Should other countries adopt a similar approach?

“with great power comes great responsibility
– and impeccable behaviour”.
European Commissioner for
the Internal Market, Thierry Breton

Abstract

The Digital Markets Act (DMA) is a set of narrowly defined objective criteria for qualifying a large online platform as a “gatekeeper”. These rules aim to end alleged unfair practices by gatekeepers in the online platform economy. However, these rules impose additional burdensome obligations on these platforms. Although the DMA aims to tackle anticompetitive behaviour from Big Tech companies, the question is whether these rules could also prevent the rise of other medium-sized platforms willing to compete against these so-called “GAFA” companies. Furthermore, it has been argued that these rules, along with those from other regulators in different areas, including Telecom and Data Protection, might hinder innovation in the long run by reducing the incentives and ability of these companies to innovate and compete against each other. Yet, it is undeniable that competition authorities around the globe have invested humongous amounts of time, money and resources to prevent the same anticompetitive practices from the same type of companies. Therefore, the question remains: should other countries adopt similar measures against these companies, and if so, how?

SECTION I. THE DIGITAL MARKETS ACT

What is the Digital Markets Act?

This document aims to determine whether other countries should implement a similar approach to the one from the European Commission and use ex-ante regulation to tackle frequent anticompetitive issues arising from huge online platforms. To answer this question, I will begin by explaining what the DMA is, what it regulates and why it is configured in a specific way.

The Digital Markets Act (DMA) is a watershed European law designed to limit the power of ‘gatekeepers’ in the digital economy. Together with the Digital Services Act (DSA), these new regulations aim to end alleged unfair practices by companies in the online platform economy.

The DMA sets out rules to tackle unfair business practices by large online platforms which connect European businesses and consumers. The law will apply in parallel with EU and national competition law rules.

To be considered a gatekeeper, a company must provide one or more of the “core platform services” (CPS) specified in the DMA and pass a three-limbed test based on qualitative criteria. According to the DMA, the list of Core Platform Services encompasses Online intermediation services; online search engines; social networks; video-sharing platform services; messenger services (number-independent interpersonal communication services); operating systems; web browsers; virtual assistants; cloud computing services; and online advertising services as long as they are also offered by platforms providing any of the other CPSs.

The DMA establishes a rebuttable presumption that when a provider of CPSs meets the quantitative thresholds, the qualitative criteria are satisfied.

According to the DMA, to be considered a ‘gatekeeper’, a company must:

Key dates and current state-of-art

The DMA was published on 12 October 2022; however, its implementation is still a work in progress. That is because for the DMA to be truly effective, the EC needs to establish to whom this regulation applies in the first place. This process involves active participation from potential gatekeepers and a further assessment from the EC, as will be detailed below:

What are the alleged unfair practices expected to be tackled by the DMA?

If a company meets these criteria, it is considered a “gatekeeper”. These gatekeepers must follow a list of do’s and don’ts in its daily operations to ensure that these companies will not engage in unfair practices. This list primarily includes several practices that have been tackled through previous abuse of dominance investigations from different competition authorities around the globe. The main obligations will explained below.

A. Data access and usage

Data can be a critical asset to ensure the strength of companies/platforms in digital markets. When it comes to online platforms, data can provide online stores with a tool to leverage their position in the market. This situation is apparent in vertically integrated businesses, that is, firms in which a company controls different stages along the supply chain and, also participates in the intermediate markets. For example, Facebook is a social network where people openly share information about their demographics and preferences. Additionally, Facebook is active in the market for ad services.

In that regard, competition authorities have led several investigations to ensure that vertically integrated companies will not use the data collected in one market to leverage their position in a different market. This partice and its effects were examined in the EC investigation against Facebook.[1]

Antitrust investigations against Facebook (UK and EU The EU Commission intends to examine in detail whether Facebook’s position in social networks and online advertising allows it to harm competition in neighbouring markets, where Facebook is also active. As part of its investigation, the Commission intends to examine whether Facebook may be distorting competition for online classified ads services by using the data obtained from competing providers to target their own advertising on Facebook Marketplace to better outcompete them.   These investigations are still open.

To mitigate these risks, the DMA imposes the following obligations and restrictions while using data collected through the provision of their services.

