Protecting consumers in digital markets
This article was originally given as a speech at a Westminster eForum event on Digital competition and the role of the Digital Markets Unit on Thursday 15th December 2022.
Thank you for the invite to speak at the Forum today. The event is focussed on digital competition, but I’m pleased that there is a recognition of the importance of consumer protections in digital markets and that the Digital Markets Unit has a role to play in delivering these.
Competition policy and consumer policy are inextricably linked. Competition is often the best way to ensure good consumer outcomes, while good consumer policy helps to create more competitive markets. I’m going to spend most of my time today considering how these two facts play out in digital markets and the implications of this for the DMU.
First, consumer harm is more likely in uncompetitive markets because when it's harder for a consumer to switch between businesses to get better value or to avoid unfair practices then bad behaviour goes unpunished.
Sadly though, this is the case in many digital markets. And as our understanding of these markets develops, the evidence grows of the harm suffered by consumers due to weak competition.
Many of you will be familiar with the CMA’s excellent recent market study on mobile ecosystems. It has clear evidence of how consumer harm is caused by a lack of competition and by the ability of the biggest firms to ‘set the rules of the game’.
The competitiveness of the mobile ecosystem is hugely important to UK consumers.
Nine out of ten UK adults who go online access the internet using a smartphone and they spend an average of almost 3 hours a day doing it. But it’s clear that the mobile ecosystem isn’t competitive, being dominated of course by Apple and Google.
Just one of the issues the CMA found is that Apple bans the use of any browser engine on iPhones other than its own. This means no other company can build a browser that would be distinct from Apple’s Safari. And it also means Apple has less incentive to invest in its browser engine, which causes problems for developers, and ultimately consumers.
Among all the evidence in the CMA’s study, I found some of the most striking to be the submissions from the dozens of developers who build apps and websites. Their testimonies demonstrate their deep frustration and highlight the consumer harms we find in uncompetitive markets, which include a lower quality user experience, less choice and higher prices.
One developer explained how Apple customers end up with lower quality. They explained how they must compromise on functionality when building apps because common features aren’t supported.
Other developers pointed out that the lack of competition means users can’t take steps to protect themselves and their clients from data security risks. They explained that it can take weeks for Apple to address security vulnerabilities and that the lack of competition means they don’t have an alternative to switch to, which puts personal data at risk.
From another developer we can see why businesses’ costs will be higher than they need to be. He wrote:
Every client we build a site for will pay for roughly 1 week of full-time work in testing and bugfixing, and generally about 75-80% of this is spent on web bugs [in Apple’s operating system].
It is inevitable that some of that extra cost from bugfixing will be passed through to consumers as higher prices.
In this case the CMA has opened a market investigation into mobile browsers, with possible remedies including removing Apple’s restrictions on competing browser engines on iPhones. Which? supported the opening of this market investigation. But the case also illustrates why the DMU is needed.
The mobile ecosystems market study identified a wide range of harms beyond those included in this market investigation reference, for example weak competition in app distribution. It is not practicable for the CMA to make market investigation references to address many of these harms and they would be best addressed by the DMU being able to implement pro-competitive codes of conduct.
Further, in evolving digital markets, the ability of the DMU to test and refine remedies is likely to give superior outcomes to the approach that must be used in market investigations.
Ultimately the superior ability of the DMU to promote competitive markets will help to protect consumers from harm
But it's not just that strong competition helps to protect consumers. There is a two-way relationship between competition and consumer protections and we need to recognise that effective consumer protections are necessary to have strong competition.
If a market has a weak demand side, with disempowered consumers, then it is impossible to have effective competition. Most markets need consumers who can shop around easily and have the confidence to make decisions based on accurate information. Only then are consumers able to reward efficient and innovative firms that offer good products and punish those who don’t.
By improving consumer protections, regulators can invigorate the demand side of a market, and so improve competition.
Many of the conduct requirements that the DMU could introduce to manage the effects of market power will both protect consumers and improve competition. This might be tackling harmful choice architecture, improving transparency, or making it easier to move between platforms.
One example would be giving people a greater ability to control how their personal data is used to target advertising at them.
Which?’s research has shown that many people are deeply uncomfortable about the amount of personal data that is collected by the largest tech firms and they want to have greater control over its collection and use.
People feel disempowered in their dealings with digital firms because of a lack of transparency about what data is collected and how. It creates feelings of frustration and annoyance, and it’s led to unhealthily low levels of consumer trust in some of the largest tech firms.
The consequence is that many people are reluctant users of services that they feel they cannot do without, having little choice but to accept the status quo as ‘the price you pay’.
In its online platforms and digital advertising market study on, the CMA recommended the introduction of a Choice Requirement Remedy that would require the largest platforms to give consumers the choice not to share their data for personalised advertising.
The potential benefit from this in terms of consumer protection is substantial. Our research into how much people would be prepared to pay not to have their data collected for targeted advertising estimates that if Google and Meta had to offer a Choice Requirement it would be worth more than £1.1billion annually to UK consumers.
This would be a consumer protection measure, but it would also be pro-competitive because the current easy access to so much personal data entrenches the dominance of the largest platforms.
Looking beyond the powers of the DMU, there is a pressing need to update the UK’s consumer protection laws to make them fit for digital markets.
Most online markets won’t have a firm with strategic market status, but there may still be exploitative behaviours that have become widespread because consumer protections have failed to keep up with the evolution of business practices.
To address this, the government needs to update the Consumer Protection from Unfair Trading Regulations (the CPRs) so that consumers are better protected from harms such as fake customer reviews.
Again, this is an example of where consumer protections can boost competition. Fake reviews, like any misleading information, make it harder for consumers to determine the best product or service. This makes it more likely they will be ripped off, but it also undermines competition because there is less pressure on businesses to find ways to improve quality or to make processes more efficient. Ultimately, higher-performing businesses are not fairly rewarded, to the detriment of the UK’s wider economic performance.
Recognising that harmful practices are continually evolving in digital markets, we see a need to have a more flexible process for adding to the schedule of unfair practices in the CPRs. We would welcome the Secretary of State having delegated authority to update this subject to Parliamentary approval.
More widely, we believe there is a need for digital platforms to have a legal responsibility to uphold consumer rights. The government should review their legal responsibilities and place a proactive duty on platforms to take action to ensure compliance with consumer law on their sites.
We’re pleased that the government has now committed to bring forward the Digital Markets, Competition and Consumer Bill. It is an opportunity to make real and substantial improvements to the experiences of consumers in online markets by empowering the DMU and updating our consumer protection laws. We hope it takes this opportunity as quickly as possible.