In a little less than a month, the European Union’s Digital Markets Act (DMA) will start to bite, but how will it taste?
By March 7, companies that were designated as “gatekeepers” in September 2023 will be required to meet the obligations of Articles 5, 6, and 7 of the DMA Regulation. With the exception of ByteDance Ltd., the Chinese owners of TikTok, all of the designated companies have, by now, presented compliance proposals. The DMA’s expected beneficiaries (and, arguably, the loudest in favor of its passage) have been disappointed by some of these proposals, and seek more. But should the European Commission grant them what they are asking for?
It bears remembering that the DMA applies to only a handful of mostly U.S. tech companies (a far narrower and more targeted set than initially advertised). It designates companies based on quantitative thresholds, not any analysis of market power (as evidenced by the fact that there are multiple services within nearly every category of “core platform service”). It imposes competition-law remedies drawn from a series of competition-law investigations, not settled case law. It also applies these remedies out-of-context, and with very limited safeguards (no considerations for value creation, or what would be best for the ecosystem overall).
For example, the DMA mandates that rivals have access to the infrastructure, features, and functionalities of designated platforms on equal terms to those of the platform owner. It does this ostensibly to promote ambiguous notions of “fairness” and “contestability,” which some say opens the door to discretionary enforcement, moving targets, and shifting goalposts. If true, the European Commission can do effectively whatever it wants to achieve its aims.
Given this, there is a clear need for goalposts to ascertain whether enforcement is delivering benefits to consumers. There will even be some at the Commission who recognize that, in the absence of limiting principles, they will be subject to rent-seeking, requests for protectionism, and unending lobbying demands for ever-greater concessions. This is not an ideal outcome. Commission officials are also cognizant of the risk that interventions will have unexpected and undesirable consequences, particularly where complainants’ arguments are based on specious theories of harm.
Until now, however, the common refrain has been that the DMA establishes a “clear list of ‘dos and don’ts’.” Companies know the “rules of the game” and the only question is whether or not they choose to follow them. In other words, what matters for the Commission is whether companies follow the letter of the law. The goalposts were presumably set from the start.
Opportunity-to-Contest Versus ‘Fair’ Outcomes
Not so many years ago, European Commissioner for Competition Margrethe Vestager said that “[w]e don’t need a new rule of fairness in our system. Because fair markets are just what competition is about.” In other words,at least under competition law, a fair competitive process is the policy objective, not some arbitrary notion of what is fair to whomever complains the most or is the most politically favored. Competition law protects the process of competition, not “fair” outcomes for rivals (as the latter increases the risk of regulatory capture, which some have dubbed “swampetition”).
This distinction between a fair process and fair outcomes is even more important under the DMA. Commission officials have stated that the DMA is about creating the opportunity for platforms’ business users and rivals to take advantage of the DMA’s access provisions. But the coming months will test whether they stick to their guns.
If the goal is to have a fair process—rather than particular outcomes—then successful enforcement (and compliance) does not require that rivals actually take advantage of the opportunities offered by the DMA, nor that users choose to switch to their services. After all, if users choose not to switch to European alternatives, it could simply be because users still deem the services of the designated companies as superior, on the merits. It’s a possibility that Commission officials have to consider.
For example, there may be a plethora of new cross-platform mobile-app stores available post-DMA, but consumers may find their selection of apps unappealing; app developers may find it uneconomical to port their apps and maintain separate distribution channels; and some of these app stores may never approach the scale of the stores most closely associated with the device operating system. It could be that users have chosen their devices specifically because of the ecosystem, and don’t actually care for the services of other ecosystems.
It would be hard to convince the average citizen that a regulation ostensibly about fairness means forcing users to adopt services they don’t want. It will therefore be incumbent on the Commission to disentangle causation and correlation, better understand evolving market dynamics, and dismiss complainants’ calls for ever more interventionist enforcement where it’s clearly inconsistent with market demand. As former European Commission Director General for Competition Johannes Laitenberger has said: “far from being a ‘weasel word,’ used to justify voluntaristically desired outcomes, fairness only rings true if it is understood as a call to rigour, coherence and consistency.”
What About the Costs?
It will also be important for the Commission to consider what level of compliance costs (for both firms and users) are acceptable. Indeed, there are concerns that, even if the DMA leads to a more competitive landscape, this may come at the cost of more expensive goods and a degraded online experience for European users. Such an outcome could hardly be described as “success.”
For a while, industry analysts have been raising concerns that DMA compliance will lead to a worse experience for users (pointing to the consent fatigue failure of the GDPR, and the likely proliferation of choice screens).
Some of these have seemingly been vindicated by the compliance plans announced by gatekeepers. Apple has repeatedly warned users that alternative app stores will provide a less-secure environment. Some have argued Google’s (forced) decision to unbundle its services increases friction for users. Likewise, the consent forms that are central to Meta’s compliance plan may be a waste of time for the majority of users that are not especially privacy conscious, or simply desire to have more personalized advertising.
The upshot is that, even if the DMA leads to more competition on the market, this will not be a victory for the bill unless European users are ultimately more satisfied with their online experience.
Rules of the Game
Given these important uncertainties, it will be essential for enforcers and politicians to clearly signal that the rules of the game have been set, and to measure the DMA’s success free from preconceived notions of how the competitive process should unfold. Unfortunately, early pronouncements suggest this is unlikely to be the case.
Potentially sensing that the DMA would not lead to the outcomes that were initially promised, Commission officials have recently raised the possibility of going beyond the “clear list” of obligations, and imposing on gatekeepers to achieve particular market outcomes. On a trip to Silicon Valley, Vestager expressed her expectation that designated companies will “work with market participants to test if this can bring real changes in the digital marketplace.” But what is a “real change,” other than a particular outcome?
Likewise, Commissioner Thierry Breton—one of the DMA’s architects—said that “[i]f the proposed solutions are not good enough, we will not hesitate to take strong action.” But when will the solutions ever be “good enough,” especially for those rivals who continue to fail the marketplace? At the very least, this seems to contradict claims that the DMA would be deemed successful if companies complied with its “clear list” of obligations.
MEP Stéphanie Yon-Courtin, who also helped draft the legislation as one of the lead rapporteurs, has even suggested that some of the compliance measures could amount to circumvention, punishable by significant fines.
For those with a legal background, this can all be rather frustrating. Clients don’t like to hear “it depends” as an answer, especially if “it depends” on how favorably competitors react. For a business that has to make investment or engineering decisions on the basis of clear legal rules, it can be maddening.
It remains to be seen how much these warnings from Europe’s most powerful officials can be brushed off as pre-campaigning for the 2024 European elections. Several politicians think “Europe’s battle to reign in Big Tech” will lead to electoral success. But will citizens be impressed if their favorite digital services are dis-integrated and de-personalised? Will regulators be tempted to push even harder, to try and force market outcomes, at the expense of users and overall ecosystem health?
There has been an antitrust revolution brewing in Europe for quite some time, but there’s a risk it will look a bit too much like some older, idealistic, and ultimately misguided economic revolutions. If that day comes, who in Europe will remember how far the goalposts have moved from “the principle of an open market economy with free competition, favouring an efficient allocation of resources,” as laid out in TFEU Article 120?
