Navigating the UK’s DMCC: How can firms prepare?

With increased investigative and enforcement powers for the Competition Market Authority (CMA), firms selling to UK consumers will face significant repercussions if they're found to be in breach of the new regime.

What is the DMCC?

The DMCC constitutes a major overhaul to consumer protection and competition law, marking the UK’s answer to the EU's Digital Markets Act (DMA) and Digital Services Act (DSA).

It affords substantial new powers for the CMA, including new direct enforcement powers: the ability to decide, without court proceedings, whether there have been breaches of consumer laws, and impose remedies and substantial fines – on companies or individuals. It also formally establishes the CMA’s Digital Markets Unit (DMU) to focus on regulating the most powerful digital firms to protect consumers and promote competition.

New rules are expected to come into play from 2025 through secondary legislation. Changes are to be phased in, with provisions relating to consumer law enforcement and unfair trading regulation expected to take effect in April 2025. The new digital markets regime and competition reforms are expected in December 2024 or early 2025.

Greater consumer protection and bans on unfair pricing practices

Under new consumer law, there will be a greater focus than ever before on pricing transparency and other unfair commercial practices, addressing consumer protection issues that the CMA has previously examined. Firms’ pricing practices will be under greater scrutiny, as the DMCC bans practices such as the ‘drip pricing’ of unavoidable fees, which has been found to be particularly prevalent in the transport and telecommunications sectors. Firms must show total prices upfront or clearly explain how prices will be calculated.

Similarly, bait and switch selling is likely to be more of a focus, where a seller advertises a product at a low price (the bait) to attract customers but then steers them to a more expensive option (the switch) once they try to make the purchase.

Fake reviews and subscription contracts are also targeted under the DMCC, with new pre-contract information requirements for subscription contracts, and mandatory consumer notification before free trials or low-cost offers end.

This is potentially crucial for the retail sector. As an illustration, on 25 October 2024, the CMA opened an investigation into the mattress company Emma, related to practices such as discounts and urgency claims, including countdown timers and high-demand prompts, alleging that this may mislead customers. The potential penalties are significant – from April 2025 the CMA can determine for itself whether consumer law has been broken and can fine companies up to 10% of their global turnover.

Many Oasis fans might look back in anger at how tickets were sold…

Dynamic pricing

Many will recall the recent scramble for Oasis tickets, which sparked debate around the use of dynamic pricing – that is, where the price of a good adjusts in real time based on the demand for a product – in addition to questions around its implementation and whether it's perceived to be fair.

Consumers are familiar with dynamic pricing in a range of contexts, as it's often used for flights, hotels, and notably taxi apps like Uber, where it's seemingly accepted. Dynamic pricing can allow supply and demand to balance, as those consumers with a higher willingness to pay purchase the product, while those who don’t, opt not to purchase. However, there was public outcry when, after thousands waited hours in online queues, Oasis ticket prices were double the price initially listed.

Economic theory suggests tickets could have been initially underpriced given overwhelming demand – dynamic pricing was then used to increase ticket prices in response to demand. While this may be more efficient from an economic perspective, it can raise distributional concerns as some were excluded by the higher price. In any case, the issues of interest relating to the sale of Oasis tickets were likely to be more about transparency and consumers’ understanding of the approach, rather than the pricing method itself.

Behavioural science

Much of the conduct which the DMCC seeks to address is related to the field of behavioural economics. Behavioural science tells us that transparency and the ‘choice architecture’ of a website can lead to changes in consumer behaviour – and potentially consumer harm.

A key observation is system 1 and system 2 thinking, which describes two types of human thinking – fast and slow. Thinking slow is the closest to the economic model of rational choice theory, and occurs when people can use their full cognitive abilities to make choices. By contrast, thinking fast deploys heuristics (rules of thumb) or in some cases, avoids a decision at all.

In cases such as concert tickets, with baskets having timers on Ticketmaster and other selling platforms, consumers are rushed to purchase, or risk losing out. Altogether, these aspects of choice architecture – the way in which options and information are presented – can encourage consumers to make rash decisions and employ our 'thinking fast' decision making. This can lead to different decisions than our 'thinking slow' decision.

How we can use behavioural and quantitative economics to assess a potential breach

To explore whether the dynamic pricing that was employed was sufficient to breach CMA regulations, we consider two key issues: (i) whether the dynamic pricing led to a change in consumer behaviour and (ii) whether this change in behaviour resulted in consumer harm.

With regards to the first issue, it's likely that dynamic pricing led to a change in consumer behaviour. Certain consumers with a relatively low willingness to pay were only enticed to purchase a ticket at the initially low advertised price, and would have never entered the online queue had they known the price would rise dramatically once they arrived at the front. These consumers would have behaved differently in a scenario where dynamic pricing was never used. The choice architecture – with timeouts on baskets, and consumers having a limited amount of time on the website before having to queue again, encouraging them to check out or risk losing their tickets – all encourages consumers to use their thinking-fast brain, disengaging them from their rational decision-making process. This has the potential to lead to harm.

The second issue is more nuanced and we would need to consider what consumer outcomes would have been had dynamic pricing never been employed. This hypothetical scenario is called the counterfactual. It may be that without dynamic pricing, customers with a low willingness-to-pay may have never bought the tickets nor waited in the online queue, if they have known from the outset that the price would be higher than what they would be willing to pay. These customers would have suffered harm due to dynamic pricing to the extent that they were nudged to purchase the tickets above their willingness to pay (and, perhaps, due to the excessively long queue times).

However, not all customers may have suffered harm. There are likely to be some who would have happily paid the higher price at the outset, prior to queuing. In fact, they may have fared just as well (if not better) than they would have under the counterfactual scenario if the ticket prices under dynamic pricing were equal to (or even less than) the prices that would have prevailed on the second-hand market, if this were allowed, and if dynamic pricing wasn't employed. Second-hand ticket markets are notorious for exorbitant prices, especially for highly sought-after events (such as the reunion of Oasis).

We can help you prepare

To avoid contravening the new legislation, companies need to put greater consideration on their pricing strategies. We can provide a range of analytical support, which can include independent reviews of documents, websites and marketing approaches, which consider whether these approaches could create any DMCC concerns. We can also support firms where they're subject to CMA investigations in this area through independent expert advice.

Our team of experts is also highly experienced in matters related to consumer welfare and counterfactual reasoning and can deal with complex cases arising from the CMA’s enforcement of the DMCC. Our theoretical expertise is also complemented by a strong track record of evidencing behavioural phenomena with quantitative analysis (ranging from peer benchmarking through to the design, implementation and analysis of randomised controlled trials) to provide our clients with the robust evidence base they need to demonstrate compliance with the DMCC. We do this through the consideration of empirical evidence from existing behavioural literature as well as undertaking our own analysis on data we've gathered and applying state-of-the-art econometric approaches.

We can also act as independent experts if you're subject to a CMA investigation under the DMCC. This expert analysis could also include consideration of potential consumer impacts using econometric analysis.

To discuss the DMCC and any guidance you may need, get in touch with Schellion Horn or April Chiu.