The Competition and Markets Authority needs to be reined in

It is intervening in mergers globally, and is increasingly acting like an extraterritorial enforcement agency. Its latest moves, blocking the merger of Adobe and Figma, and launching an investigation into Microsoft’s partnership with OpenAI, suggests they are going further and faster down this path. 

With typical subtlety, Dominic Cummings described the CMA as a “blundering ignorant menace to progress and productivity”, whose staff should be fired. Cummings is a flawed observer, but he approximates the attitude that many people in the tech sector have about the CMA, and the EU Commission as well. 

The last decade has seen the world’s leading antitrust regulators, the CMA, the European Commission, and the Federal Trade Commission in the USA, take a much more interventionist approach to digital markets. They have moved away from the established viewpoint of prioritising consumer welfare when judging competition cases, to an approach intended to break up large businesses in the name of preventing market dominance. So even if businesses with large market shares continue to innovate and provide their users and customers with new and improved services, today’s regulators may decide to prosecute them for occupying too great a position in the market. The boundaries of that market are defined by the regulator itself.  

This has caused great discord in the digital economy, where entrepreneurs often build businesses with the intention of selling them to a large acquirer, who can take the company and its products to a bigger audience. After all, not all founders are born managers of global companies: their skills often lie in establishing new businesses and new ideas. If regulators like the CMA start making it harder for business owners to do this, then the British economy as a whole will suffer. Thanks to policies in the Digital Markets, Competition and Consumers Bill, there is every sign that this is the case.  

As costs associated with floating a private company onto a stock exchange like the LSE, the NYSE, or the Nasdaq have increased in the 21st Century, selling a business has become a popular way for entrepreneurs to realise a return on their work. This is especially the case in the UK, where successive governments have tried and failed to woo entrepreneurs to float their businesses on the LSE. Without cutting these costs, many of which are regulatory, British businesses will be in a horrible bind, with a competition regulator who might veto their acquisition on the one hand, and a financial regulator which has increased the cost of floating on the stock exchange on the other.  

This should matter to ministers, and to Conservative politicians, in particular, who claim that they are the guardians of Britain’s economy and business competitiveness. In reality, they are presiding over an unprecedented period of regulatory expansion, with alarmingly little democratic oversight. This, of course, affects British businesses. The CMA blocked Amazon from purchasing a minority stake in British startup Deliveroo for around a year in 2020. Only when Deliveroo issued credible warnings that the company would fold without the investment from Amazon did the regulator approve the deal. 

Beyond preventing the Adobe-Figma merger, the CMA has intervened to block, or attempt to block, a range of high-profile recent tech mergers. Much has been written about their objection to Microsoft’s merger with Activision-Blizzard and blocking Facebook’s purchase of Giphy (again on speculative grounds), but the announcement of an investigation into the relationship between Microsoft and OpenAI is a serious concern. The CMA intends to apply merger-style regulations to Microsoft’s investment in OpenAI, a non-profit research organisation. 

In some ways, this mirrors the CMA’s attempt to block Microsoft from buying Activision, claiming this would damage competition in cloud gaming, a market many people argue doesn’t really exist, having been created by the CMA as a monopoly it could prosecute. As with OpenAI, the regulator has created a competition policy nail for its antitrust hammer. 

The CMA claims that since Brexit its responsibilities have increased dramatically, necessitating its new approach. But this doesn’t seem to be true. The three major regulators have all changed their approach to big tech recently. While the FTC has been hemmed in by stronger courts in the United States, the CMA has far more domestic power. It has even been accused by Activision of acting like “a tool” of the FTC – it was revealed that the two regulators met 27 times before the CMA blocked the Microsoft-Activision merger. 

The CMA has intervened to block, or attempt to block, a range of high-profile recent tech mergers

This affair certainly damaged the CMA’s reputation at home and abroad. In the recent Strategic Steer to the agency, published by Business Secretary Kemi Badenoch, the British Government explicitly requested the CMA focus on minimising burdens on businesses, and prioritising consumer welfare and economic growth. This was reported as a “perceived rap over the knuckles” by the Times and welcomed by many organisations who campaign for a lighter-touch business regulation. 

But the Government needs to go much further than a non-binding request to the CMA. The CMA is demanding more powers: it will be given them by the Digital Markets, Competition and Consumers Bill, currently in the House of Lords. The CMA’s recent activity suggests it already has more than enough powers. 

Ministers have a choice. Either hand more power to a quango which fancies itself as an international economic policeman, or amend the Bill to put important checks and balances into the CMA’s operations, so it can only act on the highest quality evidence. With competition lawyer Stephen Dnes, I have suggested what these amendments should be in our recent Legatum Institute paper Protecting Prosperity and Innovation in the UK’s Digital Economy. 

If enacted, these would ensure the Bill is fit for purpose and the UK remains an attractive place for investment. If not, our drift towards regulatory sclerosis will continue, and entrepreneurs and innovators will build their businesses elsewhere, at Britain’s expense. 

Fred de Fossard is Head of the British Prosperity Unit at the Legatum Institute

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