• Ban on combining personal data. The DMA prohibits processing, combining, or cross-using personal data from multiple sources.
• Granting advertisers/publishers access to information Advertisers must receive daily information, free of charge, concerning price, fees, and related metrics for verification and calculations.
• Ban on using business users’ data to compete. CSPs cannot benefit from business data when competing against them.

B. Non-discriminatory treatment by digital services

CSPs can gain leverage their “double hat” of services providers and sellers by self-preferencing their products and services to the disadvantage of third-party competitors.

Self-preferencing theories of harm have taken a key role in European competition enforcement in digital markets. Which types of conduct exactly constitute self-preferencing is still a debated topic. Enforcement activity in Europe focuses its investigative efforts on cases where dominant vertically integrated platforms have treated their products or services more favourably to the detriment of non-affiliated rivals. Competition agencies have imposed enormous fines on Google and Amazon, and many other abuse of dominance investigations are still open.

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European Commission vs. Google 2 The EC found that Google abused its dominance in general search services by positioning and displaying its own comparison shopping service on its general search engine results page more favourably compared to rival comparison shopping services (CSSs). Among other things, the EC found that Google’s own CSS was prominently positioned at the top of the search results, displayed in a richer format and was not subject to demotion by its own algorithm. The EC concluded that Google’s conduct was capable of extending its dominant position and capable of having anticompetitive effects. In addition to the fine, the EC ordered Google to comply with the principle of equal treatment by implementing a measure of its own choosing that would subject its shopping services to the same process of determining the positioning and display on their search results.

As a result, the DMA now imposes a ban on self-preferencing and makes clear that gatekeepers are not allowed to treat more favourably in ranking and related indexing and crawling, services and products offered by the gatekeeper competing with third parties when providing core platform services without transparent, fair and non-discriminatory conditions.

C. Distribution and bundling of digital services

Sideloading and app stores

Sideloading is installing apps from places other than an official app store. Many app stores, including Apple, impose exclusivity rights on the apps they sell in their app stores, ensuring that all the apps will be purchased from them.

The best example of this practice is a class action against Google Play (Google’s app store) in the US, where class attorneys allege that Google prohibited app developers from steering customers to competitors and used misleading warnings to deter customers from downloading apps outside the Google Play Store.

The claimants also argue that, but for Google’s anticompetitive conduct, consumers would have paid lower prices for apps and in-app purchases and would have benefited from expanded choice.

Similarly, the EC opened an investigation against Apple Store.[3] This time, the investigation began after claims were received from Spotify and e-book publishers.

Apple Store The European Commission opened a formal antitrust investigation to assess whether Apple’s rules for app developers on distributing apps via the App Store violate EU competition rules. The investigations concern, in particular, the mandatory use of Apple’s own proprietary in-app purchase system and restrictions on the ability of developers to inform iPhone and iPad users of alternative cheaper purchasing possibilities outside of apps.

Another interesting example is the litigation case in the US, where Epic has argued that Apple unfairly monopolises the mobile app space with iOS and its in-app purchasing system, thereby making billions on commissions.

All these cases have in common the ability of platforms to leverage their unique position as operating system providers to reduce competition in the app market. Not only are application developers restrained from reaching their end users through the Operating System’s store, but they must also complete the transaction in the app store. Android and Apple IOS usually charge a 30% fee on the transaction. The developers pass on the fee to the end users, therefore making apps more extensive.

These concerns are included in the DMA through the following obligations:

• Allowing end users to uninstall software applications. Gatekeepers must enable end users to easily uninstall software applications on the gatekeeper’s operating system unless the software application is essential and cannot be offered stand-alone by third parties.
• Allowing installation of software applications and software application stores. The DMA also imposes an obligation to allow the installation of third-party software applications and software application stores using the gatekeeper’s operating system, accessing them by other means than the core platform services.
• Allowing business users to access end users. The DMA imposes a new requirement to enable business users, free of charge and regardless of offered conditions or selected distribution channel, to advertise towards and conclude contracts with end users via the core platform services or other channels.
• Ban on restricting third-party ancillary offerings. The DMA prohibits any limitations on business or end users to use gatekeeper’s ancillary offerings (e.g. web browser engine or payment service) when using gatekeeper’s core platform services.
• Ban on tying and bundling subscriptions, requiring business or end users to subscribe to a gatekeeper’s core platform service to use another gatekeeper’s core platform service.

