02 April 2019

Media Concentration and Digital Markets

The Media Reform Coalition Who Owns The UK Media report offers a picture of media concentration that resembles the Australian environment.

It notes that three companies - News UK, Reach (formerly MGN) and Daily Mail Group (DMG) - have 83% of the national newspaper market (up from 71% in 2015). If online readers are included, five companies (News UK, Daily Mail Group, Reach, Guardian and Telegraph) dominate have around 80% of the market, with. five companies - Gannett, Johnston Press, Trinity Mirror, Tindle and Archant - account for 80% of titles in local news. Two companies have 46% of all commercial local analogue radio stations and two-thirds of all commercial digital stations.

In the national newspapers sector the titles have seen a circulation decline of almost one quarter since 2015 though their reach has been extended through digital consumption. The market continues to be dominated by News UK and DMG Media, which account for over 60% of print sales, while Total Brand Reach (TBR) figures show that across the UK’s national newsbrands, five publishers account for 80% of aggregated online and offline reach. Almost 50% of the combined revenue of the UK’s national 'newsbrands' (print and digital) is generated by two publishers: DMG and News Corp UK and Ireland. The Daily Mirror has experienced the most striking fall in circulation, f down to just over 500,000 in 2018 from almost 900,000 copies in 2015– a drop of over 40%. Other tabloid and mid-market newspapers experienced the greatest circulation declines. The broadsheet press – with the exception of the Telegraph – was less badly affected. The daily market continues to be dominated by the Sun and Daily Mail which together account for over half of all circulation. Market share by revenue was
News Corp UK and Ireland Ltd £727m 
DMG Media Ltd £676m 
The Financial Times Ltd £321m 
Telegraph Media Group Ltd £278m 
MGN Limited (Reach Inc) £217m 
Johnstone Press £201m 
Guardian News and Media Ltd £199m 
Express Newspapers Ltd £165m 
Independent Newspapers (UK) Ltd £29m 
The UK local newspaper market has become more concentrated since 2015, with five publishers (down from six in 2015) accounting for 80% of titles. The remaining 20% are spread across 57 smaller publishers.

In the television sector commercial broadcasters such as BT, Sky and Viacom International (owners of Channel 5) are unsurprisingly by revenue (although not audience share) much larger than the BBC and other terrestrial Public Service Broadcasters. The growth of Video on Demand providers in UK television consumption brings US companies like Netflix (revenue: £12.1bn; BBC revenue: £5.06bn) and multimarket giants Apple, Amazon and Alphabet into direct competition with UK providers. The report comments that
Sky, bought by the US giant Comcast in 2018, is by far the UK’s biggest broadcaster and continues to dominate the pay TV landscape (although they now face significant challenges from companies like BT, Apple, Amazon and Netflix) with very deep pockets. ITV still makes huge profits on the back of its format sales and faces fewer and fewer obligations to serve domestic audiences. Meanwhile, Channel 5 is already owned by another large US conglomerate, Viacom, while Channel 4’s public status remains unstable. 
In the radio sector the BBC retains the largest share of radio listening (51.7%) and accounts for 57% of radio revenue/investment. Commercial radio continues to be dominated by two companies - Bauer and Global - that account for 46% of analogue and 66% of digital commercial stations in the UK.

A small number of US-based companies dominate social media (Facebook/ Instagram, Twitter, SnapChat) play a growing role in UK news consumption, but largely perpetuate the dominance of large legacy news organisations such as the BBC and other broadcasters together with national newspaper sites. In podcasting the BBC is the most-used platform for UK audiences (36% of UK podcast listeners), followed by Alphabet (YouTube: 26%; GooglePlay: 7%) and Apple (iTunes: 26%).  The most popular UK news sites by reach  reflect the dominance of the traditional broadcast and print outlets. No digital-first news sites feature in the top ten.

The report notes that Apple (revenue: £203bn), Amazon (£178bn) and Alphabet/Google (£99bn) dwarf the UK’s largest media organisations.

