By Eloisa Versaci
Google decides what you see first, and often, what you see at all. From search to advertising, its algorithms guide billions of clicks every day in the entire world. It has recently come to the attention of many competition regulation authorities that Google’s conduct may have an anti-competitive impact in digital market dynamics. The UK’s Competition and Markets Authority (CMA) is among those that aims to regulate such behavior. However, this leads to a delicate question: does the CMA have the right instruments to handle such issues?
Google operates in the fast-changing and increasingly important world of digital markets. On this matter, Will Hayter, Executive Director for Digital Markets at the CMA said that “the app economy generates 1.5% of the UK’s GDP and supports around 400,000 jobs, which is why it’s crucial these markets work well for business so they can invest, innovate and drive the growth this country needs.”
Digital markets now dominate the debate on how to regulate modern economies, as the growth of this kind of markets rises several issues. First, it is not enough to consider only one market’s dynamics when addressing digital competition. Indeed, many platforms act as double markets, where not only do they serve as intermediaries through which retailers can sell their products to consumers, but they also sell themselves their own products to users, thus facing a strong conflict of interest. Such conflict is exacerbated by the fact that online platforms can gain valuable information about other retailers, thus being able to develop strategies to undercut their competitors, for instance gathering information about prices so they can set theirs to be competitive enough to outcompete other sellers systematically.
Second, online platforms often engage in anti-competitive activities with the aim of creating barriers to entry for new potential entrants and discourage aggressive competition from already active firms. From exclusive partnerships with fellow tech giants to algorithms engineered to keep users hooked, such tactics help dominant platforms tighten their control over the market.
Third, competition in digital platforms is often based on the ability of online firms to gather as much data as possible about users, in order to offer customized services, thus increasing their engagement and level of satisfaction. Platforms manage to obtain such data thanks to their multi-sided markets nature, where buyer and seller interact showing their preferences which are then captured by online platforms during the years and used to produce increasingly more personalized online experiences for their customers on different sides of the market. Even setting aside privacy concerns, data accumulation can itself create barriers to entry, as new competitors often lack the scale to match incumbents’ datasets. How far this limits competition remains debated among experts.
Overall, the CMA, as any other competition authorities has been facing several difficulties in addressing digital markets dynamics and in adapting traditional tools to the type of competition observed. For instance, how should the “relevant market” be defined? Are traditional strategies able to lead to any concrete results? In a competition case, market definition is often related to how products and prices interact, specifically, how changes in the price of one product affect the demand for another. When it comes to digital markets dynamics, some products are offered for no monetary compensation, however, it is exactly this non-monetary transaction that allow platforms to gather information about both consumers and retailers, which are crucial in generating revenues . Therefore, authorities should not focus on single markets, but they should rather adopt a multi-market strategy, accounting for their interdependence. In such way, they may be able to capture the dynamic and complex structure of the digital sector, demonstrating the critical role of the activity in some markets, where a product offered free of charge is part of a broader or a long-term strategy to generate revenue.
In January 2025, the CMA launched an investigation about Google’s dominant position, claiming it had Strategic Market Status (SMS) in general search services. To understand such claim, a step back must be taken to address what it is meant with the term SMS. In 2024, the CMA introduced the Digital Markets, Competition & Consumers Act, whose cornerstone is the creation of the Strategic Market Status (SMS) regime. According to it, “the number of firms that exert significant control over digital markets, they will be designated as having ‘Strategic Market Status’ (SMS) in respect of specific digital activities”. The newly introduced Digital Market Unit within the CMA itself, shall evaluate the extent to which a firm is to be considered to have market power and to be holding a position of “strategic significance in respect of one or more digital activities that are linked to the UK”. Therefore, what has the CMA observed about Google? In the last 15 years, Google has been accounting for 90% of the total share of general search providers supply, overperforming any other competitors, as none has managed to grow as much as Google did in this time span.
Although Google claims to experience “indirect competitive constraints” to its general search services coming from growing competition by alternative search engines such as social medias and AI powered tools, the CMA has argued that the latter have significant functional differences and overlap only partially with Google’s search products, therefore the competitive pressure they may exert is limited. Not to mention that the observed strong position constitutes a robust barrier to entry for potential new competitors.
Overall, the CMA has concluded that Google’s strong position in both general search and search advertising, combined with their self-reinforcing relationship, necessarily imply that Google holds substantial market power in the field of general search services. Such conclusion has been reached in light of the ample every-day use of Google’s search engines to navigate the Internet and their importance to a large number of people and business in the UK. These features put Google in the position to be able to implement significant economies of scale and scope, exploit network effects and data acquisition, control the various ways through which general search services are accessed, thus preventing potential rival search engines from competing effectively.
To tackle the challenges of Google’s dominance in the general search market, the CMA has been re-thinking its strategy to disentangle markets’ equilibrium. New sections of the authority itself have been introduced, as well as new acts and bills stating alternative ways to approach a market, the digital one, which changes too quickly and is too dynamic to be able to manage with traditional enforcement regulations. The CMA’s response to these challenges marks a shift from reactive enforcement to proactive regulation, and although it seems to have been effective in addressing the Google case by finding critical and pro-competitive solutions, there are doubts about the long-run effects of such approach.
On the one hand, the English authority has been able to overcome issues such as market definition and market power assessment, by avoiding considering formal market definition a necessary requirement when dealing with digital markets, by virtue of their above explained intricated and multi-sided nature. Instead, it has been decided to introduce the concept of “digital activity” which is not necessarily bonded to any potentially oversimplifying market definition. Moreover, the CMA has set a clear focus on Fair Dealing, Open Choices and Trust and Transparency. Therefore, ensuring that users or potential users of digital platforms get to have fair interactions with SMS firms; every retailers’ product, both those of SMS firms and of others, are equally accessible by customers; and, every users gets the right amount of information to properly understand how the interaction with SMS firms works and how their personal data will be used, so that they will be able to make informed decisions. In other words, the CMA has been introducing tougher regulations, getting closer to EU-style rules, aiming to boost competition among UK business and choice for consumers.
On the other hand, this new approach towards digital markets may hinder investment and innovation. Overly stringent regulation may act as a disincentive for large technology firms to invest in the UK, reducing the inflow of capital, talent, and technological development. This could, in turn, slow the expansion of the digital and technology sector, which has been a key driver of economic growth in recent years. Furthermore, many of the digital platforms’ operations will require approval of the CMA, which has introduced the DMU precisely in order to weigh up all potential costs and benefits, taking into consideration also innovation effects, to step in only if the anti-competitive effects are strong enough to offset other possible benefits. However, this would require the DMU to possess an unrealistic level of foresight about future market outcomes, risking the premature blocking of potentially beneficial innovations. In the long run, consumers could be worse off, missing out on products and technologies that never reach the market.
The CMA, like other competition authorities, faces a delicate trade-off between intervening actively to reshape market dynamics and exercising restraint to avoid undermining innovation. In the context of digital markets, this balance becomes even harder to achieve. Their fast-evolving and interdependent nature makes it difficult to predict the long-term effects of regulatory action. The Google investigation is good input to reflect about both sides of this dilemma: the need for strong oversight to ensure fair access and prevent self-reinforcing market power, but also the danger of slowing innovation through excessive control. The CMA’s new framework under the Digital Markets, Competition and Consumers Act represents a significant step toward more adaptive, forward-looking regulation. Its success, however, will depend on the authority’s ability to apply these powers proportionately, acting with sufficient agility to protect competition without deterring the technological progress that drives the UK’s digital economy.
The views expressed in this article are the author’s own and may not reflect the opinions of The St Andrews Economist.