The competition watchdog is plagued with a knee-jerk belief that ‘big is bad’
The CMA’s u-turn on the Microsoft/Activision deal is a sign that the competition regulator might be starting to understand its approach to Big Tech will bring no good to the UK, writes Cento Veljanovski
The Competition and Market Authority is on the back foot after a US court and the European Commission cleared Microsoft’s acquisition of game maker Activision. The CMA blocked the merger as part of a broader toughening up against Big Tech. Now, in an unusual step, it has reopened its investigation and looks set to reverse its previous decision.
The CMA offered no evidence or credible reasoning supporting its decision. This was a vertical merger, involving companies that are not directly competing with one another. For decades, such mergers were considered pro-competition because they enable greater efficiencies. Now, or so it seems, any hypothetical threat to future competition by Big Tech, no matter how remote, is seen as sufficient to block the merger, should the CMA so desire. Microsoft president Brad Smith warned the initial decision to block the deal would send the signal that “the European Union is a more attractive place to start a business than the United Kingdom”.
It’s worth revisiting the principles of F.A. Hayek, the nobel prize-winning economist, and his proposal for a liberal competition policy. For Hayek, the function of competition policy is to protect free competition and ensure economic growth and, above all, individual liberty.
Hayek saw the economy as a complex, dynamic and evolving system that could not be directed by technocrats. Big and small tech companies are not like old-style big industrial monopolies which are static, sleepy, and over-price their products; they are dynamic, innovative, invest massive amounts in research and development, and generate huge consumer benefits. Their future is both unknown and unknowable. Yet accepting this has not humbled competition regulators but rather led to a scramble to ratchet up legal controls and questionable interventions.
The CMA, instead of using the opportunity presented by Brexit to become a beacon of liberal antitrust based on facts, evidence, and adherence to the rule of law, has decided to become a world leader – together with the US Federal Trade Commission – in the interventionist regulation of big tech. The Microsoft/Activision case, which was cleared by the usually interventionist European Commission and 30 other competition authorities, is not an outlier. Just look at the blocked Meta/Giphy merger. The government’s Digital Markets, Competition, and Consumers Bill, which beefs up the CMA’s powers to intervene, risks even greater interventions.
Hayek did not live to see the digital age and the rise of Big Tech. But he did have a lot to say about the Big is Bad mantra that now rules much of the debate over tech companies and the reform of competition laws. According to Hayek, there can be no general rule about the desirable size of a firm since this will depend on ever-changing technological and economic conditions – it was one of the unknowns to be discovered by the market process.
Hayek warned that the “concern about size and power of individual corporations more often than perhaps any other consideration produces essentially-antiliberal conclusions drawn from liberal premises”. As he aptly put it, size is often the “most effective antidote to the power of size” – something highly relevant to the competitive interaction in the tech sector where companies constantly encroach on one another’s territory. We saw this most recently with Meta taking on Twitter’s dominance in microblogging by launching Threads, and Microsoft’s development of an AI chatbot alternative to Google Search.
For Hayek, the issue was not “bigness” but “the ability of some monopolies to protect and preserve their position after the original cause of their superiority had disappeared”. These monopolies can seek to protect themselves by predatory and other exclusionary practices, which are legitimate concerns generally and among Big Tech.
In response, Hayek proposed positive pro-competition policies centred on removing government support for monopolies, restricting patent protection, and reforming company law and competition rules. Perhaps the modern-day equivalent of a Hayekian approach would be reforming cumbersome regulations, like the EU’s data protection laws, which act as barriers to entry. Hayek also believed in privatised enforcement through the courts fuelled by multiple compensatory damages and contingency fees – effectively replacing a regulator like the CMA.
Hayek was sceptical of competition regulators because of the risk of illiberal outcomes, peppered by exemptions and exceptions.
The emergence of special rules and enforcement procedures for Big Tech, and the contradictory mess caused by the CMA with Microsoft and Activision are a powerful example of how his thinking still rings true today.
Cento Veljanovski has published a report titled “Hayek on Competition: A liberal antitrust for a digital age” with the Institute of Economic affairs