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Existing laws unsuitable for regulating tech giants, says market watchdog

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The Competition and Markets Authority (CMA) has called on the government to introduce a regulatory regime to tackle the dominance of tech giants like Google and Facebook.

The CMA said that existing regulations are not sufficient for ensuring that competition can thrive between internet platforms funded by digital advertising.

According to the CMA, UK expenditure on digital advertising was around £14bn in 2019, of which 80 per cent went towards Google and Facebook. Google has more than a 90 per cent share of the search advertising market in the UK, while Facebook has a more than 50 per cent share of the display advertising market. Ad spending is becoming increasingly concentrated on this duopoly.

CMA is concerned that the duopoly “have developed such unassailable market positions that rivals can no longer compete on equal terms”.

Their huge user bases reinforce their power and act as a barrier to competition. For instance, Facebook is a “must-have” network for people wanting to stay in contact with users and both companies have access to vast quantities of user data to train search engine and ad targeting algorithms, while competitors do not.

The CMA also noted that the two companies have cemented their presence in many markets through acquisitions and use default settings to nudge people into using their services and giving up their data.

The extreme dominance of Google and Facebook has an impact on consumers and businesses, the CMA concluded. For example, news publishers’ dependent relationship with these platforms squeezes their share of digital advertising revenue.

“Through our examination of this market, we have discovered how major online platforms like Google and Facebook operate and how they use digital advertising to fuel their business models,” said CMA CEO Andrea Coscelli. “What we have found is concerning. If the market power of these firms goes unchecked, people and businesses will lose out. People will carry on handing over more of their personal data than necessary, a lack of competition could mean higher prices for goods and services bought online and we could all miss out on the benefits of the next innovative digital platform.

“Our clear recommendation to government is that a new pro-competitive regulatory regime be established to address the concerns we have identified and regulate a sector which is central to all our lives.”

The CMA said that a new regulatory regime is necessary to ensure competition in this sector, including the establishment of a “Digital Markets Unit”.

This unit would have the power to enforce a code of conduct to prevent anticompetitive behaviour with the power to impose fines; to order Google and Facebook to cooperate with rivals such as by ordering Facebook to increase interoperability with other social media platforms; restrict their ability to limit user choice such as by allowing users to turn off targeted advertising, and to separate platforms when necessary to ensure competition.

“Whilst this recommendation is UK-focused, many of the problems that the CMA has identified are international in nature,” it said in a statement. “It will therefore continue to take a leading role globally in relation to these issues as part of the CMA’s wider digital strategy.”

There has been growing interest internationally in new regulations to restrict anticompetitive behaviour by online platforms, including calls among progressive Democrats in the US to break up the largest tech companies such that they cannot compete on a platform that they own.

Last week, Germany’s top court ruled that Facebook must comply with orders from the national antitrust regulator to stop pooling data across its platforms in a ruling which could set a precedent for use of antitrust law with regards to data privacy.

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