24 January 2022

CER: How the Digital Markets Act will challenge consumers

The European Parliament’s proposals to tame big tech will challenge consumers. Some of these proposals will promote innovation – but law-makers should drop proposals which will stifle it.

At the end of 2021, the European Parliament agreed on its preferred version of the Digital Markets Act (DMA). The DMA is a set of rules which would regulate big tech companies’ digital platforms to increase competition online. The EU law-making institutions – the Commission, the Council of Ministers representing member-states and the Parliament – are under pressure to finalise the DMA quickly. France’s presidency of the EU began on January 1st, and French President Emmanuel Macron wants the DMA finalised before he runs for re-election in April, to prove to voters he is tough on (American) big tech. 

The disagreements between law-makers are small, so this timeframe is achievable. Broadly, compared with member-states and the Commission, the Parliament wants the DMA to regulate fewer online platforms; to impose stricter rules on the platforms that it will regulate; and to impose harsher penalties on platforms that do not follow the rules. The Parliament’s proposals, however, could have significant consequences for innovation and for the quality of digital services. 

The DMA could deliver some modest ‘quick wins’ – such as making mobile apps cheaper by lowering the costs that, say, Apple charges for placements in its app store. But these wins would soon be forgotten if big tech firms became slower to roll out innovations to European consumers. 

Many of the DMA’s rules target big tech’s core platforms – like Google’s search engine, Facebook’s social networks, and Apple and Google’s app stores. It is difficult or impossible for smaller firms to compete against these platforms today. And, instead of competing with each other head-on, big tech firms increasingly co-operate with each other to protect their own core platforms. 

If the DMA succeeded in making big tech’s core platforms more vulnerable to disruption in Europe, big tech firms would have to work harder to keep improving their services, and they might try harder to dislodge each other. Smaller disruptive firms may also prefer to enter the European market first, rather than other parts of the world where big tech firms would remain more impervious to competition. The DMA could therefore encourage greater spending on research and development, and deliver new innovations for Europeans. 

The Parliament’s proposals to strengthen the DMA rules targetting big tech’s core platforms are broadly pro-innovation. As one example, MEPs want to force big social media platforms to be ‘interoperable’. This means consumers could swap Facebook for a competing social media app, while still being able to interact with their friends who stay on Facebook. Interoperability would make it easier for Facebook’s users to leave. If the interoperability rules are properly designed and implemented, this would make it easier for competitors to Facebook to succeed – and should give Facebook incentives to build new features to attract and keep consumers.

But some of the Parliament’s other proposals would have more ambiguous effects on innovation in Europe. For example, the Parliament wants more of the DMA’s rules to apply to big tech firms’ dominant services – which are not part of their entrenched core platforms. In some cases, the rules are justified because they would allow new forms of competition. For example, the DMA would open up the iPhone’s payments technology, allowing competitors to Apple Pay to be used on iPhones. But in other cases, the DMA rules – even without Parliament’s proposed changes – would simply constrain how big tech firms can develop and promote new services. Parliament wants to extend these rules even further. ...

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