The golden age of internet transparency is collapsing – and no one wants to regulate for the strangest reasons

The Competition and Markets Authority last year handed down the bizarre ruling that it would harm competition to require price comparison websites to show customers all the available home energy deals

The internet has become a part of almost everything we do – it makes sense to regulate it, so why won’t anybody do it? (Getty/iStock)

The golden promise of the internet was the creation of an Eden of transparency and efficiency. We would be able to compare prices for all manner of goods and services at the click of a mouse button. It would complete markets and empower customers.

To an extent the promise has been fulfilled. Anyone old enough to remember what it was like searching for an out-of-print book or reserving a flight before the days of the internet will know what technological progress feels like.

But there are glitches in the consumers’ digital Eden. Three years ago it emerged that price-comparison websites were not showing home-energy-supply deals from providers that did not pay the sites commission in their search results – even if those deals might be better value for customers.

And last week hotel-booking websites were put under the spotlight, with competition authorities announcing they will investigate whether these sites are giving a higher ranking in search results to rooms from hotels that pay them a larger commission.

Network effects are immensely powerful in the digital world. You tend to go to the digital marketplace or forum where everyone else congregates. Part of this is consumer inertia – we don’t have the time or the inclination to switch or to research other marketplaces. Part is the effective penalty one pays for going against the grain. What sense does it make to log on to the price-comparison website with the worst coverage of suppliers? What’s the point of being on a social network where none of your friends can be found?

The internet means an intensification of competition for providers of all goods and services except, ironically, for platforms themselves. Once a platform has established itself, it can have a largely unassailable competitive position.

And dominance confers market power. The potential to abuse that power and profiteer at the expense of the consumer and also suppliers is large. For giants in the areas of search (Google) and social media (Facebook) that power is truly colossal.

Some have suggested authorities should regulate these platforms much more tightly, treating them almost like public utilities with a natural monopoly such as water or rail. Others have urged a more restrictive approach to mergers and acquisitions in the digital sphere, to stop dominant players buying up future competitors, as when Facebook snapped up Instagram and Whatsapp.

There are certainly potential costs in regulators taking on such a beefed-up role. In a fast-moving technological environment, there’s a risk interventions could accidentally quash innovations that would ultimately prove beneficial to consumers.

Yet at the moment we seem to be faced with the opposite problem, certainly in the UK. Despite the outcry over price-comparison websites’ failures to show all the deals on the market, the Competition and Markets Authority (CMA) ruled last year they should not be mandated to do so.

It offered the bizarre reasoning that such a transparency requirement could actually harm competition because suppliers might stop paying to appear on the platforms, potentially undermining the entire price-comparison industry.

This tortured logic is sadly in line with the limp conclusion last year by the CMA on UK current-account banking, in which the authors gave the impression of believing that if consumers fail to behave in the way basic economic theory suggests they should, then the fault lies with the consumers rather than the structure of the market.

As online network platforms continue to expand in size and importance, we urgently need to move away from this kind of blinkered regulatory philosophy. Otherwise, we can expect much more trouble in digital paradise.