Digital Markets, Competition and Consumers Act

The Digital Markets, Competition and Consumers Act (DMCC) is a UK legislation aimed at promoting competition and protecting consumers in digital markets. It grants new powers to the Competition and Markets Authority (CMA) to regulate large tech companies with Strategic Market Status (SMS).

What is the Digital Markets, Competition and Consumers Act?

The DMCC is a UK legislation aimed at promoting competition and protecting consumers in digital markets.
It grants new powers to the Competition and Markets Authority (CMA) to regulate large tech companies with Strategic Market Status (SMS).
The DMCC establishes the Digital Markets Unit (DMU) within the CMA to enforce the new rules and oversee compliance.

Key objectives of the Digital Markets, Competition and Consumers Act

The DMCC has three main objectives. First, it aims to promote competition and innovation in digital markets by addressing the market power of large tech firms. The DMCC recognizes that these companies can use their dominant positions to stifle competition and limit consumer choice.

Second, the DMCC seeks to protect consumers from unfair practices by large tech firms. This includes addressing issues such as the misuse of personal data, lack of transparency, and the use of manipulative design practices. The DMCC gives the CMA new powers to investigate and take action against companies that engage in these practices.

Third, the DMCC aims to ensure fair treatment of businesses relying on digital platforms. Many small and medium-sized businesses depend on platforms like Google and Facebook to reach customers. The DMCC seeks to ensure that these businesses are not unfairly disadvantaged by the actions of the platform owners.

Establishment of the Digital Markets Unit (DMU)

To enforce the new rules and oversee compliance, the DMCC establishes the Digital Markets Unit (DMU) within the Competition and Markets Authority (CMA). The DMU is responsible for designating firms with Strategic Market Status (SMS), which are subject to additional oversight and regulation.

What are the criteria for Strategic Market Status (SMS)?

SMS is a classification given to companies that have substantial, entrenched market power in at least one digital activity, providing them with a strategic position. According to the DMCC, a firm can be designated as having SMS if it has a significant number of UK users, carries on business in the UK in the digital activity, or if the activity (or the way it is carried out) is likely to have an immediate, substantial, and foreseeable effect on trade in the UK.

The DMU will use a set of criteria to determine which firms have Strategic Market Status. These criteria include:

The firm’s revenue and market share in the relevant market.
The extent to which the firm’s platform is used by businesses and consumers.
The firm’s ability to leverage its market power in one market to gain an advantage in another market.

Firms that meet these criteria will be designated as having SMS and will be subject to additional oversight and regulation by the DMU.

Codes of conduct for SMS firms

Once a firm is designated with SMS, it will be subject to tailored codes of conduct. These codes are designed to ensure that SMS firms do not engage in practices that harm competition or exploit consumers.

The codes of conduct will be developed by the DMU in consultation with the relevant stakeholders, including the SMS firms themselves. The codes will cover issues such as:

Fair treatment of businesses that rely on the platform.
Transparency and accountability in decision-making.
Data protection and privacy.
Interoperability with other platforms and services.

The DMU will work with SMS firms to develop these codes of conduct and will have the power to enforce them if necessary.

Scope and implementation timeline of the Digital Markets, Competition and Consumers Act

Applies to tech firms with £25 billion global revenue and £1 billion UK revenue.
Phased rollout starting in late 2024 with strategic market status (SMS) designations.
Codes of conduct and pro-competitive intervention orders expected in 2025-2026.

Which companies fall under the Digital Markets, Competition and Consumers Act's purview?

The DMCC targets large technology companies that have substantial and entrenched market power in the UK. To be subject to the DMCC’s regulations, a firm must meet two key thresholds:

Have a global annual revenue from digital activities exceeding £25 billion
Generate more than £1 billion in annual revenue from UK digital activities

The exact revenue thresholds in the final passed version of the DMCC can be found in the official government documentation.

These criteria ensure the DMCC focuses on the most influential players whose actions can significantly impact competition and consumer welfare. Examples of companies likely to qualify include Google, Facebook, Amazon, Apple, and Microsoft, though the specific designations will be made by the Digital Markets Unit (DMU) of the Competition and Markets Authority (CMA).

Phased implementation starting with SMS designation

Rather than imposing all its measures at once, the DMCC will take effect through a phased approach. The initial step, expected in late 2024, is for the DMU to assess which companies meet the criteria for strategic market status (SMS).

This designation process will involve market investigations and consultations with relevant stakeholders. Companies will have the opportunity to present evidence and arguments regarding their market position and the appropriateness of SMS designation.

Once a company is designated with SMS, it becomes subject to the DMCC’s regulatory framework, including codes of conduct and potential pro-competitive interventions. The DMU will have the power to update SMS designations periodically to account for evolving market conditions.

