New research warns fresh Digital Markets Unit risks stifling UK innovation
A NEW report has warned that proposals to introduce a new Digital Markets Unit (DMU) will have unintended consequences for innovation, investment and dynamism in the digital sector.
Housed at the Competition and Markets Authority (CMA), the planned unit will have additional powers to regulate firms in digital markets, in particular those firms deemed to have Strategic Market Status (SMS).
It comes as the government becomes increasingly concerned that a small number of digital firms have gained an entrenched market position and need a unique body to address these issues and ‘promote competition’.
According to the report from the Institute of Economic Affairs, there is a danger that the vague criterion given to the DMU will curb innovation across UK start-ups, and overbearing regulation will push firms away.
IEA fear that such overbearing regulation will impose intrusive controls and ‘central planning’ reminiscent of the regulation of old-style utility industries. This will reduce innovation, investment and deter UK start-ups, as well as create security risks and harm consumers.
IEA Head of Regulatory Affairs and co-author of the paper Victoria Hewson suggested: “Instead of trying to micromanage successful businesses the government should be addressing the barriers to entry faced by challenger firms from regulations like the GDPR.”
Instead, the think tank’s paper recommends that the government halt legislation for the establishment of the DMU until a more rigorous impact assessment has been carried out.
It is suggested that a DMU with such unprecedented powers is unnecessary; having greater expertise on digital markets in the CMA would be beneficial, but its existing powers are sufficient to oversee competition in those markets.
This was echoed by IEA Law & Economics Fellow Dr Cento Veljanovski who said: “The delay in giving the CMA new powers to regulate the tech companies provides the opportunity to reflect on how best to ensure competition in the sector.
There is no need to rush to regulate badly as seems to be happening elsewhere in Europe. The CMA already has the powers to call big tech to book without creating a new layer of rules whose effects are unanalysed and unknown, and are very likely to impair competition and consumer benefits.”
Meanwhile, DMU supporters argue that the UK needs to be more to proactive in cracking down on Big Tech.
Policy Director at The Coalition for a Digital Economy Camilla de Coverly Veale previously told City PM: “Whether or not the DMU plans were perfect, the expertise they add is critical and whatever comes next, the momentum behind building deep knowledge and understanding for critical markets in the future can’t be lost.”