On the 15th of December 2021, PubAffairs Bruxelles organised an afternoon session to discuss the trilogue negotiations regarding the Digital Markets Act (DMA) and the question of protecting the interest of European consumers with Prof Annabelle Gawer, Chaired Professor in Digital Economy, University of Surrey, Mr Gareth Shier, Economist and Principal of Oxera, Mr Kayvan Hazemi-Jebelli, Competition Counsel, Computer & Communications Industry Association – CCIA Europe. Ms Lea Zuber, Team Leader, Task Force on Digital Markets Act, DG COMP, European Commission, was unable to participate in the discussion.
The event was moderated by Lewis Crofts, Editor-In-Chief at MLex
Lewis Crofts briefly explained the scope of the DMA and the current status within the legislative process. The moderator then gave the floor to Gareth Shier for the introductory presentation.
Mr Gareth Shier began by presenting the results of two Oxera reports he co-authored for CCIA, « How platforms create value for their users: Implications for the Digital Markets Act« (May 12, 2021) and « A review of amendments to the DMA by Parliament and the Council » (forthcoming on January 10, 2022). He began his presentation by citing Commissioner Thierry Breton who stated that the DMA’s objective is to address a « list of clearly egregious practices […], instead of awaiting a long case by case analysis« . The speaker subsequently elaborated on the question of whether all of the business practices the DMA targets can be considered so ‘clearly egregious’, or if one should consider these practices in light of the platform’s business models and the wider market context with a case-by-case assessment.
The speaker acknowledged that many of the obligations represented in Article 5 [Obligations for gatekeepers] and Article 6 [Obligations for gatekeepers susceptible of being further specified] of the DMA are based on specific antitrust cases. However, he also pointed out the importance of considering the breadth of different platforms’ business models, as well as the diversity of the markets they operate in. Indeed, according to Mr Shier, the likely « gatekeeper » firms operate different business models, in different market contexts, which in turn create different commercial incentives for them. He exemplified this by highlighting key differences between the Apple and Android mobile ecosystems. Mr Shier noted that Apple operates a more closed business model, with a strong focus on privacy and reliability, monetised through hardware sales and service revenues; whereas Google Android operates a more open system, that is freely accessible to third parties, and is monetised through data and advertising. These, the speaker remarked, are important contrasts that lead to differences in how the two companies engage with users and third parties within their ecosystem.
Furthermore, the speaker pointed out that the very nature of current online business models mean that some practices considered harmful in the DMA can actually foster benefits for consumers in other circumstances. In this regard, Mr Shier focused on three specific behaviours, which are explained in more detail in the first Oxera report, namely self-preferencing, bundling and tying, as well as leveraging.
The speaker went on to describe how self-preferencing can create value, explaining that while it may be used to promote a platform’s own goods and services, it can also help promote the security and reliability of the platform by vertically integrating complementary services, as in the example of Apple Pay. Similarly, he continued, while in some circumstances bundling and tying may entail a risk of foreclosure, these practices can also be a way for platforms to add innovative services that increase convenience for the end user, as in the example of Facebook Marketplace. Finally, Mr Shier pointed out that the leveraging of data, often framed as a « data advantage », can also be a means to enhance the customer experience by personalising and tailoring content, as with geo-localised search results.
Mr Shier explained that the « one-size-fits-all » approach of the DMA, which disregards specific context and business models, runs the risks of eroding value creation for consumers in the long-term. He added that this point has been largely overlooked in the public debate, which has been assumed that consumers will always be well served by policies that aim to increase contestability, regardless of the specific market context.
