let me give you an example to illustrate that.
00:16:33 Tania van den Brande
We all use Google Search.
00:16:35 Tania van den Brande
We know that from the statistics.
00:16:37 Tania van den Brande
And most of us use Google Search several times a day.
00:16:40 Tania van den Brande
And what we found is that Google has inherent advantages when it's offering search services.
00:16:48 Tania van den Brande
and that includes its access to a huge amount of data.
00:16:51 Tania van den Brande
It is also the default search engine on most mobile devices in the UK.
00:16:56 Tania van den Brande
And so those advantages together with others mean that it's really difficult for rival search engines to come in and compete with Google search head on.
00:17:06 Tania van den Brande
Now, why do we care about that?
00:17:08 Tania van den Brande
As we conducted our work, we heard a range of concerns associated with Google's position in search.
00:17:16 Tania van den Brande
For example, some UK businesses are really reliant on Google Search to advertise to UK consumers and have limited ability to switch away to advertise.
00:17:26 Tania van den Brande
And that's going to lead to higher advertising costs.
00:17:30 Tania van den Brande
And ultimately, that leads to higher prices of consumer products because advertisers are going to pass on those higher advertising costs into the products they ultimately sell to us.
00:17:41 Tania van den Brande
A second concern we've heard is that Google Search can be a really important route to market for publishers.
00:17:47 Tania van den Brande
Think, for example, of newspapers.
00:17:50 Tania van den Brande
And so what that means in practice is that publishers don't have much bargaining power when they engage with Google.
00:17:58 Tania van den Brande
And that makes it hard for them to negotiate fair terms when their content is used by Google, including in AI products.
00:18:06 Tania van den Brande
And that can be a problem if that means publishers cannot monetize their content, which can then weaken their incentive to invest in quality content, which then impacts us as consumers.
00:18:18 Veena McCoole
That's really interesting.
00:18:19 Veena McCoole
And Google search is a great example.
00:18:21 Veena McCoole
It kind of makes me think if tech is really good and everyone uses it, is competition necessarily a good thing?
00:18:27 Veena McCoole
But you flagged there some really valid concerns that emerge when one large company has a lot of, as you say, bargaining power, and that actually impacts the way businesses run and the way end consumers are impacted.
00:18:40 Veena McCoole
I want to jump back earlier to something you shared about the advent of large language models and AI.
00:18:45 Veena McCoole
And it occurred to me that actually now with these new tech tools, perhaps competition is almost being encouraged because of the rate at which we're now seeing the production of new apps, new solutions, new technology.
00:18:58 Veena McCoole
It's almost like the tech infrastructure we have now is creating more and more opportunities for new companies to be founded more quickly.
00:19:06 Veena McCoole
That to me sounds like a good thing for competition, is it not?
00:19:11 Tania van den Brande
It is.
00:19:12 Tania van den Brande
And what I will say is if a market is working well, if competition is working effectively, then someone like a CMA isn't going to have any reasons to intervene.
00:19:23 Tania van den Brande
It's really when a company doesn't face enough competitive pressure and it's able to use that to charge higher prices or not invest in good quality that
00:19:34 Tania van den Brande
there will be a need for us to step in.
00:19:36 Tania van den Brande
Now, one of the questions that someone like a competition authority might look at is, as new technology emerges, is competition for that new technology open?
00:19:48 Tania van den Brande
Or are there risks that companies that have established strong incumbent positions use that position
00:19:56 Tania van den Brande
to stop open competition for that new technology.
00:19:59 Tania van den Brande
And in those occasions, we might come in and want to look at how AI is reshaping markets and making sure that new entrants and new challengers have the same opportunity to come in and play for those new services as incumbent players do.
00:20:16 Greg Taylor
One thing I would add is that while the market may initially seem to be quite competitive, we do need to be alert that some of those forces I talked about earlier might be at work in the background.
00:20:26 Greg Taylor
So if these firms are accumulating data and over time that's going to give them an advantage, or if there are economies of scale in building things like the compute infrastructure or the chips that you need to run AI models, then over time that might allow one or two leaders to emerge and come to dominate the market.
