The year 2021 will see the introduction of new regulatory institutions and regimes for digital platforms. In the UK, the Digital Markets Unit (DMU) was announced in late 2020. Meanwhile on the continent, a similar proposal is in the legislative pipeline in Germany with the amendment to the General Competition Act (GWB) and the EU Commission has laid out its own plans for tackling platform dominance with the Digital Markets Act (DMA).
We can see these initiatives as preventive measures: as a type of “vaccine” to stop the further spread of dysfunction and concentration in digital markets and provide “healthier” market environments.
The UK, Germany and the rest of Europe are all facing the same problems rooted in the current digital platform market structures: a handful of players dominate their respective platform markets with virtual cartes blanches for setting commercial conditions, creating high entry barriers for competitors and controlling economically dependent business users’ access to customers. The consensus among legislators appears to be to tackle this issue by introducing rules specifically tailored to digital platforms, establishing quasi-sector-specific regulations. This is in line with the recommendations of several reviews and studies, most notably in the UK Furman Review and recent CMA Market Study.
The proposals for the UK Digital Markets Unit, the German GWB amendment and the EU Digital Markets Act address the same core policy issues: determining a set of obligations or behavioural prohibitions, defining the scope of the new rules to address the relevant platforms and finally, delegating the enforcement of the regulation to a suitable regulator.
Nevertheless, the approaches of the three put notably different emphasis on each of these aspects: The clear focus of the UK initiative is the establishment of a new regulatory body: the Digital Markets Unit is tasked with determining the details of the future scope and obligations of platform regulation, while the German GWB amendment’s emphasis is on the introduction of new designation criteria for “paramount cross-market significance”. Finally, the DMA includes both detailed requirements of scope and an exhaustive list of obligations for platforms within its scope. The fluctuating levels of detail are ultimately a result of the different roles and margins of discretion granted to the respective regulatory body.
The scope of the proposed platform regulations – in other words, which platforms will be regulated – can be broken down into two factors: the targeted areas of business, and the qualitative or quantitative threshold for market status requirements. The German GWB encompasses the entirety of “two-sided and network markets”, while the UK DMU is only concerned with platform services funded by digital advertising. The EU’s DMA, on the other hand, defines eight individual types of platform services as “core services” provided by gatekeepers, including search engines, social networking, video sharing and advertising services.
Market Status Thresholds
The second and more important factor of the regulatory scope is the market status threshold. The German GWB amendment introduces a category of “paramount cross-market significance”, which corresponds to qualitative requirements (e.g. access to resources and data, vertical integration, impact on third parties’ access to procurement and sales markets) established in the proposal in addition to pre-existing market dominance. Similarly, the DMA’s designation of “gatekeepers” is subject to three qualitative criteria: market impact, gateway importance, and position durability. Each of these criteria has a corresponding quantitative threshold (annual turnover of 6.5 billion Euro and 45 million monthly active end users or 10.000 yearly active business users over the last three years), triggering a presumption of gatekeeper status. In contrast, the UK approach includes little guidance for defining “strategic market status”. According to the recommendations of the CMA market study, indicators include market shares and advertising revenues, access to relevant data and control over market standards. The ultimate determination of designation criteria will be one of the key responsibilities of the new Digital Markets Unit.
The UK DMU will also be tasked with developing a binding code of conduct for platform services, similar to how the GWB and DMA provide a fixed list of behavioural rules. These material obligations include non-discrimination rules as well as obligations of interoperability, transparency and data-access. What sets the German GWB amendment apart from both the UK and EU proposals is its lack of self-executing obligations. The behavioural rules in the GWB draft are only applied to platforms on a case-by-case basis through additional action by the regulatory authority. As a result, the GWB’s obligations are more broadly framed than in the DMA and will be substantiated on an individual level by the German Cartel Office.
The institutional implementation of the proposed platform regimes is most developed in the UK approach with the introduction of a new specialised regulator, the Digital Markets Unit. The DMA draft and GWB amendment do not propose changes to the regulatory structure: the German Cartel Office and European Commission will retain their previous responsibilities as (general) competition regulatory authorities. Their function is mostly limited to enforcing the rules pre-established in the GWB and DMA. This corresponds with the German constitutional principle of materiality, whereby key decisions must be made by legislators and cannot be delegated. In contrast, the Digital Markets Unit will play a central role in defining the criteria for “strategic market status” as well as developing the material obligations in the future code of conduct in cooperation with stakeholders.
Overall, the DMA approach provides the greatest level of legal certainty by establishing quantitative thresholds in its scope and spelling out precise obligations and prohibitions. On the other hand, the DMU can customise its approach in dialogue with stakeholders and react to market developments in a more flexible way.
To date, only the GWB proposal has been passed. The Digital Market Unit is expected to be established in the UK in April 2021. The EU Digital Markets Act will still be subject to extensive discussion in both the Parliament and the Council and most likely won’t enter into force before 2022.
This time around, digital platforms still got to make their own new year’s resolutions for 2021. Starting in 2022 or 2023, these might be replaced by mandatory regimes.