In the UK the  Unlocking digital competition report by the Digital Competition Expert Panel (aka the Furman Report)  released last month states
The United Kingdom has an opportunity to seize the full potential of the digital sector, increasing the benefits for consumers and fostering an even more vibrant ecosystem for businesses. Competition should be at the heart of this strategy, leading companies to produce better outcomes for consumers, helping new companies enter and grow, and continuing to encourage existing companies to innovate. Some people argue that digital platforms are natural monopolies where only a small number of firms can succeed, making competition impossible. The logical conclusion of that view is utility-like regulation of the type used for electricity distributors. Others believe there is already adequate competition and no policy changes are needed to maintain it. We disagree with both views, seeing greater competition among digital platforms as not only necessary but also possible – provided the right policies are in place. 
The biggest missing set of policies are ones that would actively help foster competition. Instead of just relying on traditional competition tools, the UK should take a forward-looking approach that creates and enforces a clear set of rules to limit anti-competitive actions by the most significant digital platforms while also reducing structural barriers that currently hinder effective competition. These rules should be based on generally agreed principles and developed into more specific codes of conduct with the participation of a wide range of stakeholders. Active efforts should also make it easier for consumers to move their data across digital services, to build systems around open standards, and to make data available for competitors, offering benefits to consumers and also facilitating the entry of new businesses. Implemented effectively, this approach would be more flexible, predictable and timely than the current system. 
The existing competition tools also need to be updated to more effectively address the changing economy. Ensuring that competition is vibrant requires ensuring that there are competitors. Merger control has long had this role and in the context of the digital economy it needs to become more active with an approach that is more forward-looking and more focused on innovation and the overall economic impact of mergers. Even with clearer ex ante rules, ex post antitrust enforcement will remain an important backstop – but it needs to be conducted in a faster and more effective manner for the benefit of all of the parties. 
Many countries are considering policy changes in this area. The United Kingdom has the opportunity to lead by example, by helping to stimulate a global discussion that is based on the shared premise that competition is beneficial, competition is possible, but that we need to update our policies to protect and expand this competition for the sake of consumers and vibrant, dynamic economies. 
The work of the Expert Panel 
The Digital Competition Expert Panel was established in September 2018. Our terms of reference asked us to: • consider the potential opportunities and challenges the emerging digital economy may pose for competition and pro-competition policy, and to make recommendations on any changes that may be needed In particular, we were asked to examine: • the impacts of the emergence of a small number of big players in digital markets such as social media, e-commerce, search, and online advertising • appropriate approaches to mergers, takeovers and anticompetitive practices in digital markets • opportunities to enhance competition, to increase business innovation and expand consumer choice • how best to assess consumer impacts in ad-funded products and services that are ‘free’ to consumers 
Underpinning our approach is the written evidence we have taken, submitted by over 60 experts and stakeholders, and gathered through 11 round tables, and further consultations with businesses, economists, lawyers, and UK and international government departments and agencies. Within a complex and often contested field, we have sought to undertake an independent, expert-led assessment of the available evidence in order to provide government with a reasoned judgement on the best way forward. 
The approach has been to review the evidence with an open mind, sift and weigh which interpretations better fit the facts, and which policy proposals provide the most convincing route to addressing the issues found. This has involved judgement and the conclusions reached will inevitably and rightly provoke further debate. The Panel has been able to develop this assessment drawing on its members’ interdisciplinary mix of expertise, drawn from economics, law, computer science and competition policy. 
The general propositions that guide our recommendations 
Our policy recommendations are based on the following general propositions: 
1 The digital economy is creating substantial benefits. The digital economy has benefited consumers by creating entirely new categories of products and services. Many of these products and services are high-quality with low prices, in many cases a monetary price of zero. It has also benefited businesses by lowering the cost of starting a business and scaling up through cloud computing, access to platforms, and digital comparison tools. In some areas this has facilitated greater competition, enabling more entry of new businesses, growth of existing businesses, and facilitating multi-homing and digital comparison tools that allow users to make better-informed choices to switch between businesses or use multiple platforms simultaneously. 
2 In many cases, digital markets are subject to ‘tipping’ in which a winner will take most of the market. Digital markets vary greatly so no general rules apply to all of them. But in many cases tipping can occur once a certain scale is reached, driven by a combination of economies of scale and scope; network externalities whether on the side of the consumer or seller; integration of products, services and hardware; behavioural limitations on the part of consumers for whom defaults and prominence are very important; difficulty in raising capital; and the importance of brands. 
