Strengthening competition policy for effective regulation of digital platforms: Contrasting EU and UK approaches

Read the full dossier "Digital rights post-Brexit - Regulatory divergence in the UK and the EU"

1. Introduction
2. Platform power business models
3. Ex ante interventions
4. Approaches in the EU Digital Markets Act versus potential UK approaches
5. Concluding remarks

1. Introduction

In recent years, the market power of digital platforms has grown dramatically,  resulting in significant negative outcomes for individuals, who are being exploited as products rather than served as customers.

Globally, individuals, regulators and governments have grown more vocal about the need to tame excessive market power in the digital fields, . The key measures to mitigate the ensuing harms (including abuses of privacy, online behaviour which may hurt a person physically or emotionally and the boosting of profits at the expense of smaller rivals and business customers)  include ex ante interoperability (or the ability of digital services to work together and communicate with each other) and data access. Such measures could be imposed by regulators on the largest digital players with the aim of opening up markets and increasing consumer welfare and utility delivered by the digital services.

In this briefing paper, we consider the key regulatory initiatives governing digital services in the EU and the UK. In the EU, this is the Digital Markets Act (DMA)[1], which imposes a set of specific ex ante obligations on the largest digital players, including  interoperability and data access. . Digital platforms are not neutral intermediaries. Concerns remain as to the flexibility of the DMA, particularly with respect to the need to tailor effective remedies to specific market context. Issues  with interpreting the Act which could also impair its smooth execution. In the UK, a possible regulatory regime is centred around the Digital Markets Unit (DMU)[2]. We consider whether the DMU could be designed as a more flexible set of regulatory tools enabling a targeted approach to identifying emerging competition issues and market power in the digital field.

2. Platform power business models

Many digital players operate as so-called platforms. The term means different things to different people, but most platforms are coordinators as well as beneficiaries of “multi-sided markets”, linking buyers, sellers,  and developers, and determining their rules of engagement.

The typical business model for modern platforms concerns using computing to shape economic entities, like individuals or businesses, into a format where they are easily understood by computers. For example, people and businesses could be codified as users or as cookies on a platform. Developers then provide other actors, such as advertisers, vendors, and app publishers,  access to these users.

In doing this, platforms make many important decisions. For example, Apple determines who can buy apps, who can develop them and to what standards, who can sell goods and services through apps, and the outer shape and limits of their functionality. This shapes not only the software that is available in our society, but also which secondary business models are possible. This type of power sets a backdrop for, and at times directly interferes with, other important rights, such as privacy and freedom of expression.

Platform logics exist across many sectors. Meta (formerly Facebook) exerts significant power over social networking, instant messaging and parts of the advertising markets; Alphabet (Google’s parent company) dominates other parts of the advertising market, the search market and, along with Apple, the mobile operating system market; Amazon exerts power over physical e-commerce, as well as cloud computing (the servers other services run on).

Platform power shapes social, economic, technical and political outcomes. Consumers find their attention and personal information monetised and have few viable alternatives for service providers. Smaller firms struggle to compete with these platforms for the services they offer, and find it risky to build a business, such as an app or other digital service, on top of a platform, as the foundations on which they are building can be unpredictable, particularly if they threaten the business models of the platforms themselves.[3]

More broadly, the behaviours of governments and society at large are shaped by the choices these platforms make, particularly on essential digital infrastructure, such as smartphones, cloud services, or the flow of data and information.

3. Ex ante  interventions

Traditional competition tools look to disincentivise excessive market power by enforcing  competition law ex post (after the fact). Regulators have been able to impose interoperability and other ex post remedies in misfunctioning markets. For example in telecommunications or as was applied in the case of Open Banking in the UK.[4]

However, for digital platforms, ex post intervention often comes too late, after harm has occurred to digital rights, excessive or monopoly market power has been consolidated, and the platforms have shifted their focus on building on previous power. Currently, platforms do not need to fear losing users so long as their service offers a compelling reason for people to engage with them. It is widely understood that social media engagement can drive unwanted content and interactions,[5] since controversy generates interest. This closes off opportunities for building a more open digital world driven by user preferences. Currently users who want agency in shaping their engagement on a platform currently have limited options. 