00:20:44 Greg Taylor
And if we think that's
00:20:46 Greg Taylor
that's likely to happen, it's really much easier to intervene earlier rather than later.
00:20:50 Greg Taylor
So we do need to be quite alert and monitor how the competition in those markets develops.
00:20:57 Veena McCoole
Okay, so with that in mind, I mean, if we zoom out a bit.
00:21:00 Veena McCoole
I'd love to chat a bit about why we do need to regulate.
00:21:04 Veena McCoole
What does it mean to apply effective competition regulation to the markets now that we've discussed why that's important?
00:21:11 Veena McCoole
What does it look like in practice?
00:21:13 Greg Taylor
Well, because of these forces that I've talked about, I think there's good reason to think that while competition policy is useful, it's not going to be enough on its own.
00:21:21 Greg Taylor
So there's been a real impetus to design additional rules, new regulation for digital markets.
00:21:27 Greg Taylor
But regulating is hard because you have to stay one step ahead of the firms all the time.
00:21:32 Greg Taylor
And remember, those firms often have all of the technical expertise.
00:21:36 Greg Taylor
They're the ones who understand their products.
00:21:38 Greg Taylor
They're the ones who know their customers and the markets.
00:21:41 Greg Taylor
And so there's really been an emphasis on trying to design a new type of regulation for digital markets.
00:21:47 Greg Taylor
And we've done that really built on 2 pillars.
00:21:50 Greg Taylor
So the first is what we call a pro-competitive approach, where we focus less on writing rules that are going to specifically dictate what kind of products firms produce, what kind of prices they charge, but instead look at taking away some of those barriers that we know exist in tech markets.
00:22:08 Greg Taylor
So a classic example of a pro-competitive intervention might be telling a tech firm that it has to share data with its rivals so that they're able to compete on a level playing field, or telling it that it has to make its products
00:22:20 Greg Taylor
interoperable with rivals' products so that they're not at a disadvantage.
00:22:25 Greg Taylor
And the idea is that then we can leave the experts in the industry to still decide what kind of products are they going to produce, how are they going to sell it, but the regulation is really focused on unlocking competition in places where we think competition of policy alone won't do enough.
00:22:40 Greg Taylor
And then the second pillar is a more traditional approach to economic regulation, where really we specify particular kinds of conduct that we do or don't want firms to be involved in, with a view to ensuring that we get good market outcomes.
00:22:55 Greg Taylor
So an example here would be banning firms from a practice which is called self-preferencing, which is where you operate a major online platform and you use the power that gives you to give a privileged position to your own products.
00:23:08 Greg Taylor
So think of an app store, for example, that might be putting that company's own apps at the top of the search results instead of competitors.
00:23:16 Greg Taylor
And that's something that we can write regulations to rule out and therefore make it a little bit easier for other app developers to compete in that market.
00:23:24 Veena McCoole
As you're giving these examples, it just makes me think these are problems or challenges that are so unique to digital technologies.
00:23:33 Veena McCoole
Like we wouldn't see examples of that when we're looking at things like a corner shop or a hair salon where we have vastly different assumptions and there's a natural cap on things.
00:23:43 Veena McCoole
The point you kept coming back to earlier of economies of scale, but also the network effects, that's something that feels really new in this digital age.
00:23:52 Greg Taylor
So if you work a little bit, you can find examples of those forces in other markets.
00:23:56 Greg Taylor
Fax machines also have network effects.
00:23:58 Greg Taylor
But what is interesting about digital is that you get this combination of forces that together tend to make markets really quite concentrated.
00:24:06 Greg Taylor
And also those forces often are much more important in tech markets because, for example, the ability to connect to other people is really central to how the whole technology works.
00:24:17 Tania van den Brande
And to build on that, one of the reasons why in the UK we've introduced legislation to take action to promote competition in digital markets is because some of these sectors are so strategic.
00:24:30 Tania van den Brande
They are so central to how we as people live our lives and businesses across the economy operate.
00:24:38 Tania van den Brande
that strategic nature is important because that means that any position a company has of that substantial and entrenched market power creates a risk that you get these wide-ranging negative impacts across the whole UK economy.
