The Digital Markets Act: Shaping Fair Competition in the Digital Age

The digital market has undergone significant changes in recent years, with a small group of large technology companies (often referred to as 'Big Tech') dominating the landscape. This concentration of power has raised concerns over fair competition, innovation, and consumer protection. In response, the European Union introduced the Digital Markets Act (DMA), a comprehensive regulatory framework aimed at ensuring a level playing field in digital markets.

The DMA is a cornerstone of the EU’s strategy to promote fair competition and prevent monopolistic practices in the digital economy. By imposing strict obligations on dominant players, or 'gatekeepers', the DMA seeks to curb anti-competitive behaviour and enhance transparency, which would benefit businesses, consumers, and the overall market.

What is the difference between the Digital Services Act (DSA) and the DMA?

The Digital Markets Act (DMA) is part of a broader legislative package introduced by the European Union, alongside the Digital Services Act (DSA). While both laws aim to regulate the digital space, they target different aspects of the online ecosystem.

The DSA primarily focuses on the safety and security of the digital environment. Its key objectives include removing illegal content swiftly, protecting fundamental user rights, and increasing transparency around digital services. Essentially, the DSA modernises the rules for online platforms to create a safer internet for users.

The DMA, on the other hand, tackles the competitive dynamics within the digital market. It targets the largest and most influential digital platforms, referred to as ‘gatekeepers’, and imposes obligations to ensure that these dominant players do not abuse their market power. By regulating gatekeepers, the DMA seeks to prevent anti-competitive practices that could harm smaller businesses and limit consumer choice.

The DMA’s competition law context

The DMA supplements traditional European competition law by addressing the unique challenges posed by digital markets. Historically, the EU has relied on laws such as Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) to maintain fair competition. These laws are designed to respond to anti-competitive behaviour, such as cartels or abuse of dominant market positions, after violations have occurred.

Article 101 TFEU prohibits agreements or practices between companies that restrict competition, such as price-fixing or market sharing.
Article 102 TFEU targets the abuse of dominant positions, such as imposing unfair pricing or excluding competitors.

While these laws have been effective in traditional markets, digital markets present new challenges. The reactive nature of Articles 101 and 102, which intervene only after anti-competitive behaviour has been identified, is often insufficient in fast-moving digital markets where dominant platforms can rapidly entrench their power.

The DMA takes a proactive approach, establishing rules that prevent harmful practices before they occur. Instead of waiting for violations, the DMA sets clear obligations for gatekeepers upfront, requiring them to operate in ways that promote competition and innovation.

Market power and monopoly dynamics

The DMA addresses the economic theories that underpin market power and monopoly dynamics in digital markets. Many digital markets exhibit a 'winner-take-all' structure, where a few dominant companies control a significant share of the market. This concentration of power is often driven by network effects—the phenomenon where a product or service becomes more valuable as more people use it—and economies of scale.

For example, a social media platform like Facebook becomes more valuable to users as more people join, making it difficult for new entrants to compete. Similarly, search engines like Google benefit from vast amounts of user data, allowing them to offer more personalised services, which in turn attracts more users and advertisers.

In such markets, traditional competition rules may not be sufficient to prevent dominant companies from entrenching their power. The DMA introduces specific measures to address these dynamics, ensuring that gatekeepers cannot exploit their position to stifle competition or innovation.

Source: Shutterstock/Alexander Supertramp

Key definitions within the DMA

A central concept in the DMA is the designation of ‘gatekeepers’, large online platforms that act as intermediaries between businesses and consumers. To be classified as a gatekeeper, a company must meet certain criteria based on its size, user base, and market power. The quantitative criteria for designation include:

Annual revenue of at least €7.5 billion, or a market capitalisation of at least €75 billion.
A user base of at least 45 million monthly active users and 10,000 annual active business users in the EU.

In addition to these quantitative measures, companies must also have a sustained, entrenched market position over a period of three years. Platforms like Alphabet, Amazon, Meta, and Apple are examples of companies designated as gatekeepers under the DMA.

The DMA covers a wide range of core platform services offered by gatekeepers, including:

Operating systems such as Google Android and Apple iOS.
Search engines like Google Search.
Social networks like Facebook and TikTok.
Online advertising services and communication platforms such as WhatsApp and Messenger.

These services have immense market reach and generate vast amounts of user data, making them crucial targets for DMA regulation.

Key obligations under the DMA

The DMA outlines several obligations that gatekeepers must adhere to in order to foster fair competition and protect consumers. These obligations are divided into two categories: prohibited practices (things gatekeepers are not allowed to do) and mandatory practices (things gatekeepers are required to do).

Prohibited practices:

Self-preferencing: Gatekeepers are not allowed to favour their own products or services over those of competitors. For instance, Amazon cannot give its own products preferential treatment in search results over third-party sellers.
Data misuse: Gatekeepers are prohibited from unfairly using data generated by business users on their platform to compete against them. For example, a gatekeeper cannot analyse the sales data of a third-party seller to create a competing product.
Restricting user choice: Gatekeepers cannot impose technical or contractual restrictions that limit users’ ability to switch to alternative services.

Mandatory practices:

Interoperability: Gatekeepers must ensure that their services work seamlessly with third-party software and services. This is particularly important for services like messaging platforms, where interoperability allows users to communicate across different apps.
Data portability: Users must be able to easily transfer their data between different services, ensuring that they are not locked into a single platform.
Fair access: Gatekeepers must provide business users with fair and non-discriminatory access to their platforms, allowing them to compete on equal terms.

Case study: Amazon’s alleged self-preferencing

One of the key objectives of the DMA is to protect businesses, especially small and medium-sized enterprises, that rely on gatekeepers' platforms to reach consumers. For many merchants, digital platforms like Amazon serve as critical sales channels, but the imbalance of power can lead to unfair practices. The DMA aims to level the playing field by ensuring that gatekeepers cannot use their dominant position to undermine competition or exploit smaller businesses.

A relevant example involves a retailer selling a popular supplement on Amazon.

The retailer’s product was suddenly deactivated by Amazon, which cited a labelling violation. Although Amazon’s actions were technically in line with EU regulations, the retailer argued that they were not given prior notice or an opportunity to resolve the issue, despite an agreement that should have guaranteed such communication. This abrupt deactivation caused the retailer significant financial losses, fuelling suspicions that Amazon may have used its power to prioritise its own competing products in the supplements category.

Under the DMA, businesses like this retailer could challenge such actions, as the legislation prohibits gatekeepers from engaging in self-preferencing and mandates more transparency in their dealings with merchants. The DMA could provide stronger safeguards for merchants, ensuring they are treated fairly on platforms that are essential for their business operations.

Conclusion

The Digital Markets Act represents a landmark shift in how the European Union regulates the digital economy. By proactively imposing obligations on large digital platforms, the DMA seeks to prevent anti-competitive practices, protect consumers, and foster a more dynamic and innovative market.

As the DMA is implemented, gatekeepers will need to adapt their practices to comply with the law, while businesses and consumers alike stand to benefit from a more open and fair digital market. For companies operating in the digital space, staying informed about these regulations is critical, as non-compliance could result in heavy fines, reputational damage, and even structural remedies.

The next few years will be crucial in determining how effective the DMA is in reshaping the competitive landscape of the digital economy.