The chair of the Competition and Markets Authority (CMA) has called for a fundamental rethink of the principles and purpose of competition law and policy in order to keep pace with the digitisation of business.

Speaking to the Social Market Foundation yesterday, Andrew Tyrie pointed out that since the passage of the Competition Act in 1998, product market concentration has risen – a problem only set to accelerate with the rise of the digital economy.

“The valuations of the tech giants imply their market shares are sustainable in the future,” he stated. “They imply that the platforms will be able to reap excess rents, the markets appear to have made a bet that the system will be ineffective in bringing enough competition to those markets, to erode the rents.

“Moreover, the theoretical foundation of the existing regime - that if we sort out competition, the consumer interest will take care of itself - clearly requires some practical qualification,” Tyrie continued. “The loyalty penalties paid by consumers in telecoms and financial services alone are estimated to be around £4 billion a year.

“The rise of the digital economy has brought huge benefits to millions of people, but it has also rendered previously confident and capable consumers vulnerable to getting bad deals and poor service.”

Tyrie explained that evidence indicates both that competition policy is lacking in vigour, and that it is too narrowly focused on process, rather than practical outcomes for millions of consumers.

“Just as the pace of change in markets in accelerating, the competition framework is taking ever longer to get results – in the time it takes to reach a decision and go through the appeals process, market may move on.”

In his recent Spring Statement, the chancellor asked the CMA to carry out a review of the impact of regulation on competition.

Tyrie mused that while the CMA already does much behind the scenes to influence government policy, it says relatively little in public. “In the current environment it should be doing and saying a lot more – reform will be needed, and the legal framework needs to adapt, too.”

In February, the CMA submitted wide-ranging proposals to the government for reform of competition and consumer law. At the heart of the proposed reforms are new duties on the CMA, both to ensure that the economic interests of consumers are paramount and to act swiftly consistently with proper protection of parties’ procedural rights.

“For the CMA credibly to meet these new duties - particularly in new and fast-moving markets - changes will be required to its tools and powers,” Tyrie stated. “Without these powers, the CMA may well fall short of the duties and responsibilities placed on it.”

Changes are proposed to the framework that allows the CMA to order legally binding remedies in markets where competition is compromised, but Tyrie noted that the system now needs to be made fit for the future.

“The central problems are that it is slow – it can take over three years before the CMA is in a position to order remedies, even in cases where the failure to act urgently can cause lasting harm,” he commented.

“It lacks the consumer focus that would be needed under a new duty - the CMA can only address consumer detriment if it can show it is caused by an adverse effect on competition - and it lacks teeth – the sanction for breaking undertakings provided to the CMA, or even the CMA’s own remedies, are both weak.

Taken together, the proposals that the CMA has made to government would mark a decisive shift in favour of the consumer, and against those businesses that exploit consumers, and flout competition and consumer law, Tyrie stated.

“And - alongside some of the proposals from the Furman Review of digital competition - they would better equip the CMA to manage the challenges thrown up by the growth of the digital economy,” he concluded.

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