The Proposed Digital Markets Act: An Experimental Regulation Without Safeguards
As Members of the European Parliament start drafting and discussing amendments to the Digital Markets Act, one may question whether some of the perceived shortcomings of competition enforcement are in fact important safeguards that preserve innovative, open and competitive markets.
The Digital Markets Act (DMA) is modeled on existing and recent competition investigations driven by complainants and competitors seeking specific remedies in specific market contexts. It is styled as a separate and complementary tool for competition enforcers, introducing sui generis policy objectives of “fairness and contestability”. Paradoxically, the proposed interventions and the intended changes to market dynamics are very much the same as competition law, with one important difference. The DMA does not allow for any of the safeguards that exist under competition enforcement, safeguards that protect and preserve pro-competitive behaviour to the benefit of consumers, innovators, and entrepreneurs.
These safeguards include an effects-based assessment that considers the likely effects of conduct, both good and bad. It considers a ‘counterfactual’, assessing what the world would look like in the absence of allegedly anticompetitive conduct. These safeguards help keep over-regulation or over-enforcement in check, ensuring that the impact on consumers remains the guiding measure of effective competition.
The DMA does away with that, prioritising the interests of competitors, big suppliers, and business users of digital platforms. The DMA doesn’t even allow the European Commission to modify the obligations imposed if they prove counterproductive and harmful. This lack of a safety valve is particularly troubling given that much of what will be prohibited by the DMA is known to create value for consumers and business users alike. While the Commission has largely assumed good outcomes, we don’t know what prohibiting all this value creation in Europe will mean for investment, innovation or the European economy more broadly. Indeed, even the Commission’s own regulatory scrutiny board took issue with the lack of evidence. While there are many legitimate questions to ask about the policy decisions expressed in the proposed DMA, this could be the biggest.
Given the size and scale of the companies likely to be designated as “gatekeepers” under the DMA, one would hope for more safeguards to ensure that this European regulation does not inadvertently do more harm than good. That’s why courts have imposed evidentiary requirements under competition law for the imposition of the kinds of far-reaching remedies proposed under the DMA. These safeguards are necessary to protect fundamental principles of an open market economy, including property rights, freedom to contract, and the freedom to conduct a business. Breaking companies, digital tools, or services rightly requires proof of harm that will be remedied by government mandated product design changes. But the DMA does away with that as well. Without these checks and balances, the DMA could soon become an attractive alternative for overzealous enforcers seeking to avoid the legitimate constraints of competition law. This is particularly true if, as proposed by some policymakers, fragmented national enforcement of the DMA were allowed.
Some policy makers argue that these evidentiary burdens and institutional constraints are inappropriate for fast-moving dynamic digital markets. But dynamic markets are just that — the borders constantly shifting; the services evolving; and new players, features and functionalities constantly emerging. Enforcers and courts have traditionally urged caution in these circumstances, and for good reason. Market dynamism makes the impact of interventions very difficult to predict, and the need for regulatory dialogue and effects-based assessment all the more prevalent. A free market means empowering private enterprise to achieve good market outcomes through effective competition enforcement that safeguards consumer welfare. Instead, under the DMA, regulators would be dictating market outcomes – a tactic that has been tried before and demonstrably failed to work.
Under the DMA, imposing ex-ante antitrust enforcement without any effects-based safeguards on a handful of companies is intended to address perceived shortcomings of competition enforcement. But inflexible and heavy-handed regulation, undermining existing antitrust tools, and unpredictable consequences for consumer welfare are a high price to pay for being the first to experiment with the regulation of “fairness and contestability” in the ever expanding digital economy.
While some politicians might feel you can’t make an omelette without breaking a few eggs, once broken, they are notoriously difficult to put back together again. Given how well digital services managed to maintain business continuity throughout the pandemic, one would be justified in asking for a few safeguards to ensure that what works isn’t irreversibly broken by this new European regulation.