The risk of ex post intervention has been likened to anti-competitive platforms essentially paying a licence to operate. Competition policy could, however, adopt ex ante (up-front, before an event) measures, such as interoperability and data access in malfunctioning markets.

While there are various possible approaches to this, this briefing outlines two to illustrate the form that these interventions may take: interoperability and access to data.

3.1 Interoperability

Interoperability is a technical mechanism that means the ability of digital services to work together and communicate with each other. Interoperability opens up markets and enables increased competition by way of new entries into the markets, innovation from current players and increased service offering, which tames the platform power. By doing so, interoperability increases consumer choice. It makes it easier for consumers to leave Big Tech platforms for competing platforms without stopping them from communicating with anyone who choses to remain on that platform. By giving new services a chance to compete it could create whole new markets of online services built on top of existing platforms. This would have positive social, welfare and utility effects through opening-up new opportunities for better protection of users’ privacy and security, better terms of service and new features.

There are two types of interoperability: horizontal and vertical.

• Horizontal interoperability means the interoperability between competing services operating on the same level in a value chain. For example, horizontal interoperability between interpersonal communication services would mean that people would be able to call and message each other regardless of which app they use.
• Vertical interoperability then enables the providers of complementary services to interoperate with the upstream digital platform. For example, this is the case of smaller app providers being able to develop services within an app store maintained by a large digital player.

3.2 Access to data

Access to data ensures that data is made available to selected actors for the purpose of ensuring interoperability and developing competing services.

This concept largely overlaps with and complements the interoperability measures, which are about ensuring different systems are able to interconnect and are mutually legible By being given access, competing players may achieve interoperability, develop new innovative services on top of the underlying platform service and increase competitive pressure on the monopoly players. This in turn also delivers broader positive social outcomes.

3.3 Implementation

Interoperability and data access can be implemented by way of commercial agreements or by voluntary consensus (e.g. the Data Transfer Project).[6]. There have been various private initiatives in this respect, such as interoperability between social media and encrypted messaging platforms, with successful models of moderation and security (Matrix,[7] Mastodon[8]).

In some cases, however, private action does not guarantee sufficient interoperability and data access due to diverging incentives of the actors involved. Some actors seek to protect their market position, know-how and revenues, while others strive for increased access, but are unable to achieve that due to their limited bargaining power. That is when interoperability obligations imposed by way of public regulation would be useful.

There is some resistance to interoperability and access from the largest global actors and digital platforms.. Such resistance is voiced on the grounds that interoperability could pose a threat to security, service practicality, innovation, intellectual property protection and regulatory concerns about new actors. While these concerns should be appropriately considered when setting a regulatory framework, they are not well-founded, and should not prevent the imposition of interoperability and access measures.

4. Approaches in the EU Digital Markets Act versus potential UK approaches

4.1 Digital Markets Act

The EU’s ex ante instrument to enhance market competition in the digital field is the Digital Markets Act (DMA), a regulation specifically directed at the largest digital players (“gatekeepers” who run crucial “core platform services”) and at specific types of harmful conduct.[9] The gatekeeper position is determined based on specific quantitative criteria (turnover/market capitalisation and number of users). Only a handful of global digital players are large enough to be designated as gatekeepers.

The DMA is set to impose on gatekeepers certain interoperability and data access obligations.

The DMA mandates the interoperability of “number-independent interpersonal communications services”, i.e. communication apps functioning via internet access, such as WhatsApp, Facebook Messenger.

Moreover, the DMA requires that gatekeepers enable interoperability of their operating systems with:

• third-party software applications and application stores, and
• hardware and software features accessed or controlled via the gatekeepers’ operating systems or virtual assistants.

These measures are aimed at increasing competition in the area of app stores, as well as software and hardware complementary to the gatekeepers’ core platform services, for example Google’s search engine

Data access obligations form a part of fulfilling the interoperability duties in the DMA. In addition, the DMA provides business users of the gatekeepers‘ services (e.g. advertisers and publishers, and third parties authorised by them) with access to various types of commercial data, such as data from measuring tools to carry out verification of their ad inventory.

