Oxera’s latest report explains how the Digital Markets Act (DMA) could prohibit several common business practices, found offline as well as online, that generate value for consumers and have positive effects on society.
In December 2020, the European Commission tabled proposals for the DMA, which will impose ex ante economic regulation on a number of ‘core platform services’ for the first time. There are a large number of obligations—18 in total—with several imposing restrictions on a range of practices that are common among both offline and online businesses.
There are many studies and investigations describing a wide range of theories of harm that may arise in the digital economy. However, significantly less attention has been given to the theories of benefit and value creation relating to some of the business practices of online platforms.
In this context, the Computer and Communications Industry Association (CCIA) asked Oxera to consider the extent to which bundling and tying, self-preferencing, and leveraging practices can create value for platform users and deliver benefits to consumers and society more broadly.
Oxera’s research finds that the bundling and tying of different features and services allows platforms to provide new and innovative products to their users, as well as incentivising innovation by the platform and by third parties on the platform.
Oxera’s report also uncovers how online platforms can use self-preferencing to promote quality and trust for consumers. This practice can also lead to greater user discovery and allow consumers a choice between the benefits of more ‘open’ or more ‘closed’ platforms.
Similarly, Oxera’s research finds that both online and offline businesses leverage their data and know-how to create new innovations that spur dynamic competition, offering new alternatives to the status quo.
Together, these practices help platforms compete by unlocking additional value for both consumers and business users.
Oxera’s report raises concerns that the DMA’s focus on short-run efficiency (favouring the protection of contestability and fairness) may come at the expense of this long-term value creation. In particular, the DMA’s ‘catch-all’ and ‘per se’ approach (applying all 18 obligations to any designated gatekeeper, with limited room for analysis of the effects of a practice or the specific context in which it is being used) risks prohibiting a range of value-creating behaviours and stifling the growth of Europe’s digital economy.
Oxera’s report recommends that policymakers reconsider the proposed approach and instead develop a more flexible and tailored framework, seeking alignment and consistency with the principles of competition law.
This approach could draw inspiration from the European telecoms regulatory framework, as well as the UK market investigations regime and the Digital Markets Taskforce’s proposals.
While attempting to regulate such a fast-moving sector will continue to present challenges, adopting these recommendations would assist the Commission in striking a more appropriate balance between contestability, fairness and the value-creation of the practices examined in Oxera’s report.
Felipe Flórez Duncan, the Oxera Partner who led the study, said:
‘As the cornerstone of the EU’s digital economy, the Digital Markets Act will be one of the most influential regulations in Europe and beyond. It is therefore crucial that the legislation reflects best practice, applying the lessons learned from the decades of economic regulation beforehand. We are pleased to contribute to this important debate with our new study, which demystifies some common business practices targeted by the DMA and makes concrete suggestions for how policymakers can improve the Act.’