With regard to the question of how platforms create value, the speaker offered insights from the economics of platform management. According to Mr Shier, it is important to keep in mind the differences between the new organisational structures created by online platforms and those of traditional offline businesses. He explained that platforms play a crucial role as enablers and orchestrators of ecosystems, bringing together a range of third parties around a core technology such an operating system, a web service or a piece of hardware. He added that it is by sharing in the value of these ecosystems that platforms generate revenues, giving them a natural incentive to maximise that value for all participants. The speaker also remarked that this can require platforms to play an important governance role if they are to balance the interests of different groups of users. For example, platform operators may make decisions on the degree of openness to third parties, exclude certain participants from their ecosystems or place restrictions on the behaviour of certain users in order to manage the externality effects created by those interactions and safeguard the overall experience of end-users.
Mr Shier went on to explain that we can consider three layers of value creation by platforms over the long-run, namely: intermediation, aggregation and innovation. In his opinion, the instruments of the DMA seem to focus primarily on the intermediation layer. This consists simply of bringing different parties together to facilitate an interaction, such as a trade on a marketplace or a communication on a social media. However, the speaker argued that effective platform management goes beyond just the short-run activity of intermediation between parties. In the medium-term, platforms create additional value by acting as aggregators, bringing together new features and third parties that allow in end-users to benefit from scale economies and increased choice.
Moreover, the speaker noted, over the long-run platforms play an additional role in fostering competition between third-parties within the platform, in order to grow its value to uses and increase competition between platforms. As an example, the speaker mentioned the case of Android, which provides incentives such as revenue shares and access to developer tools in order to help third-parties innovate on the platform. That innovation, he claimed, could be in the form of new products, features and services or even business model changes. According to Mr Shier, this kind of long-term dynamic ecosystem competition can be seen in the evolution of consumer services from desktop computing to online and mobile, then voice assistants and smart-devices, and now the next frontier with the launch of Facebook’s metaverse.
As for the amendments to the DMA proposed by the European Parliament’s IMCO Committee and the Council, Mr Shier focused on three broad categories of obligations that could have unintended consequences for consumers: personal data separation [Article 5(a) and recital 36]; product and service integration [Article 6(1)(d) and recital 48]; and interoperability and interconnection [Article 2(23b) and Article 6(1)(f)].
According to the speaker’s analysis, the amendment to recital 36 – which related to the data privacy obligations set out in Article 5(a) – makes an unrealistic demand of platforms by requiring that the ‘less personalised alternative’ a platform offers if a user opts out of having their data combined must be of equal quality to the personalised version. This ignores the fact that personalisation is in itself a dimension of quality and that the combination of data may be needed in order to provide a better integrated service, as in the case of the Google Account dashboard. Mr Shier explained that the platform economics literature describes two types of product improvement based on data analysis: « within-user learning »and « between user learning ». The first is widely used to provide users with more personalised experiences, such as tailored recommendation services; while the latter can be used to improve the experience of a group of users, for example, by identifying rogue sellers in a marketplace. Requiring the personalised and less personalised alternatives to be equivalent would, according to the speaker, de facto prohibit personalisation. However, the speaker also mentioned that, contrary to the European Parliament, the Council amendments to recital 36 recognises this and provides an exception for cases where quality depends on personalisation.
With regard to product and service integration, the speaker said that Article 6(1)(d) prohibits self-preferencing in rankings or other services. He went on to say that the European Parliament’ addition to recital 48 specifies that the preferential or embedded display of services will constitute such a favouring, and that this provision would effectively prohibit the integration of complementary services by platforms. Using the example of Google Maps, he described the negative effects this would have for consumers, both in terms of the quality of the integration and trust in the information provided. Mr Shier cited the 2016 Streetmap-Google case as an example of where complementary services within the same ecosystem can offer a better outcome for end-users than cannot be equalled with third-party integrations, which the UK High Court confirmed in its judgement.
With regard to interoperability, Mr Shier pointed out that Article 2(23b)specifies a wide definition of ‘interoperability’ and would reduce a platform’s ability to manage the degree of access to their ecosystem. This definition would apply to Article 6(1)(c), as amended by the Council, and Article 6(1)(f), which both grant interoperability to app developers and third-party service providers. In order to explain how granting excessive openness can be problematic, the speaker used Apple’s approach to Mobile Device Management technologies as an example. Following an investigation into these technologies, Apple prohibited their use in consumer facing apps as a measure to protect end-user privacy and increase the security of the ecosystem, while maintaining contestability by providing API access to appropriate device data.
