Below, we have provided the full transcript of the first episode of our series Antitrust in a Digital World: Does It Work?. Read below to see the discussion about What Is Next for the Digital Markets Act?.
Morgane TAYLOR:
Good afternoon everyone, or good morning, wherever you’re placed in the world. I’m Morgane Taylor, from The App Association, in case you just joined us. I would like to welcome you to this first session of antitrust in the digital world series, organized jointly by The App Association and Competition Policy International. We have distinguished panelists with us today. And for this session we’ll focus mainly on developments happening in the European Union. With the European Commission, which released a Digital Market Act in December 2020, to regulate online platforms.
And the proposal ends up bringing more fairness and contest-ability in digital markets, and creates new obligations for online platform acting as gatekeepers. So this text will radically change the way digital platforms are allowed to operate in the EU, and will have far reaching consequences on those that do business with them, such as tech SMEs or smaller app developers. And whilst this proposal has many unanswered questions as regards to its implications for the future of European digital economy.
And to talk about this today, I have with me Dirk Auer, Senior Fellow in law and economics at International Center for Law and Economics, and Adjunct Professor at the Catholic University of Louvain, and University of Liège. Nicolas Petit, Joint Chair in Competition Law at the department of law, and at the Robert Schuman Center for Advanced Studies at the European University Institute in Florence. Alexandre de Streel, Academic Co-director at the Center on Regulation in Europe, CERRE, and professor of law at University of Namur. Aurelien Portuese, director of antitrust and innovation at the Information Technology and Innovation Foundation. And Stanislas Dewavrin, app developer, CEO and founder of Oh BiBi, which specializes in mobile games. So we’re very pleased to have you here with us today on this panel, and look forward to an interesting discussion. So I’ll just dive right in and kick off the panel by asking each of you to answer a short but quite complicated question, which is: Can you tell me what you think are the greatest challenges when applying antitrust principals developed in the brick and mortar world through a digital space? And I guess my underlying question here is that: Is there a problem, and what are we trying to solve? Maybe Alexandre de Streel, do you want to start?
Alexandre DE STREEL:
Okay. Thank you very much. Good morning, good afternoon everyone. So this is an important question, and it is a question that Nicolas asked me some weeks ago, and since then I still think about it. So I won’t be short. When the people say they are short, they are not short. So I try to… I won’t be short. I’ve tried to think why indeed, and I have come with at least four reason, which in a way may reinforce each other in a virtuous or vicious circle, depending of your perspective.
So the first reason which is often mentioned, is protectionism. To protect your firm, or to protect the loser of the disruption, as it’s not a moral value here. But I mean of course, when there is a disruption like the one we are moving now, some are losing some are winning, and of course the loser will try to get something. And those loser can be very powerful, I can refer you to the recent event in Australia. But I don’t think that that is the main driver of the regulatory push. I think it can reinforce the push but that’s not the driver. The second reason is concentration. Concentration of economic and innovation power among a few players. And this is why I think one of the reason of the DMA is to protect the competitive process, and maybe to be ready to trade a short term efficiency for a long term competition.
Now, the question is: Will that increase innovation altogether? Now, the Commission seems to say yes. I don’t know. Really, I don’t know. I mean Nicolas has shown very convincingly in his book that the competition between the few big players is leading to a lot of innovation, and that’s right. Others have shown that we need new platform and diversity to have more innovation and more diverse innovation. So really I mean, I still don’t know what will be the effect on innovation. But still I think that this objective of protecting the competitive process in not new for Europe. And if you go back to the Microsoft case, which has been validated by the court, Microsoft is involved privileging or favoring the innovation incentive of same ecosystem over the one of Microsoft.
The fourth reason is unfair results. Many people think that some of those big players have create a lot of value but have captured most it. And if you add that with the fact that they are not taxed a lot you have a fairness issue. And so maybe also the goal of this law is to redistribute this wealth. No. Clearly, I don’t think regulation is the first best to do redistribution, but given the fact that taxation don’t work so well, that may be one of the reason. And I will finish with that. To me, the main fundamental reason why we have this political drive, is the impression that we have lost all autonomy. That the citizen, business user, the small app developer and the state themself have lost their autonomy. Is it true? Is it a perception? This needs to be debate. But this is clearly I think one of the main drivers.
And so basically what the people want, as Sir Johnson has said, is to take back control. I mean they want really to take back control, or you could also they want self determination, and this is maybe more politically correct than take back control. But at the end of the day this is the objective. So I think it’s a mix of different reason. But what is very important in this debate and around the debate, is to really understand what we will achieve and then we could see whether indeed we are on the right track.
TAYLOR:
Thank you, Alexandre. Well, since Nicolas asked you that question early on, I’ll give the floor to Nicolas.
Thank you, Morgane. I’m sure you can hear me, right? Yeah, okay. So what I’ll say is very close to what Alex just mentioned, then. The way I think about this is, the DMA really tries to solve or address three problems: An economic problem, a legal problem and an political problem. So the economic problem is very well understood. There is a perception that markets in the digital economy, some markets, have tipped to one or more large players, and that the economic forces of competition are not enough to discipline these players and inject entry and lower prices.