3 Concentration in digital markets can have benefits but also can give rise to substantial costs. A large part of the reason for the emergence of one or a small number of dominant firms is that it is more efficient and thus better for consumers or businesses. That may be because a firm grows because it offers better, more innovative products or provides integration that benefits consumers. It also may be because it is more efficient to have one firm with substantial scope of network benefits instead of many firms. But concentration can have substantial downsides as well. It can raise effective prices for consumers, reduce choice, or impact quality. Even when consumers do not have to pay anything for the service, it might have been that with more competition consumers would have given up less in terms of privacy or might even have been paid for their data. It can be harder for new companies to enter or scale up. Most concerning, it could impede innovation as larger companies have less to fear from new entrants and new entrants have a harder time bringing their products to market – creating a trade-off where the potential dynamic costs of concentration outweigh any static benefits. 
4 Competition for the market cannot be counted on, by itself, to solve the problems associated with market tipping and ‘winner-takes-most’. Many of the dominant technology companies of the past seemed unassailable but then faced unexpected competition due to technological changes that created new markets and new companies. For example, IBM’s dominance of hardware in the 1960s and early 1970s was rendered less important by the emergence of the PC and software. Microsoft’s dominance of operating systems and browsers gave way to a shift to the internet and an expansion of choice. But these changes were facilitated, in part, by government policy – in particular antitrust cases against these companies, without which the changes may never have happened. Today, network effects and returns to scale of data appear to be even more entrenched and the market seems to have stabilised quickly compared to the much larger degree of churn in the early days of the World Wide Web. Moreover, to the degree that the next technological revolution centres around artificial intelligence and machine learning, then the companies most able to take advantage of it may well be the existing large companies because of the importance of data for the successful use of these tools. New entry may still be possible in some markets, but to the degree that entrants are acquired by the largest companies – with little or no scrutiny – that channel is also not operative. 
5 Government policy and regulation also has limitations. Policy change and enforcement can be slow and unpredictable, which is even more costly than normal in rapidly evolving technology markets. Government and regulators are at an enormous informational disadvantage relative to technology  companies. Like consumers, they can also be subject to behavioural biases. Regulators may be captured by the companies they are regulating. Any approach to policy needs to be mindful of these downsides and make sure that it is designed to encourage competition, while increasing the speed and predictability of enforcement. 
The Panel believes that competition policy should be given the tools to tackle new challenges, not radically shifted away from its established basis. In particular, policy should remain based on careful weighing of economic evidence and models. Consumer welfare is the appropriate perspective to motivate competition policy and a completely new approach is not needed. This approach is flexible and can take into account broader considerations than price, narrowly defined, and also include choice, quality and innovation, among other areas. We have developed a set of policy, legal and regulatory proposals that would help achieve these goals. 
Our proposals 
Our central conclusion is that digital markets will only work well if they are supported with strong pro-competition policies that open up opportunities for innovation, and counter the forces that can lead to high concentration and a single winner. 
Solely relying on merger and antitrust enforcement can create delays and uncertainty that can be bad for large incumbents and small entrants alike. Neither is well designed for the intensive and ongoing work that needs to be done to facilitate competition and entry through making it easier for consumers to move and control their data, and for new digital businesses to interoperate with established platforms. An approach that uses these pro-competition tools can make it easier for new businesses to enter digital markets, give more predictability to all companies about the rules and standards that apply, spur innovation and provide consumers with higher quality and greater choice. This is why the Panel is recommending the establishment of a digital markets unit, given a remit to use tools and frameworks that will support greater competition and consumer choice in digital markets, and backed by new powers in legislation to ensure they are effective. This unit would have three functions. First, it would develop a code of competitive conduct, with the participation of stakeholders. This would be applied only to particularly powerful companies, those deemed to have ‘strategic market status’, in order to avoid creating new burdens or barriers for smaller firms. 
Second, the digital markets unit would be charged with enabling greater personal data mobility and systems with open standards where these tools will increase competition and consumer choice. Some companies are already making substantial efforts in this regard, like the Data Transfer Project that includes Microsoft, Google, Facebook and Twitter. In some cases the obstacles to interoperability are technical, in some cases due to lack of co-ordination; but in other cases the obstacles are due to misaligned incentives as such interoperability might have broader benefits but to the cost of the dominant companies. Email standards emerged due to co-operation but phone number portability only came about when it was required by regulators. Private efforts by digital platforms will be similarly hampered by misaligned incentives. Open Banking provides an instructive example of how policy intervention can overcome technical and co-ordination challenges and misaligned incentives by creating an  adequately funded body with the teeth to drive development and implementation by the nine largest financial institutions. 
