Regulation And Competition

Monday, 04 November 2024
By Chris Yapp

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I would like to add my congratulations to Michael Mainelli on his year as Lord Mayor of London, and to pick up on one of his themes - that of Open Regulation.

Back in the 1990s I spent a significant amount of my working life in Brussels, engaged in various forums around the emerging internet/WWW/Information Society era, where I was immersed in the different world views that industry, government, economists, and regulators bought to the table. All of us were attempting to make sense of a new world that we were certain was coming, but were equally uncertain of its implications. It was an important mantra of the age that pre-emptive regulation was an inherently bad thing because it stifled private sector initiatives and innovation.

Today I am less certain of that belief, and I am reminded of Peter Senge’s maxim that “Today’s problems are caused by yesterday’s solutions”. This said, I am keen to see the ideas of Open Regulation develop and learn from the hard won lessons of the 1990s. In particular, the lesson that in the interplay between open competitive markets and effective regulation needs to be better debated.

A good starting point was the environment for the development of digital TV and services. The dominant thinking was that if a set-top box cost £X then selling it for 0.5X was predatory pricing and anti-competition. Yet, public policy saw universal service as a legitimate goal and “giving away” a free set-top box in exchange for a regular charge was a public good. Competition on the basis of business model rather than price was a complex area. I was involved in numerous discussions about whether selling a set-top box for £1 or 1p was predatory or pro public policy goals.

It is easy to think this was based on ignorance or incompetence, but my own experience was that there were genuinely conflicting goals where reasonable people could choose to differ.

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At the time the dominant model was that regulation was only valid where it was against “bad” outcomes, such as monopoly. The uneasy consensus was that even if deep pocketed investors could fund quasi-monopolies in the short term, regulation could be tweaked later to overcome short term problems. Unfortunately, experience suggests that the dominant players created in the 90s and 00s now have resources in depth to stall/impede or halt those “tweaks”.

So, what could have been done differently that we might learn from now?

One key idea that was central to my thinking was from Edward de Bono, that of sur/petition, rather than competition (the idea that instead of choosing to run in the same race, competitors choose their own race). Probably his most widely known suggestion was to Ford that they should buy NCP, a parking company and rename it Ford Car Parks. He believed that integrating a car and parking would create a “value monopoly” that would be valuable to customers and beyond regulators ability to deal with.

I was aware of the concept from ideas developed at MIT in the late 1980s around the digital economy, even if it was an old idea. Importantly, digitisation turbo-charged one specific model of competition. The first example I was shown was around “Cups and Saucers”. If I give you free blue saucers, you are then in the market for Blue Cups. Few would choose green cups. In turn, once you’ve bought blue cups then blue teapots, salt and pepper sets, sugar and milk jugs then follow. The concept of an “ecosystem” rather than individual markets looms large.

Instead of my umbrella is better than your umbrella models, where a consumer chooses between similar products, we find ourselves in an economy where one decision constrains another, outside the initial market.

This is what we face today. The digital world has created quasi-monopolies where winner takes all. More importantly, dominance in one area, such as search, e-commerce, taxis or the like enables extension of dominance into adjacent markets, such as browsers. How this plays into the AI era is of the level of uncertainty faced in the 90s. The costs, timescales and legal routes to resolving conflicting goals internationally, public and private, are far from trivial.

I argue for open competitive markets not only on economic efficiency goals, but also economic resilience. Monopolies, for me, are inherently fragile and “too big to fail”.

I return to my opening remarks about open regulation. I think we need to engage in open anticipatory regulatory frameworks that are pro competition and pro universal service to meet both economic and societal goals. Rather than see one goal as opposing the other, I believe that they can be mutually enforcing.

I’m not suggesting that it will be easy, and history may not repeat itself, but it will probably rhyme without new conceptual thinking.

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