Policy paper

New pro-competition regime for digital markets

Updated 21 December 2023

Introduction

1. The Digital Markets, Competition and Consumers Bill will establish a new pro-competition regime for digital markets which will address the far-reaching market power of a small number of tech firms. The Competition and Markets Authority (CMA) will be given the tools to proactively drive more dynamic markets and prevent harmful practices that hold back innovation and growth.

How will the regime work?

Digital Markets Unit 

2. The powers and accountability for the new regime will be conferred on the CMA. The Digital Markets Unit (DMU) is an administrative unit within the CMA that will make the day-to-day decisions on the regime. The most strategically significant decisions will be reserved to the CMA Board or a Committee of the Board. The CMA Board retains ultimate responsibility for all decisions in the regime and is directly accountable to Parliament.

Scope

3. The measures in the regime will be targeted at a small number of firms which exert significant control over digital markets. Those firms will be designated as having ‘Strategic Market Status’ (SMS) in respect of specific digital activities. The DMU will consider whether the firm has substantial and entrenched market power and holds a position of strategic significance in respect of one or more digital activities that are linked to the UK. A firm must meet certain turnover thresholds to be considered for designation.

Tools

4. The DMU will have 2 tools:

Conduct requirements to manage the effects of market power and ensure markets are open to competition and innovation

The DMU will be able to set tailored rules for each firm on how they must treat consumers and other businesses in relation to their designated digital activities. These rules will prevent SMS firms from:

• treating users unfairly and interacting with them on unreasonable terms (‘fair dealing’)
• limiting choices available to users (’open choices’)
• restricting information needed to make informed choices (‘trust and transparency’)

Pro-competition interventions to tackle the sources of SMS firms’ market power

The DMU will be given powers to design targeted interventions to address the root causes of competition issues in digital markets. For example, they might require designated firms to allow greater interoperability or data access.

5. SMS firms will also be required to file a report with the CMA before completing certain mergers that could create risks for UK competition and consumers. The CMA may then decide to open an investigation using its merger powers to protect UK competition and consumers.

Enforcement

6. The DMU will seek to resolve concerns through informal and cooperative engagement with firms. However, the DMU will have robust powers to address non-compliance when firms do not follow the rules set for them, including fining firms up to 10% of global turnover and making senior managers responsible for ensuring that the firm complies with information requests. The DMU will also be given backstop powers to enforce conduct requirements through a final offer mechanism, where this is needed to resolve breaches relating to complex payment terms.

Appeals

7. Parties will be able to appeal decisions of the DMU to the Competition Appeal Tribunal (CAT). For regulatory decisions, CAT will apply judicial review principles, meaning it will consider the legality of the decision that was made. Valid grounds for appeal could include challenging whether the DMU acted lawfully and within its powers, applied proper reasoning and followed due process, as well as (in many circumstances) whether the DMU’s decision was proportionate.Decisions on the imposition of financial penalties can be appealed on the merits.

How the pro-competition regime could work in practice

A flowchart displaying how the pro-competition regime could work in practice.

Potential work of the new regime

8. Specific decisions on which firms will be designated and which interventions will be implemented will be based on DMU analysis when the powers are in place. However, the CMA has carried out a number of relevant investigations and market studies in recent years, which have made suggestions for where the DMU’s new tools could be used, including:

• ordering SMS firms to open up data to rival search engines to increase competition in this market
• making interventions to ensure third parties are offered fair and reasonable payment terms for content hosted by SMS firms
• making interventions to require SMS firms to give consumers more choice and control over the use of their data - this could include requiring platforms to give consumers the choice not to share their data for personalised advertising, but instead to receive adverts that are not personalised
• making interventions to make it easier for consumers to switch operating systems by improving the process for users to transfer data and apps across devices
• mandating interoperability between social media platforms to lower barriers to entry and expansion and promote greater competition
• requiring SMS firms to allow users to access alternative app stores, subject to those app stores meeting reasonable conditions to ensure sufficient security for users
• promoting greater competition between app developers by addressing SMS firms’ ability to influence users’ choice of apps through pre-installation, defaults and the design of app stores
• requiring SMS firms to allow alternative browser engines on their operating systems.
• Increasing the transparency of SMS firms’ app store review processes to stop them from unreasonably favouring their own businesses, or in some cases distorting competition between third parties
• preventing firms from using data from services where they have market power in other markets where the use of this data harms competition

Benefits of the new regime

9. The regime will support businesses and consumers in the UK by:

Ensuring businesses are treated fairly by the most powerful tech firms

Businesses in the UK – large and small – are often locked into burdensome, unfair relationships with powerful tech firms. They are forced to sign up to onerous contract terms, use specific payment services and pay inflated prices. Our new regime will force the most powerful tech firms to treat businesses in the UK fairly.

Unlocking growth and innovation in the UK’s tech sector

Our new regime has the potential to transform the UK’s digital economy. Through targeted, pro-competition measures, the Bill will open up opportunities for innovative start-ups in the UK to compete with powerful tech firms.

Increasing choice and driving down prices for UK consumers

The modern economy is now dependent on the services of the most powerful tech firms. Their unprecedented market power is driving up prices across the economy – the CMA estimates (based on illustrative analysis) that Google and Apple made excess UK profits of over £4 billion in 2021 alone.

Our new regime will tackle the most powerful tech firms’ grip on the economy by introducing targeted action to open up markets to greater competition. This will lower the prices of everyday online goods and services, giving consumers more choice and control over the fundamental services they use online such as social media and search.