The Digital Markets Act has some flaws, and there are still many questions. However, it is more likely to curb the market power of big tech than competition laws and will change the way gatekeeper platforms work in Europe. The aim is to fix the shortcomings and weaknesses highlighted in the Furman Report from the UK, the Stigler Report from the US, and the Vestager Report for the EU. All three reports argued, in particular, that the core platform market is dominated globally by one or more of five companies, namely Google, Apple and Facebook.
The DMA’s goal
This high level of market concentration is due to a combination of factors that are unique to digital platform markets. These include strong Network Effects and high returns on data use, as well as scale and scope economies and the ease with which Consumer Biases can be exploited. This combination of factors makes markets susceptible to tipping towards one or two players. Once a market is tipped in a particular direction, the high entry barriers make it hard for newcomers, even with arguably better products, to compete.
The DMA has two objectives: first, to lower barriers to entry into digital markets and make them more competitive. The second objective is to make the digital markets more fair for businesses and users by setting some ground rules.
The DMA will require gatekeepers adhere to strict conduct rules. The European Commission will first designate them, and GAFAM is expected to be on the list.
Penalties and rules for violations of conduct
Gatekeepers have six months from the date of their designation to adhere to the 22 conduct standards contained in Articles 5 – 7 of the DMA. Included are:
Obligation to share data with customers and competitors
Consumers can download apps from outside the app store of their firms
Interoperability required for certain communication systems
Public disclosure of user profiling techniques
Search results can no longer favour the own service
It remains to be determined how big tech firms will adapt to these new obligations. Non-compliance can lead to severe financial penalties. A single violation could result in a fine of up to 10% of the gatekeeper’s global turnover. Repeat offences can result in fines of up to 20% and the gatekeeper could be barred from mergers and acquisitions.
The Digital Markets Act was adopted by the European Parliament and the Council of the European Union last summer. Wikimedia CC-BY-SA
Stringent rules despite significant lobbying efforts
The EU’s Digital Markets Act was the first to be introduced. Other jurisdictions, such as the United States or the United Kingdom, are also considering similar legislation.
There has been a lot of pushback because it is a complex experiment which will cost the European Commission as well as the gatekeepers significant money. American tech companies, in particular, have argued that DMA is biased against US companies and will harm European consumers as it will affect GAFAM’s incentives to innovate and service quality. Big tech has reportedly been involved in substantial lobbying efforts aimed at averting or at least toning down the Commission’s initial legislative proposal.
These efforts have been in vain if you look at the results. The final version of the DMA text is actually stricter than its draft. The European Parliament played a crucial role in expanding the list of services that the DMA covers. It also added new conduct rules and increased penalties.
National competition agencies: their role
Not only the big tech companies were unhappy with the Commission’s legislative plan. The EU’s competition agencies led by Germany France and the Netherlands agreed with the DMA in its substance but wanted to be more involved with DMA enforcement.
In a rare statement all 27 agencies claimed that they could provide expertise and resources in order to improve the enforcement of DMA. Once the DMA comes into force, national regulations will be displaced and only national competition rules, which require a specific assessment of each case’s market power, can remain. In its final form, the DMA empowers national agencies to launch investigations and gather evidence. To ensure a uniform enforcement approach, the Commission alone is currently qualified to assess the DMA’s conduct and issue noncompliance decisions.
In the future, private enforcement will be added to the Commission’s public enforcement. The DMA doesn’t explicitly state that private parties who have been harmed as a result of platform conduct in violation can sue. It does note that EU rules for collective redress of losses caused by breaches of EU law will apply to DMA violations.
The DMA incorporates many of the core concepts from the General Data Protection Regulation, and it requires that the Commission work closely with the data protection bodies. This is a positive step since regulating data-driven business models requires a multi-disciplinary and inter-institutional strategy, which was ignored in EU competition law.
The scope for fine-tuning DMA rules
The DMA’s heavy reliance on per-se rules has been criticized. This is because the rules do not require proof of actual harm caused by the investigated conduct but instead outlaw it as such. They have both advantages and disadvantages.
The DMA is relatively inexpensive and easy to enforce. This means that it could be more effective than EU competition law. Abuse of Dominance Rules requires extensive economic analyses, resulting in investigations that can last up to five years.
The per-se rules are blunt. They may ban conduct that does not actually cause harm (leading to “false positivities”), and they may miss conduct that causes harm (“false negativities”).
A firm can circumvent them by adapting its conduct in order to achieve an anticompetitive outcome, even if it isn’t explicitly prohibited.
In its final form, the DMA will contain many correction mechanisms, which would allow the Commission, if necessary, to make changes in the rules. The Commission should closely monitor both the impact of the DMA on consumers and businesses and not hesitate to intervene if needed.
Can the DMA reach its goals?
The DMA has a shortcoming in that it doesn’t address the issue with gatekeeper acquisitions. GAFAM has acquired over 800 companies in a relatively short period. GAFAM acquired many innovative start-ups that developed complementary technologies. These firms then integrated these complementary technologies into their ecosystems. WhatsApp is one such example. In 2014, Facebook acquired WhatsApp for US$19 Billion. The deal continues to be in the news, but not always for the right reasons. In 2017, the EU fined Facebook 110 million euros for giving “misleading” information about the takeover. And in 2020, the US Federal Trade Commission filed a lawsuit against the company over “illegal monopolization.