Online Platforms and the Digital Single Market (EUC Report)

Lord Aberdare Excerpts

Wednesday 9th November 2016 Grand Committee

[Lord Aberdare (CB)]

My Lords, I am a member of your Lordships’ European Union internal market sub-committee, ably and affably chaired by the noble Lord, Lord Whitty, with outstanding support from our clerks. It is a great pleasure to follow the noble Lord, although I fear that I am going to reiterate many of the points he has made much more tellingly and elegantly than I shall be able to do.

I shall address two questions: should we be concerned about platforms from a regulatory point of view and what sorts of regulatory action might be needed? No single definition can cover the huge variety of digital online platforms, extending to search engines, such as Google, online marketplaces, such as Amazon and Booking.com, music and video platforms, such as Spotify and YouTube, payment systems, such as PayPal, social networks, such as Facebook, LinkedIn and Twitter, shared economy platforms, such as Airbnb and Uber, and a vast range of more specialist platforms.

Generally accepted features of platforms is that they are multi-sided, enabling two or more different groups to come together and interact, such as advertisers and consumers, buyers and sellers and drivers and passengers, and they often exhibit network effects, whereby the more users they have, the more useful they become, thereby attracting yet more users.

Online platforms play an increasingly important part in commercial activity and people’s daily lives. There can be no question that they provide services that people want by giving consumers access to a wide range of new or improved services and products easily accessible online and by giving providers, including smaller business providers, much wider scope to reach potential markets, including by creating new forms of provision, as Airbnb and Uber do, with disruptive effects on existing services.

Online platforms represent an enormous opportunity to develop new and better ways of doing things to create new marketplaces and forms of commerce and to generate economic and social benefit. A key regulatory requirement is not to close off those opportunities but to ensure that platforms can continue to be developed, to grow and flourish. In any case, because of their huge variety in scale, type, nature of services, target users and so on, as we have heard, it would be virtually impossible to come up with any “one size fits all” regulatory approach. We shared the conclusion of the European Commission that it would be inappropriate to try to devise a specific overarching regulatory system aimed at platforms in general.

However, there are some platforms which, because of those network effects, have grown to a point where they have a dominant position in their own fields and wield substantial market power—a winner-takes-all situation. Examples include Google in search, Booking.com in travel and leisure and Amazon in online retail. It is these that any regulatory approach should focus on to ensure that they are not abusing their strength to disadvantage their users or competitors, many of whom may be their users as well.

The report focuses on three main areas of potential concern: competition issues, whereby platforms may use their market power to reduce competition via unfair pricing or preventing market access; data protection issues, arising if platforms use the vast quantities of personal and other data that they collect in inappropriate or illegal ways; and consumer protection issues, relating to the transparency and completeness of information given to users and to the remedies available when problems occur.

I will briefly outline—reiterate is probably a better word—some of our conclusions in relation to these three areas before suggesting some general principles for regulation and oversight of platforms. Not all of these were addressed in the Government’s four-page response to our report, and I hope that the Minister may be able to expand on that response today.

We felt that the existing framework of competition law is generally flexible and robust enough to address issues that may arise in relation to online platforms. However, some enhancements would be desirable to improve its agility and efficacy in tackling this very fast-moving sector. Our recommendations included more frequent use of interim measures and time limits to speed up competition cases; the development of codes of practice to discourage unfair trading activities; and amendments to merger regulation thresholds to address the problem of innovative new entrants being acquired by large online platforms for their own competitive advantage—what the Economist calls “shoot-out” acquisitions.

We were particularly concerned about some pricing practices, notably the use of price parity clauses which require sellers on a given platform always to offer their lowest available price on that platform, therefore taking away the opportunity to offer better deals to, for example, people who come into a hotel off the street. There was evidence that this could act as an obstacle to competition—for example, in the online travel agents’ sector, which is dominated by two major platform suppliers. As the noble Lord has told us, one of our specific recommendations was for the Competition and Markets Authority to look into that sector. Another concern is the possibility of personalised pricing, when different prices may be charged based on data held about an individual’s habits, interests or past activities.

Platforms gather large quantities of data about their users, including much personal data. Users may not be fully aware of, or happy with, how those data may be used. Consumers clearly tend to value the convenience of using platform services over the privacy of their personal information, which makes it still more important that there should be clear guidelines about what data are held and how privacy and security are assured. We were attracted by the idea of a privacy seal—a sort of kite mark but with gradings or traffic lights—to encourage competition between platforms on the basis of their privacy features.

The EU general data protection regulation, which comes into force in May 2018, should address many of these data-related issues—for example, through its provisions on making data portable between platforms, as long as they are clear, practical and properly enforced. However, there is of course the question of whether the UK will sign up to them.

Consumer trust in platforms is low. Consumer protection law may need updating to require platforms to be more transparent about their obligations to their users, which may be less than in normal business-to-consumer transactions, and how they present information such as search results or reviews and ratings.

In the report, we emphasise the need for a consistent and concerted approach at European level, to avoid regulatory fragmentation between member states, which could undermine the goal of creating a digital single market. This may present a challenge to the UK in its Brexit negotiations, not least because the UK is seen by many as having most to gain from the digital single market and as one of the most promising breeding grounds outside the United States for future large-scale online platforms—the European Google that the noble Lord, Lord Whitty, mentioned.

In summary, I suggest three key principles for government in considering platform regulation. The primary aim should be to encourage and support innovation in the development of platforms, and to prevent obstacles to their growth: avoid over-regulation; promote access to markets; find ways of stimulating investment and access to capital; and recognise the strategic importance of innovation.

Secondly, government should ensure that existing laws and regulations are properly applied and enforced in relation to platforms and that, when they fall short, appropriate adjustments are made to address specific issues arising from the nature of online platforms. Regulatory activity should be strongly focused on platforms whose size and market power make them particularly likely to distort markets and competition. And we should support bodies such as the Competition and Markets Authority and the Information Commissioner’s Office, which are already doing a good job of ensuring that platforms operate fairly—not forgetting the courts, as in current cases involving Uber and Deliveroo.

Thirdly, government should be vigilant for new issues arising from the fast-moving world of online platforms. We suggested that the Commission set up an independent panel of expert advisers to serve as a channel for emerging concerns, to assess their significance, and make policy recommendations.

I end with some specific questions to the Minister arising from the points I have covered. What plans do the Government have to look at changes to the competition regime to make it faster and more effective in relation to platform-related concerns? Will the Government look into the merits of developing codes of practice for platforms, perhaps based on the experience of the groceries code? Will the Government look at the idea of a graded privacy seal to increase public focus on how platforms protect the personal data they amass? What is their response to the suggestion of an independent expert panel to advise on platform-related issues requiring possible action, which might be relevant for the UK as well as, or instead of, the Commission? Finally, what specific support will they offer, not least to SMEs and start-ups, to encourage the development of new and ambitious UK-based platforms?

Digital platforms can be a force for good for our economy and society, provided that Governments are vigilant in ensuring that they remain open to competition and fair, transparent and secure for their users and consumers.