This article is part of a series in which OECD experts and thought leaders—from around the world and all parts of society—discuss and develop solutions now and for the future. Aiming to foster the fruitful exchange of expertise and perspectives across fields to help us rise to this critical challenge, opinions expressed do not necessarily represent the views of the OECD.
On March 25, 2022 the European Council and European Parliament reached an agreement pertaining to a package of legislation (Digital Markets Act – DMA) to secure more level playing fields and effective competitive conditions on the information market.
”The Wild West”
The legislation has been in the works for some time for both democratic and market related reasons as European Commissioner for Competition, Margrethe Vestager, announced at the press briefing: “A fair marketplace is part of every democracy.” This statement was supplemented but actually topped-up by Thierry Breton, Commissioner for the Internal Market, referring to the unruliness and so far laissez-faire attitude towards the information markets:
It used to be the Wild West, this is no longer the case. We are taking back control. We as politicians have said to them, yes you are welcome here in our internal market but you must follow our rules.
”Wild West” refers in no small portion to what the Hungarian-American businessman George Soros dubbed market fundamentalism on financial markets i.e., the idea that a free and generally speaking unregulated market provides the conditions for growth, wealth, financial innovation and therefore plays a crucial role in solving societal and financial problems. Three related thesis largely fit this world view:
- Free market agents are self-interested and utility maximizing.
- Growth can be measured in GDP.
- The purpose of government is to stimulate (1) and (2)
To this should be added the idea that every laissez faire market with self-interested and utility maximizing institutions and actors was efficient in the sense that incorrect pricing of products or services would self-correct given the liquidity of the market. The self-regulating effect would eventually put the market in a supply and demand equilibrium state in which only the financially sound and healthy products, companies and services would survive. Hence the free markets would in and by themselves provide the close to ideal conditions for growth and wealth without bubble formation and other financial abominations.
There's been a parallel idea prevalent of market fundamentalism governing the information marketplace:
- Agents in the free information market are self-interested and utility maximizing.
- Growth may be measured in (allocation of attention and) data-harvest.
- The purpose of tech platforms is to stimulate (1) and (2).
A wide range of different agents, large and small, bring a multitude of information products of variable quality to the information market. Market bids on these information products are paid for with attention, which in turn provides engagement, traffic, and data… the rest of the business model is familiar by now. But just because the market is liquid and trades an incredible amount of information for attention, does not necessarily entail, as seen in case of the laissez faire-market of finance, that the information market is efficient in the sense that only healthy and strong information products survive while the weak and faulty perish in the tough competition for attention. There exists a market for poor quality information products — at times of extremely poor quality — that nonetheless are capable of attracting scores and scores of attention regardless of whether the information is true or false. Whatever is true is not necessarily viral, and whatever is viral is not necessarily true. An implication of (2) is exactly that increased media usage is identified with progress no matter the content consumed. On top of that, tech platforms which already enjoy scores of attention, engagement, traffic, data harvest and resulting in ad sales are liable to obtain even more given the Matthew Effect. A guiding principle from the Gospel of Matthew also applies to the attention economy: Those who are already beneficiaries will benefit even more, or as expressed by Jesus in several passages in the New Testament, Gospel of Matthew.
For to everyone who has, more will be given, and he will have abundance; but from him who has not, even what he has will be taken away. (Matt. 25:29)
The information borne infrastructure benefits from the Matthew effect, where more breeds more. The more one controls the quantity (as well as quality) of the circulating information products and global attention allocation the more one receives in return. This entails that global market dominance, monopolies, and gigantic monetary wealth are concentrated in the hands of very few tech companies in the information market. This is exactly what the DMA is put forward to remedy.
"One Ring to Rule Them All"
The DMA is seeing the light of day after record-breaking but somewhat arbitrary fines to the tech giants imposed by the EU over the last five-ten years. By way of example: The EU has addressed the opaque and competition distorting algorithms employed by BigTech to gain market dominance. In 2017, for example, the EU commission fined Google 2.4 billion euros for favoring their own comparison shopping service. Even after Google made changes, in response to the ruling, it still only allowed less than 1% of the traffic to be routed to rival comparison shopping portals. Facebook joined the ranks of Google, when the EU, in the spring of 2021, launched a formal investigation into how the company’s advertising data is used to compete against the platform’s advertisers in the classified ads market. Similarly, Amazon received a 888 million euro fine in 2021 for GDPR violations. The EU-commission continuously try to reach out to the Irish government to collect 13 billion euros in back taxes from Apple, hinting that BigTech can look forward to a more tight knit EU tax-regulation. The EU’s next move is to map whether it is possible to regulate the use of artificial intelligence in the tech industry.
The DMA-package is systemic, potent and far-reaching but not malignant as in Tolkien’s Lord of the Rings: “One Ring to rule them all, One Ring to find them, One Ring to bring them all, but not in the darkness bind them.” The legislation is, on the contrary, designed to shine the light on a fair and free information market.
This entails initially identifying what the European Council and European Parliament refer to as “gatekeepers”. Tech platforms in the information market with large numbers of users and the companies which would like to gain access to these users in order to sell products and services. Such gatekeepers are defined by (1) having an annual turnover of more than 7.5 billion euros over the last three years or a market capitalisation threshold of 75 billion euros in the last year; (2) the end user threshold is fixed to 45 million monthly and 10.000 yearly business users, in the EU in the last year. In terms of infrastructure the gatekeeper is defined as an entity controlling one or more platform services in at least three different membership countries including online markets, app-stores, web browsers, social networks, cloud-services, ad services, video-sharing services and virtual assistants (see all details here).
Do’s and Don'ts
If a tech platform is labelled as a gatekeeper it has to unequivocally observe a set of obligations, including, but not limited to:
- “Ensure that users have the right to unsubscribe from core platform services under similar conditions to subscription
- For the the most important software (e.g. web browsers), not require this software by default upon installation of the operating system
- Ensure the interoperability of their instant messaging services’ basic functionalities
- Allow app developers fair access to the supplementary functionalities of smartphones (e.g. NFC chip)
- Give sellers access to their marketing or advertising performance data on the platform
- Inform the European Commission of their acquisitions and mergers”
There is also a set of don’t for as the press release stresses. Thus, gatekeepers may no longer:
- ”Rank their own products or services higher than those of others (self-preferencing)
- Reuse private data collected during a service for the purposes of another service
- Establish unfair conditions for business users
- Pre-install certain software applications
- Require app developers to use certain services (e.g. payment systems or identity providers) in order to be listed in app stores”
This is just a greatest hits collection of the do’s and don’ts. If the rules are violated by a gatekeeper the legislative hammer may strike hard. Fines for up to 10% of the company’s global turnover and a repeat offence a fine up to 20% of the worldwide turnover may be imposed. Follow the money and hit’m where it hurts and thus. And these conditions have but one purpose: To secure “level playing fields” for actors big and small in an information market ruled by an attention economy.
The DMA is all about the information market. What is still missing is legislation related to larger societal consequences of the information age ranging from fake news and misinformation to cyberbullying, distribution of material without consent and hate speech. Another act is in the works to this end, we’ll be awaiting this piece of legislation but not in an amendment to the DMA, but an independent legislation package known as the DSA - Digital Services Act.