Chillin'Competition

In the post published on Wednesday, I covered the substantive reasons why the Digital Markets Act (DMA) is likely to underdeliver (and if it does, it will do so by design). There are, in addition, a number of institutional factors that one needs to consider.

It is not a secret that the institutional context within which a regime is applied may play a major role in its success (not to mention its substantive scope and reach). The DMA is not an exception in this regard. It makes sense to ask, and debate, whether the premises underpinning the regime (and the resulting institutional setup) are in line with what the restructuring of digital markets requires.

Getting to the remedy stage is just the end of the beginning

Competition law has been criticised by some stakeholders for placing cumbersome demands on authorities. If it were easier to establish an infringement (or if establishing an infringement were not a precondition to intervene in the first place), the argument goes, enforcement would be more effective. Alternatively, some commentators have argued that some of the recent cases have been a “failure” (no less) because of the remedies chosen by the Commission.

These criticisms come across not only as unfair to the Commission, but also as misguided. As I have mentioned many times, establishing an infringement in digital cases is, to paraphrase Churchill, just the end of the beginning. Intervention aimed at fundamentally restructuring markets and/or altering business models is distinctly difficult and resource-intensive at the remedy stage.

In other words: the real challenge in digital cases is to figure out how to redesign a product, how to change a monetisation strategy and how to recalibrate the allocation of rents within an ecosystem. Establishing an infringement, by comparison, is just an amuse-bouche. We have always known that competition law struggles with remedies of that nature and therefore nobody should be surprised that intervention demanding authorities to restructure markets takes time or fails to fulfil the expectations of some stakeholders (more on this below).

Discussions around the DMA occasionally give the impression that the new regime is based on the idea that, by reversing the burden of intervention and, effectively, moving to the remedy stage from the get-go, the main difficulties will have been addressed. The opposite, in fact, is true.

I have often said that some of the obligations set out in Article 6 of the DMA would each require a regulatory framework of their own. In fact, a few of these duties seem far more challenging, for an agency, than regulating telecommunications. And if you take a look at how the latter are regulated in the 179 pages of the EU Electronic Communications Code, you will get an idea of the magnitude of the task ahead in digital markets.

As can be seen, the DMA does not represent a substantial change from competition law on what really matters in practice. For the same reason, it seems likely that the same stakeholders that expressed frustration with the pace and effectiveness of Article 102 TFEU enforcement will be just as dissatisfied once the DMA is in force.

Obligations do not become self-executing by decree

The solution to the challenges raised by fundamentally restructuring digital markets is, according to some, to ensure that obligations are “self-executing”. With the appropriate regulatory design, the argument goes, gatekeepers will adapt their conduct, products and business models to the demands of the DMA.

This line of thinking is what I have labelled the “Paulo Coelho School of Regulation”. It seems based on the hopeful view that the self-executing nature of an obligation depends on the willpower of the legislature. If it believes hard enough, it will ensure that the regime works without delays in its implementation and without a large regulatory apparatus.

I am afraid I do not share the optimism of the coelhians in our community. In the same way that a regime cannot turn natural monopolies into effectively competitive oligopolies, it cannot turn obligations into self-executing mandates by decree.

Again, the experience acquired in telecommunications provides a valuable cautionary tale. The liberalisation of that sector in New Zealand was based on the hope that competition law alone would do the job, and that the cumbersome access and interconnection obligations would become self-executing through court action. It did not take long to realise that such hopes would not materialise.

There is a chance that the DMA will become a second “New Zealand moment” in the history of regulation once it becomes clear that, more than “further specification”, some duties necessitate all but a sector-specific framework of their own.

The risk of perpetual grievances: when will obligations go far enough?

One can think of a third, final factor, that may stand in the way of the DMA delivering (or, rather, which may create the impression that the DMA fails to deliver).

The design of the DMA makes it particularly vulnerable to the risk of perpetual grievances. First, the obligations (at least those enshrined in Article 6) are relatively broad and vague, in the sense that they can be construed in a multitude of ways. Second, there is no obvious benchmark to assess whether or not they meet the objectives set out in the regime. Third, there is no point at which obligations cease to be imposed: there is no real sunset clause or similar mechanism.

Combine these three instruments, and one can see how stakeholders benefitting from intervention would be able to claim that a particular incarnation of the obligations in insufficient in the sense that it does not go far enough, or that it is not ambitious enough. And it would be difficult to blame them: why not go for the maximalist approach allowed under the regime? Is it not what any authority that is serious about achieving the objectives of the DMA would do?

Add to the above the fact that several agencies will compete for the same regulatory space (within or outside the confines of the DMA; within or outside the EU) and it is easy to see how a never-ending quest towards maximalism may be a feature of intervention in digital markets.

I look forward to your comments (I had nothing to disclose on Wednesday, and nothing to disclose today).