As will be detailed below, these obligations have been heavily contested by owners of app stores and system operator owners, who argue that, while these obligations open the market to more competitors, they also put at risk the whole network by enabling integrations of apps that have not been put through quality controls.

D. Interoperability

Interoperability is the ability of different computing systems, software, and applications to connect and communicate with each other and to work seamlessly together. Interoperable systems can exchange and understand information between their respective applications, systems, or databases.

In the IT context, data interoperability issues can be resolved by sharing software and application programming interfaces (APIs) or setting technological standards. When companies do not share their APIs, software developers cannot create new applications that can be used in combination with another app. The lack of shared API can create barriers to entry into the market and eventually reduce innovation.

Furthermore, without interoperability between apps, end users who choose one system or technology can become dependent on that system. Once they are locked into one system, they can not switch, and hence, their choice is reduced.

The European Commission vs Microsoft [4] The EC decision of 24 March 2004 found that Microsoft Microsoft’s refusal to supply interoperability information to other market participants was a violation of Article 82 of the European Treaty. Microsoft was ordered to provide essential interoperability information to permit the development of competing products.

• Ensuring interoperability. The DMA includes an obligation to allow providers of services and hardware as well as business users free of charge interoperability with the gatekeeper’s operating system and access to the same features as the gatekeeper’s services and hardware.
• Ban on restricting switching between software applications. Ban on limiting end users from switching between different software applications accessed using the gatekeeper’s core platform service.

E. FRAND access to search data and certain digital services

The European Commission vs Amazon In July 2019, the Commission opened a formal investigation into Amazon’s use of non-public data of its marketplace sellers. In November, the Commission adopted a Statement of Objections. It found that Amazon’s reliance on marketplace sellers’ non-public business data to calibrate its retail decisions distorted fair competition on its platform and prevented effective competition. Additionally, the Commission concluded that Amazon’s rules and criteria for the Buy Box and Prime unduly favour its retail business and marketplace sellers that use Amazon’s logistics and delivery services. This investigation concluded with commitments, under which Amazon agreed, among other things: *Not to use non-public data relating to, or derived from, the independent sellers’ activities on its marketplace for its retail business. *Treat all sellers equally when ranking the offers for the selection of the Buy Box winner.

The investigation against Amazon ^[5] has shown that sometimes, behavioural remedies are far more desirable than hefty sanctions.

In that regard, the DMA now imposes the following obligations to gatekeepers.

• Granting access to search engine data: Requirement to provide third-party operators of online search engines with access on fair, reasonable and non-discriminatory terms to ranking, query, click and view data about search generated by end users on gatekeeper’s online search engines securing protection of personal data.

• Effective access to essential core platform services. The requirement is to provide business users with fair, transparent, and non-discriminatory access to gatekeeper’s software application stores, online search engines, and online social networking services based on published general access conditions, including an alternative dispute resolution mechanism.

SECTION II. REASONS TO ADOPT A SIMILAR APPROACH TO THE EUROPEAN COMMISSION

Different competition authorities worldwide have channelled their money, time and efforts towards the same economic agents, namely, the Big Tech companies, and have tried to address similar anticompetitive effects. In this scenario, it is unsurprising that the European Commission tried to implement an ex-ante approach that works as a framework for future cases instead of starting from scratch for every new investigation. In addition, traditional economic theory provides a plethora of arguments to support this approach. Some of these arguments will be now explained.

PROS

• The nature of digital markets

Digital markets are characterised by features such as big data, big analytics, strong network effects, the presence of multi-sided platforms, zero or subsidised prices, controlled digital ecosystems and switching costs for consumers. In addition, the key players active in many digital markets are often large digital online platforms.^[1] All these characteristics make this market more susceptible to displaying a polarised world where the winner takes all. Once a company has acquired enough market power, it becomes tough for a new entrant to compete with the dominant firm. Nevertheless, it would be reckless of the author not to mention recent historical exceptions that have tested this rule, for example, TikTok.

• The nature of the conduct being addressed

Many of the issues arising around Big Tech companies revolve around the collection, processing and storage of users’ personal data. This document will not expand much more on this idea, as there are several papers discussing why data is a new currency that Big Tech companies have used their privileged access to data, personal data and information to leverage their position in the market and expand on the reasons behind it is commonly said that “if you’re not paying for the product, you are the product”.