Third, the digital markets unit would be able to advance data openness where access to non-personal or anonymised data will tackle the key barrier to entry in a digital market, while protecting privacy. 
Our recommendations also update merger policy to protect consumers and innovation, preserving competition for the market. Central to updating merger policy is ensuring that it can be more forward-looking and take better account of technological developments. This will require updated guidance about how to conduct these assessments based on the latest economic understanding, and updated legislation clarifying the standards for blocking or conditioning a merger. We believe that the correct application of economic analysis would result in more merger enforcement. This would be welcome given that historically there has been little scrutiny and no blocking of an acquisition by the major digital platforms. This suggests that previous practice has not had any ‘false positives’, blocking mergers that should have been allowed, while it may well have had ‘false negatives’, approving mergers that should not have been allowed. 
Merger control can only address the use of acquisitions to expand the scale and scope of the incumbent digital companies but cannot address their existing scale and scope. Doing this requires antitrust policy. There is nothing inherently wrong about being a large company or a monopoly and, in fact, in many cases this may reflect efficiencies and benefits for consumers or businesses. But dominant companies have a particular responsibility not to abuse their position by unfairly protecting, extending or exploiting it. Existing antitrust enforcement, however, can often be slow, cumbersome, and unpredictable. This can be especially problematic in the fast-moving digital sector. That is why we are recommending changes that would enable more use of interim measures to prevent damage to competition while a case is ongoing, and adjusting appeal standards to balance protecting parties’ interests with the need for the competition authority to have usable tools and an appropriate margin of judgement. The goal is to place less reliance on large fines and drawn-out procedures, instead enabling faster action that more directly targets and remedies the problematic behavior. 
As a Panel we have not been asked to consider wider social questions around digital markets and our recommendations do not specifically address privacy, harmful online content and other issues. However, it is clear that well-functioning competitive digital markets have the potential to develop new solutions and increased choice for consumers, where privacy and quality of service can be differentiating factors. The digital markets unit could also work with others to secure wider policy goals, using its technical expertise, engagement with markets and competition-first approach to solve problems. 
Clearer principles, rules and standards can support and enhance competitiveness and success in the global economic arena. For example, the UK is a leader in global banking in part thanks to its regulatory environment. The UK is a great place to start a FinTech company in part because of Open Banking, and the approach of the Financial Conduct Authority and the Payment Systems Regulator. Applying similar regulatory principles can improve the economic environment in the UK for digital start-ups and scale-ups while creating more predictability for large incumbent firms. 
Many digital policies would ideally be globally co-ordinated and enforced. In practice this is often not feasible. If policy cannot be fully co-ordinated, then countries can at least learn from each other to work out how best to preserve and expand the enormous benefits economies around the world have gained from the digital sector and take advantage of the great additional potential that it still has. Global dialogue and sharing of ideas and co-ordinating on merger enforcement and other policy actions would help. Global leadership can also play an important role by developing and demonstrating improved models to approach policy. The UK’s long tradition of rule of law, a business-friendly environment, and expert independent enforcers and regulators give it the potential to play this global leadership role by adopting the recommended strategic approaches and specific actions put forward by the Panel. 
The Panel believes that greater competition in digital markets would create benefits for consumers, that competition is currently insufficient with winner-takes-most dynamics in many markets, and that competition is possible with the right set of policies. The introduction presented the Panel’s high-level thinking on the context for its recommendations and the full set of evidence and conclusions is set out in the report, especially Chapter 1 on the benefits and challenges in digital markets. 
Building consumer choice and competition into digital markets 
A pro-competition approach 
The central conclusion of the review is that competition in digital markets should be sustained and promoted through a new approach, alongside the core conventional competition tools of merger control and antitrust enforcement. Chapter 2 sets out how. 
The challenges to effective competition in digital markets do not come about solely because of platforms’ anti-competitive behaviour and acquisition strategies. Their network-based and data-driven platform business models also tend to tip markets towards a single winner. To make competition effective requires policy that changes that dynamic and creates space for businesses to start, compete and grow alongside and around the big platforms. 
