WASHINGTON—The European Union is moving to adopt the Digital Markets Act (DMA) for the expressed purpose of avoiding regulatory fragmentation, in the digital single market. But a new report from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy, warns it will have the opposite effect:
- It will increase, rather than decrease regulatory fragmentation by promoting decentralized enforcement and empowering member states to add their own national rules.
- It will hinder economic growth and harm consumer welfare by imposing blanket per se prohibitions on pro-competitive business practices.
- It will throw an already complex regulatory framework into further chaos by introducing new legal obligations that contravene or violate the General Data Protection Regulation and the Digital Services Act.
“The Digital Markets Act is a significant piece of legislation that will revolutionize how competition occurs online in Europe—but not for the better,” said Aurelien Portuese, director of ITIF’s Schumpeter Project on Competition Policy, who authored the report. “It is a triumph of precautionary regulation over economic logic, basic legal principles, and practical enforceability. Implementing the DMA in its current form will come at the cost of technological innovation, consumer welfare, and economic growth.”
The new report assesses the DMA’s practicality and concludes it will fail to deliver the €92 billion in economic gains the European Regulatory Scrutiny Board has projected could come from decreasing market fragmentation, because it permits additional national regulatory initiatives, does not remove national regulatory barriers on how companies can operate online, and promotes decentralized and disparate enforcement by empowering national competition authorities.
Examining the DMA’s legal underpinnings, ITIF concludes they defy economic logic and ignore fundamental rights. For example, under the arbitrary size thresholds and qualitative criteria the DMA uses to designate so-called Internet “gatekeepers,” Google Flights will be restricted in the travel sector but Expedia will be exempted, and Facebook will be regulated but Twitter won’t. Meanwhile, the law’s per se prohibitions of certain business practices for certain players violate the legal principle of proportionality and the fundamental rights of defendants.
Finally, ITIF’s report identifies more than 20 areas where the DMA’s obligations overlap or contravene other laws, regulations, or directives applicable to digital platforms, leading to the conclusion that the DMA will be impossible to implement. Instead, it will likely bring the existing complex regulatory framework into further chaos.
“As the DMA nears final adoption, EU lawmakers need to improve its flaws, possibly through enforcement guidelines,” said Portuese. “At the same time, EU judges will have to determine how to square the DMA’s requirements with other rights afforded under EU law. Unless judges or lawmakers ultimately address the DMA’s fundamental flaws, European innovation and consumers will be collateral damage.”
Read the report.