However, he also noted that certain exceptions to the interoperability and data separation obligations could be found in amendments to Articles 5(ca), 6(1)(c) and 6(1)(f) when it comes to security, integrity and personal data protections. He emphasised that these exceptions better recognise the inherent interconnectedness of the ecosystem and the possibility of knock-on effects from the actions of any one individual-which must be managed by the platform as part of its governance role. An example of this could be the Microsoft Defender suite, which combines insights from across different parts of the ecosystem to tackle emerging cyber security threats, resulting in a better service for consumers as a result of data sharing.
Finally, Mr Shier considered the combined impact of the various amendments examined on platforms’ business models. He noted that the Commission’s DMA impact assessment found that the proposed obligations would neither ban specific monetisation models nor prevent the uptake of new services by « gatekeepers », while explaining that many of the amendments are at odds with that assessment. For example, the European Parliament’s addition to recital 49 states that « gatekeepers » should be required to treat their own products and services as separate commercial entities that are commercially viable as standalone services. This, he explained, would effectively prohibit cross-subsidisation and puts many popular ad-funded business models at risk. The speaker took Facebook’s reliance on ad-funding to finance its ecosystem as an example of this point.
Furthermore, the speaker explained that amendments to Article 6(1)(f)would demands free access for third parties seeking to interconnect with core platform services, hindering a potential revenue stream and business models based around license fees for access to the core technology. Not only does this conflict with the Commission’s assumptions in the impact assessment, it could also diminish the incentive to make the upfront investments needed to build and maintain those core platform services in the first place.
Finally, Articles 5(c) and 5(e) taken together, especially as amended by the IMCO Committee and the Council, limit the extent to which platforms can rely on commission-based business models as they introduce a heightened risk of « free riding » by the platform’s business users. This has the potential to force platforms to change their business model to include listings fee or subscription-based models, which could increase costs for new businesses or prices for consumers. The speaker concluded by explaining that all these examples show how the amendments could effectively ban certain business models and affect the uptake of certain services.
After the introductory presentation from Mr Shier, the moderator gave the floor to Professor Annabelle Gawer.
Prof Annabelle Gawer prefaced her remarks by clarifying that she believed that the reasons she was invited to this debate are her role within the EU Observatory on the Online Platform Economy and her co-authoring of the European Parliament report « Online platforms: Economic and societal effects« . She noted that she has not received any payment or consulting fees of any kind by the companies that could be affected by the DMA. Indeed, she stated that she was about to speak from the standpoint of her academic expertise, while emphasising the importance of looking at the merit of the propositions of the Digital Market Act, which constitutes a contested public discussion on the role of large platforms in Europe. She subsequently went on by affirming her positive opinion on the fact that the DMA has been put forward, while expressing her overall agreement with Mr Shier’s analysis on how platforms create value, with the exclusion of some minor details on how intermediation, aggregation and innovation are nested.
Consequently, the speaker noted that it is important to understand not only how digital platforms create value creation, but also how they capture value. She added that she felt in line with the sentiment behind the proposed piece of legislation, as a small number of firms have a garnered power over other smaller market players and play a governing role within the ecosystems they operate in. This dynamic has been further highlighted as a result of the Corona crisis and, for this reason as well, it has gained the spotlight of public scrutiny, she said. She went on to explain that the process of « platform dependency » has emerged as a result of the fact that an increasingly high number of businesses and individuals are relying on the services of large platforms in order to trade, network or stay informed. The speaker also highlighted that the main characteristic of platforms is to facilitate connections between multiple actors in different roles. For this reason, she added, it is impossible to understand how platform create value without comprehending that their role has got to be central to their online ecosystem. In this regard, the speaker pointed out that several researches indicate that the phenomenon of « cross-side network effect » attracts a larger number of users in different roles, which consequently leads, under certain conditions, to a natural monopolisation. The speaker explained that several researches have demonstrated that, due to behavioural reasons, the more consumers engage with the given platform, the more this becomes valuable for new users. However, Prof Gawer added that recent research also showed that this monopolisation effect happens only if there are high barriers for users to engage, or connect with, with multiple competing platforms, a phenomenon known as multi homing.
