Marching Forward: The Digital Markets Act And Its Impact On Online Competition

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GVZH Advocates

Contributor

GVZH Advocates is a modern, sophisticated legal practice composed of top-tier professionals and rooted in decades of experience in the Maltese legal landscape. Built on the values of acumen, integrity and clarity, the firm is dedicated to providing the highest levels of customer satisfaction, making sure that legal solutions are soundly structured, rigorously tested, and meticulously implemented.
In the rapidly evolving landscape of the digital marketplace, a new regulatory framework known as the Digital Markets Act ("DMA") is being enforced in order...
Malta Antitrust/Competition Law
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In the rapidly evolving landscape of the digital marketplace, a new regulatory framework known as the Digital Markets Act (“DMA”) is being enforced in order to address concerns surrounding competition and fairness. With tech giants such as Google, Meta and Amazon wielding considerable influence and control, the DMA aims to redefine the dynamics of online competition. The DMA promises to limit the current anti-competitive behaviours exhibited by these companies that are now being referred to as ‘Gatekeepers'.

The DMA sets out stringent criteria of being a gatekeeper as follows:

  • either have had an annual turnover within the European Union of at least €7.5, billion in the past three years or have a market valuation of at least €75 billion;
  • have at least 45 million monthly end users;
  • have at least 10,000 business users established in the EU;
  • control one or more core platform services in at least three member states.

Currently there are only six companies that the DMA recognises as gatekeepers, these are Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft.

These gatekeepers are subject to specific regulations aimed at curbing anti-competitive behaviours and promoting a level playing field. Through these new provisions such as the data silo requirement and prohibitions on unfair practices, the DMA seeks to foster greater competition, consumer choice, and innovation in the digital economy.

While the DMA holds the promise of enhancing competition and protecting consumer interests, it also raises questions about its global applicability and potential impact on innovation. By examining both the opportunities and challenges presented by the DMA, we aim to navigate the complexities of digital regulation and anticipate its transformative effects on the digital marketplace.

What is the DMA, and what does it aim to do? 

The DMA is being introduced as part of the European Data Strategy to establish a unified data market to enhance Europe's global competitiveness and ensure data sovereignty.1 The DMA is being instituted with the aim of guaranteeing a competitive and fair digital sector.

The Act sets out to achieve its goals by:

  • Banning unfair practices by the gatekeepers. This is being done through the data silo requirement. The data silo requirement mandates platforms to refrain from utilizing competitors' data to gain a competitive edge, especially pertinent in cases of vertically integrated firms like Amazon, which operate as both marketplace facilitators and sellers, thereby enjoying an unfair advantage over third-party sellers;
  • Enabling business users to offer consumers more choice. The DMA is introducing a ban on anti-steering policies. This prohibition aims to expand the range of options available to consumers by compelling gatekeepers to allow businesses to promote their offerings directly to end-users and enable users to access services, content, and subscriptions beyond the gatekeeper's core platform services;
  • Providing better services and fairer prices for consumers. Once the DMA comes into effect, companies will no longer be able to impose parity clauses. Parity clauses are being tackled as their anti-competitive nature contradicts the aims of the DMA. For example, currently if someone wishes to list a room on a website like booking.com and they add a parity clause in the terms and conditions, there is no reason for the consumer to go on the website of the person providing the room as the price will be the same. This limits choices for consumers as startups and similar companies are unable to compete from a monetary perspective;
  • Promoting innovation and a fairer online platform environment for technology start-ups. The DMA aims to achieve this goal by introducing a ban on self-preferencing, this measure ensures that gatekeepers do not unfairly prioritize their own services and products over those offered by third parties in search rankings and indexing, thereby fostering innovation and competition in the digital marketplace.

When did the DMA start applying and what's new? 

The majority of the regulations of the DMA became effective in May 2023, whilst the acknowledged gatekeepers were required to comply with the provisions of the DMA by March 6, 2024.

The DMA imposes novel obligations on gatekeepers, outlined as follows:

  • Gatekeepers must expand user choice, including the option to select specific software within an operating system;
  • They must facilitate easy unsubscribing from core platform services, ensuring parity with the subscription process;
  • Gatekeepers are mandated to disclose platform visitation metrics to ascertain gatekeeper status;
  • They must grant business users access to marketing and advertising performance data hosted on the platform;
  • Gatekeepers are required to notify the European Commission of any acquisitions or mergers;
  • Ensuring interoperability of basic functionalities in instant messaging services is obligatory, allowing users to exchange messages, voice messages, or files seamlessly.

The DMA has revoked privileges previously enjoyed by gatekeepers, introducing several prohibitions:

  • Gatekeepers cannot prioritize their own products or services over those of other companies in rankings;
  • Gatekeepers are prohibited from blocking developers' use of third-party payment platforms for app sales;
  • Gatekeepers cannot process users' personal data for targeted advertising without explicit consent; 
  • Gatekeepers are barred from imposing unfair conditions on business users;
  • Gatekeepers cannot pre-install specific software applications or hinder users from uninstalling them easily;
  • Gatekeepers are restricted from imposing limitations on platform users.

What are the implications of the DMA? 

The implications of the DMA are far reaching, affecting a wide range of parties from digital gatekeepers and consumers to start-ups.

Digital gatekeepers

Digital gatekeepers are one of the parties that will be affected the most as the DMA looks to regulate the power they hold. Digital gatekeepers will likely start facing more competition and witness less market share. This is because of the balancing of the playing field through the introduction of the DMA. The DMA brought about a new requirement which is referred to as the data silo requirement. Currently Amazon (which is one of the few companies identified as a gatekeeper) is fighting an ongoing case resulting from the fact that the European Commission found that Amazon's use of seller data enables the company to avoid the normal risks of retail competition. As a consequence of the data silo requirement, Amazon will have to refrain from using third party data in this manner, withdrawing some power they currently have and therefore it is likely that more competitors will attack the market, rivalling the services of Amazon.

