The Competitions and Markets Authority (CMA) said that a lack of real competition to Google and Facebook could result in a lack of proper choice for consumers and higher prices for advertisers - which can mean cost rises for products such as flights, electronics and insurance bought online.
The interim report, part of a consultation into the sector, also warned that the tech giants could be “undermining the ability of newspapers and other publishers to produce valuable content” in Britain.
The CMA said it was likely to make recommendations to the new Government as to how to regulate the sector, including rules governing the behaviour of online platforms and giving people greater control over their own data.
The watchdog found that Google accounted for more than 90 per cent of all revenues earned from search advertising in the UK, with revenues of around £6 billion, while Facebook accounted for almost half of all display advertising revenues in the UK, reaching more than £2 billion.
CMA chief executive Andrea Coscelli said: “Most of us visit social media sites and search on the internet every day, but how these firms work can be a mystery.“So far in this study, we have used our legal powers to discover how major online platforms operate. Digital advertising fuels big businesses like Google and Facebook and we have been building a picture of how this complex new market works. We’ve looked especially at how these firms collect and use people’s data, how they monetise it and what this means for rival companies who want to compete, as well as the people and businesses using these services every day.”
He added: “We’re now inviting comments on what we have found. At the end of the study, we’ll present our findings to the new Government as they decide whether and how to regulate what is an increasingly central sector in all our lives.”
The work is part of the CMA’s wider digital strategy, which aims to co-ordinate the authority’s approach to tackling the new challenges of the rapidly developing digital economy. The authority will now consult on the contents of today’s update ahead of publishing its final report next year.
The CMA has also found that the default settings people are faced with online have a profound effect on choice and the shape of competition. Last year in the UK, Google was willing to pay around £1 billion – 16 per cent of all its search revenues – where it was the default search engine on mobile devices such as Apple phones.
Christian Ahlborn, global head of competition at Linklaters, said: “With its interim market study report on digital advertising, the CMA signalled its desire for a new regulatory regime for tech platforms in the digital advertising market. All this suggests that 2020 will be a year of intense scrutiny by the CMA of the digital advertising market as it seeks to address some clear, global concerns about the sector."