Penrose Review: UK Competition and Consumer Policy — [Clive Efford in the Chair]

Part of the debate – in Westminster Hall at 3:10 pm on 8th March 2022.

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Photo of Damian Collins Damian Collins Chair, Draft Online Safety Bill (Joint Committee), Chair, Draft Online Safety Bill (Joint Committee) 3:10 pm, 8th March 2022

It is a pleasure to serve under your chairmanship, Mr Efford. I congratulate my hon. Friend John Penrose on his report and on securing this important debate. I particularly want to address his comments on the digital markets unit, which he says has been set up in shadow form. We eagerly anticipate the Queen’s Speech to see whether there is legislation in the next Session to give the unit the power that it needs.

So much of our commerce and consumer interaction takes place through digital services. We have seen that more than ever during the pandemic. They are an integral part of the economy. It is right that we question and challenge whether digital markets are truly competitive, and whether the very large players that dominate them are guilty of abuse of market power, given the great positions that they hold.

It is tempting to think, “There are a lot of big digital companies; presumably they all compete against each other, and that creates a fair market.” When we break that market down, we see a series of monopolies in each sector. Unsurprisingly, Google has 92% of the world’s search business; Chrome, which is owned by Google, has 62% of the browser market; and Facebook and Google together control about 70% of the digital display advertising market worldwide.

Mobile phones run on one of two operating systems: 70% run on the Android operating system, which is owned by Google, and 30% on iOS, which is owned by Apple. You might think, “Well, at least there is a market split there,” but they are both monopolies. Apple customers —I am one; I have an iPhone—have no choice but to purchase apps through the App Store; there is no interoperable or alternative system. I cannot use a different app store system, such as the Google app store, to download apps on to an Apple product, or the other way around. The mobile communication devices market, which is central to the world economy, is dominated by only two operating systems, both of which are monopolies for their users.

As for the messaging app market in the UK, WhatsApp has 75% market penetration. The next most popular messaging app is Facebook Messenger, which has nearly 60% market penetration—that is, 60% of people in this market use it. Of course, people have multiple messaging apps. Both are owned by the same company. Across digital markets, there are these relative monopolies.

Is there evidence of abuse of market power? There is certainly evidence of these companies treating customers differently. There is evidence that Apple has different policies on charges for selling through the App Store for different companies. It does not charge everyone the same amount. Facebook has allowed different businesses to acquire different levels of Facebook data to help them drive their business through the Facebook systems, depending on the value of the commercial relationship to Facebook. When I chaired the Digital, Culture, Media and Sport Select Committee, we published evidence that we secured from an American app developer that showed that Facebook sometimes made arbitrary determinations about whether an app developer should have access to the Facebook graph at all; it depended on whether Facebook thought that the product that the company was developing was a threat to its business.

Some people may remember from the dim and distant past the short film app called Vine, which was very popular. People uploaded very short films to it. Mark Zuckerberg personally decided that Vine was acquiring too much Facebook data, so Facebook kicked Vine off the platform. An email was published in which Mark Zuckerberg was asked to confirm that he wanted to do that, and he replied, “Yup, go for it.” In our report, the creators of Vine said they remembered that moment as though it were yesterday, because it was the moment that effectively killed their business. The chief exec of a global tech company can, like the Emperor Augustus, put their thumb up or down, and determine whether a business is allowed to succeed, based on his assessment of whether that business is a competitor to his.

We often say, “Why is it that, particularly in the tech sector, although the UK produces brilliant, thriving companies, they do not go to scale?” One of the reasons is that if they are too successful, they are squeezed out of the market by bigger, dominant players, which either deny them fair access to customers through their platform, give them the option of being acquired, or drive them out of business altogether.

There have been competition investigations into preferential ranking on Apple and Google systems, to see whether Google search results favour businesses with which Google has a commercial relationship, with to the detriment of others that it sees as competitors. Amazon can monitor whether a product is successful, who is buying it, and, if it is too successful, whether it should copy it and launch its own product. Amazon does not give customer purchase data to businesses that sell through Amazon. Amazon is both the creator of the infrastructure through which businesses sell to their customers, and sells its own products alongside them, giving it immense market power.

We need a digital markets unit that ensures not only that consumers are treated fairly, that they have fair pricing and that there is fair competition among products, but that businesses that reach their customers through other tech platforms are treated fairly. It should ensure that businesses pay a fair rate for advertising, have fair access to data relative to other businesses, and are not a victim of aggressive pricing against them by the platform, or dis-ranked or downgraded through pure prejudice. All those aspects are central to the working of the digital economy today, and that is why it is important that we have a digital markets unit with the ability to launch investigations for evidence of tech platforms abusing their market power over other businesses, to the detriment of consumer interest.