Comment

The EU Digital Markets Act: Poor quality regulation?

Matthias Bauer / Feb 2022

Image: Shutterstock

 

The proposed Digital Markets Act (DMA) was considered an opportunity to prevent and remedy anti-competitive conduct in digital markets. However, the initiative has become one of the most controversial economic policy initiatives of the von der Leyen Commission.

The Commission proposal from December 2020 has now entered the Trilogue process, after receiving more than a thousand suggestions for amendments submitted to the European Parliament’s IMCO committee. Many parliamentarians called for profound changes regarding the definition of gatekeepers, the scope of obligations and enforcement procedures. Academics and businesses caution that the DMA will increase legal uncertainty for providers and users of digital services. And the US government pressured the EU to rethink the initiative and warned against unintended consequences for Member States’ economies.

In a new ECIPE study, we detected several ambiguities in the DMA’s objectives and concepts, which risk leading to a counterproductive regulation and a rising number of legal disputes. Taking into account established principles of good regulatory design, such as the OECD’s recommendations for agile regulatory governance to harness innovation, we compared key parts of the current DMA proposal with similar legislation implemented or proposed in Germany, the United Kingdom and the United States. We find that all proposals have their strengths and weaknesses. However, in several key areas the EU could learn from other proposals to make the DMA more fit for purpose and avoid unintended consequences on Member States’ economies.

All new business regulations face similar challenges. However, some regulations face more challenges than others, and this is especially the case for regulations – like the DMA – that go to the heart of innovation and target complex technology and services. Regulators are then confronted with matters that are difficult to place in a conventional model of regulation, such as specific product safety policies. In the case of the DMA, which is a horizontal regulation, the effect can be extraordinarily powerful because it works at the frontier of technological developments and rapidly changing markets. The risk is that a poorly designed regulation will have an outsized negative impact on EU Member States, e.g., access to innovative services by users in smaller European countries.

The DMA takes a novel approach to regulation, and novelty in regulation can lead to regulatory solutions and economic outcomes that later have to be corrected. This is why international organisations frequently push governments to improve the quality of regulation through principle-based policymaking. These principles include measures to improve the quality of evidence, regular stakeholder engagement, and helping innovators navigate regulatory requirements. For instance, several underlying studies for the DMA have pointed out that there is a delicate balance between, on the one hand, regulating platforms that potentially use anti-competitive strategies in winner-takes-all markets and, on the other hand, the positive network effects of large platforms. The current draft of the DMA proposal does not appropriately recognise this balance. It provides an vague conceptual framework that does not appropriately account for actual evidence of harm and the need for regulatory dialogue.

Take clarity and coherence of the DMA’s stated objectives. The DMA proposal has a multitude of objectives, some of which are anchored in traditional competition policy. The overarching objectives are fairness, competition and contestability, while innovation and consumer protection seem to enjoy a lower priority. While these objectives can be associated with the underlying theory of potential harm that seems to have guided the DMA, some lack specification and reasoning. For example, contestability by smaller firms over contestability by platform peers is favoured without a clear justification. Similarly, the proposed US Access Act of 2021, provides objectives that lack specification and clarity. However, the US Access Act is a fairly narrow regulation when compared with the DMA, chiefly addressing rules for interoperability to lower entry barriers and switching costs for consumers. Like the DMA proposal, the overarching objectives of the UK proposal are to encourage competition and innovation while ensuring consumer protection. However, the UK proposal is more linked to traditional competition policy. Like GWB10, its design options do not rely on self-executing obligations. Germany’s Act Against Restraints of Competition (GWB10) primarily aims to prevent abusive practices by companies that are found to have market-dominant positions.

As concerns the clarity of obligations, the DMA is a hybrid proposal: parts of its obligations are self-executing while others are “susceptible of being further specified” before they are enforced. The DMA seeks to regulate certain types of conduct that are – by default – considered “unfair” and “limit contestability”. Many rules lack precision. Rules on self-referencing seem a priori relatively clear, but might raise uncertainty when applied to different business models. Other obligations that are not clear in scope and their precise form include broad rules for the processing and combination of data, measures related to interoperability, and measures imposed on successful companies that “risk” developing towards an “entrenched and durable position” in a DMA-relevant market. It is not always clear to which products these obligations apply and how broad or narrow they are to be construed. As guidance by case law is missing, companies would need guidance from the Commission to avoid overenforcement and unintended harm on users. Germany’s GWB10 also lacks some clarity with regard to obligations but takes a case-by-case analysis and permits companies under investigation to sufficiently justify their conduct, which may limit the possibility that unharmful conduct is banned. Also, the proposed US “Ending Platform Monopolies Act” has clearer obligations, and because of its narrow focus the proposed US “Access Act of 2021” gives much more clarity about what its obligations mean. The UK regime seems to be considering other options than self-executing obligations, also taking a case-by-case approach.

In its current form, there are several ambiguities in objectives and obligations that risk leading to an ineffective regulation and a rising number of legal disputes – in other words, a digital markets regulation that will not address the problems that motivates it in the first place. Fortunately, the EU is not alone in experimenting with new regulations that specifically target large digital platforms. There is great scope for the EU – and others – to learn from the choices made in similar regulations in Europe and the United States. Based on our analysis, we recommend some changes of the DMA, including 1) a narrowing of objectives and clarification of how they relate to the adequacy of intervention; 2) a clarification of the concept of core platforms services; 3) a clarification of designation criteria for gatekeepers and extension by additional parameters; 4) a clarification of obligations and how firms can comply with them; and 5) better opportunities for regulatory dialogue and the right to defence.

Matthias Bauer

Matthias Bauer

February 2022

About this author ︎►

cartoonSlideImage

Brexit Deal

See the bigger picture ►

cartoonSlideImage

May 9

See the bigger picture ►

cartoonSlideImage

Orban oil

See the bigger picture ►

cartoonSlideImage

The Nightmare

See the bigger picture ►

cartoonSlideImage

Impossible

See the bigger picture ►

cartoonSlideImage

Moskwa

See the bigger picture ►

cartoonSlideImage

Ukraine map

See the bigger picture ►

cartoonSlideImage

Nazis and Liberators

See the bigger picture ►

soundcloud-link-mpu1 rss-link-mpu soundcloud-link-mpu itunes-link-mpu