The European Commission's Joint Research Centre recently published “A Report by a Panel of Economic Experts” (“the Report”) on the Digital Markets Act proposals unveiled by the Commission on 15 December 2020. To recall, the Digital Markets Act ("DMA") sets out a range of ex ante proposals to govern large online platforms, deemed to be “gatekeepers” to ensure fair and contestable digital markets. More details on the proposals can be found here.
The panel supported the vision of the DMA and aimed to offer economic insights to help frame the proposal as it develops, as well as providing suggestions which could be incorporated into future drafts.
Definition of gatekeepers
The DMA contains a set of presumptive criteria for qualifying a large online platform as a “gatekeeper”, including number of users (45 million active monthly users), turnover thresholds (more than €6.5bn annual revenues) and an entrenched and durable position over three years. The Report supports this “one-step” approach which departs from the traditional enforcement process adopted in competition cases, involving market definition, establishing market power and then designing suitable remedies (if appropriate). However, it does recognise the need for caution and notes the mechanisms within the DMA for more of a granular designation assessment based on a variety of qualitative criteria.
Obligations on gatekeepers
• Black/Grey lists
The DMA sets out 18 ex ante obligations that will apply to the gatekeepers. Article 5 sets out a self-executing list of obligations that do not require further refinement by the Commission, whereas Article 6 contains a further set of obligations that may be subject to more specification or guidance from the Commission.
The panel recommends departing from this approach and instead introducing an approach that allows for a greater degree of flexibility and scope for interested parties to put forward efficiencies and pro-competitive arguments to support the conduct in question. The Report suggests that creating a “black list” and “grey list” of behaviours would allow greater certainty for platforms, with the black list containing prohibitions while the grey list includes behaviours that would be in principle anti-competitive, with a possibility to offer pro-competitive justification(s). The burden of proof would lie with the gatekeeper. Presently, the DMA does not expressly provide for such an approach and this may well be something that is adopted as part of the DMA's evolution.
The Report also reflects on the various types of anti-competitive conduct addressed in the DMA. It supports the inclusion of self-preferencing as a potentially black-listed behaviour while recognising that tying and bundling could benefit from a more balanced case by case assessment which may be more appropriate for the “grey” list.
In relation to advertising, the Report considers that the measures in Articles 5(g) and 6(f) which will promote greater transparency in advertising are helpful, but they do not address structural concerns (e.g. in the ad tech chain) or behavioural concerns (such as exclusive distribution of inventory or limiting interoperability).
• App stores
The Report endorses the DMA’s proposals that are applicable to app stores to address the potential lock-in effects. Consumers are tied into an app store once they buy an Android or iOS device and developers equally need to access the app stores to reach consumers. Article 6(c) contains proposals to allow for the installation of third-party applications in the operating system of the gatekeeper, including third-party app stores and allowing access to apps through channels other than those provided by the gatekeepers – known as “side-loading”. Other measures allow for the uninstalling of pre-installed apps but stop short of a prohibition on installing default apps.
Obligations to address aftermarket foreclosure concerns are also included. This is aimed at allowing business users to promote offers to end users outside of the core platform service, as well as accessing content and subscriptions through other channels. However, the measures stop short of price regulation of the fees collected by app stores and the panel recommends closely monitoring the potential impact of the remedies.
The DMA imposes a number of data sharing obligations that aim to reduce gatekeepers’ exclusive control over the data they collect. Measures include the prohibition on data-driven self-preferencing and limitations on the use of data generated by business users. There are also obligations to promote data portability and access to data provided and generated in the use of the core platform services.
However, the Report notes that this has technical, legal and economic obstacles and such remedies entail trade-offs between costs and benefits of data-driven network effects. The Report explores an alternative - granting individuals in-situ rights to access end-user data (rather than transferring the individual data from the gatekeeper to another business user). The user would instead run algorithms on the data resident on the gatekeeper’s server. This would be more intrusive and require prescriptive regulation.
• Merger control
The DMA scarcely touches upon the scrutiny of mergers, other than to introduce an obligation on gatekeepers to inform the Commission of any “tech” transactions. The Panel was split on the approach to merger control in the digital space with some calling for a soft policy and others a more interventionist approach. Overall, the Panel considered that the current merger regime is not fit for purpose for digital markets and reform is needed.
• Enforcement and compliance
Speed of intervention has been a common criticism of ex post competition intervention and the DMA seeks to address this by introducing a new ex ante regime to complement competition enforcement. The panel also considered that lengthy investigations are in part attributable to the information-gathering exercises that need to be undertaken and the widening information gap between authorities and the digital platforms.
The DMA’s proposals seek to simplify the enforcement process by introducing the presumptive gatekeeper criteria and notification procedure, as well as the more prescriptive prohibitions in Article 5. However, the Panel noted that that the DMA does not propose to reverse the burden of proof and noted that if an “efficiency defence” is introduced the burden should rest with the gatekeeper. The Panel further calls for greater use of interim measures in fast-moving digital markets.
The Panel supported the DMA’s monitoring and audit powers in Articles 21 and 24 but proposed going further. Proposals include embedding independent auditors within the platforms in order to have continuous access to data and algorithms, the establishment of an external independent control authority and the setting up of rotating auditor teams within the platforms.
Discussions on the proposed DMA are now beginning in the European Parliament and the Council. This Report by economic experts, which calls for greater intervention, certainly provides further food for thought.