The Digital Markets Act and E.U. Competition Policy: A Critical Ordoliberal Evaluation

The DMA, in particular, fills an important gap in E.U. competition law by complementing the General Data Protection Regulation, the Platform-to-Business Regulation, the European Electronic Communications Code, and the Audiovisual Media Services Directive.

Larouche and de Streel (2021) also claim that such a renewed ordoliberalism (i.e., ‘ordoliberalism 2.0’ [cp. Wörsdörfer 2020]) “would have dynamism and innovation at its core” (p. 552).

Similar references can also be found in Petit (2020) and Wu (2018) – although in slightly different contexts.

Note that this paper is part of a larger research project which aims at revitalizing – and modifying – the business-ethical concept of ordoliberalism. It does so by analyzing the concept’s normative foundations and applying a (slightly) revised version of it (i.e., ‘ordoliberalism 2.0’) to digital markets. We began our project by outlining the key issues of big tech and antitrust in Wörsdörfer 2020. We then analyzed the main characteristics of digital markets and big tech’s most used anti-competitive business practices (cp. Wörsdörfer 2021). Our latest publications (cp. Wörsdörfer 2022a, 2022b) compare the E.U.’s and U.S.’ antitrust regimes and policy proposals against the ordoliberal ideal and derive ordoliberal-inspired policy proposals, which could help to strengthen current competition policies around the world. This paper focuses on one such policy proposal – i.e., the E.U.’s DMA – and analyzes its ordoliberal strengths and weaknesses; it also provides ideas on how to ‘harden’ the Act’s governance mechanisms.

I.e., the DMA is, in large parts, a codification of past and present competition law investigations (cp. Colomo 2021).

The DMA attempts to address two types of ‘market failures’ (understood here in the broader sense) of gatekeeper markets: I. high market entry barriers, and II. economic dependency of business and end users on gatekeepers. According to Larouche and de Streel (2021), and other experts, the current E.U. competition law alone is insufficient to deal with the issues of gatekeeper markets.

The crucial advantage of ex-ante regulation is that it increases the legal certainty of market actors, e.g., by including a list of prescriptions (dos) and prohibitions (don’ts). Yet, it might suffer from a lack of flexibility and ‘future-proof adaptability’ (note that such a characteristic is essential in agile, dynamic [i.e., rapidly changing], and fast-moving innovative sectors such as digital markets; hence, one of the critical challenges of the DMA will be how to balance the possible trade-offs between accuracy and speed and between legal certainty and flexibility [cp. Akman 2021; see also Heras-Ballel, 2021, who argues that the rapid market transformation and the emergence of innovative business models might render the DMA’s gatekeeper list obsolete; given the DMA’s alleged lack of future-proof adaptability, the author recommends adopting a more business-agnostic, technology-neutral functional definition of core service providers]).

I.e., firms need to show how they comply with the DMA obligations instead of authorities establishing infringement cases; that is, corporations bear the burden of implementing the effective measures (cp. Colomo 2021).

Noteworthy is that the European Parliament recommends adding web browsers, connected TV, and virtual assistants and adopting a broader CPS definition (cp. European Parliamentary Research Service, 2022; see also Cabral et al. 2021; Schwab 2021).

Note that the Council of the E.U.-European Parliament compromise sets those numbers to EUR 7.5b (annual turnover) and EUR 75b (market valuation), respectively (cp. Council of the E.U., 2022).

This implies that small and medium-sized companies are exempted from being classified as gatekeepers and thus do not fall within the scope of the DMA.

All direct quotes in this section are taken from the DMA proposal (cp. European Commission, 2020b). For more information on the so-called ‘three-criteria test,’ see de Streel and Larouche 2021.

Note that the list of gatekeepers has not yet been revealed, but the Commission expects 10–15 companies to be classified as gatekeepers (in addition, a list with ‘emerging gatekeepers’ is expected to be published [cp. European Parliamentary Research Service, 2022]).

Note that these obligations apply automatically to CPS providers designated as gatekeepers.

Gatekeeper obligations are divided into a ‘black list’ with seven directly applicable duties in the form of prohibitions (Art. 5) and a ‘grey list’ with eleven obligations in the form of prescriptions (Art. 6). De Streel and Larouche speak in this context of the ‘18 Commandments’ (cp. de Streel and Larouche 2021).

“To ensure a high degree of harmonization in the internal market, the European Commission will be the sole enforcer of the regulation. The Commission can decide to engage in regulatory dialogue to make sure gatekeepers have a clear understanding of the rules they have to abide by, and to specify their application where necessary” (cp. Council of the E.U., 2022).

“An advisory committee and a high-level group will be set up to assist and facilitate the work of the European Commission. Member states will be able to empower national competition authorities to start investigations into possible infringements and transmit their findings to the Commission” (cp. Council of the E.U., 2022). Note that in its amendment paper, the European Parliament recommends establishing a High-Level Group of Digital Regulators, responsible for clarifying the role and responsibilities of national competition authorities and the cooperation between the Commission and national member states (cp. European Parliamentary Research Service, 2022; Schwab 2021).

