Unwrapping the CMA’s predictions on trends in digital markets

Last week, the CMA published its first Horizon Scanning Report detailing ten trends in digital markets, covering how such trends may develop and their potential impact on competition and consumers over the next 5 years and beyond. The report is the inaugural publication of the CMA’s Technology Horizon Scanning Function, which is led jointly by its Data, Technology and Analytics Unit and its Digital Markets Unit. It provides useful insights into the CMA’s current thinking and enforcement priorities for digital markets. 

The CMA’s ten future trends in digital markets

The ten trends that the CMA believes will have a potentially significant impact in digital markets in the next five years (and beyond) and is therefore prioritising are:

1. Rapid and widespread deployment of AI Foundation Models (FMs) that the CMA says could result in harm to competition/consumers if larger firms are able to leverage (i) access to key inputs for FM development and (ii) their positions in downstream markets where FMs are deployed.
2. Increasing technology convergence (i.e. where 2+ existing technologies are combined) enabling the creation of new and disruptive products and services, whilst also creating potential competition risks (e.g. market disruption or the ability of some firms to leverage existing capabilities into other technologies).
3. Digital platforms increasing integration of additional services, which the CMA says may raise potential concerns related to consumer lock-in and data privacy, which means that consumers might miss out on higher quality or lower prices. And while the ‘app-in-app’ approach appears to challenge app stores’ roles as gateways to apps, incumbents seem to invest in developments to anticipate such changes.
4. Digital firms continuing to raise prices for API access, which may influence user and developer access to certain features, notably for third-party app ecosystems and foundation model training.
5. Growing incumbent and new entrant activity in the markets for CPUs, GPUs and AI accelerators. The CMA fears that new entrants in these core logic chip markets may not meaningfully disrupt the wider market or could be subsumed in future industry consolidation or, if some of the larger technology companies succeed in creating competitive products, there may be potential vertical integration risks.
6. Interoperability improvements are constrained in some markets (due to technical factor/market incentives) but remain an important driver of market outcomes (e.g. preventing  market ‘tipping’ and the leveraging of vertically integrated platforms into new markets).
7. Larger technology firms continue to expand into new markets. The CMA focused on “HealthTech” due to the opportunities for new technologies/treatments enabled by larger firms with access to data, technologies or computing power. It has also identified potential consumer issues e.g. data privacy, algorithmic biases and the reliability of new technologies.
8. Increased application of digital twins, whereby firms with existing capabilities and resources may be in stronger position to benefit from new commercial opportunities, and there are potential issues including data privacy, the potential for misuse, and limited interoperability. 
9. Increased development and usage of open-source software and hardware entails some challenges (which are not insurmountable according to the CMA) over, in particular, sustaining how open-source projects are maintained, and in ensuring they are fairly advertised.
10. Consumers may, in future, continue to want increasingly personalised experiences/services/products or (conversely) their concerns about privacy/data may become increasingly prevalent. 

What does the CMA’s crystal ball gazing mean for tech companies? 

This report draws on currently available evidence in order to present possible future developments and potential implications for competition and consumers. By the CMA’s own admission, it is “neither fully comprehensive, nor fool proof” and it should not be interpreted as any form of set CMA position, policy or conclusion.

The establishment of the Technology Horizon Scanning Function (which the CMA is continuing to develop) reflects the CMA’s forward-looking approach to enforcement and to the competitive assessment of mergers and market studies - particularly as regards digital markets, which the CMA acknowledges are subject to rapid transformation and an evolving array of products and services. 

The ten trends identified in this report provide an indication into the CMA’s early thinking on the future of the digital sector and potential enforcement priorities. They may also have an influence on the CMA’s theories of harm in future merger control investigations (and indeed already have, for example in Microsoft/Activision), antitrust cases and market studies, and, in particular, its enforcement under the forthcoming Digital Markets, Competition and Consumers Bill regime (e.g. as regards future interoperability conduct requirements, as flagged by the CMA in the report). The report will also be used for the next phase of the CMA’s AI Foundation Models review, which will include research and engagement on the AI accelerator chips market.

The CMA states that it will continue to engage on these trends and related issues with other domestic regulators (e.g. through the DCRF) as well as international regulators, and that it hopes that the report will encourage further work by other competition and consumer protection agencies. So watch this space!