According to Professor Gawer, in the cases where a platform reaches not just a position of centrality, but a quasi-monopoly, not only in a given vertical market, but also on some key markets that are the foundation and access to other markets, the implications of their actions are much more severe, as users and businesses become dependent on the given platform and face high costs if they want to switch to another ecosystem. Prof Gawer expressed her support for the objective of increasing contestability in digital markets, as this would decrease switching costs for customers and would take some of the foreclosing power away from large platforms. The speaker then remarked that a central function of large platforms is that of ecosystem governance, which, in some cases, can comparable to a large national economy in terms of the sheer volume of transactions. Within this context, the speaker also noted that democratic governments tend to be based on a separation of powers between setting rules and implementing them, a process which is currently lacking in the platform-based economy. As a result, she added that this state of play legitimates the action of putting the functioning of large platforms under scrutiny.
After this series of clarifications, Professor Gawer continued to elaborate on the measures contained in the DMA, concurring with Mr Shier about some of the unintended consequences of some of the prohibited practices and well-intentioned amendments. Firstly, she agreed with Mr Shier that a rule imposing that digital services that are personalised ought to be of the same quality as services that are not, is impossible for platforms to implement. This is because the value of personalisation is a subjective measure that is difficult to quantify. To support her view, she put forward the example of telecom networks, which have clearly gaugeable quality parameters, such as bandwidth. However, according to Prof Gawer, this was not the case in the digital world where quality assessment is much more ambiguous as, for example, some users would see privacy as a high-quality feature, whereas others would value increased personalisation more. The speaker concluded that the aim of the legislation should be to increase transparency in order to encourage better informed choices from users, according to their respective assessments. In addition, she expressed her favour to the policy objectives behind the amendments made by the Council as it is not advisable to put into law something that is impossible to implement.
Concerning the practice of product and service integration, Prof Gawer subscribed to Mr Shier’s comments that restricting product integration could lead to decreased quality and reliability, while acknowledging, at the same time, that forced bundling and forced integration could reduce the possibility of contestability. However, she also stated that there is a need for a case-by-case examination by the regulator in order to verify how to foster more contestability in these markets, as, in some cases, the measures suggested in the DMA may be fruitful, but in other cases, they may be harmful for end-users.
Prof Gawer also proceeded in agreeing with Mr Shier’s argument with regard to interoperability as excessive openness could put the integrity and security of ecosystems at risk. However, she went on to disagree with the previous speaker’s argument that it was in the interest of a platform operator to always satisfy the needs of all the members of the ecosystem. She contested the idea that platforms always have a natural incentive to maximise the welfare of the ecosystem itself. Prof Gawer explained this dynamic with the fact that platforms would be incentivised, for example, to favour paying customers over non-paying customers. According to the speaker, this process is especially true for platforms with a monopolist standing, as they have a lower risk of losing customers to competitors. However, she also expressed the opinion that this is a short-sighted approach and that increasing the satisfaction of all customers would be beneficial for the given platform in the long-run.
Prof Gawer subsequently pointed out that it was apparent that users, notably in civil society and policy circles, are losing trust in large platforms, process which she identified as caused by some platforms’ unfair practices. However, she also explained that, in her opinion, the solution dos not lie in mistrusting all (large) platforms. Consequently, Prof Gawer suggested an approach that offered customised code of conduct interventions for each gatekeeper platform, based on the platform’s business model. To support her statement, she used the example of the UK’s Digital Markets Strategy, which, in her opinion, is more suitable to address the question of fairness and contestability in the platform economy. According to the speaker, this stance would have the advantage of offering workable measures for business models, without harming value creation for end-users.