The Council of the E.U.-European Parliament compromise reads as follows: “If a gatekeeper violates the rules laid down in the legislation, it risks a fine of up to 10% of its total worldwide turnover. For a repeat offense, a fine of up to 20% of its worldwide turnover may be imposed” (cp. Council of the E.U., 2022). Furthermore, for companies that repeatedly violate the DMA, these sanctions may include not only behavioral but also structural remedies such as divestiture or spin-off of specific business segments.

Cp. for foundation: Wörsdörfer 2013a, 2013b, 2020

Vanberg (2005), one of the most influential contemporary ordoliberals, argues in favor of such an (ordoliberal) ‘private law society’ à la Franz Böhm as the constitutionalization of private autonomy and citizen sovereignty. He claims that the agents as private law subjects are the ultimate sovereigns, principals, and judges in matters of ‘(sub-) constitutional choice.’ That is, individual liberty as private autonomy is the foundational principle of a desirable social order, and the “evaluations of the individuals are the only source from which legitimacy in social matters can ultimately be derived” (Vanberg 2013, p. 2 f.). In other words, the legitimacy of politics is derived from the voluntary agreement of the affected individuals; their welfare represents the relevant standard against which politics is to be judged.

For more information on Böhm’s Kantian concept of ‘private autonomy,’ see Böhm 1966/1980.

Of particular importance for this paper are the following ordoliberal principles: competitive economy, open markets, non-exclusionary contracts, regularity of economic policy, correction of market power, limiting the power of rent-seeking groups, regulatory policy instead of ‘process policy’, adequate and proactive competition law and policy, merger review and blockage, and corporate break-ups and divestiture (cp. Wörsdörfer 2022b).

Note that the other DMA goal expressed in Art. 1, i.e., the fairness goal, lacks conceptual clarity (cp. Schweitzer 2021). It also appears to contain an outcome-oriented dimension and opens the door for value judgments, especially if it is understood as distributional fairness (as opposed to the ordoliberal concept of ‘fairness of the starting conditions’). All of the above can be quite problematic if seen from an ordoliberal standpoint (cp. Akman 2021).

Noteworthy is that especially Rüstow and Röpke argue in favor of fair and equal starting conditions and opportunities (this could be achieved with the help of highly progressive inheritance taxes, a better education system, a broader distribution and diffusion of private property, a fight against the concentration of wealth in the hands of a few individuals and companies, and a fight against diverging income disparities (cp. Röpke 1942, 1958/1961; Rüstow, 1945/2001, 1955, 1957). Yet, both ordoliberals also connect this notion of justice or fairness of the starting conditions with the meritocratic principle of ‘performance justice’ (i.e., Leistungsgerechtigkeit) (cp. Röpke 1944/1949, 1950, 1958/1988; see also Wörsdörfer 2013b).

Note that information asymmetries exist between gatekeepers and business and end users and between gatekeeper companies and regulators. Such an information gap makes effective government oversight and antitrust enforcement difficult. This type of asymmetries could be overcome with the help of a ‘collaborative enforcement’ model (and corresponding codes of conduct). A potential problem with this form of ‘co-regulation’ could be regulatory capture, as outlined below (cp. de Streel and Larouche 2021).

Yet, one of the biggest challenges is the possible ‘dethronement of consumers’ by large corporations or the government (cp. Eucken 1953).

There are three types of DMA-related market investigations: (1) designate gatekeepers, (2) impose remedies, and (3) extend the scope of the DMA application or add new gatekeeper obligations.

The ordoliberal principle of subsidiarity, which was derived from Catholic Social Teaching or Christian Social Ethics (cp. Nell-Breuning 1954/1960, 1956/1960, 1975/1990; Höffner 1959/2006), emphasizes the importance of individual responsibility, self-initiative or self-help, and communal help and solidarity (only if those fail to accomplish a specific task, should the [federal] government step in and take responsibility) (cp. Eucken, 1952/2004; Röpke 1942, 1944/1949, 1958/1961; Rüstow 1955). Subsidiarity thus implies a certain degree of decentralization, i.e., transferring as much power as possible from the macro-level (i.e., federal level) to the meso- (i.e., state or provincial level) or micro-level (communal level), and privatization, i.e., transferring responsibility from governments to companies and individuals. In other words, the principle calls for as much centralization as necessary with as much decentralization as possible. Incompatible with this principle are paternalistic government policies. As such, it is no surprise that many ordoliberals highlight the importance of individual responsibility, e.g., in the context of social security systems, while criticizing the emergence of the modern (i.e., interventionist and all-encompassing) welfare state (which is not to be confused with a social market economy) (cp. Eucken, 1952/2004; Röpke 1933/1965, 1942, 1944/1949, 1958/1961; Rüstow 1957).

