Online Advertising Technology and Competition

DOI: https://doi.org/10.58248/PN705

Online advertising allows advertisers to deliver promotional materials to potential customers online. It is the primary source of revenue for most online sectors and often allows users to access online services without paying for them directly. It can also help consumers to discover new products and services, and businesses to find new customers and markets.

Online advertising technology refers to online platforms that facilitate the buying and selling of advertising space online. These transactions are often carried out through auctions that take less than a second.

The UK’s Competition and Markets Authority (CMA) has found a lack of competition in digital markets, including online advertising. According to the CMA, lack of competition in digital markets is leading to “substantial harm” for consumers through increased prices across the economy, reduced innovation, and loss of users’ control over their data.

In 2021, The Government established the Digital Markets Unit (DMU) in the CMA to promote competition in digital markets. The Government also introduced The Digital Markets, Competition and Consumers bill in 2023. It says that this Bill will grant new powers to the Digital Markets Unit to foster more competitive digital markets.

• The UK advertising sector is the third largest globally, by advertising spend. Online advertising accounted for 75% of UK advertising spend in 2022.
• Regulation of digital markets, such as online advertising, falls within the remit of multiple regulators, including the CMA, the Information Commissioner’s Office, Ofcom, and the Financial Conduct Authority.
• Broadly, there are three categories of online advertising: search advertising (adverts shown alongside search engine results), display advertising (adverts shown on the general web, including social media), and classified advertising (including listings on specialised websites).
• Online advertising often relies on digital technology that manages auctions between advertisers and publishers.
• The Competition and Markets Authority (CMA) has raised concerns that there is a lack of competition in digital markets, including online advertising, driven by market effects such as economies of scale, network effects, and unequal access to data for advert targeting.
• Harms to consumers that may arise from a lack of competition in online advertising include higher prices for goods and services and excessive extraction of data.
• Factors such as unequal access to data can create advantages for large companies, for instance, if companies that offer targeted advertising use data collected about users on one platform, to improve the targeting of ads to those users on their other platforms.
• The UK Government introduced the Digital Markets, Competition and Consumers Bill to help address competition issues in digital markets, including new regulatory powers.
• Measures to improve competition may raise issues for privacy and consumer protection, for example, if measures to address competition involve the sharing of personal data.

POSTnotes are based on literature reviews and interviews with a range of stakeholders and are externally peer reviewed. POST would like to thank interviewees and peer reviewers for kindly giving up their time during the preparation of this briefing, including:

Members of the POST Board*

Stephen Adshead, Spark Ninety*

Professor Pinar Akman, School of Law, University of Leeds*

Competition and Markets Authority*

Department for Digital, Culture, Media and Sport*

Dr Elias Deutscher, University of East Anglia School of Law/Centre for Competition Policy

Benjamin Evans, University of East Anglia

Professor Amelia Fletcher, University of East Anglia*

Google*

IAB UK*

Information Commissioner's Office*

Professor Donald MacKenzie, University of Edinburgh*

Corynne McSherry, Electronic Frontier Foundation*

Philip Milton, Meta*

Ofcom*

Guy Parker, Advertising Standards Authority

Konrad Shek, Advertising Association*

Tom Smith, Geradin Partners*

Tim Stacey, Which?*

TechUK*

*denotes people and organisations who acted as external reviewers of the briefing.