The speaker concluded her reply by stating that the DMA is a good measure, but that she did not deem the latest amendments as constructive. Furthermore, she expressed her hope that the trilogue negotiations will bring some necessary changes to those amendments that offer more customisation. Last, she summoned EU institutions to provide ensure significant and sufficient resources be attributed to the units who will be tasked to make case-by-case evaluations, as these would allow both to better protect consumers and offer them the best services possible, while ensuring a fairer competition.
The moderator then gave the floor to Mr Kayvan Hazem-Jebelli in order for the speaker to give his statements on the issues at stake.
Mr Kayvan Hazemi-Jebelli started by outlining the origins of the DMA proposal and the current evolutions of EU competition law, which, in his analysis, started out in 2018 with the formation of the EU Observatory on the Online Platform Economy and the European Commission’s report on « Competition policy for the digital era« in 2019. The speaker continued by saying that these two reports, in addition to several other national reports, acknowledged that some of the practices of online platforms that are penalised under the DMA are not always necessarily harmful and are part of value creation, and that there would be associated economic costs by putting in place ex-ante regulations.
Indeed, he specified, the new approach of European policymakers has moved on from the classical competition law approach based on case-by-case assessments, the so called ex-post method. The speaker also acknowledged that the Council’s general approach of 25th of November 2021 and the Parliament’s approval of the DMA of 15th of December 2021 have rejected the case-by-case approach of classical competition law, due to the fact that policymakers have decided to reduce complexity and accept the associated economic costs in order to make government intervention more administrable and faster, with fewer checks in place due to the removal of the possibility for market players to provide defences or objective justifications. Mr Jebelli added that this is a reality that the industry needs to accept going forward, as this trend will entail more government involvement in product design decisions ex-ante, while platforms will increasingly need to get permission from enforcers before making changes to their services.
However, on the same note, the speaker pointed out that this process represents not only a change from an ex-post to an ex-ante approach to competition law, but also a great responsibility for European institutions, which have been supportive of a new vision of how to do business in the digital economy. The speaker further stated that the political rhetoric around the DMA could be inspiring, with special regard to increasing innovation and boosting SMEs, while noting that the evidence of the last two years suggests that the EU digital markets has benefited of a valuable degree of innovation and the SMEs have been the main beneficiaries of platforms’ business models. In this connection, Mr Jebelli asked to what extent the DMA could further enhance innovation in the foreseeable future, how and if it will avoid unintended consequences, as well as how the final outcome of this new piece of legislation will eventually play out in the EU digital single market. Additionally, he noted that that the DMA runs the risk to be beneficial only for a handful of platforms, while reducing competition between them and even cementing large players’ position further.
The speaker also stressed the importance of avoiding Manichean view of the digital economy by distinguishing between « good » and « bad » gatekeeping, as well as the necessity of introducing flexibility to the upcoming rules in order to not hinder value creation.Subsequently, Mr Hazemi-Jebelli took the examples of consumer choice between different business users in an ecosystem and the possibility that smaller platforms which do not have the same level of trust will not benefit as much from the DMA. On the same question, the speaker emphasised that the DMA would make it harder for any operator to police their platforms, whereas, in reference to Mr Shier’s presentation, he stated that the DMA focuses excessively on the intermediation function of platforms, while often forgetting the value coming from aggregation and innovation for all players.
