IMCO

Committee on the Internal Market and Consumer Protection

Shaping Europe’s fit for the digital age: European Commission adopted its proposal for the Digital Markets Act, which aims to ensure fair and open digital markets. Considering that this proposal focuses on large online platforms acting as “gatekeepers”, what other steps should the EU take to drive competitiveness, increase choices for consumers and create a sustainable strategy for digital markets?

Esin Esendemir (Chairperson, NL)

Introduction 

Digital services are one of the most crucial elements of our everyday society; More than a quarter of the world population has purchased goods or services online in 2020. Whereas over 10,000 online platforms operate in Europe’s digital economy, only a small number of online platforms capture the largest share. These few large platforms have benefited from characteristics often embedded in their own platforms like the increasing network effects.

Member States have thus far failed to accurately implement measures against sexual trafficking. These large platforms act as gatekeepers between business users and end consumers, which leads to significant reliance of many business users on gatekeepers. This gradually leads to a lack of competitiveness which can be directly correlated to higher prices, lower quality, and less choice and innovation, harming European consumers. 

In recent years, the EU has proposed new rules regarding the transparency of the gatekeepers. However, there are several criticisms towards the European Commission’s latest proposal, the Digital Markets Act (DMA), like the inconsideration of company business models when identifying gatekeepers, and the inconsideration of the user or business’s ability to use multiple platforms for similar purposes. Regarding the future, there are developing concerns regarding whether the selected list of services is future proof, since with the changing dynamic of technology and the market these are bound to be outdated quickly.

Main Actors

Gatekeepers

A ‘gatekeeper’ is a company that meets the qualitative criterias of having a durable strong economic position in the market (with turnover of at least €6.5bn), linking large user bases with at least 45 million monthly active end users to 10,000 yearly active business users while having significant impact on the internal market, being active in at least 3 EU countries in the last three years. These company gatekeepers are unavoidable in the current European market and consumption system. The narrowly defined objective criteria aims to be more precise with tackling the internationally used platforms like Google and Facebook.

Member States

Member States have given overall support towards the Commission’s initial proposal but requested clarification on some regulations, like a public disclosure from core online platforms on how many staff are moderating content and the languages they speak. Member States have national competition authorities, however large scale actions towards gatekeepers tend to be taken through bodies of the EU.

Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs, GROW

The European Commission is the executive branch of the European Union which can propose legislation, enforce EU laws and direct the Union’s administrative operations. To ensure a future-proof DMA, the Commission’s Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs will carry out market investigations to qualify new companies as gatekeepers and will dynamically update obligations for the gatekeepers when necessary. 

Business users (smaller companies)

Business users engaging with their customers via the bigger online platforms have almost no say in the business processes of the gatekeepers. These businesses are mostly privately owned corporations or partnerships that have fewer employees and less annual revenue than a corporation.

Consumers

The consumers are the ones making use of the services and products provided by the smaller companies and/through big online platforms. The DMA aims to aid consumers directly and have a clearer understanding of their choices, rights and freedoms as a consumer.

A graphic by Jelle Zegers (Media Team Member)

Past: Actions Taken

The EU has already taken several measures to aim for a future-proof operation, subjecting the online platforms to these prohibitions and obligations:

  • In July 2019, the European Commission launched a series of antitrust investigations in recent years and reflected on how to adapt  tools under EU competition law to level the playing field in the digital environment.
  • In July 2020, the EU Platform-to-Business Regulation went into force, establishing new rules for transparency and redress mechanisms for businesses using online platforms’ services. 
  • In February 2020, European Commission policymakers considered a shift from result based antitrust intervention to forecast based regulation.

Along with this, the DMA aims to establish these regulations:

  • The classification of ‘GAFAM’ (Google, Amazon, Facebook, Apple and Microsoft) as consistent gatekeepers, while some companies like Netflix and Spotify will be excluded because of the non-provision of Core Platform Services (CPS).
  • Requiring a notification to the European Commision to assess mergers and acquisitions and ban gatekeepers from combining personal data from different sources.
  • In line with this, the DMA requires gatekeepers to treat their own products on equal terms as other products sold, and are not allowed to prevent consumers from buying on other platforms or from uninstalling pre-installed software for competitive advantage.

However, it is important to remember that the DMA is still a legislative proposal which has not yet been implemented, and therefore cannot be officially counted as measures taken.

Present: Existing Issues

Multi-homing

One of the most common criticisms of the Commission’s proposal is that there is a lack of clarity on the scope of the DMA in the overall framework of EU regulation on digital services which could lead to inconsistencies or misinterpretations. Another current issue is that the DMA does not take the user or business’s ability to use multiple platforms for the same purpose into account. A clear example of this are flight tickets: the user can look for prices and book a flight on various available platforms, or directly on the website of the travel agency. The airline can offer its tickets via the same channels. This is called multi-homing. If customers can multi-home, they are more likely to escape conditions imposed by one platform by increasing the use of a competing platform. The ability to multi-home has also been proposed as a gatekeeper criterion, keeping in mind the extent of multi-homing by users on each side of the market. For instance, the low switching costs of e-commerce  allow for a great degree of multi-homing. If users can multi-home, the number of users may not exactly reflect the absence of competition. There isn’t any substantive clarification on actual gatekeeping power in the current proposal as the proposed criterias are mostly focused on size of gatekeepers.

Consideration of differing business models

In addition, the DMA treats competing services that differ solely on their business models (advertising-financed versus subscription-based, like Youtube and Netflix, respectively) differently, even though there is empirical evidence that these video-sharing platform services compete with each other. This leads to discriminatory treatment based on the choice of the business models (important to note here is te alleged market power does not play a role in the said discriminatory treatment).

Categorising a gatekeeper

To avoid falling into a ‘gatekeeper company’ category, large firms could have an incentive to break down their platforms into smaller, more specific services, which alone would not meet the quantitative criteria for designation, creating a loophole in the system. The gatekeeping power of several large companies is hard to disentangle due to their multinational nature. Targeting specific platforms can cause unfair attribution to a few of these platforms. However, the DMA does not mention anything about the ability to orchestrate an ecosystem for the definition of a gatekeeper. This is another issue that makes it difficult to disentangle the said gatekeeping power. As of now, the DMA is being reviewed by the European Parliament,slowly making its way towards finalisation. It is expected that the EU regulation could take effect in 2022 with the proper adjustments. As mentioned, there are several concerns on the effectiveness and future-proof adaptability of the regulation which ought to be clarified during the finalisation

Future: Challenges Ahead

Given the dynamic nature of the platform market, which is constantly transforming, a regulation defining a specific list of services might lack future-proof adaptability, meaning that the selected list of services might become outdated very quickly. Moreover, there isn’t a clear definition of CPS’s used by gatekeepers, function wise. This leaves question marks on the definition of a gatekeeper by itself: Can companies avoid being classified gatekeepers? Besides that, the fact that all business users within the system along with the core providers from the platform will be equalised means that the users will now be exposed to more choices: Will the DMA lead to consumer fatigue because of multi-homing strategies used by consumers and business users? This issue still has not been resolved and keeps all parties wondering whether this could potentially create a cycle of excessive and minimal usage of marketing techniques, more so adding to the concerns.