A Missed Opportunity: The European Union’s New Powers over Digital Platforms

• DOI: http://doi.org/10.1177/0003603X221126128
• Published date: 01 December 2022
• Date: 01 December 2022
• Subject Matter: Articles

https://doi.org/10.1177/0003603X221126128

The Antitrust Bulletin

2022, Vol. 67(4) 504 –521

© The Author(s) 2022

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DOI: 10.1177/0003603X221126128

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Article

A Missed Opportunity: The European

Union’s New Powers over

Digital Platforms

John Davies*, Valérie Meunier**, Gianmarco Calanchi***,

and Angelos Stenimachitis***

Abstract

The Digital Markets Act (DMA) in the European Union assumes that all large “core platform service”

providers pose similar threats to competition and to fairness and thus imposes identical obligations

on all of them. The alternative “New Competition Tool,” that would have allowed the European

Commission (EC) to conduct fact-intensive investigations of markets to design bespoke remedies,

has been largely abandoned. The approach adopted contradicts the basic principle that competition

policy should be concerned with evidence of adverse effects. The proponents of the adopted form of

the DMA argue that ex ante action is required to forestall irreversible harm to competition, but that

same logic also implies assessing the risk of harm from excessive regulation—and the DMA contains

no mechanism to do so. Given the different underlying economics of different kinds of platform

services, including the way some support digital ecosystems involving many firms, a different approach

is needed. The EC missed the opportunity to introduce a market investigation tool. The rigid and

static framework of the DMA seems like the wrong solution, given the economics of digital markets.

Keywords

DMA, digital platforms, online platforms, ecosystems, digital economy, EU competition law

I. The Need for New Tools

A. Introduction

At the time of writing, the European Union (EU) is set to introduce its Digital Markets Act (DMA).

This legislation defines a set of Core Platform Services (CPS) (Article 2[2]) and so-called gatekeepers

(Articles 3 and 4), together with a set of obligations they must follow (Articles 5–7), alongside a market

investigation tool (Articles 16–19). The European Commission (EC) has claimed that the DMA is not

*Compass Lexecon, Paris, France

**Compass Lexecon, Brussels, Belgium

***Compass Lexecon, London, UK

Corresponding Author:

John Davies, Compass Lexecon, 22 Place de la Madeleine, 4th Floor, Paris 75008, France.

Email: jdavies@compasslexecon.com

1126128ABXXXX10.1177/0003603X221126128The Antitrust BulletinDavies et al.

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Davies et al. 505

competition law,1 though its objectives or fairness and contestability are not different from those of

existing competition law. Whatever classification one assigns to the DMA, it appears to us to be com-

petition law.

The DMA comes as a response to the view that ex ante regulation is needed to address the market

power of large digital platforms and concerns that some conducts are not well addressed by existing

competition law.2 Here, we discuss these concerns based on existing economic research and evidence.

B. Is “Contestability” Enough?

The EC’s implicit assumption is that competition in digital markets with large established players can

only come from contestability: ensuring new entrants can introduce new products to existing markets.

However, this is too limiting and the DMA’s provisions may even prevent procompetitive action by

other players—such as entry by other gatekeepers.

At the same time, the DMA overlooks sources of market failure in digital markets other than a lack

of competition. Markets may fail for other reasons, such as information asymmetries or externalities.

For example, banks may be reluctant to extend credit to customers with no credit history. Mobile loca-

tion services can generate positive externalities (such as improving traffic monitoring or contact tracing

in a pandemic) but the firm generating such benefits may not be able to profit from them, leading to

underinvestment. Contestability will not help with such market failures and indeed may exacerbate

them in some cases.

The EC and other proponents of the DMA cite instances where intervention under current competi-

tion law has been ineffective but without assessing the reasons.3 Was the problem the nature of the

markets, the remedy applied, or limitations of current competition law, for example? To examine these

questions and assess whether the DMA’s approach is the right one, we need to consider the economics

of digital markets.

C. Digital Markets Characteristics and Concerns

In its consultation on what became the DMA,4 the EC identified some of the following economic char-

acteristics of platforms, as motivating its decision to seek new powers.

1. Network Effects. Platforms often need a critical mass of customers to be viable. However, their busi-

ness is often affected by “network effects” in which the attractiveness of the platform depends on how

many users (customers or suppliers—or both) are already attached. As network effects can be self-

reinforcing, creating a positive feedback loop, firms that are early successes and grow might have an

1. Margrethe Vestager: “But it’s important to remember that the DMA is not a competition law instrument.” See https://

ec.europa.eu/commission/commissioners/2019-2024/vestager/announcements/competition-digital-age_en (last accessed

Mar. 20, 2022).

2. Margrethe Vestager: “The world is changing fast and it is important that the competition rules are fit for that change. Our

rules have an inbuilt flexibility which allows us to deal with a broad range of anti-competitive conduct across markets.

We see, however, that there are certain structural risks for competition, such as tipping markets, which are not addressed

by the current rules. We are seeking the views of stakeholders to explore the need for a possible new competition tool

that would allow addressing such structural competition problems, in a timely and effective manner ensuring fair and

competitive markets across the economy.” See https://ec.europa.eu/commission/presscorner/detail/en/ip_20_977 (last

accessed Jun. 21, 2022).

3. “Competition law in its current state is unable to respond to the many challenges posed by the development of structural

platforms, which tend to disrupt it.” See https://www.oecd-forum.org/posts/competitive-dysfunction-why-competition-

law-is-failing-in-a-digital-world (last accessed Jun. 24, 2022).

4. See https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12418-Digital-Services-Act-package-ex-ante

-regulatory-instrument-of-very-large-online-platforms-acting-as-gatekeepers_en.