He continued by criticising the polarised opinion landscape that has surrounded the debate on « gatekeepers », which he labelled as unproductive and often misleading. Instead, the speaker argued, the trilogue negotiations would have to dig into the details, consider the trade-offs in product design decisions and include more tailored measures, if there is the willingness of putting in place a workable law which could deliver its promises. However, the speaker also noted that some provisions are going in this direction by taking Article 7(5) [compliance with obligations for gatekeepers] as an example of how measures could be more customised to specific circumstances. Indeed, he remarked, under this provision the Commission must specify the obligations proportionately and in light of the specific market circumstances. Mr Jebelli subsequently said the Council text was better shaped in this regard, while adding that these improvements would not require a fundamental change to the DMA.
As a conclusion, he expressed the hope that these adjustment mechanisms could be expanded upon to a larger extent, while reiterating that a larger degree of clarity in the specification process is needed in order to avoid penalising platforms for offering safe services for their customers. These changes would be necessary to help ensure a DMA that is fit for the digital age.
Lewis Crofts thanked the speakers for their comprehensive replies and drew the attention to the audiences’ questions. First, the moderator asked the speakers whether the highly debated designation thresholds should be moved.
Mr Hazemi-Jebelli started his answer by pointing out that the focus on the provisions on « gatekeepers » thresholds disregards the fact that not only « gatekeepers » would be affected by the DMA, but also a large number of businesses that depend on these platforms. Furthermore, he stated that the threshold is of an indicative nature and consists of both quantitative and qualitative elements and that the Commission has the faculty of designating « foreseeable gatekeepers », a rule which implies that any platform can be classified as a gatekeeper irrespectively of whether it reaches the quantitative threshold or not.
Mr Shier agreed with Mr Hazemi-Jebelli’s argument and added that not only could a platform that does meet the quantitative threshold be designated as gatekeeper, but the Commission could decide not to flag a platform as a gatekeeper, even if it exceeded the threshold. He explained that platforms may have market power in a specific setting or ecosystem while still falling under the designation thresholds, a dynamic which could be a problem when trying to protect consumers. He furthermore explained that some obligations – such as those considered under the Digital Services Act (DSA) -should apply to all of the digital sector, not just to large platforms. He added that certain DMA provisions, such as data protection provisions, have similar characteristics and should either be applicable broadly or to no one.
Prof Gawer pointed out that the question of the threshold is of high importance and highlighted that these measures are indeed ambiguous, while acknowledging that this is unavoidable in some areas. In order to have a better outcome, Prof Gawer suggested to apply a threshold that was dynamic and was re-evaluated after a certain period (e.g. a year) in order to create a transparent process, which is needed in a fast-changing environment such as the one of the platform economy. However, according to the speaker what is surely not needed is a « black box »where administrators decide unchallengeable and unclear gatekeeper designations, as transparency and a method of recourse should be also considered as important features of the designation process.
Lewis Crofts asked the panellists how specific sectors, such as operating systems and cloud services, would be affected by the reforms and if there was a potential threat of over-regulation in these areas.
Mr Shier started his reply by stating that the « one-size-fits-all » approach was prone to overregulation with regard to some sectors because a specific obligation of the DMA might not be targeted to the specific market player. He used Online Travel Agencies (OATs) as an example, which he said are affected by obligations targeted to another area as they fall within the purchase threshold. According to the speaker, this has detrimental effects to their business model which is based on commissions. He concluded that this could also be a common risk with regard to commission-based services.
Prof Gawer clarified that it is not sectors, but companies that will be regulated if some of their activities meet a certain threshold or certain characteristics. The speaker then went on to say that she understood Mr Hazemi-Jebelli’s earlier argument, in which he had pointed out that platforms should not just be regulated and treated as utilities. At the same time, Prof Gawer expressed her agreement with the DMA’s perspective that some large platforms, especially cloud services, might be usefully be considered as infrastructure providers. She concluded that the term over-regulation should be defined first in order to establish what could be considered as such.