While specific objectives and criteria can and should be taken into account in competition enforcement, others are beyond the scope of the competition law as currently understood, and it is generally more appropriate to tackle these policy issues with specific legislation. For example, while it has been argued that data protection can be integrated under competition law as a critical non-price parameter of competition, namely under quality, it would not be easy to achieve the same aims and level of protection that were adopted in the GDPR. These market-wide issues are not related to the dominant position of an undertaking but stem from market failures such as asymmetric and imperfect information. In this context, ex-ante regulation serves to correct and remedy market failure, which competition law alone is not necessarily designed to address.

The use of ex-ante regulation has been successfully used in the past, and therefore, we can expect it to be a successful tool to address market failures in this arena.

• Procedural limitations of competition law enforcement

3.A) Scope for intervention. While competition law may intervene in many sectors, its scope in the EU is limited to agreements between undertakings (Article 101 TFEU) or abuse of dominance (Article 102 TFEU).9 However, as we have seen in the previous section, many of the conducts that are being challenged by different competition authorities do not fall under any of these articles because most of the sanctions are trying to correct inevitable systemic market failures, as opposed to traditional anticompetitive behaviours. Market practices or functioning falling outside of Articles 101 and 102, even if particularly harmful, both towards other businesses and final consumers, cannot be corrected with the existent competition law rules.

That is the reason why the DMA also introduced market investigations as a better tool to deal with market failures. Recent cases from the Competition and Markets Authority, the UK’s competition agency, have proven that market investigations can be more effective in dealing with market failures because they offer a broader scope for intervention. However, they have also shown that these investigations also require time and resources, which can ultimately hinder their depth and impact.

3.B) Case-by-by-case approach.

The vast list of examples mentioned above can confirm that competition authorities worldwide are somehow duplicating efforts, as they are all assessing the effects of similar conducts in their local markets. Moreover, the same authorities are investigating similar behaviours from different market participants. This situation is more problematic if we take into account the amount of time needed to complete every single investigation. For example, the European Commission investigation against Google shopping took seven years, let alone the additional time required to reach the point where all the judicial tools have been exhausted.

In a scenario where authorities are confident about the market failures that they need to tackle, it makes sense to adopt an erga omnes approach.

3.C) Timing. As briefly mentioned in the previous section, competition law enforcement in digital markets tends to be complex and time-consuming. As the economic theory of sanctions will remind us, timely sanctions are necessary to create a deterrent effect. Therefore, having effective ways to reduce the time between the conduct and its sanction can be highly beneficial to correct market failures in the long run.

3.D) Redress. Finally, the absence of erga omnes effects of antitrust decisions means that third parties directly impacted by the same anticompetitive conduct in other markets or by other market players cannot immediately rely on the finding of an infringement to claim damages before national courts. Therefore, final consumers who were affected usually need to wait more than a decade to file a private claim for damages.

CONS

• Expensive enforcement

The European Commission will enforce the DMA as the sole enforcer of the rules in close cooperation with national competition authorities in the EU Member States. The Commission will impose penalties and fines of up to 10% of a company’s worldwide turnover and up to 20% in case of repeated infringements. The Commission can also impose behavioural or structural remedies.

In addition, the DMA gives the Commission the power to conduct market investigations to ensure that the obligations set out in the DMA are kept up-to-date in the fast-paced reality of digital markets.

These new market investigations will allow the Commission to:

• qualify companies as gatekeepers
• update dynamically the obligations for gatekeepers when necessary
• design remedies to tackle systematic infringements of the Digital Markets Act rules

Although this tool will allow more flexibility to adapt to a fast-evolving market, it also means that the DMA can only be truly effective if it is constantly being monitored and adjusted according to the particular circumstances beyond the usual enforcement powers needed to render any law effective, which in turn opens the door to question the merits of a law that is already being expected to be short-lived as it is, and whether it would have been enough to add new powers to the European Commission to conduct market investigations.

• Overregulation

Finally, the DMA has opened the door to questioning whether regulators are taking an extremely cautionary approach and whether the complex nature of the digital markets has resulted in an unnecessary overlap of functions and powers that ultimately result in an impossible arena to navigate.

Currently, big digital platforms are being monitored and regulated by the telecom authorities to ensure online content is safe; additionally, data protection authorities have imposed hefty sanctions on Big Tech companies arising from illicit data transfers and data breaches.

