Regulation in an Exponential age

The digital sector has seen a surge of regulation in recent years, with governments worldwide introducing sweeping legislative frameworks to address concerns about competition and market dominance. In the European Union, Ursula von der Leyen’s first term as European Commission President saw the introduction of around 20 new legislative instruments, including the landmark Digital Markets Act (DMA), which has been fully enforced since March this year. Similarly, the UK has passed significant legislation – including the Online Safety Act and the Digital Markets, Competition and Consumers (DMCC) Act – set to take effect soon. “This complete tidal wave of regulation, which has come in to address a range of perceived ills in the digital sector, has really just completely exploded over the last five years,” says Verity Egerton-Doyle, Antitrust and Foreign Investment Partner at Linklaters.

The rise of active platform regulation

The astonishing volume of new regulation reflects a shift in thinking among competition authorities. Across the world, regulators have moved from a hands-off approach to one of active intervention, driven by concerns that digital platforms have consolidated market power over a long period without sufficient oversight. “It’s the role of competition authorities to stop the accumulation and abuse of market power,” Verity explains. “I think there were allegations that perhaps they [the regulator] had been asleep at the wheel.” She sees the current phase as an “age of remorse” for regulators, who are acknowledging past failures to address antitrust issues. More recently, she says, “competition authorities [have been] using the full suite of their powers very aggressively against large technology companies.”

“This complete tidal wave of regulation, which has come in to address a range of perceived ills in the digital sector, has really just completely exploded over the last five years”

Verity Egerton-Doyle, Antitrust Partner, Linklaters

However, these rapidly evolving industries have sometimes proven challenging to regulate. “There was a consensus that we needed new tools because actually these [digital] markets have different characteristics – key among them [that they are] very, very fast moving,” Verity continues. The pace of technological change, including developments like large language models (LLMs), raises concerns about whether new regulatory frameworks like the DMA are agile enough to adapt to the future. Regardless, Verity predicts many more developments to come, saying: “We are now on the edge of a new era of regulation of market power in platform markets.”

Charting a path to compliance

As digital markets evolve at lightning speed, regulators are not the only ones working to adapt. Tech companies are similarly grappling with how to navigate the changing regulatory environment and stay innovative and competitive. “The old days were simpler,” Oliver Bethell, Google’s Head of Competition, Regulatory Engagement & Advisory, says wryly. “There was, for a long time, a sense that we were moving in this direction, [but] a lot has come all at once.” From Google’s vantage point, part of the complexity is due to overlapping regulatory concerns. “Privacy issues intersect with copyright issues, [which] intersect with competition issues – sometimes at precisely the same moment,” he notes.

“You don’t want to be caught by surprise with a piece of legislation that no one was prepared for, but at the same time you want the regulator and the rules that they’re applying to be adaptable enough to accommodate the products that you’re launching.”

Oliver Bethell, Head of Competition, Regulatory Engagement & Advisory, Google

The growing scope of regulatory obligations can be challenging to integrate into product development processes, Oliver adds. “I need [to take engineering] time to now talk to a regulator and explain how a particular product complies with a law that may well have been drafted based on three or four iterations previous of what [our engineering team is] currently working on.” However, he sees opportunity for compliance to become a constructive feedback mechanism that complements product development rather than hinders it. “People are using their imaginations for how some of these [compliance] processes have the potential to actually incorporate themselves within the product design process,” he says. This could even deliver a competitive advantage: not only would firms meet their legal requirements, but they could ensure that their offerings are well-aligned with market expectations and regulatory standards, well before launching a new product.

Yet, this approach also requires regulators who understand the technical environment and can provide actionable guidance without lengthy explanations or disruptions. Matthew Braovac, Director of the Digital Markets Unit at the UK’s Competition and Markets Authority (CMA) is building a growing team of new talents recruited to keep up with the unit’s responsibilities and understand the technologies it oversees. 