Codes of conduct and pro-competitive interventions to follow

With SMS firms identified, the next phase involves developing tailored codes of conduct for each designated company. These codes will set out clear rules and obligations to prevent anti-competitive practices, unfair treatment of customers, and exploitation of market power.

The codes of conduct will be based on high-level objectives outlined in the DMCC, such as fair trading, open choices, and trust and transparency. However, the specific requirements will be customized to the market context and business model of each SMS firm.

Examples of potential code of conduct provisions include rules on self-preferencing, interoperability, or data sharing, as outlined in the DMCC’s guidelines.

Alongside codes of conduct, the DMU will have the authority to implement pro-competitive interventions (PCIs). These are measures designed to address structural market problems and promote competition. Examples could include mandating data portability, requiring access to key infrastructure, or even ordering the separation of certain business units.

The development of codes of conduct and consideration of PCIs is expected to begin in 2025, with initial implementation likely in 2026. However, the exact timeline may vary depending on the complexity of each case and any legal challenges that arise.

Ongoing monitoring and adaptation to market changes

Given the dynamic nature of digital markets, the DMCC includes provisions for regular reviews and updates. The DMU will continuously monitor the effectiveness of its interventions and assess whether market conditions have changed in ways that require modifications to SMS designations, codes of conduct, or PCIs.

The DMCC requires the DMU to publish reports on the state of competition in digital markets at least every five years. These reports will evaluate the impact of the regulatory measures, identify emerging issues, and recommend any necessary legislative or policy changes.

Moreover, the DMU will have the flexibility to adjust its approach in response to technological advancements, evolving business models, or new evidence on consumer harms. This adaptability is crucial to ensure the DMCC remains relevant and effective in the face of rapid market developments.

Enforcement and penalties

To ensure compliance with the codes of conduct and pro-competitive interventions, the DMCC provides the CMA and DMU with strong enforcement powers.

Non-compliance can result in significant fines, with the maximum penalty being 10% of the firm’s global turnover. This substantial financial penalty serves as a strong deterrent against anti-competitive behavior.

In addition to fines, the DMU can impose remedial measures to address the harm caused by non-compliance. These measures may include requiring changes to the firm’s business practices or even structural remedies, such as the divestment of certain assets.

Implications for businesses and consumers

The DMCC will create a fairer digital ecosystem for businesses and consumers.
Businesses can expect reduced risks of unfair practices and more opportunities for growth and innovation.
Consumers will benefit from increased choice, better value, and enhanced protection against data misuse and unfair practices.

Impact on businesses relying on digital platforms

The DMCC is set to create a more level playing field for businesses that rely on digital platforms to reach their customers. With the new regulations in place, these businesses can expect fairer access to platforms and a reduced risk of being subjected to unfair practices by dominant platform providers.

One of the key benefits for businesses is the opportunity for innovation and growth in more competitive markets. As the DMCC curbs the power of dominant platforms and encourages competition, smaller businesses and startups will have a better chance to enter the market and scale up their operations. This can lead to the development of new products, services, and business models that better serve the needs of consumers.

Example case: small e-commerce retailers

Small e-commerce retailers who rely on online marketplaces to sell their products will have better protection against unfair practices such as self-preferencing by the marketplace operator.

This means that these retailers will have a fairer chance to compete with the marketplace’s own products or those of larger, more established sellers. For instance, platforms like Amazon, eBay, and Etsy provide a global audience and streamlined operations for sellers, enhancing their competitiveness.

Benefits for consumers using digital products and services

The DMCC is not just beneficial for businesses; it also brings significant advantages to consumers who use digital products and services. As the DMCC promotes competition and innovation in the digital economy, consumers can expect more choice and better value for money.

With more businesses able to enter and compete in the market, consumers will have access to a wider range of products and services that cater to their specific needs and preferences. This increased competition can also drive down prices, as businesses will need to offer competitive pricing to attract and retain customers. Online marketplaces, such as those mentioned earlier, offer consumers convenience, competitive pricing, and rapid home deliveries, making shopping more accessible and efficient.

Furthermore, the DMCC enhances consumer protection from unfair practices and data misuse. Digital platforms will be required to be more transparent about their data collection and usage practices, giving consumers more control over their personal information. The DMCC also prohibits unfair practices such as dark patterns that manipulate users into making certain choices or purchases.

Summary

The Digital Markets, Competition and Consumers Act marks a significant step towards creating a fair and competitive digital landscape in the UK. By granting new powers to the CMA and establishing the Digital Markets Unit, the DMCC aims to promote innovation, protect consumers, and ensure a level playing field for businesses.

As the DMCC comes into effect, businesses must adapt to the new regulations and seize the opportunities presented by a more competitive market. Consumers can look forward to enhanced choice, better value, and increased protection from unfair practices.