This can be achieved through a pro-competition approach that sets rules and standards to change how a digital market works and creates new opportunities for competition, innovation and consumer choice. To deliver this, the report calls for a new digital markets unit with capabilities and resourcing to deliver greater competition, backed by new powers to set and enforce competition-enhancing rules. Functions to boost competition and choice The report describes three functions for the digital markets unit that will deliver more effective competition. 
Strategic recommendation A: To sustain and promote effective competition in digital markets, government should establish and resource a pro-competition digital markets unit, tasked with securing competition, innovation, and beneficial outcomes for consumers and businesses.  First, agreeing and setting out upfront a code of conduct to complement antitrust enforcement with a clearer and more easily applied set of standards that define the boundaries of anti-competitive conduct in digital markets. Establishing such rules can give all businesses, including the large platforms, clarity on the rules, rather than relying on antitrust judgements that can be hard to apply beyond the specifics of an individual case. Where disputes do arise, a code of conduct can resolve them and enforce solutions more rapidly 
Recommended action 1: The digital markets unit should work with industry and stakeholders to establish a digital platform code of conduct, based on a set of core principles. The code would apply to conduct by digital platforms that have been designated as having a strategic market status. 
Second, the report describes a powerful set of tools that the digital markets unit should use to give consumers greater effective choice over their digital services, allowing new opportunities for competition where there are currently closed systems. 
Personal data mobility means agreeing common standards to give consumers greater control of their personal data so they can choose for it to be moved or shared between the digital platform currently holding it and alternative new services. By making this easy, consumers could, for example, move across to a new social network without losing what they have built up on a platform, manage through a single service what personal data they hold and share, or try out an innovative digital service that uses their information in a new way. Open Banking has shown the potential for data mobility to provide new opportunities to compete and innovate in this way. 
Similar competitive opportunities could be created through developing more systems based on open standards. Open standards lie behind the internet itself, email, and other services where innovation and competition have flourished on the basis of a common interoperating core. Data mobility and open standards are tools with great potential to secure greater competition. Where these solutions are not voluntarily agreed, deciding whether and how to require data mobility or open standards in a digital market will take engagement, expert skills, and careful analysis by the unit to decide when they will be proportionate and effective. 
Recommended action 2: The digital markets unit should pursue personal data mobility and systems with open standards where these will deliver greater competition and innovation. 
Third, the central importance of data as a driver of concentration and barrier to competition in digital markets is a key theme of the evidence gathered by the review. There may be situations where opening up some of the data held by digital businesses and providing access on reasonable terms is the essential and justified step needed to unlock competition. Any remedy of this kind would need to protect personal privacy and consider carefully whether the benefits justified the impact on the business holding the data. But the ability to pursue data openness is an essential tool for the unit. 
Recommended action 3: The digital markets unit should use data openness as a tool to promote competition, where it determines this is necessary and proportionate to achieve its aims. 
How to make the digital markets unit work 
Chapter 2 also outlines the capabilities, powers and approach that would enable the digital markets unit to carry out its role effectively. The role of the unit would have important links to functions and expert skills within the Competition and Markets Authority (CMA) and The Office of Communications (Ofcom). The unit could be an independent body linking to both, or it could be a function of either. Its role also links to other potential functions currently under consideration to tackle separate but related issues such as harmful online content, the relationship between digital platforms and the news media, and open data in regulated utilities. Finally, the unit would need a strong relationship with the Information Commissioner’s Office, as the UK’s data privacy regulator. Government is best placed to reach a decision in the round on the best set of institutions to tackle these issues while avoiding a cluttered regulatory landscape for businesses. 
Whatever the institutional format, co-operation and consultation with business and other stakeholders will be essential. The unit will be most effective if its functions are designed and delivered through participation, balancing the interests of major platforms and newer and smaller tech companies to ultimately benefit the consumer, and translating this into codes and standards that can be understood and used. At the same time, it is clear that a voluntary approach would be insufficient – businesses’ natural incentives do not line up with delivering these functions. So it will need new regulatory powers, beyond those currently in statute, to set solutions. 
Recommended action 4: The digital markets unit should co-operate with a wide range of stakeholders in fulfilling its role, but with new powers available to impose solutions and to monitor, investigate and penalise non-compliance. 
