Google and Facebook’s stranglehold over the £14 billion digital advertising market will be examined by the UK competition watchdog amid concerns over the dominance of technology giants.
Chancellor Philip Hammond said the Competition and Markets Authority (CMA) will conduct a market study of digital advertising as a “first step towards implementing reforms”.
It follows a report earlier on Wednesday from Harvard professor Jason Furman on the digital market, which warned the biggest tech firms have become too dominant and called for a new competition unit to help increase consumer choice.
Mr Hammond welcomed the report and its “far-reaching” recommendations.
He said: “The UK will remain a great place to do digital business, but it will be a place where successful global tech giants pay their fair share, where competition policy works in consumers’ interests and where the public are protected from online harms.
“Under this government, Britain will lead the world in delivering a digital economy that works for everyone.”
In his report commission by the Chancellor, Mr Furman – Barack Obama’s former chief economist – recommends a competition unit is created and backed up with legal powers to help users maintain more control over their data online and more easily switch between platforms and services.
It also urges the creation of a code of conduct and the strengthening of regulatory powers to tackle anti-competitive behaviour.
Harvard professor Jason Furman, who led the review, said: “The digital sector has created substantial benefits but these have come at the cost of increasing dominance of a few companies which is limiting competition and consumer choice and innovation.
“Some say this is inevitable or even desirable.
“I think the UK can do better.”
He said the review’s proposals would give people more control over their data, give small businesses more of a chance to enter and thrive, and create more predictability for the large digital companies.
The review also recommends changes to merger rules so that the CMA is better equipped to stop mergers that are considered likely to damage future competition or consumer choice.
In addition, it calls for the introduction of powers that would force large companies to open up to smaller firms by providing access to certain data, where doing so would not affect user privacy.
The review said if the proposals were adopted it could help boost the economy by encouraging the development of new platforms alongside established names.
It comes amid mounting demands for an overhaul of digital tax and regulations, with Sky boss Jeremy Darroch last week backing plans for reforms as he warned over the “dangerous dark side” of social media.
Damian Collins MP, chairman of the House of Commons Digital, Culture, Media and Sport (DCMS) select committee also backed the review’s recommendations.
He said: “This comes at a critical moment ahead of the beginnings of regulation from government to rein in the powers of the tech companies.”
It comes amid mounting demands for an overhaul of digital tax and regulations for social media, with the likes of Sky and News Corp recently making high profile calls for change.
Later this month, a government white paper on online harms is expected to be published, which is likely to include some proposals for new rules on social media platforms and internet companies.