Mr Hazemi-Jebelli began his statement by bringing up the example of Apple’s marketing campaign after Steve Jobs returned to the company, which was focused around highlighting their unique closed operating system and the secure environment it could provide to customers in contrast to the one of Microsoft. According to him, the DMA’s « one-size-fits-all » approach requires the opposite strategy by encouraging operating systems to be homogenous with full open access to every aspect of their hardware or software. The speaker went on to mention Article 6(1)(f) [Interoperability of operating systems], which allows potential competitors equal access to a gatekeeper’s operating system, hardware and software. He concluded that this obligation would preclude platform operators from fulfilling their gatekeeping role, and that this obligation would thereby make the ecosystem less secure.
Mr Shier responded to the previous speaker by pointing out that an amendment of Article 6(1)(f) applies the self-preferencing obligation (originally aimed at ranking systems) to other settings, with potential negative effect on both consumers and competition on the platform. He explained that developers need some guarantee that their code will work across different devices, which platforms may achieve by pre-configuring certain settings to point to their own complementary apps or services.
The moderator pointed out the objective of the DMA, which is to increase contestability in the European digital market and support SMEs. He then went on to ask the panellists if they could think of any additional measures, either within the DMA or somewhere else in the legislative toolbox, that would be needed to promote competition.
Prof Gawer started by stating that there are multiple measures that still could be taken in order to increase entrepreneurship and support innovation for SMEs and European companies, in general. As a first measure she suggested delivering a unified digital single market, which could be achieved by reducing administrative complexities that stem from different national rules. She acknowledged that some steps in the right direction had already been taken, but that they could be taken further. Secondly, the speaker suggested changes in the distribution of tax incentives which should not only be given to start-ups, but also to companies that are in the process of growing and are willing to scale up. With regard to the financial subsidiaries, she pointed out that losing their tax incentives may be a reason why certain start-ups and SMEs avoid growing over a certain threshold. Lastly, she mentioned the importance of educating, among others, business owners on the digital economy’s value creation, which she considered to be an essential part in supporting businesses to grow by using all their potential.
With respect to the question of education on the digital economy, the speaker stated that this could be achieved by increasing the supply of university courses on the platforms’ business and the opportunities of the digital economy. Additionally, the speaker referenced a publication that she had authored with M.I.T. Professor Michael Cusumano and Harvard Business School Professor David Yoffie entitled « The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and Power« (Harper Business). She emphasised that the digital economy opens up many avenues for novel value creation, but also enables new kinds of abuses. among them, economies should not be achieved by just imposing self-employment models on employees, and therefore saving on social security costs, but by competing intelligently and using opportunities of value creation. She concluded this point by saying that big platforms’ business models can be improved and that online platforms (either incumbents or new comers) can do a better job at generating value for all.
In response to the moderator’s question, Mr Hazemi-Jebelli started by expressing his agreement with Prof Gawer’s statement, especially with her support for financial incentives for good entrepreneurship and attracting and promoting talent. He continued to highlight the fact that one of the DMA’s main objectives is the deepening of the digital single market and the development of a harmonised approach to regulation. The speaker continued by mentioning a study on E-Commerce from the European Commission, which showed that platforms present an important single source gateway for SMEs to access the European digital market and its customers. According to the speaker, smaller companies benefit from the bundled expertise of platforms on marketing, payment services, logistics, and other services. This benefit could be maintained by using a harmonised approach to applying the DMA’s rules. A fragmentation of these rules by different Member States would harm this one-stop-shop benefit that platforms present. Finally, Mr Hazemi-Jebelli concluded his remarks by stating that the European digital market could benefit if the DMA was more harmonised by ensuring that the obligations applied to every platform in the European digital single market and not allowing different interpretations of the rules by Member States.
Lewis Crofts proceeded to address Mr Shier on his opinion about the effects of the DMA for Europe’s role on the global scale compared to the US and China.