The review has also considered how to focus interventions by the digital markets unit and define where they can be imposed. The scope should be kept narrow, to minimise the burden of compliance on smaller businesses and in markets where competition will work effectively without intervention. It will also need to flex with time, as new digital markets arise and existing ones tip to a winner or diversify with new entrants. A good approach that combines these would be to define and periodically assess which companies hold a position of enduring market power, and limit mandatory solutions to these. 
Recommended action 5: To account for future technological change and market dynamics, the digital markets unit should be able to impose measures where a company holds a strategic market status – with enduring market power over a strategic bottleneck market. Finally, it is clear that the digital markets unit will have a key role in the new economy. The opportunity is huge, but to succeed in boosting competition, market-driven innovation and consumer choice in complex and evolving markets will need significant resourcing, leadership, and technical, economic and behavioural expertise. 10 
Recommended action 6: Government should ensure the unit has the specialist skills, capabilities and funding needed to deliver its functions successfully. 
Optimising the competition system for a digital world 
While an ex ante approach to building competition into digital markets can do much, refreshing and strengthening core competition policy for digital markets is also essential. Chapter 3 makes a set of recommendations on how to make more effective use of existing powers, and what new ones are needed to address gaps. 
The CMA is in a strong position to lead international action. It is able to consider any anti-competitive merger or conduct where the companies involved provide services in the UK, even if headquartered elsewhere. It is an authority respected internationally, with growing data capability. 
The review is recommending a number of changes. Some can be done within the existing legal framework; but the Panel’s full recommendations, and the full associated benefits, require additional targeted legislation. In all cases these changes should be applied universally rather than carving out digital markets as a distinctive system. The changes proposed are particularly relevant for issues seen in digital markets, but they are likely to be beneficial where similar challenges occur elsewhere. 
Decisions on digital mergers 
The CMA is responsible for identifying and blocking anti-competitive mergers. The largest digital companies have made extensive use of mergers, as their market shares have grown. Acquisitions have included buying businesses that could have become competitors to the acquiring company (for example Facebook’s acquisition of Instagram), businesses that have given a platform a strong position in a related market (for example Google’s acquisition of DoubleClick, the advertising technology business), and data-driven businesses in related markets which may cement the acquirer’s strong position in both markets (Google/YouTube, Facebook/WhatsApp).  Over the last 10 years the 5 largest firms have made over 400 acquisitions globally. None has been blocked and very few have had conditions attached to approval, in the UK or elsewhere, or even been scrutinised by competition authorities. 
Decisions on whether to approve mergers, by the CMA and other authorities, have often focused on short-term impacts. In dynamic digital markets, long-run effects are key to whether a merger will harm competition and consumers. Could the company that is being bought grow into a competitor to the platform? Is the source of its value an innovation that, under alternative ownership, could make the market less concentrated? Is it being bought for access to consumer data that will make the platform harder to challenge? In principle, all of these questions can inform merger decisions within the current, mainstream framework for competition, centred on consumer welfare. There is no need to shift away from this, or implement a blanket presumption against digital mergers, many of which may benefit consumers. Instead, these issues need to be considered more consistently and effectively in practice. 
In part the CMA can achieve this through giving a higher priority to merger decisions in digital markets. These cases can be complex, but they affect markets that are critically important to consumers, providing services that shape the digital economy. 
Recommended action 7: The CMA should further prioritise scrutiny of mergers in digital markets and closely consider harm to innovation and impacts on potential competition in its case selection and in its assessment of such cases. 
The largest digital companies conduct a high volume of acquisitions. It is voluntary whether they notify the CMA of the merger. Requiring digital companies that hold a strategic market status to make the CMA aware of their intended acquisitions will allow the CMA to determine in a timely manner which cases warrant more detailed scrutiny. 
Recommended action 8: Digital companies that have been designated with a strategic market status should be required to make the CMA aware of all intended acquisitions. 
To assess mergers in digital markets and reach decisions in the best interests of consumers, competition authorities can draw upon the significant progress made in recent years in analysing factors particularly relevant to determining whether mergers in digital markets will benefit or damage competition and consumers. The report identifies a set of changes that should be made to the Merger Assessment Guidelines that determines how mergers are considered. 
Recommended action 9: The CMA’s Merger Assessment Guidelines should be updated to reflect the features and dynamics of modern digital markets, to improve effectiveness and address underenforcement in the sector. 