00:24:54 Tania van den Brande
And it's because of that strategic nature that we think it's important that we have the ability to step in and take action to prevent from those negative effects from happening.
00:25:05 Tania van den Brande
And that's really
00:25:06 Tania van den Brande
the kind of vision behind the new digital markets regulation that was introduced in the UK and that went live in January 2025.
00:25:14 Tania van den Brande
And what's central to this regime is that our ambition is to promote competition in these strategic or critical digital markets, if you like.
00:25:25 Tania van den Brande
But before we as the CMA can take action under the regime, we first have to establish that a company should be subject to action.
00:25:34 Tania van den Brande
And that means that we need to do a designation investigation.
00:25:37 Tania van den Brande
We basically need to assess whether a large tech firm has established this position of substantial and entrenched market power.
00:25:46 Tania van den Brande
So in layman terms, it isn't facing a lot of competitive constraint from its rivals.
00:25:51 Tania van den Brande
And we also have to establish that position is in a sector that is strategic in some way.
00:25:57 Tania van den Brande
So as I mentioned earlier, it can be strategic because
00:26:01 Tania van den Brande
that sector is critical to how we live our lives or how businesses across the UK economy operate.
00:26:08 Tania van den Brande
So let me give you an example of what we might think of as strategic.
00:26:13 Tania van den Brande
And one area where we have done a designation investigation is in that mobile sector.
00:26:20 Tania van den Brande
And essentially, we looked at Apple and Google's position in mobile platforms.
00:26:26 Tania van den Brande
and found that they hold substantial and entrenched market power each.
00:26:29 Tania van den Brande
We also found that was a strategic sector for a couple of reasons.
00:26:34 Tania van den Brande
First of all, most adults in the UK have a phone, and many kids do as well.
00:26:39 Tania van den Brande
And many of us probably spend too much time on our phone every day as well.
00:26:44 Tania van den Brande
So you can see that mobile phone and the platform of applications on those phones has become really quite central to the way we live our lives.
00:26:54 Tania van den Brande
Mobile platforms are also really important for a huge range of businesses.
00:26:58 Tania van den Brande
And that's because, for example, app developers try and sell their applications to us as consumers through app stores on the Google and Apple mobile platforms.
00:27:10 Tania van den Brande
And let me give you some sense of scale, right?
00:27:13 Tania van den Brande
There's almost 15,000 businesses that are involved in the development of apps.
00:27:19 Tania van den Brande
And in total, the revenue from app development is
00:27:22 Tania van den Brande
estimated to be around 28 billion in the UK.
00:27:26 Tania van den Brande
So you really get that sense of scale and how central that mobile platform is for a number of businesses in the UK, as well as us as consumers.
00:27:39 Tania van den Brande
So in October, we concluded 3 designation investigations, and we decided to designate Google and Apple in mobile, as well as Google in relation to search.
00:27:51 Tania van den Brande
And I should say, when we designate companies, that doesn't imply wrongdoing on their part.
00:27:58 Tania van den Brande
All that means is that those companies play an important role in our lives and in the economy.
00:28:05 Tania van den Brande
And we think it's important that we have the opportunity to act, to prevent those companies from using that core and central position
00:28:13 Tania van den Brande
to treat people or businesses unfairly.
00:28:16 Tania van den Brande
Or as Greg said, to give us the opportunity to take action and to encourage competition in the sectors where those companies don't currently face that competitive constraint.
00:28:28 Tania van den Brande
So let me give an example of what potential action might look like.
00:28:32 Tania van den Brande
And what I'll do is I'll draw on a package of measures that we're currently consulting on
00:28:37 Tania van den Brande
that we believe is going to give businesses and consumers more active and more informed choices when they interact with Google search.
00:28:46 Tania van den Brande
So for example, one of our proposals is that Google should implement a number of measures that gives content publishers more control and more choice over how their content is used.
00:29:00 Tania van den Brande
to power AI features like AI overviews or to train the AI models that Google owns.
00:29:07 Veena McCoole
Yeah, that's, I actually see that in my e-mail.
