Flow mind map

Research and studies by Antsaniaina RAHARIJAONA, Alexandra SIMSAJOVA & Camille POUPARD

How does the European Union's implementation of the DMA and DSA help to combat the abuse of dominant positions by the digital giants?

Conclusion

Introduction

These are two pieces of new European legislation, to be presented in December 2020 and approved by Parliament in 2022, to provide a better framework and regulate the digital economy.

The European Union has around 450 million inhabitants and almost 400 million Internet users, giving it the highest penetration rate in the world (89%) ahead of the US (83%)

The Digital Markets Act (DMA)

The Digital Services Act (DSA)

How does the European Union's implementation of the DMA and DSA help to combat the abuse of dominant positions by the digital giants?

DOMINANT POSITIONS

Definition: What’s a Dominant Position?

How Does the EU Define a Dominant Company?

01

Contribution of the digital sector to market value added (in value) and trends Sources : EU KLEMS

In the digital domain, practices like tied-selling (where a dominant company bundles its digital products) and abusive exploitation of user data (especially when it doesn’t respect the General Data Protection Regulation GDPR) are acknowledged as forms of abuse.

Sources for Establishing Dominance in Digital Markets

Definition: Abusing a dominant position

GOOGLE

CAMBRIGDE ANALYTICA

How does the European Union's implementation of the DMA and DSA help to combat the abuse of dominant positions by the digital giants?

THE EU’S RESPONSE TO DOMINANT POSITIONS

02

OVERVIEW

Objective EU ensures fair, competitive digital markets, protecting user rights and fostering innovation.

The Digital Markets Act (DMA)

EU’s Digital Competition Policy

Policies and strategies applied to reach EU’s objectives

The Digital Services Act (DSA)

Legislation Highlights

Identifying Access Controllers

02

New Rules for Access Controllers

• Digital Single market strategy
• Platform-to-Business Regulation

How does the European Union's implementation of the DMA and DSA help to combat the abuse of dominant positions by the digital giants?

The Digital Markets Act (DMA)

Legislative initiative designed to counter anticompetitive practices among internet giants and rectify imbalances arising from their dominance in the European digital market.

Proposed by the Commission in 2020 and implemented on 2nd May 2023

The DMA applies specific rules, obligations, and policies to the platforms owned by major digital giants, named “gatekeepers”, or “access controllers”.

Non-compliance can result in fines up to 10% (20% for repeated violations) of the gatekeeper’s total worldwide annual turnover. Systematic non-compliance may lead to a market investigation and additional measures by the Commission.

Gatekeepers must appoint a compliance officer, share any merger or acquisition plans with the Commission, and demonstrate compliance with DMA obligations by March 6, 2024.

How does the European Union's implementation of the DMA and DSA help to combat the abuse of dominant positions by the digital giants?

The Digital Single Act (DSA)

The widespread use of online services is also helping to make digital platforms a forum for debate, where citizens can form and share opinions on a variety of subjects. The first risk relates to the fight against false information.

States have adopted various initiatives to regulate the use of digital services

Several countries have adopted national legislation imposing obligations on digital service providers to remove illegal or illicit content online. These laws represent both a strong political gesture and a signal to European partners.

The draft Digital Services Act regulation is part of a broader European strategy

Adopted on August 25, 2023, the DSA seeks to regulate and harmonize national legislation

concerning illegal content (hate speech, child pornography, terrorism) as well as illicit products (counterfeit, dangerous items offered online…) and illegal practices by platforms.

Home

How does the European Union's implementation of the DMA and DSA help to combat the abuse of dominant positions by the digital giants?

"Certainly, for the Apple boss, certain aspects of the DSA are "going in the right direction". But the DMA, on the other hand, will do nothing but "destroy iPhone security, [The DMA] will hurt both security, and data protection." In fact, Apple fears that the DMA will force it to include other application shops in its iPhones, in addition to the traditional App Store. But Apple wants to keep control."

"For Gilles BABINET, Digital Champion at the European Commission, although these regulations are a step forward, they do not go far enough. He also believes that they leave room for companies to manoeuvre, since the texts were lightened by the European Parliament under pressure from the GAFAMs."

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"I don't want to regulate for the sake of regulating, but when a systemic platform does not obey the rules, or seeks to take advantage of its position, there must be sanctions. This can range from a fine to a large or very large fine, and even the structural dismantling of the company in Europe."

