Economic Analysis of Digital Markets Act

INESS

The European Commission has presented a proposal for The Digital Markets Act (DMA). Its goal is to create fair and competitive digital markets in the EU. It aims to achieve this by introducing new ex ante regulations that will automatically apply to so-called “gatekeepers”. The gatekeepers are to be large internet platforms that meet selected size criteria.

In a new joint publication entitled Economic Analysis of Digital Markets Act, prepared by four think tanks: INESS (Slovakia), CETA (Czech Republic), IME (Bulgaria), and LFMI (Lithuania), we point out the shortcomings of the DMA and highlight the possible unintended consequences of this regulation. In addition, we also suggest a way to modify the proposed procedure for regulating internet companies.

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Among the main shortcomings is the very definition of ‘gatekeepers’. They do not really occupy a dominant position within the economy as a whole. Even within digital services, there is intense competition between platforms against each other, while at the same time their position in the market is constantly being challenged by new innovators.

The only space where gatekeepers have the ability to influence the rules of the game is on their own platform. However, even though they have full control over setting the terms and conditions for users, they have no incentive to set them unfavourably. This is best seen when it comes to various practices that the DMA proposal restricts or outright prohibits.

In the study, we show that these business practices are time-tested and are legitimately used by many companies in the offline world.

Moreover, there are a number of economic explanations in the literature as to why these business practices are not a manifestation of anti-competitive behaviour, but instead provide increased welfare for both the end and business users of the platform.

We therefore recommend that the DMA rethinks the centralization and automation of the entire process of identifying “gatekeepers” and individual prohibited business practices. From the perspective of the CEE region, it is important to maintain the dynamic element of competition.

This can be achieved by replacing the static and ex ante approach in the DMA with a polycentric approach where national capacities are involved in decision making while maintaining an open regulatory dialogue in which internet companies themselves have the opportunity to participate.