Digital Markets Act: Why the CERRE Recommendations Paper gets it entirely right

A lot of things have been written about the Digital Markets Act, which will be proposed by the Commission on 9 December. In most cases, I agree with some of the recommendations made, while disagreeing with others. For the first time, however, I fully agree with a set of recommendations made by others, which is the Recommendations Paper on the DMA (the “Paper”) recently published by CERRE, a Brussels-based think-tank. It is a great piece of work, which contains much wisdom. If the policymakers reading this blog only have the time to read one paper, read this one.

Before summarizing its content, I would like to make two observations. First, I am not surprised of the quality of the Paper considering the caliber of its authors: Alexandre de Streel, Martin Cave, Richard Feasey, Jan Krämer, and my TILEC colleague Giorgio Monti. They also benefited from comments from the formidable Amelia Fletcher, another colleague, this time at UEA. Second, although this paper was based on work funded by large corporations — including Google, Apple, Facebook and Amazon — the authors wrote it in full independence (as the recommendations are, to say the least, not in line with typical GAFA thinking).

The CERRE paper includes recommendations for the objectives, scopeobligations and enforcement of the DMA.

It recommends that the DMA focus on the following objectives:

  1. Promote competition, market contestability and innovation by complementing (not substituting) competition law when it’s either ineffective or unable to intervene.
  2. Empower users by providing them with the relevant information, tools and incentives to make informed choices.
  3. Ensure fairness in B2B relationships by protecting business users and partners against unfair practices.
  4. Promote the Digital Single Market, ensuring that it is not fragmented by a growing volume of national rules that regulate large gatekeeper platforms (LGPs) differently.

I agree that these are the right objectives. In particular, there is no question that the DMA should complement rather than substitute competition law. Ensuring fairness in B2B relationships and empowering users while avoiding fragmentation are also important.

As to the scope of the DMA, the paper provides a systematic and precise definition of large gatekeeper platforms (LGPs) upon which specific prohibitions and obligations should be imposed. To be categorised as gatekeepers, platforms should:

  1. Be large: based upon the number of unique users, time on site, or proportion of interactions;
  2. Hold a gatekeeper position on which business users depend because the platform controls a high proportion of users with low ability or incentive to multi-home across different platforms, or switch between platforms;
  3. Enjoy enduring market power because of high entry barriers to existing and future services due to network effects and the control of capabilities necessary for innovation within the digital economy, such as data;
  4. Orchestrate an ecosystem of products and services thanks to conglomerate presence across markets.

I like this combination of cumulative quantitative and qualitative criteria, which if applied correctly should lead to the application of the prohibitions and obligations to a small subset of digital platforms. For reasons I have already discussed in earlier posts (see e.g., here), it is important to keep the list of digital gatekeepers short as capturing too many platforms would (i) lead to a weakening of the prohibitions and obligations; (ii) make enforcement more difficult; and (iii) reduce industry support for the DMA.

As to the first criterion (size), focusing on large platforms is right because as the Paper correctly observes “the larger the platform is, the bigger the harm may be“.

The second criterion (the holding of a gatekeeper position) also makes sense. I very much like the reference to multi-homing, which as I emphasized in an earlier post is an important factor to take into account. In particular, when users on both sides of the platform tend to multi-home, there is no gatekeeping problem.

The third criterion (enduring market power due to barriers to entry) and the fourth criterion (orchestrating an ecosystem) are equally important. Many of the problems observed with large digital platforms relate to scenarios when they leverage the market power they enjoy in their core market to conquer new markets, through strategies such as bundling and self-preferencing.

The Paper also specifies that those criteria “should be assessed on a case-by-case basis during the designation process which should be done at regular intervals to take into account the rapid evolution of digital markets“, which is the right approach.

As to the substance of the ex ante rules, the Paper recommends that “the DMA prohibits LGPs from imposing commercial terms and practices that limit competition and fairness, such as:

  • Terms and practices which dis-empower consumers to multi-home or switch, such as default and nudges, anti-steering, limiting data portability.
  • Terms and practices which dis-empower business users to multi-home or switch, such as Most Favoured National [sic] (MFN) or exclusivity clauses.
  • Anticompetitive and unfair leverage of gatekeeper power across markets, such as specific types of self-preferencing and bundling.
  • Unfair contractual terms and practices, such as retroactivity, termination/suspension.”

I generally like the above set of prohibitions (with the caveat that a blanket provision on all MFN clauses would likely be excessive as some type of MFNs may be needed to prevent free-riding; in addition, it seems to me that this issue has already been dealt with through competition law).

I also agree with the paper’s suggestion that “the large digital gatekeeper platform should have the possibility to justify its terms or practices with an efficient or objective defence. Thus, the prohibition amounts to a reversal of the burden of proof from the regulatory authority to the gatekeeper platforms.” While I am opposed to the reversal of the burden of proof in competition cases (given the fact they can lead to the adoption of quasi-criminal sanctions), I support this approach in the context of the DMA.

The Paper also recommends that “platforms beyond just LGPs [should be] subject to interoperability or data sharing obligations on a case-by-case basis, and only when necessary and proportionate as they risk disincentivising investment and innovation“.

As to enforcement, the Paper says that “given the multinational presence of the large gatekeeper platforms, the DMA should mostly be enforced at the EU level either by the Commission or an ad-hoc body.” This is in my view the right approach. In particular, I strongly believe that the designation of the digital gatekeepers to which the prohibitions and obligations will apply should be done at the EU level, as this will avoid conflicting decisions of national regulators.

The Paper also recommends that Member States “designate independent National Digital Agencies to support the work of the Commission or the EU body“” and that “given the intrinsic European dimension of the platforms and to ensure effective action and advice by the National Digital Authorities, these should be coordinated within a new EU network.” A system whereby the enforcement of the prohibitions and obligations can be both enforced by the Commission/EU body and the national digital authorities is in my view desirable as the Commission/EU body may be insufficiently resourced or prove to be insufficiently dynamic. For instance, national competition authorities have taken an increasingly active role in the enforcement of EU competition rules to tech giants in the past few years, hence complementing the enforcement activities of DG COMP. A similar approach is desirable here.

Finally, the Paper recommends “new ways of enforcement that are more participatory, experimental, data-based and technological.”

All in all, the CERRE Recommendations Paper is an excellent piece of work with which I largely agree. It certainly provides an excellent roadmap to the EU legislator as to the direction that the ex ante regulation pillar of the DMA (the other pillar being the New Competition Tool) should look like. Congratulations to the authors.

One thought on “Digital Markets Act: Why the CERRE Recommendations Paper gets it entirely right

  1. Excellent analysis, thank you! I hope we can get these recommendations into the hands of some key people in the new Biden administration!

    Like

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