00:29:10 Veena McCoole
I have the option to switch off the ability for Google AI to consume what it is I'm writing in correspondence to train models.
00:29:17 Veena McCoole
So as a consumer, I'm already seeing almost like the power being restored to my hands, if that makes sense.
00:29:24 Tania van den Brande
Yeah.
00:29:24 Tania van den Brande
And so
00:29:25 Tania van den Brande
From A publisher perspective, the main upside of giving that control is that we are giving them back some of that bargaining power that they're currently lacking.
00:29:35 Tania van den Brande
That's going to strengthen the opportunity for them to make money from the content that creates, and that's all that really going to benefit us as consumers by giving publishers an incentive to invest in good quality.
00:29:48 Tania van den Brande
It's also going to help us as consumers, because if we have a better understanding of what content is being used to train models, that is going to give us more trust when we use the outcomes and results from those models.
00:30:03 Tania van den Brande
A second set of measures, which is a bit more consumer-focused, is...
00:30:07 Tania van den Brande
that we propose that Google should display what we call choice screens when consumers set up their Android device or they use their Chrome browser.
00:30:16 Tania van den Brande
And essentially what that means is that we as consumers will proactively get the choice of which search engine we want to use as the default on our mobile device or when we use Chrome web browser.
00:30:30 Tania van den Brande
And essentially what that allows us to do is to ensure that consumers can make an active choice
00:30:36 Tania van den Brande
on which search engines they prefer to use.
00:30:38 Tania van den Brande
And that might well be Google Search, or that might be another search product that, for example, might be more privacy preserving.
00:30:45 Tania van den Brande
And so really what those actions are trying to do is to allow businesses as well as consumers to have more active choices when they engage with Google Search.
00:30:56 Veena McCoole
Yeah, I am really interested in the way that you described what you define as a strategic industry, because I'd never thought about it that way.
00:31:04 Veena McCoole
I mean, you think of mobile phones, but you don't think about the fact that we use our phones now as fintech platforms for digital payments, which has implications on that sector for all the developers and the things that we're able to purchase and transact and access through our phones, as well as communicate with each other, access the internet.
00:31:22 Veena McCoole
So
00:31:23 Veena McCoole
the kind of knock-on effects of regulating one really important, strategic sector, it's so important to do that because it has effects on the way that, as you say, we live our entire lives.
00:31:34 Greg Taylor
And this is really quite an important feature of the new digital regulation regime.
00:31:39 Greg Taylor
Of course, one concern when you're writing new regulations is that they can also have an anti-competitive effect because the compliance costs for small businesses, for example, are very high and it ends up making it more rather than less difficult for them to compete.
00:31:54 Greg Taylor
And so in fact, although we're seeing experimentation around the globe with different ways of regulating tech, that's one feature that's been a bit of a recurring feature of the regulatory landscape.
00:32:05 Greg Taylor
I think it's a little bit interesting to compare the different approaches that people are taking around the world to this problem.
00:32:12 Greg Taylor
Two global leaders, I think it's fair to say, are the EU, which introduced a law called the Digital Markets Act.
00:32:18 Greg Taylor
And then shortly afterwards, the UK introduced its own new regime.
00:32:22 Greg Taylor
It's called the Digital Markets Competition and Consumers Act, which Tanya has been talking about.
00:32:27 Greg Taylor
And broadly speaking, there are two very similar approaches to the same problem.
00:32:31 Greg Taylor
So they both have this idea that we should identify the strategically important firms and designate those as the ones that will be subject to the regulation.
00:32:41 Greg Taylor
And then design a mix
00:32:42 Greg Taylor
of pro-competitive interventions and conduct requirements to try and address the competitive concerns that we have in those markets.
00:32:50 Greg Taylor
But one big difference that we see is that the EU's approach is involved quite carefully codifying in the law exactly what will be the thresholds to designate a firm as being a gatekeeper, as having this strategic status, and exactly what kind of requirements will be imposed on it.
00:33:08 Greg Taylor
So that's great in the sense that it gives everybody in the market a lot more certainty
00:33:12 Greg Taylor
about how the law will be applied, and it potentially allows the EU to move more quickly.
