Long reads

Regulating the digital economy: the new European regulation for large digital platforms

Lucia Pacheco

Lucia Pacheco

Digital Regulation Manager, BBVA

On December 15 2020, the European Commission published one of the key pieces of its digital strategy: the proposed text for the Digital Markets Act (DMA).

As the digital economy evolves, a small number of companies has become the largest and most influential players. They have created large digital ecosystems that connect multiple platform businesses. As such, they have become the gateway that a lot of companies and consumers must cross to access the digital economy. The European Commission's new proposal aims to introduce new rules for these large platforms acting as "gatekeepers" of digital markets.

The end goal is to make ensure that markets are fair and open to competition. Currently being discussed by the European Parliament and the Member States, this proposal would equip the European Commission with new tools for ensuring competition and innovation. It would thus complement the traditional antitrust framework, which has often been considered slow and insufficient to face the challenges of the digital age.

The proposed Digital Markets Act is built on three key pillars: the criteria for identifying the gatekeepers, the gatekeepers' obligations and the mechanism that guarantees the new rules are implemented correctly. Each of these aspects is of utmost importance to ensure the proposal fulfills its goal of having fairer European markets, without jeopardizing any opportunities for businesses to grow and innovate. Given their relevance, it is not surprising that these three issues are being discussed by market players, academics and authorities.

Under the first pillar, the Commission proposes to identify the gatekeepers among companies that provide a platform service, broadly defined so as to include a wide range of digital services, including marketplaces, app stores, social media and mobile operating systems. However, the Commission has defined a set of criteria for determining when a platform service provider actually acts a gatekeeper: capitalization, revenues, presence in the European Union and number of end and business users.

Defining these criteria appropriately is both hard and necessary. If they are too restrictive, the standard's umbrella may not include companies with a real impact on the common market. On the other hand, if the proposal were to include too many platforms, we would run the risk of imposing too much regulation too early on digital companies that do not actually act as gatekeepers and, as result, restrict their ability to innovate and grow.

The second key piece of this new standard is the list of obligations and prohibitions, establishing mandatory and prohibited behavior. For example, digital infrastructure providers, such as mobile operating systems, must give all developers and users access under fair conditions to the features needed to develop their services. Platforms must also offer their users, both natural persons and legal entities, mechanisms for data portability so that they are able to share their data simply and safely and, as such, promote innovation through data reuse.

By setting these obligations, the Commission has shown its ambition and intent to create a flexible regulation that adapts to the diverse business models found in the digital environment. Even though critics point out the need for greater adjustment of the obligations to the characteristics of individual platforms, in general terms, the Commission's proposal achieves a good balance between effectiveness/speed and flexibility since it provides for the possibility of further specifying some of the obligations.

Thirdly, the proposal stipulates that the regulation will be implemented centrally by the European Commission. This is in line with the aim of avoiding regulatory fragmentation across the Member States, as well as consistent with the cross-border nature of the platforms' operations. Nevertheless, (greater) involvement of the Member States must be considered, as pointed out by countries such as France, Germany and the Netherlands, if you take account of the resources the Commission would need to perform all DMA-derived tasks. The new framework may be strengthened by assigning a more prominent role to national authorities in, for example, handling the dialog with stakeholders such as users and SMEs.

The European Commission has, without a doubt, been a pioneer in discussing how to respond to the challenges presented by the digital economy, and has proposed a decisive and high-reaching regulation. In the coming months and maybe even years, Europe will see intense debate to turn this proposal into a successful regulation, which will inspire governments in other countries.

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