These obligations are set out in a list of do’s and don’ts which mainly assesses requirements for fair ranking in platforms, regulated use of data, and competition promotion.

Do’s list : they must

Don’ts list : they cannot

-Offer a wider choice to users, especially in software on an operating system.-Facilitate both subscription and unsubscription to platform services.-Provide audience data to assess classification as an access controller.-Give user businesses access to their marketing performance data on the platform....

-Favor their products or services over others. -Block the use of third-party payment platforms for app sales. -Use user personal data for targeted advertising without consent. -Impose unfair conditions on user businesses. -Pre-install specific software applications or limit uninstallation. ...

Aims:

Fostering fair competition, prohibiting unfair practices, and protecting users. Adopted in July 2022, effective from May 2023, part of broader digital services package.

Implementation:

RISE OF GAFAM...

(Google, Apple, Facebook, Amazon, Microsoft) and other multinational digital players transformed lives but raised regulatory needs for privacy, copyrights, fair competition, and taxation.

A fully functional Digital Single Market could contribute €415 billion per year to our economy and create hundreds of thousands of new jobs.

Digital Single market strategy

Specifically designed to protect small businesses, the P2B regulation forbids anticompetitive practices, like unfair product ranking on online platforms which are imposed specific rules. The regulation also includes redress mechanisms, such as independent mediation services, allowing businesses to rectify instances of unfair treatment they may have experienced.

Platform-to-Business Regulation

&

• Better access to online goods and services by removing cross-border e-commerce barriers and improving consumer protection.

ec.europa.eu fast.capital360.com

Sources for Establishing Dominance in Digital Markets

Understanding the digital market involves considering:

• Market structure: How the platform works and feedback from market participants.
• Non-monetary aspects: Consumer preferences, innovation, and competitive strategies
• Entry barriers: Costs, regulations, and customer trends.
• Company data: Financial analyses and market share data.

Criteria:

Large turnover, user base, control of essential platform services. Alphabet, Amazon, Apple, ByteDance, Meta, Microsoft.

Identified:

States have adopted various initiatives to regulate the use of digital services

This text obliged online platform operators and search engines to remove manifestly illegal content, such as incitement to hatred or racist or anti-religious abuse, within 24 hours of notification by a user.

a federal law on measures to protect platform users, it applies to all online platforms with more than 10,000 users per quarter and a turnover of more than €500,000.

Kommunikationsplattformen-Gesetz or KoPl-G

adopted on 1 October 2017, is the legislator's response to the management of reports of illegal content.

Netzwerkdurchsetzungsgesetz, or NetzDG

"Avia" Law

• Antitrust Enforcement: Strict rules combat monopolistic behavior, ensuring fair play.
• Digital Single Market Strategy: Creating a unified digital space to foster innovation.
• Focus on Big Tech: Addressing concerns like data privacy and fair competition.
• Promotion of Innovation: Encouraging tech advancements while ensuring fair competition.
• Digital Markets Act: Regulating gatekeeper power, unfair practices, and user rights on online platforms.

In 2015, the digital sector contributed to 8.4% of the EU’s added value, with countries like Ireland, Finland, and Sweden leading in the contribution of this sector to their GDP. Furthermore, the European Commission estimated that the impact this sector had on other industries led to a 20% increase in productivity

Cambridge Analytica was accused of exploiting, without their explicit consent, the data of millions of users for political purposes, using this data to create targeted political advertisements. In 2018, it was revealed that the company had illegally collected data from millions of Facebook users, under the pretext of a special authorization for an allegedly scientific study. This data was then utilized to craft psychological profiles and disseminate personalized political ads.

through the enforcement of regulations and transparency requirements

Create a Secure and Trusted Online environment

Under the DSA, each member state must determine applicable sanctions, with a maximum penalty of 6% of the company's annual revenue, and companies repeatedly violating the rules may face prohibition. For very large platforms, the Commission can directly monitor compliance. These rules aim to raise transparency and promote fair practices to prevent the misuse of personal data within the European Union.

DSA approaches the issue of abuse of dominant position by digital platforms by addressing the problem of consumer data exploitation with rules like :

• Algorithmic transparency
• Non-profiled content recommendations
• Public registry of ads
• Restrictions on targeted advertising for minors and prohibits advertising based on sensitive data like political opinions, religion, or sexual orientation unless explicit consent is obtained.