“The CMA was one of the first authorities to really invest in data teams. We’ve now got about 80 people in our data unit […because] being really up to date on how the issues develop is super important.”

Matthew Braovac, Director of the Digital Markets Unit, CMA

New UK regulation for a new age

Unlike the DMA, which includes codified rules and thresholds for how and when interventions should apply in the EU, the UK’s framework is designed to be more adaptable, allowing tailored interventions for different sectors. “[The DMA] gives quite a bit of legal certainty, but it doesn’t give you a lot of flexibility or nimbleness,” Matthew thinks. He says that the UK is poised to take a different approach to digital markets through the DMCC Act: “We’re more flexible but recognise that that means that you can’t be as categoric about exactly what applies and exactly when.”

While the DMCC Act has not yet come into force [Note: it will on 1 January 2025], Matthew stresses that the CMA will conduct a thorough analysis of firms’ market status before pursuing any type of action: “It’ll be a very transparent and open process, and it’ll be evidence-led and evidence-based.” He also acknowledges that their interventions will evolve over time, saying: “We’ll have to be willing to change course.” 

A balance between risk and reward

Structurally and practically speaking, the DMA and DMCC Act take different approaches, but a measure of both opportunity and risk is inherent in this new era of regulation overall. That uncertainty is being met with varied responses from regulators and major tech firms. “Regulators tend to think about the risks first and the benefits second, and I think we need to be balanced about that,” says Matthew. By prioritizing objectives like increasing consumer choice, improving competition and mitigating adverse effects on businesses, the UK hopes to address the unique dynamics of different digital sectors. Matthew describes this phase as “a natural experiment,” explaining, “We are going to see how the Digital Markets Act applies, how antitrust enforcement in the US applies and how the DMCC Act in the UK applies.”

Indeed, while frameworks like the DMCC Act and DMA strive to rein in the market power of tech giants, their success hinges on how well they adapt to an ever-changing digital landscape. “From Google’s perspective, there’s some cautious optimism that these things are going to work and that there is a way to launch regulated products in a more scrutinised environment,” says Oliver. “Having some sense of what we’re shooting for in the new framework is something that’s also very important for us within Google.” At the same time, he warns that regulation could potentially have unintended consequences if firms are unable to see a compliant path to product development: “An easy default in the short term is not to launch.”

Staying innovative as competition heats up

Within firms like Google, the increasing demands of regulatory compliance are arriving at the same time as market pressures are growing stronger. According to Oliver, the competitive landscape is clearly intensifying. “I’ve never seen the degree of competition that our search teams feel at the moment,” he says. “ChatGPT, Perplexity – these engines are a real threat to Google and its search business.”

“[We] definitely want to see large platforms continue to innovate, but equally want to make sure that we’re creating the space for smaller players to innovate. This should be a dynamic competitive process.”

Matthew Braovac, Director of the Digital Markets Unit, CMA

This heightened competition drives a need for faster innovation and the launch of new products, while maintaining the platforms’ role as enablers of broader market competition. “From a competition law perspective, it’s fantastic,” Oliver adds. “At the same time, you want the big important platforms to continue to innovate.” For his part, Matthew agrees that increased competition is generally a positive outcome for regulators. “[We] definitely want to see large platforms continue to innovate, but equally want to make sure that we’re creating the space for smaller players to innovate,” he says. “This should be a dynamic competitive process.”

Connect with Platform Leaders

This panel with Oliver Bethell, Matthew Braovac and Verity Egerton-Doyle was part of the Platform Leaders event organised by Launchworks & Co on the 13th of November 2024 at Digital Catapult, which welcomed hundreds of attendees both on- and offline. The Platform Leaders community offers a unique forum for entrepreneurs, academics, practitioners and policymakers to tackle pressing issues and start impactful discussions. Explore the full agenda, discover the list of expert speakers and catch up on videos and articles on the Platform Leaders website. Don’t miss out – sign up today to stay updated on upcoming events and opportunities!