| 6 mins read
The current European Commission is proposing a range of new legislation on digital issues. One such piece of legislation is the Digital Markets Act (DMA), which aims to prevent the exercise of market power by digital gatekeepers. Although not explicitly stated, the criteria for assessing which entities will be caught by its provisions mean that the act will only apply to the group of large US digital platforms colloquially known as ‘Big Tech’: Google, Amazon, Facebook, Apple, and Microsoft, or the ‘GAFAMs’.
Considering the constraining effect that the DMA could have on these companies’ business practices – including having the power to split them up – it was in their interest to effectively lobby Brussels to abandon or water down the act. And yet, despite significant expenditure, they were unsuccessful.
The Digital Markets Act
The European Commission has historically struggled to use competition law to control what it viewed as anti-competitive activity on the part of Big Tech.
The DMA, which is in the final formal steps of adoption, puts in place an ex ante regulatory regime for large digital platforms which are found to have the status of ‘gatekeepers’ – that is, they provide a “core” platform service and have a significant impact on the internal market, serve as an important gateway for business users to reach their customers and hold an enduring market position. These are defined using quantitative criteria, comprising of high revenue thresholds derived from providing a core platform service, covering at least 3 member states, the existence of a substantial number of users of the service and that these first three criteria have endured for at least three years.
A company that is found to be a gatekeeper is required proactively to facilitate competitors in certain ways and is prohibited from imposing unfair conditions on businesses and consumers. Furthermore, as a regulation, the obligations and prohibitions can potentially be enforced by affected third parties in national courts and give rise to damages, significantly multiplying the risks of breach for a gatekeeper.
Now that the EU is adopting these measures, which would make it easier for regulators to impose restrictions compared to traditional competition law, what lessons can be learned?
Obstacles to lobbying
Academic analysis has suggested that the success of corporate lobbying by companies in the EU depends on the provision of technical information, and that the companies themselves are considered trustworthy enough for such information to be accepted. This is in contrast to the arrangements in many democratic countries, where financial support - such as campaign finance - plays an important role in obtaining influence.
But Big Tech has a trust problem: the GAFAMs can be perceived as behaving as economic monopolists, ignoring the norms of good conduct and frustrating competition mechanisms, as well as engaging in tax avoidance and poor labour practices. In our (unscientific) poll of Brussels policy insiders, respondents thought that Big Tech was viewed only slightly more favourably in the EU institutions than tobacco companies. One mechanism for gaining trust in the Brussels ecosystem is to be vouched for by allies. But those were thin on the ground, as many traditional commercial market players in Europe are terrified of being put out of business by, or becoming tributaries of, a GAFAM that is targeting their customers.
Countervailing pressures on behalf of Big Tech were also weak at Member State level, since the GAFAM only have status as major employers and investors in a handful of smaller States with few votes in the legislative institutions of the EU. Given the structural weakness in the GAFAMs’ lobbying position, it is not surprising that the main tenets of the draft DMA have not been watered down.
Our respondents also took the view that the GAFAMs had made a strategic mistake in rendering European competition law mostly impotent.
Ultimately, the firms were seen to pursue a US-led strategy that did not sufficiently appreciate that the EU is not Washington. US-style lobbying tactics such as the financing and construction of artificial trade associations, the production of reports by obscure academic institutions, and an intense use of think-tanks could provide material to be used by politicians who were already going to back Big Tech. But was probably counterproductive overall, as it did nothing to persuade opponents and may have helped push the undecided into the opposing camp.
Engaging the Brussels ecosystem
The recent difficulties which GAFAM, with all their resources, have found in engaging in Brussels, indicates the importance for businesses of understanding both the system and the deeper culture that informs how it operates. Appreciating the roots of EU competition law, for example, would help companies understand that competition in the EU is a means, not a goal in its own right; frustrating the application of competition law does not mean a free pass but invites policy innovation instead
The travails of GAFAM also underline the extent to which the EU system is an extension of collective Member State politics and the importance of the domestic political economy considerations which motivate Member State representatives when participating at EU level. Even if GAFAM had negotiated with Brussels in pitch-perfect fashion, it is highly unlikely they would have escaped some form of intervention. They threaten too many Member State interests, while the effect of EU intervention will, at worst, likely be neutral for consumers and voters and, at best, beneficial.