Regarding the questions about Europe’s role in the global market, Mr Shier began his statement by voicing his agreement with the other panellists’ remarks about the importance of a unified digital single market. He subsequently pointed out that there were two beneficiaries of the contestability introduced by the DMA – the businesses that were using platforms as a gateway to access their customer base and the actual and potential competitors of these platforms. The speaker went on to argue that Europe’s strength lies in SMEs and start-ups that are working in the biotech sphere, or the industrial internet of things (IoT). According to him, the focus of the measures should not lie on promoting another large search engine or social media platform, but to support European digital business in the areas where they have comparative advantages. Regarding the fragmentation issue that Mr Jebelli pointed out, the speaker remarked that research undertaken by Oxera on the DSA showed that companies might choose to invest in the other markets rather than in Europe just because of the disadvantages stemming from legal fragmentation in the EU single market.
Lewis Crofts explained that a central demand of the European Parliament is to have a stronger say in terms of powers of the regulator to intervene on « killer acquisitions » and mergers and acquisitions (M&A) deals, in general. He then asked the speakers their opinion on whether the DMA is the correct tool to address this kind of deals or whether this should be conducted with other measures.
Mr Jebelli began to answer this question by stating that these additional M&A obligations represent another attempt to restrain the size and growth of large tech platforms, though the benefits of such an approach are questionable. He continued by stating that start-ups would not benefit if the biggest players were removed as potential buyers since they would end up having to settle for selling their company at a lower price. Regarding the prohibition of « killer acquisition » the speaker highlighted that the effects needs to be scrutinised and had not been scrutinised within the impact assessment for the DMA, as this was a very new approach that had not been tested before and putting a broad-based prohibition on so-called « killer acquisitions » in the DMA may potentially be harmful, putting aside the question of legal basis.
Regarding the acquisition control of the DMA, Prof Gawer pointed out that in some cases in the past, mergers had been used as a means to limit competition or erase potential rivals. According to the speaker, this was not the motivation for all acquisitions, but it was a legitimate concern, especially with large players. She thus suggested reversing the burden of proof for a small subset of large platforms, whereby the company should demonstrate how the acquisition would be beneficial. At the same time, she acknowledged that this would be difficult to prove in advance, as it is concerned with future effects and the is empirical experience missing. Given that the EU is willing to attract new competitors on the market, Prof Gawer continued, she expressed her favour of an increased customised merger control. Furthermore, she commented on Mr Hazemi-Jebelli’s concerns about the less profitable sell-out strategies for start-ups. In Prof Gawer’s opinion, the objective of maximising the entrepreneur’s profit is not in the consumer’s interest or in society’s interest as a whole if the objective is to maintain an entry barrier. The speaker summarised her remarks by reiterating that acquisitions by large platforms could sometimes have positive effects on the consumers, as they could benefit from more services and better accessibility. However, she cautioned against the possibility of an acquisition being used as a way to extinguish competitors. Lastly, she reiterated her earlier suggestion to evaluate this on a case-by-case basis
Mr Shier began his answer by stressing that the platform economics literature describes an ‘inversion of the firm’, whereby firms encourage innovation by third parties on their platforms rather than undertaking all of the research and development efforts themselves. Finally, the speaker agreed with Prof Gawer on how larger platforms had bigger opportunities to create value for customers by making innovations accessible to a larger group of users across their ecosystems.
With regard to the value creation argument of large platforms, Prof Gawerreacted to Mr Shier’s remarks by pointing out that large platforms can create efficiency thanks to economies of scale and scope and network effects. She indicated however the importance of considering the trade-off of decreased contestability. Finally, she raised concerns about a digital platform economy that might be very efficient, but might also not leave room for competition.
The remaining part of the debate and the Q&A session covered the following issues: the possibility of over-regulation in some sectors, additional measures beyond the DMA to increase contestability, the effects of the DMA on Europe’s digital single market on a global stage, the DMA’s intervention in M&A.
Want to know more about the issues discussed in this debate? Then take a look at the selected sources provided below!
Amendments adopted by the European Parliament on 15 December 2021 on the proposal for a regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector (Digital Markets Act)