ICYMI: Event on the Digital Markets Act – Trilogue
On 15 December 2021, PubAffairs Bruxelles hosted a webinar on the Digital Markets Act (DMA) to discuss the trilogue negotiations and the impact of proposed amendments on consumers and competition.
The event welcomed experts Annabelle Gawer, Chaired Professor in Digital Economy, University of Surrey, Gareth Shier, Economist and Principal of Oxera, and Kayvan Hazemi-Jebelli, Counsel to the Computer & Communications Industry Association. Lewis Crofts, Editor-In-Chief at MLex, moderated the discussion. A highlights video clip of the webinar is available here, and the full recording is available here.
How the DMA’s focus on “contestability” comes at consumers’ expense
The webinar focused on a new report from Oxera titled “A review of amendments to the DMA by Parliament and the Council” which identifies several aspects of value creation and pro-competitive behaviours common in the digital economy that would be endangered by the DMA and particular amendments (see press release).
Many of the obligations in Articles 5 and 6 of the DMA are based on specific antitrust cases from specific contexts. The DMA takes a “one-size-fits-all” approach, applying all of these remedies to all core platform services of a designated “gatekeeper”. Shier pointed out that many of the practices which the DMA prohibits as harmful to “contestability” benefit consumers and business users depending on the context. In particular, making markets more contestable for rival businesses could lead to lower quality, reduced choice, and higher prices for consumers.
Prohibition on Cross-Service Data Analytics
Gareth Shier noted that the amendment to Recital 36 (relating to Article 5(a)) requires that if a user opts out of having their data combined, the “less personalised alternative” a platform offers must be of equal quality to the personalised version. This is of course impossible without losing the benefits of personalisation, which increases quality by providing consumers more relevant and tailored services. Prof. Gawer suggested that the concerns meant to be addressed by this prohibition would be better served by giving consumers choice and transparency, not legislating technical designs.
Prohibition on Product and Service Integration
Shier explained that the European Parliament’s addition to Recital 48 (relating to Article 6(1)(d) which prohibits self-favouring) states that the preferential or embedded display of services is prohibited. This provision will prevent the integration of complementary features or functionalities into existing services. This again would reduce service quality and stunt future innovation, particularly where markets are demanding more integrated services. Prof. Gawer suggested that the benefits of integrated services highlight the need for more case-by-case assessment, because they can provide potential benefits despite their impact on “contestability”.
Requirements on Interoperability and Interconnection
Article 2(23b) provides a wide definition of ‘interoperability’ and would reduce a platform’s ability to manage the degree of access to its ecosystem. This definition applies to Articles 6(1)(c) and (f), which both grant interoperability to app developers and third-party service providers. While interoperability can increase “contestability”, it also creates new vulnerabilities in digital infrastructure, reducing safety and security. Prof. Gawer noted how forcing interoperability and a “plug-and-play” business model wouldn’t make sense in other contexts, with the example of a European automobile platform being forced by a foreign regulator to make their design compatible with foreign parts suppliers’ needs.
Cumulative Impact on Platform Business Models
Some of the DMA’s amendments would ban entire business models, reducing variety and choice in the market. For example, Parliament’s addition to Recital 49 would require that ‘gatekeepers’ treat each service as a separate commercial entity that is commercially viable on its own. This would prohibit cross-subsidisation of services, possibly leading to the elimination of things like Amazon Prime, Google Docs, and WhatsApp. Another example is how amendments to Articles 5(c) and (e) would limit the extent to which platforms can rely on commission-based business models as they introduce a heightened risk of “platform leakage”, a kind of free-riding behaviour that if allowed could result in the introduction of subscription fees for many of today’s free services.
The Need for a More Customised Approach
Hazemi-Jebelli noted that the Parliament and Council have rejected the case-by-case approach predominant in competition enforcement, and that industry would have to adapt. However, the impact of the DMA interventions will be felt on consumers who will not appreciate reduced quality, reduced choice or increased prices, particularly when they’ve been promised the opposite. The DMA’s excessive focus on creating “contestability” for rivals will have unforeseen consequences, and this tension can only be ameliorated if enforcers take a more nuanced view of platform conduct and how digital platforms create value.
As ex-ante enforcement entails more government involvement in product design decisions, regulators will inevitably have to deal with these trade-offs. More customised enforcement, that accounts for differences between the different services, and considers obligations’ impact on the quality, functionality, and integrity of the products and services in question, would be better.
Trilogue negotiators should consider how enforcers will need to address these trade-offs, and empower them to make decisions that ensure good outcomes for consumers as well as businesses who use platform services. That would help make the DMA work.