For example, OFCOM, the UK’s communications regulator, has recently become the “watchdog” and now forces social media firms to act over harmful content. While it is undisputed that enhanced controls were needed to guarantee internet safety, it is also undeniable that new regulations have imposed a massive burden on online platforms.

Additionally, the Data protection authorities are imposing more and more obligations in terms of both data protection and privacy.

It is undeniable that these controls are very much needed, and at no point am I suggesting otherwise; nevertheless, authorities and regulators should be more mindful of the costs associated with compliance with all of these rules and whether there could be a more coordinated approach from different authorities to avoid duplicity in functions, stepping on one another’s shoes, or simply allowing enough breathing room to foster competition and innovation.

• Cybersecurity concerns

It has been argued that the DMA will do the opposite of what has been recommended by cybersecurity experts when it comes to sideloading. As explained before, Apple and Android stores have several measures in place to mitigate security risks like malware applications or dark web cyber tools; however, by allowing inexperienced end-users to choose the apps they can use and where they want to get them, they are also putting at risk the whole ecosystem. As explained by New York University Law Professor Daniel Francis in his testimony before the Senate Judiciary Committee regarding the new AICOA and OAMA in the US: “Platform decision-makers should not be given a choice of either letting suspicious third-party apps and entities into their ecosystems or facing the threat of complaints, investigations, litigations, injunctions, and penalties.”

SECTION III. Conclusions

Is there more than one view on this topic?

Although, at this point, it is evident that the European Union has reached a consensus, other countries around the world have decided to keep a more cautionary approach for now.

For example, in the US, there is a heated debate over how the Biden administration should approach tech regulation. However, they have shown a preference for a more steady approach to favour innovation, which is consistent with their usual position when it comes to free market versus regulation.

Conversely, the UK seems to be willing to adopt a similar approach to the European Commission. On 25 April 2023, the UK published the Digital Markets, Competition and Consumers Bill (the UK Bill). This Bill proposes wide-ranging reforms to UK competition and consumer law, including obligations for digital platforms with “strategic market status” (SMS).

The UK proposals follow a similar structure to the DMA, with the Bill expected to enter into force in Autumn 2024.

Should other countries adopt a similar approach?

Although the DMA is a new regulation, we must take into account that most obligations included in the DMA are the result of several case law precedents and years of investigative work during which the EC has listened to competitors, businesses, think tanks and end-users. Therefore, these measures come from a deep understanding of the market and its functioning.

However, their positive effect has yet to be tested, and authorities will probably need a few more years to assess the impact of the DMA. So far, the Google and Amazon cases have shown that the effect of these measures relies heavily on the enforcement powers of authorities. Without a credible possibility of being sanctioned, economic agents will not change their behaviour. Moreover, without hefty sanctions, some economic agents might decide to “pay for their behaviour” and pass the costs on to businesses or end-users. In that regard, implementing other DMAs around the globe without credible enforcement powers might not always be as effective.

Another important consideration is that these are fast-evolving markets where rivals can quickly appear, disappear or change the landscape. As of today, Big Tech companies have done an excellent job of restraining each other and exerting competitive pressure through innovative products and services. Look at Chat GPT followed by Barb, the Google version. Several examples show that these companies are competing fiercely. As a result, we have experienced a massive change in the last few years. In this scenario, it is valid to question whether end-users would actually benefit from more regulation on online platforms at the cost of reduced innovation. We must remember that regulation is a barrier to entry, and regulated markets are not as easily accessed by new competitors. It is hard to believe that a  “garage start-up” will be able to face both the BigTech companies and regulators. 

Nevertheless, the DMA is a brave and impressive attempt to explain what behaving competitively in a digital market looks like. The eyes of the world have turned to Europe, and it is time for other competition authorities to watch and learn.

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^[1] More information on the investigation is available on the Commission’s competition website, in the public case register under case number AT.40684.

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[2] https://ec.europa.eu/commission/presscorner/detail/es/MEMO_17_1785

[3] More information on the investigation is available on the Commission’s competition website, in the public case register under the case number AT.40437. 

[4] https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2007:032:0023:0028:EN:PDF

[5] More information on the investigation will be available on the Commission’s competition website, in the public case register under case number AT.40462.

[6] OCDE. Ex-Ante Regulation and Competition in Digital Markets, 2021. Available at https://one.oecd.org/document/DAF/COMP/WD(2021)66/en/pdf