00:33:18 Greg Taylor
In the UK, we took a slightly different approach, which involved giving the CMA not a pre-specified set of thresholds and rules to apply, but instead a framework whereby it can make a case-by-case assessment for different digital markets and really write new rules that are tailored and bespoke for those markets.
00:33:38 Greg Taylor
And that has the potential advantage that it gives us a lot more flexibility.
00:33:41 Greg Taylor
So
00:33:42 Greg Taylor
as you're making rules across different markets, or as those markets are evolving and new technologies are emerging, potentially that gives us a lot of freedom to really respond in a very nimble way.
00:33:53 Greg Taylor
But I don't think we should think of this as being a sort of competition of who has the best rules.
00:33:58 Greg Taylor
Rather, we're still learning a lot about what is the best approach to regulating these markets.
00:34:02 Greg Taylor
And I guess, Tanya, you would agree with me that there's a lot of scope for authorities around the world to experiment and learn a lot from each other.
00:34:10 Tania van den Brande
That's right, Greg.
00:34:11 Tania van den Brande
And
00:34:12 Tania van den Brande
I think where I always start is that ultimately our ambitions in digital markets are aligned when competition authorities look at these sectors globally.
00:34:21 Tania van den Brande
Really what we want to achieve is that where competition is not working well, we make sure that the big players treat businesses and consumers fairly and that we look for those opportunities to inject competition.
00:34:35 Tania van den Brande
where currently it's not strong enough.
00:34:37 Tania van den Brande
And so that common and shared objective, I think, naturally helps us think about issues in the same way.
00:34:45 Tania van den Brande
But as you said, Greg, the tools that we use and the scope that we have to take action is in fact different.
00:34:51 Tania van den Brande
And we see two big upsides of the UK regime.
00:34:55 Tania van den Brande
First of all, our approach has been very much focused at taking action only where competition
00:35:03 Tania van den Brande
isn't working well right now in a digital sector and only in those more critical of sectors, right?
00:35:09 Tania van den Brande
That strategic concept that Veena unpacked a little bit earlier as well.
00:35:14 Tania van den Brande
And that essentially means as we focus our action where there is a potential problem to deal with.
00:35:20 Tania van den Brande
Secondly, we have a lot of flexibility in terms of what action we propose to take to promote competition or to ensure that these largest tech firms treat people fairly.
00:35:32 Tania van den Brande
And that means that we can really tailor our approach to how the company works in practice and any potential issues we might see.
00:35:41 Tania van den Brande
And that's good for us because that means that any action we take is going to be particularly effective.
00:35:47 Tania van den Brande
And it can also be good for the company that's being regulated because we're not going to ask them to do things that don't matter for their business.
00:35:55 Veena McCoole
The nature of the internet is so global these days.
00:35:57 Veena McCoole
And I'm curious with different regulatory approaches, how do you regulate beyond borders?
00:36:05 Veena McCoole
What does that mean in practice for a UK body if I'm using an app that was developed in Europe or in the US?
00:36:13 Tania van den Brande
So our objective is always to promote upsides for UK consumers and businesses and the UK economy.
00:36:20 Tania van den Brande
So our frame of mind is very much to tackle issues in the UK.
00:36:26 Tania van den Brande
Now in practice, what might happen is that if an authority elsewhere in the world takes action, that might have knock-on effects in the UK because as you say, Vina, these products are global, right?
00:36:39 Tania van den Brande
And where an authority elsewhere in the world takes action, that
00:36:43 Tania van den Brande
solves effectively any issues in the UK, then that's going to make it less likely for us to have to step in and take action ourselves.
00:36:51 Tania van den Brande
Now, sometimes authorities elsewhere in the world might try and tackle competition issues, and that is not having that spillover effect, if you like, in the UK.
00:37:00 Tania van den Brande
And in those cases, we might want to step in and take action to make sure we can deal with any UK issues.
00:37:08 Tania van den Brande
And in those cases,
00:37:10 Tania van den Brande
will only deviate from what others do in the world if we think there is an upside there, if we think by tailoring the approach to the UK, that will allow us to do something that tackles issues more effectively or does it in a more proportionate way.
