Ex ante regulation of digital gatekeepers: Which institutional mechanisms?

Regulating Disruptive Innovation: Here Are the Key Challenges

Over the past few weeks, I have authored several blog posts (see here, here and here) on the Commission’s anticipated proposal for a Digital Markets Act, which would apparently comprise two pillars, i.e. ex ante regulation for so-called  “digital gatekeepers” and the New Competition Tool. My posts shared some thoughts on the first of these pillars, focusing on the scope of the upcoming ex ante regulation (examining in particular the notion of “digital gatekeeper” since it seems that the new rules would apply to a small subset of platforms holding gatekeeping positions), as well as the content of such regulation (discussing the blacklist, greylist and whitelist the Commission is apparently working on).

In this blog post, I would like to talk about the type of institutional mechanisms that should be part of ex ante regulation. Such mechanisms are important for several reasons.

First, while I regularly hear people saying that the criteria to be adopted to identify digital gatekeepers and the prohibitions that will be contained in the blacklist should be sufficiently precise to be self-executing, I don’t think that when it comes to regulatory matters there is such a thing as “self-execution”. While adopting clear and objective criteria to identify digital gatekeepers is certainly desirable, these criteria will need to be applied by a regulatory body responsible for designating the gatekeepers that will be subject to ex ante regulation. No platform will indeed volunteer to be regulated. Similarly, even if the blacklist contained a simple rule whereby digital gatekeepers cannot engage in self-preferencing, such rule would need to be applied in the specific circumstances of the case; it might not be clear whether a particular practice of a digital gatekeeper amounts to self-preferencing or whether it does but is justified by some objective consideration. Thus, ex ante regulation will remain lettre morte unless proper institutional mechanisms are designed and set up to implement and enforce the rules and principles it contains.

Second, I believe that the rules and principles contained in ex ante regulation should not be static as digital markets are fast evolving and online platforms can change their behaviour extremely quickly in response to technological and market changes, but also to regulation. This is why institutional mechanisms are needed not only to implement and enforce the new rules, but also to adapt them when needed through, for instance, some form of delegated powers. Having to revise the Digital Markets Act to keep up with firms or markets developments would make the new rules obsolete within a short period of time.

The question is how such institutional mechanisms should look like. Do we, for instance, need to create a new EU Digital regulator? This would be a bad idea for several reasons. First, this would delay the implementation and enforcement of ex ante regulation for many months or years as you don’t create a brand new European agency overnight, and in any event the more frugal Member States may have little appetite for such an approach. Second, the competences required for regulating digital gatekeepers are to some extent already available within the Commission. Thus, I would suggest the creation of a Digital Gatekeeper Taskforce or Unit that would be in charge of implementing and enforcing the ex ante rules, and perhaps responsible for updating them in line with market developments. This Digital Gatekeeper Taskforce or Unit could for instance draw resources from DG Competition and DG Connect (as well as possibly other directorates), which have complementary expertise. For instance, DG Competition has unparalleled enforcement expertise, while DG Connect has the policy expertise that would be necessary to ensure that the regulatory framework remains effective and up-to-date, and purses the right objectives. This collaborative approach could also ensure that that the two pillars comprising the Digital Markets Act, i.e. ex ante regulation and the NCT, operate in a synergistic fashion. I also believe that the institutional mechanisms in place should be primarily located at the EU level, if only to ensure consistency across the internal market. Whether national regulators should have a role to play, for instance, at the enforcement level (that is, after a company has been already designated as a digital gatekeeper by the EU regulator) is a good question on which opinions may vary. But core activities described above should be at EU level.

Now, one thing is clear: the resources that will be needed to ensure the effectiveness of the ex ante regulatory framework will be large – in fact much larger than what most probably anticipate – for several reasons. First, the implementation and enforcement of this framework will raise a wide variety of complex and novel issues that have never been addressed in the past. Second, companies that are (wary of being) designated as digital gatekeepers will deploy vast legal, technical and lobbying resources to oppose the implementation/enforcement of rules that are adverse to their economic interests. While this problem of asymmetry of resources is already present in competition investigations (and has an impact on their timeframe), it will take a whole dimension in this new regulatory space. Third, one cannot expect these companies to happily accept adverse regulatory findings. They will “kick the can down the road” for years using every possibility of appeal. Hence, if the Commission and the other bodies of the European Union are serious about ex ante regulation, they will have to deploy significant additional resources.

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