One of the DMA’s main advantages is its expected self-executing nature. Once it enters into force, the gatekeepers will have to comply with a list of self-executing obligations, or obligations that do not require activation by a regulator  within six months. The self-executing nature may, however, also turn out to be the DMA’s weakness. That is because the DMA obligations contain various notions which enable different interpretations. For example, the requirement to ensure “effective” interoperability or obligations on the gatekeeper  to adopt “strictly necessary and proportionate measures” in the area of interoperability to protect privacy, security or service integrity. The devil is in the detail - disagreement over various notions in the legislative text like “effective,” “strictly necessary” or “proportionate” could impair the implementation of the DMA.

Furthermore, the set of obligations in the DMA is relatively specific, applying to gatekeepers and their largest platform services (e.g. Google’s search engine and operating systems like Microsoft Word) to address a set of existing problems within the market There will be a possibility to periodically review the DMA, but it remains to be seen whether the self-executing nature of the DMA will be sufficiently future-proof to account for novel types of conduct and concerns in the digital field. Regulators in other markets – telecoms for example – routinely update regulation to reflect changing market circumstances. Cyber security has already emerged as an area where the European Parliament and EU Member States have had to agree an exemption from DMA obligations for gatekeepers in order to avoid negative effects for consumers.

4.2 Digital Markets Unit

The UK has already established a Digital Markets Unit (DMU) within the Competition and Markets Authority.[10] The DMU is currently working in a non-statutory form. Statutory powers should be granted to enable the DMU to act as a regulatory taskforce in the digital field. Compared to the DMA, the UK approach to interoperability and data access could be designed with more flexibility (see below).

Similarly to the gatekeeper designation under the DMA, the DMU could be entitled to designate firms with a “strategic market status” (SMS).[11] Unlike the DMA, however, the designation of SMS could be conducted by analysing a firm’s substantial and entrenched position in at least one activity, providing it with a strategic market position, and not by assessing rigid quantitative criteria.

The interoperability and data access could then be addressed by the DMU on a case-by-case basis, upon identifying the areas suitable for intervention. In that regard, the DMU could adopt enforceable codes of conduct with respect to the SMS players, as well as regulatory interventions and pro-competitive measures to open up markets.

The DMU could be able to engage with the SMS firms on an individual level and target the respective regulatory measures specifically to each market and the nature of SMS firm’s operations.

The DMU could also be free to focus on one specific firm or more firms at the time, if deemed appropriate. A wider discretion compared to the DMA framework this would enable the DMU to design and ensure a future-proof regulatory regime.

5. Concluding remarks

Once big digital players are forced to make their services interoperable and their data accessible in the EU, such measures can spill-over to other parts of the world, including the UK. It is therefore crucial that the UK engages in the EU and global discussions concerning regulatory ex ante interventions in the sphere of interoperability and data access. There is a need to find a harmonized global regulatory framework.

There is an opportunity to craft in the UK a regulatory framework which would posit itself as a countervailing power to the EU’s DMA. The UK framework, centred around the Digital Markets Unit, could be more flexible and future-proof to address the various emerging concerns around platform monopolies and harms to individuals in the digital markets.

If the UK stands aside and does not grant statutory powers to the DMU as a regulatory taskforce,it may find itself being affected by foreign legislation. Legislating too late or creating new obligations inconsistent with  other global initiatives would create undesirable uncertainty, providing potential avenues for digital players to escape regulatory obligations in the UK. Acting swiftly would also re-affirm the UK as an important regulatory jurisdiction which shall be closely monitored and consulted by other main players, including the EU.

Both the EU and UK have some way to go to develop policy in this area. The lack of interoperability powers for social media in the DMA does seem to be a mistake, especially given the lack of consumer power over content prioritisation and moderation. Interoperability could leverage consumer choice to deal with problems that content policy will struggle to address, by changing the nature of the market to favour outcomes that consumers rather than advertisers want.

Acknowledgments: We would like to thank Dr Michael Veale and Ian Brown for their contributions to this briefing.