Sainsbury, Asda & Yellow Pages

by ukcivilservant

There’s a perceptive piece by Ed Conway in Today’s Times, but he unfairly suggests that regulators don’t understand digital disruption.

The misunderstanding begins with his misinterpretation of the 2006 ‘Yellow Pages’ investigation. The Competition Commission was well aware – to quote Ed – that “the Internet was fast disrupting everything”. But the CC recognised that Yellow Pages were still an important advertising channel for many small businesses – and faced limited competition.  The CC did not therefore “impose a pretty aggressive price cap”.  The CC in fact inherited an aggressive (RPI-6) price cap which had been in place since 2001 and, reporting in December 2006, ordained that this should end in 2008 and be replaced by RPI only.  I think that hindsight would give this decision pretty good marks.

Fast forward to 2018, and we see the competition from the Internet everywhere – and Ed’s piece summarises the problems very well.  The tech giants raise all sorts of regulatory problems (which I summarise here) but I am not convinced that competition policy (aka anti-trust) has become irrelevant. Ed himself notes that “Every other industry has seen what happened to newspapers and music. They are on the defensive, and what is the most straightforward way of defending yourself? Size”.  But agglomeration is a short term fix.  It reduces competitive pressure and in particular reduces the pressure to innovate.  The Amazons of this world will not be beaten sluggish conglomerations of incumbents.

Which is why the Sainsbury’s/Asda merger is so fascinating.  There is an argument that it will not substantially reduce competition because there is already new competition from Aldi, Lidl and others. If so, then let the merger happen.  But, if not, it would be unwise to allow the merger and reduce the competitive pressure on the incumbents just when they need to be ramping up their efforts to stop their customers defecting to Amazon.

Either way, I am sure that the regulators understand the issues very well.

Martin Stanley

Editor, Understanding Regulation

Twitter:-  @ukregulation