Competition in Digital Markets: UK’s DMCC may reflect the best or the worst of the two worlds

The DMCC seeks to cater the growing perception around having a separate digital competition law which might not even exist.

By Sumit Jain and Nikita Koradia 

The UK government recently enacted the Digital Markets, Competition and Consumers (DMCC) Act to regulate competition in digital markets. The purpose of the law is to update the existing commercial laws, enact a separate legislative framework to tackle the regulatory concerns in platform markets and strengthen the consumer law framework around it. The law been passed after a year it was introduced in the Parliament and seeks to identify certain ‘conduct requirements’ through designation of Big Tech players as ‘Strategic Market Status (SMS)’ in the digital space.

Global Digital Competition Laws 

The DMCC Act has been enacted in the background of the European Union (EU) and Germany enacting their respective versions of digital competition law to usher competition in the markets. India and Brazil have also introduced similar laws. Some of the common features in these legislations are that they ban certain business practices such as bundling, tying, self-preferencing and cross-utilisation of data on an ex-ante basis and the Big Tech companies are expected to file a compliance report on a timely basis. While the relevant amendment to the German Competition Act (GCA) came into force in 2021, the Digital Markets Act (DMA) in the EU was enacted in 2022 enforced over a period of next year. The Indian and Brazilian versions of the law are still under consultation.

Overview of Conduct Requirements 

The core of DMCC lies in identifying certain ‘conduct requirements’ for the designated SMS’ in digital markets and strengthening the consumer law framework around it. These conduct requirements are defined on a ‘positive’ and ‘negative’ basis where the former and latter are encouraged and discouraged respectively. The conduct requirements are similar to those mentioned in the DMA such as prohibition on bundling, tying, self preferencing, cross utilization of data and supporting interoperability among others. Another addition in the DMCC is making pro-competitive interventions (‘PCI’) on the legal basis of ‘Appreciable Adverse Effect on Competition (AAEC)’.

The unique jurisprudential value of DMCC lies in the enforcement timing of conduct requirements. While the DMA, GCA and the Indian version of the law ban such conduct requirements on a default basis (‘ex-ante’), the DMCC has granted the Competition and Markets Authority (CMA) the discretion to look into such conduct and pronounce on a case-to-case basis. This shift has been made to apparently address the gaps which are emerging in an ex-ante framework, primarily around stifling of innovation.

The DMCC, thus, gives an opportunity to analyze the ex-ante regulatory framework with some hindsight. While there is very limited data available to conduct any economic assessment, it is important to recalibrate as to why such laws were enacted in the very first place. It is now known that digital markets are marred with network effects and increased economies of scale. Network effect, in simple terms, means that the value of a commodity rises exponentially with the size of it. On an instance basis, the value of a Google search engine is high when there are millions of users on it. Similarly, WhatsApp messenger is only useful when it is installed on both the ends, i.e. the sender and the receiver. Based on inquiries conducted by authorities across the globe, it has been, time and again, concluded that Big Tech companies misuse their dominance in data-driven systems to the detriment of fair play and competition in the market. Some of the key events include the US Congressional hearing, Google AdSense decision, French 'AdTech' decision, Indian Android order and so on and so forth.

Challenges to Enforce Discretion

What DMCC seeks to do is yet unclear. The objective of enacting digital competition law is to ensure timely course correction of markets. The same is currently being done by identifying the competitive strategy of the technology companies and ensuring that the same is not deployed to the detriment of fair play in the market. What the DMCC, however, does in effect is to opt for a delayed enforcement. To put it in other words, while the law does identify the strategic advantage of the Big Tech companies through ‘conduct requirements', it falls short of prohibiting the same. It is suggested that such a legislative framework is hardly an upgrade to the existing legal framework which already provides for prohibiting discrimination and leveraging on a case-to-case basis. The discrepancy is glare in the fact that the government has expended considerable amount of resources in streamlining the regulatory framework and enacting a new legislation.

The purpose of having an ex-ante legal framework is to act in a timely manner. DMCC seems to miss that point. The UK government could have very well opted for a policy of ‘wait-and-watch’ and acted only when it was confident about its economic theory of harm. This is the approach adopted by multiple advanced jurisdictions across the globe. The UK has taken legislative action to an uncharted terrain. The DMCC seeks to cater the growing perception around having a separate digital competition law which might not even exist. In such a case, it is either set to be the legend in the field of rulemaking, or reflect the delusion in the UK government public policy. There seems to be no common ground. Only time would be able to answer.

The authors, Sumit Jain, Founding Director at the Centre for Competition Law and Economics (CCLE) and Nikita Koradia, Assistant Professor at Nirma University. 

Views are personal, and do not represent the stand of this publication.