July 3 marked an important stage in implementing the EU’s new big tech regulations under the Digital Markets Act (DMA). The European Commission started thresholds checks for large internet platforms that are considered to have a strong economic position and a large user base to impact the internal market.
According to the Commission, such companies act as “gatekeepers” or, in other words, use their position to gain an undue advantage on the internal market. Big techs were required to notify their data to the Commission for thresholds checks. In early September, the Commission will officially designate gatekeepers and impose a set of guidelines to ensure they “behave in a fair way.”
Failure to adapt to the new obligations will result in fines of up to 10% of a company’s global annual turnover as early as next year.
Don’ts For Gatekeepers
Once named as gatekeepers, big techs will be banned from favouring their own services and products in ranking in their core platform service than similar services or products offered by third parties on the gatekeeper’s platform.
Therefore, Amazon will no longer be able to give better positions to Amazon Basics products, and Apple will have to allow apps on their devices to be downloaded through sources other than the App Store or purchased through means other than Apple Pay. Similarly, Google Search may no longer prioritize navigation links through Google Maps as the primary option.
Let’s consider Apple as an example. Users choose to pay for Apple’s unique and high-quality network of services, and Apple competes by offering this unique product package rather than solely on price. It follows that the DMA regulation indirectly (or perhaps directly) supports strategies of companies that compete by prices and quality, making it easier for them to absorb the markets of players that outperform rivals by offering unique products or distinct quality. Removing this pivotal dimension of competition may result in market concentration, so that the DMA, which is originally crafted to increase competition in the digital market, risks to bring the opposite effect.
In addition, large internet companies will no longer prevent users from uninstalling any pre-installed software or app if they wish to do so. This rule may interfere with the benefits that some digital platforms provide to their users and indirectly influence private business models and strategies.
Is More Choice Always Better?
The regulation aims to create “more and better services to choose from, more opportunities to switch their provider if they [consumers] wish so.” However, in the era of information overflow, having “more” services is no longer seen as a significant asset. Users pay – either with their money or with their data – not for more options, but for the most relevant options that are best fit for them and selected on their behalf. For example, 92% of Google Search traffic ends on the first page of results, with 67.6% of users only opening the top five search results. These statistics indicate that users want to save time and receive the most relevant results for their search. Therefore, the ultimate goal should not be merely multiplying providers but rather ensuring that consumers can obtain the best products at the lowest prices. This can be achieved when competition naturally unfolds in the market, driven by consumer preferences rather than bureaucracy and regulation.
If Google Maps indeed provides the best service for users, it is natural for it to be the top choice from Google Search. However, as soon as it starts failing at its core service, customers will be the first to observe it and they will naturally shift to other providers, at their own will and not because regulations say so. If customers had more demand for “more choice” and were ready to pay for it, more options would naturally evolve. With the DMA in place, the new regulations are artificially creating the choice that is not actually needed.
At the End of the Day, Markets Regulate Best
The costs of compliance with the new bans, restrictions, and potential fines may result in higher prices, lower quality, and fewer digital products and services from online platforms classified as “gatekeepers” by the EC. These new rules may also reduce incentives to invest in innovation, distort competitive conditions for digital technology services, increase the risk of market concentration, and hinder market inefficiencies.
It was users that made such platforms as MySpace, Nokia, and Yahoo to change their course and allowed today’s tech giants to grow. It is new potential projects like AI virtual assistants that sustain the current search engines. A regulation that aims to restrict the practices of large digital platforms today may lack a long-term perspective. New products from rivals, investment in innovations, and unrestricted user choices have effectively regulated the practices of large platforms. More than that, more investment in innovation leads to more competition for big techs. The new rules threaten the opposite – less investment and less competition.
From now on, the conditions that consumers, business clients, and startups have in the digital markets will be shaped by government-imposed regulations rather than by consumers and market processes.
Originally published at Brussels Report.