The EU uses several criteria:

Substitution: Are there alternative options for consumers?Entry barriers: Anything stopping new players from entering the market? Profitability: Are profits consistently above average? Market shares: Does the company hold a substantial market share?

The Digital Markets Act (DMA) tackles the anti-competitive practices of the tech giants: Google, Amazon, Meta, etc. Because of their size and the number of markets in which they operate, these major platforms function almost as gatekeepers to the Internet, according to Brussels.Official website of the European Commission

Restrictions :

No favoritism, ensuring wider user choices, interoperability, data access. Fines up to 10-20% of global turnover for non-compliance, potential corrective measures for repeated offenses.

Penalties :

Concentration Ration CR2 = 59.3%+21.02% = 80.32% Google and Apple’s combined market share reflects a high level of concentration of the market around these firms. Due to their dominance, the market structure is close to a duopoly, with Google holding the most influence.

Major player in the digital market that exhibits several indicators of dominance in the European market

• a powerful network effect
• a barrier to entry for competitors : the establishment and the size of Chrome’s user base creates a strong challenge for other browsers (especially new ones)

This extensive user base gives Google exclusive access to a large amount of user data, which allows the company to improve its search algorithms, advertisements, and services, further solidifying its position in the market. This strategic approach has proven successful, with ads related to Google Search services accounting for 58.1% if the company’s revenue in 2022, representing $162.45billion.

In 2018, the European Commission fined Google €4.34 billion for abusing its dominant position, violating the principles of fair competition through anticompetitive practices that benefited its browser. Google engaged in illegal tied-selling : the company linked access to its Play Store application to an obligatory pre-installation of its search application and browser on Androïd devices.

To be considered an access controller on a digital platform... Specific criteria must be met:

• Achieve an annual turnover of at least 7.5 billion euros in the EU or have a market valuation of at least 75 billion euros.
• Have a minimum of 45 million monthly end-users.
• Count at least 10,000 user businesses established in the EU.
• Control one or more essential platform services in at least three EU member states.

The European Commission has identified six gatekeepers that must comply with new obligations by March 2024: Alphabet, Amazon, Apple, ByteDance, Meta, Microsoft.

https://www.itforbusiness.fr/les-controleurs-d-acces-du-dma-officiellement-designes-par-l-europe-66501

Abusing a Dominant Position

Definition

Abuse of dominant position prohibits anticompetitive practices by dominant market players.• EU Commission’s Role: Responsible for regulating digital market competition, ensuring fair practices and relevant legislation. • Distinct Characteristics: Digital market exhibits unique pricing strategies, cost structures, and strong network effects, necessitating specialized regulatory approaches.

Europe generates 14% of the world's Internet traffic, making it the second most popular Internet region, behind Asia (54%)....

The volume of data generated worldwide is expected to exceed 180 zettabytes by 2025. In scale, that's 45,000 billion DVDs, or all the grains of sand on the earth's surface multiplied by 256. It's not for nothing that this new digital era is being described as the "Big Bang" of Big Data.

Targeting Major players such as...

GAFAM (Google, Apple, Facebook, Amazon, and Microsoft), the DMA responds to their economic models based on the gathering of vast amounts of user data and the use of powerful yet opaque algorithms. These practices, strengthened by strong network effects and closed ecosystems, have led to dominant positions in various segments of the European digital economy, limiting opportunities for healthy competition.

https://www.assemblee-nationale.fr/dyn/15/rapports/cion_afetr/l15b4213_rapport-information

In 2020, social networks and search engines were the main means of reading online news for 51% of users in the European Union.In 2021, the Internet will be the main source of information for 67% of the population in France. Social networks alone represent the main source of information for 38% of the population. Against this backdrop, 80% of Europeans have come across information they consider false or misleading at least once a month.

What’s a Dominant Position?

A company holds a dominant position when it wields economic power allowing it to impede fair competition, enabling independent behavior impacting competitors, customers, and consumers. While having a dominant position isn’t illegal in itself, abusing that power—by setting high prices or limiting innovation—is prohibited.

The Digital Services Act (DSA)

aims to combat "illegal content and products" online (hate speech, disinformation, counterfeit goods, etc.). The aim is "to make the Internet a safer place", said Thierry Breton, European Commissioner for the Internal Market.

illustration made by the European Pirates in the European Parliament