Speaking at last week’s CRA Competition Conference in Brussels, Alex Chisholm, Chief Executive of the UK Competition and Markets Authority (“CMA”), suggested that competition authorities confronted with antitrust allegations against tech giants should “separate the signal from the noise and the sound from the fury”.  His remarks were made against the backdrop of the ongoing European Commission investigation into Google, and the European Parliament resolution to break up the US company.  So what is the role of competition authorities when confronted with these antitrust allegations?

Four types of problems, four different reactions

Chisholm posits that there are four types of problems, each of which warrants a different reaction from competition authorities.

  • Special pleading – Often competition authorities are confronted with complaints from competitors, and the challenge is to remain objective in their assessment: “In these cases, the role of competition authorities is first and foremost to separate the signal from the noise. To ask: is this complaint a genuine concern that impacts the public good? Or is it the desperate plea of a special private interest? If the latter, then the competition regulator needs to be robust enough to let Schumpeterian competition run its course.”  In other words, regulators should not allocate resources to cases only because new comers and new technologies make established business models obsolete.
  • Big societal questions – Disruptive innovation can throw up questions “which can be couched in competition terms but actually are much, much bigger”, like questions about the commercial use of personal data.  These questions can only be addressed once social and political processes have played their role, i.e.,we have developed a new social contract around privacy.”
  • Regulatory barriers to disruption – There are still many new business models to come in the new digital world.  Competition authorities need to make sure that those business models are not impeded by regulatory barriers from a different age, because they may no longer be necessary to enhance consumer welfare.  For instance, smart meters allow customers to adopt their behavior in response to changes in the energy market in real time, instead of having to wait for the electricity company technician to visit once in a year.  This may arguably affect the way energy markets should be regulated.

Competition authorities should try to stimulate creation of new businesses, as the OFT did in recommending open sourcing some public information, a suggestion that Transport of London followed.

  • Bread and butter competition issues – Do tech giants tend towards dominance, and if so, what is to be done?  Today there is intense competition between platforms, at least on certain parameters.  The platforms argue that this competition creates value and drives further innovation.  On the other hand, these new business models do seem to have a tendency towards natural monopoly or natural oligopoly, on both sides of the platform.  Tech giants might stir up competition on one side of the market, but fail to pass on the benefits to consumers. “What if – hypothetically – one of the digital giants were to come to exercise market power for its own account?  We can imagine a scenario where consumers come to them and there is the appearance of a competitive marketplace, with a multitude of offers for goods and their close substitutes.  But in reality, the platform is extracting all the rent from that competition through an unchallenged control over listing fees and sales commissions.”  Price parity clauses, restrictive agencies, bundling, foreclosure and predation should be considered on a case-by-case basis with a view to maintaining vigorous inter-platform competition. “…it must be remembered that an economy in the throes of creative destruction needs to be kept on a knife-edge (…) Markets need to contain enough promise of profit to spur innovation, while being competitive enough to keep strong incentives to continue to innovate and serve customers.”

Chisholm concluded that markets should reward innovation and investment, and that competition authorities must be vigilant and agile, “with the ability to sort real market distress signals from all the noise of creative destruction; and to tell the sound of actual market failure, from the fury of the out-competed.”

Please click here to read to full text of the speech.