The Competition and Markets Authority (CMA) is the UK’s main competition regulator.
It is playing a larger role in national and global economics news. In particular, for flexing its regulatory muscle in investigating the market power of global technology companies such as Apple, Google and Microsoft.
However the CMA also intervenes in several other markets.
How does the CMA try to prevent abuse of market power?
Here are four case studies of CMA investigations:
Case studies
1) Big tech
Google is the dominant provider in search engine advertising, with over 80% of searches occurring through Google.
Meanwhile Meta (Facebook) takes up a significant share of the UK online display advertising market.
The UK’s Competition and Markets Authority (CMA) says the UK needs more powers to regulate the dominance of Google and Facebook.
The risks of unregulated market power are that firms may raise prices for customers.
Big companies in the technology space have undertaken several acquisitions.
For example Meta’s acquisition of Instagram and Google’s acquisition of Looker, a data analytics firm.
The CMA did take action. It ordered Meta to sell Giphy, a short video service that Meta had recently bought.
This was because of competition concerns, such as the possibility of controlling competitors’ access to Giphy videos.
2) Sugar
T&L Sugars Limited (TLS) is a sugar producer and distributor, including under the Tate and Lyle brand.
They recently purchased another sugar business, Tereos SCA.
In addition to these two companies, there is only one other company, British Sugar, supplying packed sugar to several businesses, according to the CMA.
The CMA has made an initial finding about this deal.
Specifically, that it would lead to a loss of competition. Supermarkets could end up paying higher prices for packed sugar and therefore, so could shoppers.
This is a “phase 1” initial investigation, which gives the firms five working days to offer solutions.
Failing this, there will be a more in-depth phase 2 investigation, which could lead to CMA intervention.
3) Veterinary sector
In a review of the vet sector, the CMA has stated its concerns about how the vet industry works.
For one, markets tend to be highly concentrated locally. Large corporations and firm integration have contributed to this.
In 2013, about 10% of veterinary services were part of large groups but this has risen to 60%. There are six large corporate groups included here.
Consumers often lack the information to choose the best practice. This could include price lists, which are missing on 80% of vet practices checked.
As a result, consumers may be overpaying for pet medicines.
With 16 million pet owners in the UK, there are very many consumers who rely on a well-functioning vet industry.
As a consequence of these concerns, the CMA has launched the next stage of its investigation, a “market investigation“.
Depending on what the CMA finds, it could require firms to provide information or set maximum prices on medicine prescriptions. It could also force the break up of companies.
4) Electric vehicle chargers
The market for electric vehicle chargers is a rapidly growing market.
Anywhere from 280,000 to 480,000 public chargepoints will be needed by 2030. This compares to the current number of 25,000.
This sector will be critical if the UK Government is to achieve its Net Zero target by 2050.
Transport represents 27% of total emissions and the transition to electric vehicles is a key part of Government plans to lower emissions.
However the sector faces challenges.
In terms of competition, along motorways competition is limited.
The CMA’s report shows the Electric Highway with an 80% market share. It is also difficult to enter the market owing to constraints on capacity of the electricity grid.
In these kinds of sectors, there may well be economies of scale from companies having a network of charge points. To that extent, some market concentration may be expected.
Charging on local streets could also see the rise of local monopolies without intervention.
Rural areas, where there are fewer users, may end up having too few charging points, as the case for a firm to invest is not as strong.
The CMA has stated its concerns about long-term exclusivity arrangements between the Electric Highway and three motorway service providers.
These could act as a barrier to entry for new chargepoint companies.
In addition the CMA provided a whole host of other recommendations.
What can we learn about how the CMA works?
From the digital markets examples and the examples above, we can learn a lot about how the CMA works in practice.
What are the phases of CMA investigation?
There are typically two key phases to a CMA investigation of a merger:
- Phase 1 – the CMA decides if the merger has a “realistic prospect of a substantial lessening of competition (SLC)”.
- If yes, the CMA has a duty to start Phase 2, an in-depth assessment. In this case, a CMA panel looks in more detail at whether an SLC is more likely than not. If so, the CMA then also decides on the solutions (“remedies”) it will impose.
- After Phase 1, the CMA may not always start Phase 2. This occurs under certain conditions, including that the firms merging offer their own remedies, such as selling assets.
What intervention options does the CMA have?
The CMA can choose from various intervention options. This includes but is not limited to:
- Blocking the merger.
- Requiring the sale of parts of the business. This could include the transfer of intellectual property rights.
- “Enabling measures” – removing barriers to competition. This could be making it harder for the merging companies to force customers into long-term contracts or to stop companies making it too costly to switch providers.
- Price caps or supply commitments from the company. The CMA’s guidance suggests these measures are more likely to be a last resort (when other measures are not possible) or a temporary measure.
For discussions of these policy options and other types of competition policy, see the link here.
What can we learn, from case studies, about how the CMA may intervene in mergers and acquisitions?
- If a company responds to CMA investigations, it can prevent CMA action. The CMA is willing to work with companies. For instance, there was a Microsoft agreement with Sony to guarantee more Xbox games can be played on the Playstation. This may have helped mitigate the CMA’s worries about Microsoft’s acquisition of Activision Blizzard.
- The CMA has been willing to intervene in markets where needed. This includes in digital markets, such as directing Facebook (Meta) to sell Giphy following a phase 2 investigation.
How is the CMA held accountable?
There is also an argument that competition authorities’ decisions are harder to challenge in the UK, compared with in the EU and US.
In the US, competition regulators need to apply to courts to block a merger.
Yet in the UK according to FieldFisher, the CMA’s decision can only be legally challenged on the decision-making process (“judicial review” grounds), not on the decision itself.
Questions about the CMA
Here are some questions I’ve been thinking about relating to the CMA:
- The CMA’s intervention in the Microsoft-Activision Blizzard deal stood out in comparison to other regulators. For instance the US was not able to regulate to block the deal. Is it a good thing for UK CMA regulation to diverge significantly from US and EU judgements? In this case, regulators won significant concessions from the companies, which meant the CMA could pass the deal. Nevertheless, is there a risk to inward investment from multinationals if it perceives UK regulation as tougher than elsewhere?
- What happens if the CMA blocks a merger for a multinational firm, but this same merger is permitted in other jurisdictions (US and the EU)? Of course a business may provide concessions to satisfy the CMA, but what if that does not happen either? Does the company forgo the merger globally, stop trading in the UK or find some clever arrangement that satisfies all regulators?
- How much power can competition authorities in the UK have over big technology companies with a global presence? Would a potential threat by companies to withdraw services from UK customers be credible?
- Should there be closer scrutiny of the actions of the CMA? Or should the current regulation of the CMA remain in place?
In this article, we have mainly covered the CMA’s role in merger control. Yet the CMA has other roles for instance in detecting collusion, subsidy control and advising on the UK’s internal market.
Thank you for reading!
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