How to implement the DMA in order to attain its goals of contestability and fair digital markets for core platform services

European Economic Law in the age of digitalisation is undergoing a paradigm shift. Traditional principles that served as guiding light in legal policy and law making for the European industry are currently undergoing a metamorphosis. This relates to (1) the role of competition policy for the regulation of the economy and (2) the role of decentralised legal frameworks with a more active role of Member States. This poses novel challenges with regard to the demarcation of remaining Member States’ competences as outlined under novel European legislation.

Regulation (EU) 2022/1925 of 14 September 2022 on contestable and fair markets in the digital sector (DMA) is one example in this regard. The DMA’s mantra is that no problems will arise with Member States’ ‘matters falling outside the scope’ of the DMA. The DMA aims at designing contestable and fair markets for core platform services. Competition policy considerations and existing competition law case law has influenced the DMA’s goals and scope. Yet, it also departs from traditional competition policy and methodology. It further entails already existing regulatory concepts that are enshrined in public utility regulation, unfair competition laws and general contract law for instance. This broad conceptualization of the contestability and fairness scope poses the risk of overly broad blocking effects vis-à-vis national laws. One must mitigate this risk by ensuring the vast applicability of national laws and establishing a strong private and public enforcement of the DMA. Otherwise, the DMA risks leaving gatekeepers potentially privileged. Gatekeepers might have to comply with lesser obligations than non-gatekeepers do.

The limits of competition law and the wave of digital regulation in the EU

The prevailing regulatory policy that the European legislature pursued has been competition policy-centred. Thereby European Competition Law typically had a vital role to play in ordering the European economy. Legislative policies rested within this orthodoxy over years. Yet, increasing digitalisation and global challenges like climate change, enormous inflation rates, the crisis of multilateralism and the increasing re-shifting of geo-political power equilibria created a political momentum for re-ordering the traditional interplay and tension between states and markets. It seems that current market deficiencies need much more regulation. Instead of re-establishing competitive markets, there is a tendency to design them in ways that sustain public welfare for generations to come. Whether this provides for the desired long-term effects needs thorough consideration. State-designed markets may not be able to correct themselves anymore. Regulatory failures may occur.

In the Reagan era, the US administration strongly supported the idea that states have a minor role in ordering the economy and set focus on a much more laissez-faire centred role for US-Antitrust Law. Thus, the US embedded welfarist considerations in Antitrust Law and neglected a more interventionist stance to improve the functioning of markets. Ordoliberal thinking and German Competition Law emphasised the role of economic freedom of market actors and embedded democratic considerations in the legal toolbox of competition law. This led to a much more interventionist stance. The ordoliberal concept of competition has gained normative strength and paved the way towards specific competition provisions in the German Competition Law that relate to much broader goals of Competition Law. Over almost two decades ago, Europe implemented the ‘more economic approach’ into European Competition Law. Under this notion, competition law must build on more economic insights and less pure normative legal considerations. This was widely claimed to be the advent of a more consumer welfarist approach and scholars are still referring to consumer welfare as the guidepost of European Competition Law practice. Yet, the goals of European Competition Law go—also according to the highest European Court—beyond the economic welfarist considerations that coined the Antitrust Law Practice in the US. The competition practice in Europe, however, rarely used the broad understanding of European Competition Law. European Competition Law practice is indeed primarily focusing on narrow consumer welfare considerations. The very laissez-faire approach, the legal uncertainty that came along with the oftentimes-unclear economic considerations in the assessment of competition law cases and heavy and long-lasting procedures left both public and private enforcement of competition law at a minimum level.

This had a particularly strong impact in digital markets. The application of the traditional error-cost-framework, under which in case of doubt non-intervention was the preferred guidepost, led to a state wherein a handful of undertakings could gain economic power that has paramount importance for competition across markets. Digital markets are characterised by platform providers that have gained economic power through strong network effects, economies of scale and scope, data-related knowledge advantages and entrenchment strategies. This led to the creation of high entry barriers and a tipping of digital markets. Competition Law in its traditional guise was not capable of defying the increasing incontestability of digital markets. Ultimately, the European Commission in its latest policy brief from DG COMP (1/2023) is realizing that the very vague and unclear ‘more economic approach’—particularly in light of the effects-based approach—has led to undesired outcomes and needs revisiting.