These changes to how the CMA administers the merger regime as it stands are important. But no other competition authority internationally has had significantly 
Strategic recommendation B: Merger assessment in digital markets needs a reset. The CMA should take more frequent and firmer action to challenge mergers that could be detrimental to consumer welfare through reducing future levels of innovation and competition, supported by changes to legislation where necessary. 
greater success in identifying and preventing future harm to competition or consumers in digital markets. 
The review recommends a further, legislative change to the merger regime to provide a better and firmer legal basis for decision-making. At present, merger assessment only considers how likely a merger is to reduce competition. If a substantial lessening of competition is more likely than not to result, a merger may be blocked. Although in many situations this is a reasonable approach, it does not adequately allow the scale of any harm (or benefits) to be accounted for alongside their likelihood as they would be in economically sound cost-benefit analysis. 
For digital mergers, this can be a crucial gap. For example, take a large platform seeking to acquire a smaller tech company based on an attractive innovation that gives it a real chance of competing for consumers. For the sake of the example, assume that if the companies merge, there would only be a modest efficiency benefit. But if the smaller company would otherwise have become a serious and innovative competitor, the resulting competition would have generated far greater consumer benefits. The Panel is concerned that, under the system as it stands, the CMA could only block the merger if it considered the smaller company more likely than not to be able to succeed as a competitor. This is unduly cautious. 
The report recommends that assessment should be able to test whether a merger is expected to be on balance beneficial or harmful, taking into account the scale of impacts as well as their likelihood. This change would move these merger decisions to a more economically rational basis, and allow big impacts with a credible and plausible prospect of occurring – critical in digital markets – to be taken properly into account. 
Recommended action 10: A change should be made to legislation to allow the CMA to use a ’balance of harms’ approach which takes into account the scale as well as the likelihood of harm in merger cases involving potential competition and harm to innovation. 
Tackling anti-competitive conduct in digital markets 
The second arm of competition policy is antitrust enforcement. The CMA and other competition authorities are tasked with protecting consumers and businesses from collusion and anti-competitive conduct. In particular, where a business dominates a market, a stronger set of legal standards apply to prevent that dominance being abused. 
Where digital markets are liable to tip to a single dominant company, this provides an important set of tools to protect competition. The tools and frameworks within existing antitrust law are appropriate – and where they have limitations, a pro- competition approach will provide better solutions. The key weaknesses of antitrust in digital markets are instead that it has been used very infrequently and cases have moved too slowly. 
Strategic recommendation C: The CMA’s enforcement tools against anti- competitive conduct should be updated and effectively used, to help them play their important role in protecting and promoting competition in the digital economy. 
Looking back at past decisions provides a way for competition authorities to learn from experience. The CMA does so effectively with merger decisions. For abuse of dominance, however, there are few cases in digital markets to consider. Examining the evolution of markets where cases that were considered but not brought may, however, provide retrospective lessons to inform when and how abuse of dominance could be more effectively applied in future 
Recommended action 11: The CMA should perform a retrospective evaluation of selected cases not brought and decisions not taken, where infringements were suspected or complaints received, to assess how markets have subsequently evolved and what impact this has had on consumer welfare. 
Where antitrust cases may take years to resolve, the CMA can impose interim measures to restrain a suspected anti-competitive practice, if those affected by it would otherwise be significantly harmed. This is particularly important in digital markets, where cases are likely to be complex but markets can move fast and tip to a winner before a final decision is reached. The CMA has been given expanded powers in this area, but has not yet used them. Current CMA procedures and administrative rules make interim measures difficult to use. This should be addressed. 
Recommended action 12: To facilitate greater and quicker use of interim measures to protect rivals against significant harm, the CMA’s processes should be streamlined. 
The ability for an affected company to appeal a decision or an interim measure is a vital safeguard of their rights, and a check on the quality of CMA decision-making. Appeals processes need to strike a balance between protecting those affected by any unjustified decision and ensuring that CMA powers can be exercised effectively to protect those who would be left exposed by underenforcement or undue delay. This is particularly important for digital markets. Cases may necessarily involve a degree of expert judgement as to the future effects of a practice, be particularly complex, and be addressing issues in markets where underenforcement or undue delay could cause irreversible harm to competition. 
