Before giving the CMA more teeth, we should look at its Meta shaped bite marks

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The Competition and Markets Authority (CMA) has been flexing its muscles like a growing schoolboy recently. On Tuesday, it finally got a well-deserved admonishment from the Competition Appeals Tribunal after an appeal by Meta – the company formerly known as Facebook – against the watchdog’s decision to stop it buying Giphy, a provider of moving pictures known as gifs. 

On the five of the six grounds, Meta lost. 

But on one significant ground, the CMA lost: it had breached its procedural duty towards Meta by not disclosing that its competitor, Snap – the makers of Snapchat – had turned down a chance to buy Giphy and considered its ad business worthless. It went on to buy a similar, albeit smaller gif company.

Appeals against the CMA’s decisions are rare and are allowed only on points of procedure or rationality – a high level of deference to the regulator. That Meta was successful, even in this limited scope, is significant as the government treads a path towards giving the CMA more powers. 

Giphy, a small company by Silicon Valley standards, was looking for new revenue sources so it began considering the advertising field. Snap had considered buying them to integrate gifs into their offering. Snap balked at Giphy’s valuation – the price Meta was willing to pay – and decided its advertising business was essentially worthless. 

The CMA knew this; Meta did not. Nor was the information divulged before the watchdogs provisional findings were issued. According to the appeals tribunal, this “prima facie undermines the entirety of the Decision.” The CMA should be embarrassed at this major lapse in basic procedural justice.

The tribunal found the CMA was entitled to reach its decision, but they did signal they found the conclusion wanting. They did not buy, as the CMA did, the argument that Meta was attempting to suppress a competitor or, indeed, that Giphy was a competitor to the tech giant. 

Instead, the tribunal warned that an “unwise intervention can just as easily lessen competition as an unwise failure to intervene,” noting a potential “chilling effect” on innovation by companies that might look to merger or acquisition as an exit strategy. 

The Competitive Enterprise Institute and the Institute of Economic Affairs have warned of this in submissions on the provisional findings and to the British government’s consultation on competition in digital markets respectively.

The CMA, the tribunal said, should have adopted a “cross-check” test which would have allowed it to look at the potential ill-effects of over-intervention. Doing so would have laid the groundwork for a sounder decision. 

As the government plots to give the CMA further power, including with a Digital Markets Unit, the decision here should hold a warning for us. 

No matter how large or how unpopular global technology firms might be, they deserve procedural justice, as do all other firms operating under the CMA’s oversight. Bestowing too much power on bureaucrats, naturally drawn to expand their remit, should be subject to review by a tribunal with equivalent teeth – not one making decisions based on technicalities. Certainty undermines investment, it encourages growth in the economy – something sorely lacking in the UK at the moment.

Safeguards such as the cross-check test proposed by the tribunal should be a required step for the CMA in reaching any decision.

There should also be mutual-recognition provisions on competition matters when concluding trade agreements with other nations. If one country’s competition authority allows the merger of two companies based there, the other country should recognize it as well. Tech companies operate in an inherently global way, the terms of business must acknowledge this. 

Companies should not be subject to the unjust whims of bureaucrats without proper channels of appeal. Correcting the CMA’s missteps in this high-profile case should lead to reduced uncertainty for business and improved consumer welfare. 

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