Tech platforms such as Alphabet Inc’s (NASDAQ:GOOG) Google and Facebook Inc (NASDAQ:FB) that rely on digital advertising to make money are facing renewed pressure on their market dominance after UK regulators called for new rules to boost competition in the sector.
On Wednesday, the Competition and Markets Authority (CMA) said existing laws were “not suitable to effective regulation” and a new “pro-competition regulatory regime” was needed to govern the platforms.
The watchdog pointed out that of the £14bn spent on digital advertising in the UK in 2019, 80% of this was earned by Google and Facebook, with the former also controlling more than 90% of the £7.3bn search advertising market in the UK.
“While both [platforms] originally grew by offering better services than the main platforms in the market at the time, the CMA is concerned that they have developed such unassailable market positions that rivals can no longer compete on equal terms”, the watchdog said, highlighting the corporations’ access to large pools of user data and presence across markets as key obstacles for competitors.
As part of its suggestions for a new regime, the CMA proposed the establishment of a ‘Digital Markets Unit’ to enforce codes of conduct on tech firms with large market share, as well as restricting their ability to make themselves the default application on mobile and other devices.
The CMA also said the unit should have the power to “order the separation of platforms where necessary to ensure healthy competition”, potentially allowing regulators to break up tech companies.
“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. What we have found is concerning – if the market power of these firms goes unchecked, people and businesses will lose out”, said CMA chief executive Andrea Coscelli.
“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”, Coscelli added.
Shares in Alphabet were 1% higher at US$1,432 in mid-morning trading in New York on Wednesday, while Facebook rose 1.9% to US$231.