00:37:24 Veena McCoole
So just as we wrap up this episode, I wonder where we're going next.
00:37:29 Veena McCoole
And to reference what Greg said earlier about regulation needing to be one step ahead of markets, can we keep up?
00:37:38 Tania van den Brande
So a particular focus for us in the next year is that we start formulating the action we want to take to promote competition in search and mobile, given the designations we made in October, and I mentioned earlier.
00:37:52 Tania van den Brande
And alongside of that, we're working through now whether there are further sectors we should conduct these designation investigations in, and we expect that's something our board will come back to very soon.
00:38:06 Tania van den Brande
Now more generally, you're absolutely right, Veena, these are fast moving markets.
00:38:10 Tania van den Brande
And one of the strengths of the regime in the UK is that we've got the opportunity to iterate our approach over time, right?
00:38:18 Tania van den Brande
So as markets change and if issues change, we have an opportunity to revise the action we take, either to refine it or to take additional action so that we are able to kind of keep up with what's happening and adjust our approach to stay current.
00:38:36 Greg Taylor
And from my point of view, as Tanya said, the world moves quickly.
00:38:39 Greg Taylor
So although a lot of thought has gone into these new regimes we've developed, there's still a lot of ongoing research to be done to help understand this evolving landscape.
00:38:49 Greg Taylor
So one we've talked about already is the market for AI.
00:38:52 Greg Taylor
It's clearly the hot topic of the day, a really important emerging technology.
00:38:57 Greg Taylor
And you see a lot of concern among people that this is just going to be a rerun of the same thing we saw before, that one or two big tech firms will come to dominate.
00:39:06 Greg Taylor
that market as well.
00:39:08 Greg Taylor
I think in some ways we're better placed to deal with that than we were in the past because over the last 20 years we learned a lot about the economics of how these markets work.
00:39:17 Greg Taylor
But one thing we know is that it's going to be too late to shut the stable door once the horse is gone.
00:39:22 Greg Taylor
So we do need to be prepared to move quickly and potentially to act quite decisively.
00:39:27 Greg Taylor
And there's still work to be done in understanding how we can apply our current economic toolset to that market to develop an effective regime for it.
00:39:37 Greg Taylor
Another important topic, I think, is the role of digital ecosystems.
00:39:41 Greg Taylor
You know, when we look at the way that competition has been enforced in the past,
00:39:46 Greg Taylor
The focus has very much been on particular markets or perhaps the relation between a couple of closely related markets.
00:39:52 Greg Taylor
But these tech firms often control these sprawling ecosystems that span search software, advertising, shopping services, social networking.
00:40:03 Greg Taylor
And so people are really working to develop new theories of how those sorts of digital ecosystems might enable new kinds of anti-competitive behaviour, or how complicated anti-competitive effects might propagate through those ecosystems in ways that aren't currently very well understood.
00:40:20 Greg Taylor
And that hopefully would help to design better policy responses to that.
00:40:24 Greg Taylor
And then a third important theme in the debate is how competition policy and regulation interact with other policy objectives like national sovereignty, security, data protection, environmental regulation.
00:40:39 Greg Taylor
And so there are questions about how can we reconcile potentially conflicting policy objectives across those domains.
00:40:46 Greg Taylor
And also, we live in a world of growing geopolitical tensions that raises a question of what role can and should competition enforcement play in the wider tech landscape in the UK's wider place on a global stage.
00:40:59 Greg Taylor
So those are really open questions, but I think they'll be important in the years to come.
00:41:03 Veena McCoole
What I'll take away from this conversation is the fact that
00:41:07 Veena McCoole
Competition is really about creating a level playing field, giving everyone the chance to participate in business and innovation, but also protecting consumer interests and making sure that there is a natural and inherent incentive for businesses to improve on price and quality and the consumer experience so that everyone can thrive.
00:41:31 Veena McCoole
Tanya and Greg, thank you so much for joining me on this episode of The Human Interface.
00:41:35 Veena McCoole
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00:41:43 Veena McCoole
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00:41:49 Veena McCoole
Till next time.