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 the 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 call is tilted in favor of one player, the high entry barriers make it difficult for a newcomer to compete, even if their product is better.
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 to 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.
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 offenses can result in penalties of up to 20%, and the porter could be barred from mergers and acquisitions.
In the future, private enforcement will be added to the public enforcement of the Commission. The DMA doesn’t explicitly state that private parties who have been harmed as a result of platform conduct that violates the DMA can sue for compensation. It does note that EU rules for collective redress of losses caused by violations 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 interdisciplinary and multi-institutional approaches, which have been neglected by 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 behavior that causes damage (“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 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.
Despite growing concern about this trend, the European competition agencies and their US counterparts have not yet prohibited a single big tech acquisition, and the question arises whether the existing merger rules, developed in the age of brick-and-mortar outlets, are fit for the digital economy. The DMA was a chance to review EU merger controls’ theories of harm and standard of proof in the platform economy.
The DMA does not regulate gatekeeper services provided to users located or established in other jurisdictions. The DMA does not restrict services offered by gatekeepers to users located and found in other jurisdictions. The “Brussels Effect” is still to be seen, as gatekeepers may comply with DMA standards even outside of the EU. Alternately, the gatekeepers may seek to offer services in countries with less stringent (or non-existent) regulatory standards. There will probably be some alignment in areas that aren’t too costly to gatekeepers, but there may also be differences on those points where they are profitable.