The competition framework would be improved for digital markets by focusing appeals on testing the reasonableness of CMA judgement, that procedure has been appropriately followed, and that decisions are not based on material errors of fact or law – a standard more closely relating to that of judicial review. As a counterpart to this change, the CMA’s structures for antitrust cases should enhance the role of the independent members of its decision-making panels, to safeguard decisions against the potential for executive overreach. 
Recommended action 13: The review applied by the Competition Appeal Tribunal to antitrust cases, including interim measures, should be changed to more limited standards and grounds. 
Recommended action 14: The government should introduce more independent CMA decision-making structures for antitrust enforcement cases, if appeal standards are changed. 
Capabilities and focus to support digital competition In order to carry out these vital functions, the CMA needs access to appropriate digital information. Where there are any gaps in current powers, they should be filled. 
Recommended action 15: The government should ensure those authorities responsible for enforcing competition and consumer law have sufficient and proportionate information gathering powers to enable them to carry out their functions in the digital economy. 
Similarly, the CMA has been active and effective in using its consumer law powers to protect consumers in digital markets. This can support competition aims and should be continued, with consideration given if there are gaps in current powers. 
Recommended action 16: The CMA should continue to prioritise consumer enforcement work in digital markets, and alert government to any areas where the law is insufficiently robust. There are more specific ways that digital technologies could negatively affect competition and consumers. There has been significant analysis and debate around whether there is increased potential for collusion where prices are set using algorithms. Digital markets could also support greater use of personalisation, in particular personalised pricing, where companies use their data-driven insights into consumers to set prices according to the individual’s willingness to pay. Such personalisation can be beneficial, allowing companies to serve more customers and price fairly and efficiently, but in some cases it can be abused. At present, it is hard to predict whether greater use of algorithms will lead to algorithmic collusion or personalised pricing in future, and there is no evidence that harmful personalised pricing is widespread. But these are areas with potential to move fast, where it will be important to stay alert to potential harms. 
Finally, the third chapter of the report discusses the operation of the digital advertising market. This is a key component of the digital market ecosystem, providing the revenue-generating side of many platforms. Digital advertising is increasingly driven by the use of consumers’ personal data for targeting. This in turn drives the competitive advantage for platforms able to learn more about more users’ identity, location and preferences. The market operates through a complex chain of advertising technology layers, where subsidiaries of the major platforms compete on opaque terms with third party businesses. This report joins the Cairncross Review and Digital, Culture, Media and Sport Committee in calling for the CMA to use its investigatory capabilities and powers to examine whether actors in these markets are operating appropriately to deliver effective competition and consumer benefit. 
Strategic recommendation D: The government, CMA and the Centre for Data Ethics and Innovation should continue to monitor how use of machine learning algorithms and artificial intelligence evolves to ensure it does not lead to anti-competitive activity or consumer detriment, in particular to vulnerable consumers. 
Strategic recommendation E: The CMA should conduct a market study into the digital advertising market encompassing the entire value chain, using its investigatory powers to examine whether competition is working effectively and whether consumer harms are arising. 
An agenda for international leadership 
The review’s main focus has been on increasing competition in the UK’s digital markets. Acting here will be beneficial for UK consumers, the tech sector and the economy as a whole. It can also give the UK a basis to lead international action. Competition policy is already an international strength for the UK, with capable, respected enforcement and a legislative framework that allows a wide range of potentially anti-competitive mergers to be examined. By implementing the approach set out in this review, the UK can also lead on solutions to issues that competition policy is grappling with across advanced economies. Given the international nature of many digital markets, leading international co-ordination in these areas will also be beneficial for businesses, allowing solutions to be established and adopted that work across national boundaries. Chapter 4 describes the set of actions that the UK can take a lead on advocating and developing internationally. 
Recommended action 17: Government should promote the UK’s existing competition policy tools, including its market studies and investigation powers, as flexible tools that other countries may benefit from adopting. 
Recommended action 18: The UK should use its voice internationally to prevent patent rights being extended into parts of the digital economy where they are not currently available. 
Recommended action 19: Government should support closer co-operation between national competition authorities in the monitoring of potential anti-competitive practices arising from new technologies and in developing remedies to cross-border digital mergers. 
Recommended action 20: To ensure platforms and businesses have a simple landscape in which to operate, government should encourage countries to consider using pro-competition tools in digital markets. As part of this work, government should work with industry to explore options for setting and managing common data standards.