The DMA as novel type of regulation in need of an identity

The limited role of European Competition Law for tackling newly emerging power concentrations in digital markets paved the way for multiple new regulations. One of them is Regulation (EU) 2022/1925 of 14 September 2022 on contestable and fair markets in the digital sector (DMA). The DMA aims at designing contestable and fair digital markets. The general policy shift towards a more active role of states and a strong political momentum to boost the European economy eventually created a novel form of regulation that quite heavily abstains from traditional competition policy and methodology. Case-by-case assessments that build on traditional market specific considerations were substituted with per se obligations and prohibitions. Preventive and future oriented ex-ante mechanisms substituted an effects oriented ex-post regime. Market dominance is not the guidepost for legal intervention anymore. Efficiency defences disappeared. The effects-based approach had to surrender under the wish for clear-cut rules that reduce legal uncertainty and establish a more effective enforcement mechanism. All these factors were subject to controversial debates throughout the legislative process and attracted attention from all over the world. Many questions are still unanswered. Is the DMA a novel type of competition law? What is the scope of the DMA? The DMA builds on the internal market competence, Article 114 TFEU. The DMA’s goal is to harmonise rules pertaining to fair and contestable core platform services. It is unclear however, what ‘contestable’ and ‘fair’ really means. The development of the DMA and its real impact remains a discovery process. This holds particularly true in light of the vast regulatory competences of the European Commission.

From decentralization towards centralization—to what extent though?

Another aspect where the DMA’s regulatory design departs from European Competition Law is its institutional design. Contrary to the decentralised mechanism under Regulation 1/2003, the DMA is following a centralized approach. Articles 1(5), 1(6) and 1(7) DMA outline the interplay between the DMA and other current and future laws. National laws that pursue similar or the same goals as the DMA cannot be applicable anymore under a broad primacy of EU law principle. European and National Competition Law however remain applicable. There is a guarantee of coherent decision making by outlining that decisions of national regulatory authorities should not contradict the DMA. All of these provisions make sense under the internal market rationale, at first sight. Avoiding legal fragmentation is a key consideration of the DMA and heavily builds on bad experiences under the very fragmented realities that the GDPR enforcement caused. Varying regulatory approaches from national legislatures can be detrimental to the integration of the internal market and create disparities between the competitive conditions for the users of gatekeepers’ core platform services. Approximating diverging national laws—and particularly the way they are interpreted and enforced—may indeed eliminate obstacles to the freedom of providing and receiving services within the internal market.

However, the devil lies in the details. A too broad centralized approach that follows a full harmonisation rationale will cause certain tensions with regard to multiple already existent laws as the scope of the DMA is not clear. This may cause overly broad blocking effects of the DMA on national rules, which may have the unintended consequences of privileging gatekeepers by leaving national laws inapplicable and jeopardizing future national legislative initiatives. Laws that remain applicable to non-gatekeepers could not bind gatekeepers anymore. This ultimately obstructs the achievement of contestability and fairness in digital markets. A complementary application of the competition rules and effective enforcement of the DMA is, in particular against this backdrop, crucial. Yet, there is uncertainty over the scope of Article 1 (6) DMA and administrative enforcement mechanisms. Moreover, it is unclear what role private enforcement plays in the current legal design of the DMA.

The position statement together with a scholarly paper identifies and examines those challenges in the implementation of the DMA, along with recommendations for overcoming them. It stresses the need that the implementation of the DMA requires a narrow interpretation of Article 1 (5) DMA. Member States competences must remain and decentralization by fostering a private enforcement mechanism of the DMA is key. Accordingly, one must interpret Article 1 (6) DMA, that outlines the applicability of national competition laws, as broad as possible. (National) competition laws must remain applicable. Without more decentralization, there is a risk that the potentially overly broad blocking effects of the DMA together with a lack of effective DMA enforcement may reduce the level of protection instead of increasing it. This may be an impediment for the achievement of the DMA’s goal of establishing fair and contestable digital markets for core platform services.

Jörg Hoffmann is a Research Fellow at Max Planck Institute for Innovation and Competition.