The UK Government is seeking feedback on proposals for what it describes as ‘a new pro-competition regime for digital markets’.¹ While not currently part of its preferred option, the Government has stated that it is supportive of a dedicated merger regime for firms with Strategic Market Status (SMS) and is therefore seeking views on a series of measures that it is minded to take forward, which can be broadly classified in two groups.

1. Enhancing the reporting and notification requirements for SMS firms (all mergers to be reported to the Competition and Markets Authority (CMA); broader jurisdiction for the CMA to review mergers; and the largest transactions to undergo mandatory merger reviews).
2. Lowering the Phase 2 threshold for intervention in mergers involving firms designated with SMS from a ‘balance of probabilities’ to a ‘realistic prospect’ of a substantial lessening of competition (SLC).

The proposals closely follow the recommendations of the Digital Markets Taskforce (DMT) in proposing a distinct merger control regime for SMS firms.²

The DMT acknowledged that its recommendations constitute ‘a significant change to the existing system of merger control in the UK’.³ Given the far-reaching implications for markets that represent an important and growing part of the UK economy, such a change must be supported by strong evidence that it is both ‘proportionate and efficient’.⁴

Amazon commissioned Oxera to examine whether the DMT’s proposals are an appropriate and proportionate response to the concerns that have been raised. In particular, the focus of this study is on the second of the DMT’s proposals: a lower evidential standard at Phase 2 that would lead to more mergers being blocked, abandoned, or subject to remedies.

In this report, we demonstrate that the evidence presented by the DMT, which the UK Government relies on heavily in its consultation, does not support the conclusion that a lower evidential standard for intervention at Phase 2 is required. On the contrary, this proposal would result in significant unintended consequences, the harmful impact of which has been underestimated.

¹ UK Government (2021), Consultation on a new pro-competition regime for digital markets, available at: https://www.gov.uk/government/consultations/a-new-pro-competition-regime-for-digital-markets.

² DMT (2020), ‘A new pro-competition regime for digital markets: Advice of the Digital Markets Taskforce’, December. Henceforth, ‘DMT’. We note that no firms have yet been designated as having SMS.

³ DMT, Appendix F, para. 9.

⁴ DMT, para. 1.11.