Gatekeepers will have to adapt to the new obligations set out in the DMA and must remain diligent in ensuring they keep within the scope. Failure to abide by the DMA will result in a hefty fine. The EU has shown themselves to be very adamant at ensuring conformity by instilling substantial penalties. The European Commission has the authority to impose fines of up to 10% of the gatekeeper's annual worldwide turnover, or up to 20% when they are repeat infringements. The Commission may further reprimand by imposing structural or behavioural remedies which can include divestiture of certain business units or a ban on acquisitions related to noncompliant practices.

Consumers

Consumers stand to benefit from enhanced interoperability, particularly in communication services. Currently, communication is often restricted to proprietary platforms, such as iPhone's iMessage App which limits messages to other iPhone users. Under the DMA, gatekeepers offering communication services must furnish interfaces facilitating horizontal interoperability. This facilitates smoother transitions for consumers switching providers and transferring their data, ultimately expanding consumer choices by reducing the inconvenience typically associated with such transitions.

As previously mentioned, an increased amount of competition in digital markets is an expected consequence of the DMA due to a levelling of the playing field for all businesses in the digital economy. This could lead to lower prices and greater innovation in the industry. Consumers could therefore be able to enjoy cheaper yet improved products which would help save money but make their digital experience more efficient.

Start-ups

Many companies are reliant on user consent and the data they gather, to best understand their customers to improve their services and products. The DMA targets data portability which enables users to transfer data without hassle from gatekeepers and their platforms to new platforms. This gives startups a more equal opportunity to attract customers by allowing for a smooth transition whilst keeping the consumers data accessible, transferrable, and protected.

Small businesses such as online retailers will be able to see how platforms like Amazon rank their products in search results, this will be able to be done as a consequence of the DMA's transparency requirements. Information of this nature is vital for startups to gain a better understanding of their customers and what they want out of the product and/or service. This information will enable small businesses to optimize the visibility on these platforms, which can lead to more sales and profitability.

Criticisms of the DMA

The consequences of the standard set by EU Legislation sometimes transpires over to consumers globally, this is known as the “Brussels Effect”. However, since the DMA pertains solely to the EU, it remains uncertain whether the “Brussels Effect” will materialize, possibly constraining the anticipated benefits of the DMA. Gatekeepers might opt to offer services in regions with less regulatory scrutiny and only adhere to the DMA for users based in the EU.

The DMA intends to nurture a culture of growth and prosperity amongst start-ups by providing them a more equal playing field to enter and succeed in the market. On the other hand, an increased amount of regulations can cause further complexity, resulting in higher costs and barriers to entry. This could lead to legislators protecting gatekeepers, creating a diametrically opposing consequence to the DMA's intended effect. This negative effect can be seen by the implementation of the General Data Protection Regulation (GDPR) in 2018 as small and medium enterprises (SMEs) are still struggling to implement it.

The DMA might stifle innovation as it could reduce incentives for gatekeepers to provide innovative products and services. Restrictions are being implemented such as the prohibition of engaging in self-preferencing practices, the prohibition on bundling and, the prohibition of adjacent market entry, would greatly hinder platforms' ability to develop new products and services for customers. This is largely because these restrictions and prohibitions could limit the ability for digital platforms to experiment with new features and offerings.

Conclusion

The DMA represents a significant step towards regulating the power dynamics within the online marketplace, particularly targeting tech giants like Google, Meta, and Amazon (the gatekeepers).

With stringent criteria defining the gatekeeper status and specific regulations set forth by the DMA, the aim is to ensure a fair and competitive digital sector.

By prohibiting unfair practices, enabling greater choice for consumers, and promoting innovation, the DMA seeks to establish a more level playing field in the digital economy. Digital gatekeepers face the challenge of adapting to new obligations and remaining compliant with the DMA's regulations as failure to comply may result in substantial fines and other penalties imposed by the European Commission.

Consumers stand to benefit from increased interoperability and competition, potentially leading to lower prices and improved products and services. Start-ups may find opportunities for growth and success with enhanced data portability and transparency requirements provided by the DMA. Despite its intended positive effects, criticisms of the DMA exist. Concerns about its global applicability and potential complexities leading to higher barriers to entry for start-ups are among the issues raised. Additionally, the DMA's restrictions on certain practices may be perceived as stifling innovation, limiting the ability of digital platforms to introduce new features and offerings.

In navigating the complexities of digital regulation, policymakers must balance the need for competition and innovation while ensuring consumer protection and fair market practices. With the date of compliance by gatekeepers nearing, we will soon be able to tell how effectively the DMA addresses these challenges and shapes the future landscape of the digital economy.

Footnote

1. The European data strategy seeks to establish a unified data market to enhance Europe's global competitiveness and ensure data sovereignty. This involves creating Common European data spaces to increase data availability for economic and societal use while maintaining control for data generators. To solidify the EU's leadership in the global data economy, the strategy aims to implement legislative measures on data governance, access, and reuse. Initiatives include opening valuable publicly held datasets, investing in a European High Impact Project for data infrastructure, and facilitating access to secure and competitive cloud services through a procurement marketplace and regulatory clarity.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Marching Forward: The Digital Markets Act And Its Impact On Online Competition

Malta Antitrust/Competition Law

Contributor

GVZH Advocates is a modern, sophisticated legal practice composed of top-tier professionals and rooted in decades of experience in the Maltese legal landscape. Built on the values of acumen, integrity and clarity, the firm is dedicated to providing the highest levels of customer satisfaction, making sure that legal solutions are soundly structured, rigorously tested, and meticulously implemented.
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