On 12 October 2022, the European Union published the final version of its new Digital Markets Act (DMA). It’s a ground-breaking piece of legislation that will regulate the business conduct of so-called digital gatekeepers – the providers of the core platform services on which businesses depend to reach their customers. Such firms enjoy a entrenched and durable market power. The DMA will enter into force on 1 November 2022, and key rules will start applying on 2 May of next year.
While the Digital Markets Act is not without flaws and a number of questions remain, the legislation has more potential to rein in big tech’s market power than competition law and will significantly change the way that gatekeeper platforms operate in Europe. It’s intended to address shortcomings and vulnerabilities highlighted by the UK’s Furman Report, the US Stigler Report and the EU’s Vestager Report. In particular, all three argued that core platform markets are globally dominated by one or two of the same five companies: Google, Apple, Facebook, Amazon and Microsoft (GAFAM).
The DMA’s objective
The high degree of market concentration results from an unusual combination of factors inherent in digital platform markets: strong network effects, high returns to the use of data, scale and scope economies, and the ease of exploiting consumer biases. These factors make markets prone to tipping in favour of one or two players, and once a market has tipped, high barriers to entry make it difficult for newcomers to compete, even if they have the better product.
The DMA’s objective is twofold: First, to reduce barriers to entry to digital markets, making them more open to competition. Second, to make them fairer for business and end users by setting certain ground rules for the terms of use.
To this end, the DMA will subject gatekeepers to a set of stringent conduct rules. They’ll first be designated by the European Commission, and it is fully expected that GAFAM will all make the list.
Conduct rules and penalties
Once designated, gatekeepers will have six months to comply with the 22 conduct rules contained in Articles 5-7 of the DMA. These include:
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Obligations to share data with competitors and customers
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Possibility for consumers to load apps outside of firms’ app stores
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Mandatory interoperability of certain communications systems
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Public disclosure of user-profiling techniques
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Bans on favouring own services in search results
Many of these obligations go to the very core of big tech’s business models, and it remains to be seen how the firms will adapt. Noncompliance is subject to significant financial penalties: a one-off infringement can result in fines of up to 10% of the gatekeeper’s total worldwide turnover. For repeat offences, the fine may go up to 20%, and the gatekeeper may be banned from entering into mergers and acquisitions.
The European Parliament (pictured) and the Council of the…
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Auteur: Anne C. Witt, Professor of Law, Augmented Law Institute, EDHEC Business School