As of this writing, the role of member states is limited to three main tasks: First, three or more nation-states can request the opening of a market investigation conducted by the Commission; second, member states are part of DMAC and a high-level group which assist the Commission in decision-making; and third, “if the Commission adds new obligations and prohibitions with a delegated act, the standard dual control by the Member States on the adoption of delegated acts applies: before the adoption of the act, representatives of the Member States should be consulted by the Commission, and after the adoption of the act, the Council of the Ministers of the E.U. may oppose to such an act” (cp. CERRE, 2021b).

The DMAC is composed of member-state representatives but provides only non-binding advice to the Commission on how to best implement the DMA (cp. CERRE, 2021b).

Cp. for the following: Podszun et al. 2021.

This could be overcome with the help of more parliamentary hearings (cp. de Streel and Larouche 2021).

Note that the Commission possesses both regulatory and competition powers; Larouche and de Streel (and others) thus recommend a possible separation of these powers.

See page 11 of the Commission’s Explanatory Memorandum to the DMA Proposal (cp. European Commission, 2020b).

Akman (2021), for instance, argues that the DMA not only pursues two distinct objectives – fairness and contestability – with only one legal instrument; the Act does also not provide clear-cut definitions of those terms. The author continues by pointing out an apparent internal DMA contradiction by arguing that contestability would imply taking measures to prevent market tipping and the emergence of gatekeepers in the first place. Markets with gatekeepers, on the other hand, indicate that the market has tipped already and is thus incontestable.

This is the so-called problem of conceptual circularity (e.g., how can we conceptually distinguish between gatekeepers and CPS?).

It is, for instance, expected that many gatekeeper designations will be contested before E.U. courts.

Akman (2021) notes that the distinction between Art. 5 and 6 obligations is arbitrary, unprincipled, and lacks a clear rationale. Furthermore, it remains unclear which obligations apply to which company (i.e., CPS). According to the author, a single set of rules which applies indiscriminately to all CPS and gatekeepers does not make sense; a specification or tailoring of those obligations would be much better to achieve the DMA goals.

Note that the Commission also has the right to temporarily suspend gatekeeper obligations, e.g., if they would endanger the economic viability of business operation and that it can grant exemptions on the grounds of “public morality, health, and security” (cp. DMA Art. 8 and 9).

A further problem is the risk of regulatory overreach, e.g., if the Commission designates too many companies as gatekeepers. Some experts, therefore, argue that the DMA should only apply to companies with a significant presence (i.e., leveraging power) in more than one CPS market (cp. Schweitzer 2021).

The ideal would be to have platform-specific obligations and a platform-driven framework, i.e., a separate list of commitments for each CPS, e.g., one for search engines, one for social networks, and so on.

Note that GAFAM and other tech companies have already invested substantial amounts of money in lobbying the Commission, Parliament, and Council, e.g., not to be designated as a gatekeeper or to weaken certain DMA obligations.

Merger control could be based on Art. 353 Treaty of the Functioning of the European Union (TFEU). Note that the DMA proposal falls under Art. 114 of TFEU. Merger control based on Art. 353 would thus fall outside the scope of the DMA (cp. Schweitzer 2021).

Cp. for the following: Wörsdörfer 2021.

In its amendment paper, the European Parliament recommends empowering the Commission to temporarily prevent gatekeepers from acquiring companies (cp. European Parliamentary Research Service, 2022; Schwab 2021; see also European Parliamentary Research Service, 2021, which argues for a more robust merger control regime for gatekeeper platforms).

The CERRE Assessment paper (2021a) speaks of a ‘process of co-determination’ or ‘co-regulation,’ which would require close collaboration between gatekeepers and the Commission. Yet, the question remains how this could be achieved while at the same time avoiding regulatory capture?

According to Podszun (2021), private enforcement of gatekeeper obligations is essential for the proper working of the DMA and for establishing Böhm’s ‘private law society’ (cp. Böhm 1966/1980; Vanberg 2005, 2013).

Noteworthy is that Eucken was debating the problems of too-big-to-fail and system-relevant banks (and other organizations) and the trend towards the increasing concentration of market power in the hands of a few companies already in the 1940s. In one of his post-World War II reports for the allies, he argued for the breakup and destruction of powerful (multinational) banks (cp. Eucken 1946/1999).

In its amendment paper, the European Parliament recommends strengthening whistleblower protection and establishing gatekeeper compliance officers (cp. European Parliamentary Research Service, 2022).

CERRE (2021b) also recommends allowing business users to file confidential complaints and strengthening feedback mechanisms (e.g., by establishing a formal complaint process, which is lacking so far). Essential in this regard is protecting the complainant’s anonymity and the prevention of gatekeeper retaliation.