UK government wants competition authority to encourage innovation and market disruption

The Competition and Markets Authority (CMA) should focus its attention on "exploring markets where competition could be improved to promote greater consumer choice and encourage more innovation and productivity in sectors", the Department for Business, Innovation and Skills (BIS) said. BIS' comments were contained in a new paper outlining its "strategic steer" for the CMA's activities (18-page / 769KB PDF).

The paper recommended that the CMA feel free to study competition in any market and "pressure businesses to innovate". It said it should also remove barriers in markets that "prevent new start-up businesses or new disruptive business models from accessing or expanding in existing markets".

"The CMA should explore whether business activities, market structures or regulation can create barriers to new entrants," BIS said. "Where it identifies barriers to accessing markets it must recommend how these barriers could be reduced to help improve competition and consumer choice. The CMA should address any market structures that create barriers to exit for unproductive businesses, inhibiting effective competition."

The CMA was also encouraged to build up its knowledge of developments in emerging markets, including "online digital market places" and on the use of data. BIS said that "the role consumer data is now playing in the market place" is a "key issue" the CMA is likely to have to consider.

"This government wants needless barriers – stopping dynamic and new-thinking businesses from accessing markets – to be swept away," business secretary Sajid Javid said in the paper. "Innovative new business models should be actively encouraged and helped to challenge the status quo in all markets. Their involvement in markets can urge greater competition, push out unproductive businesses and offer consumers far greater purchasing options."

Competition law expert Natasha Pearman of Pinsent Masons, the law firm behind Out-Law.com, said the recommendations by the government complement existing work undertaken by the CMA in recent months.

"This includes the CMA's study on the commercial use of consumer data and its high profile investigations in retail banking and energy," Pearman said. "The steer also reflects a wider emphasis that has underpinned the CMA since it came into force, that of behavioural economics and why consumers do not always behave as you would expect them to. For example, both the retail banking and energy market investigation outcomes will be driven by the CMA seeking to empower consumers and engender them to make more rational decisions, i.e. to actively switch bank accounts or energy suppliers to get the best deals."

"In the past the CMA has been accused of not keeping up to date with developments and innovation. Whilst it is trying to engage on these topics it will face problems when it does so on an informal basis. Stakeholders are often reluctant to engage with competition authorities therefore unless the CMA uses its market investigation powers, it’s unlikely to get buy-in simply through calls for information" she said.

"The steer also emphasises regulation as a barrier to entry and perhaps rather enthusiastically advocates that the CMA should be 'removing unnecessary regulatory burdens on businesses wherever possible'. Practically, the CMA does not have the power to remove regulatory barriers, though it can of course make recommendations for regulatory changes, as it is doing in the its energy market investigation," Pearman said.

Javid said that competition "should be used as a serious alternative to regulation" and that government intervention in markets should not be necessary where those markets are "well-functioning".

"If the market is not working properly the first test should be whether competition tools could be used to deliver policy objectives," Javid said. "With that in mind, this strategic steer gives the CMA a clear mandate to help government design policy interventions and, when necessary, actively challenge any government rules and regulations if they consider they are negatively affecting competition."

BIS said that it expects the CMA to consider its recommendations when carrying out its work, but that the authority "retains full independence in how it approaches its work, its selection of cases and the tools it uses to tackle them".