As more and more consumers around the world reap the benefits of curated online marketplaces (COMs) based in the United States, foreign competitors are asking their governments to act against COMs’ core business conduct. The European Union’s (EU’s) Digital Markets Act (DMA) is the first major step in this direction, imposing ex ante-style regulation to comprehensively restrain or eliminate COMs’ management functions. In doing so, the EU produced a meaningful barrier to digital trade aimed primarily at American companies. DMA targets six major tech companies (Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft), five of which are headquartered in the United States, designating some of their offerings as “gatekeepers.”
Even as DMA undermines the export of American ingenuity, the EU has made significant strides toward exporting versions of DMA to governments on other continents, including, ironically, the United States. Two DMA-style manifestations appeared last Congress: The American Innovation and Choice Online Act (AICOA) and the Open Apps Market Act (OAMA). Although Congress ultimately rejected these proposals, they gained notable bipartisan backing. Having bled away cosponsors and momentum since then, the bills nonetheless remain a feature of debates around digital markets.
Our panel on July 26th, “Will Europe Eat the World?”, featured three experts in platform competition, digital privacy, and security to discuss the effects of DMA and its global ripple effects. Given Congress’ continued appetite for “reining in” COMs, our discussion illuminated domestic proposals through the lens of the DMA’s experiences. With many countries contemplating similar regulations, the question arises: What are the EU’s true intentions, and how will these new regulations affect small business innovators?
Platforms, developers, and regulators form a complex, interdependent relationship crucial for a thriving digital ecosystem. Small and mid-sized businesses (SMBs) leverage existing COMs to reach their global markets and drive competition and innovation in doing so. However, the DMA’s stringent rules, aimed at curbing large companies’ influence, threaten to stifle EU small to mid-sized developers’ ability to innovate. By adopting an ex-ante regulatory framework, the DMA seeks to reshape digital platform operations, with significant implications for consumers worldwide. Aurelien Portuese, founder of the George Washington Competition and Innovation Lab, highlighted how the DMA’s restrictions narrowly focus on competition within COMs, completely missing the fact that there is competition between COM business models:
“The DMA’s provisions deny end-users the ability to express preferences… these preferences in what consumers want are essential to competition. The competition is between business models.”
The resulting regulatory structure limits consumer choices between COM business models, supplanting consumers as the arbiters of winning COM approaches with regulator preferences. Aurelien further encouraged the audience to recognize the costs of eliminating this axis of competition and redirecting it to a system that protects competitors rather than consumers, which he argued could inadvertently create more barriers for EU developers, contrary to its goals.
“The fundamental problem with the DMA is that by ignoring consumer preferences, we shift away from the consumer welfare standard towards a business-user or competitor standard. The DMA is not focused on increasing competition for consumer choice but rather on increasing the ways business users operate on platforms. This results in selective competition. We need choices between business models, products, and services. Unfortunately, the DMA overlooks the importance of inter-platform competition, instead focusing on supporting larger incumbent platforms like Epic Games and Spotify.”
As the webinar concluded, the panelists considered the DMA’s global implications, particularly for the U.S. market. With antitrust bills like AICOA and OAMA circulating in Congress, Aurelien cautioned against adopting DMA-style regulations, citing potential security and user experience problems.
“The provisions in OAMA allow any app developer, regardless of their merits or intentions, to be entitled to a spot on app stores. This is highly problematic, as it would prevent app stores from de-platforming services that pose risks. The presumption of illegality in platform management, as imposed by these antitrust bills, is very concerning. Why would we want to copy something in the U.S. that is already failing in Europe under the DMA?”
This Insightful webinar was hosted by the Innovators Network Foundation in partnership with the GW Competition & Innovation Lab.