And so because the theory suggest that the free market cannot fully solve an undermined established market positions in certain environments, there is an invitation or an inference that we need to adopt stronger competition or regulation to promote competition equally. There is also an understanding in the economics profession that Schumpeterian competition, which means monopoly displacements by provision of a not entirely completely substitutable product, doesn’t work. To be very clear and graphic, it’s been a while since we’ve seen a Myspace, going under in the digital economy.
And so if you believe that this economic description of digital markets is the right one, and a lot of people in Brussels… I insist on “in Brussels”, seem to believe that this is the case, then this brings us to the legal question or the legal problem that the DMA tries to solve. The legal problem that the DMA tries to solve is that the standard competition case is too much welcoming to arguments by defendants. So by big companies. And therefore there is too much discussion, there is too much opportunity, for them to justify their business behavior or show that the business behavior has no adverse affect on consumers.
And there you start a discussion about making competition more stricter. And hence, you have a discussion about leaving aside the market definition exotic exercise that competition lawyers like to do, about per se rules, burden of proof reversal, merger bans, and so on and so forth. You just want to make things faster, stronger, harder. By the way, this is a Daft Punk song I think. I thought that it would be very timely to think about Daft Punk today, and talk the band during my remarks.
So that leads me to the third issue that the DMA tries to solve or try to answer to, which is, as Alex was saying, the political question. So there is a sense in which the political structure and the press have lost a lot of power to big tech. Not so much consumers. I mean if you go to consumer surveys, the evidence is very clear that consumers really like the products of big tech.
But in the political environment and in the press, there is a perception that a lot of power has been lost. And that has led to extremely aggressive announcements a few years ago, that have created enormous expectations in the policy structure and in the press. And today we have this sense of alarm in the political environment, that we have to do something because we generated these expectations. Even though again, the consumer evidence, and maybe the application developers or innovators data that we can collect, do not say that.
So the one interesting thing is that all these problems interact with each other in the sense that: If we go for a radical legal reform how can we be sure that we are making the right call if we do not have a clear understanding of the first economic problem? And are we likely to make the good decisions if we operate under a sense of alarm with extreme political pressure from both parliament, national government, and at the same time the press. So this is a very, very, very hard environment that we are in today.
TAYLOR:
Thank you, Nicolas. Dirk, would you agree from the fact that this sense of alarm is there and driving? Is it more of a driving force?
Dirk AUER:
Yeah, sure. I think on that point I’m more of aligned with Nicolas. So I think there’s a… I guess the point I want to make is that there’s been tremendous competition intervention in the digital space, and then there’s a widespread belief amongst the decision makers that that hasn’t been effective. So basically, all of the GAFA firms, to some extent, have been the object of competition decisions or investigations. And there’s a perception that the remedies that have come out of those decisions are just toothless, right? Now that could be because competition is toothless, but I think you also have to consider the alternative, which is, maybe the remedies aren’t delivering because the problem is very hard to address, and we don’t know what the problem is. So I think there’s a perception… Or, decision makers, there’s a difference between the markets they desire and probably the markets that will realistically emerge.
So if you look at competition intervention there’s a theme which is trying to make these digital markets more open. Trying to make them less propertized. So you can go through the decisions and describe them all in those terms. But what there isn’t is a question of: Well why is it that markets systematically reach that point that we deciders do not like? Why is it that markets routinely become more closed or more propertized, than what decision makers would like? And I think you have to wrestle with that question. So there are many potential explanations. You could say: Maybe these closed platforms, maybe they are very good at excluding small rivals. I mean that’s one small possibility. But then you have to contend with the fact that these platforms, when they started off, they competed and out-competed many open rivals. So I guess that point, it’s hard to see that point as being dispositive.
You have to then consider alternatives, which is maybe the closed more propertized model, that there is a better internal investment. And if that’s the case, when you trying them on, the closed propertized model, will you see a decrease in innovation? I think that’s the question you need to ask there. And the final question, which seems completely overlooked in policy decisions as well: Maybe it’s consumer demand driving that closed model. We all go on… The assumption seems to be more openness can only be good because consumers will have more choice and they’ll be happier. That’s the revealed preferences of consumers. Maybe there are some caveats to that, but they seem to be: We like some amount of curation of our platforms. So I think of consumers behind the iPhone as completely illustrating that point. You could go with the arguably more open Android, but you choose the iPhone platform because of some of its closed features.
So I think we really need to wrestle with those questions, and until we have we’re really in the dark about what regulation is going to solve. And I think if you look at what is driving intervention right now, you have some interesting, from an economic standpoint, possibility theories. So people will say network effects, data network effects, increasingly turn to steel. But there’s not much empirical evidence to back those up. That’s fine, that’s not absence of evidence. But we should be a bit careful, because in the past theories of externalities have turned out to be wrong quite routinely.
So we’ve seen private lighthouses shouldn’t have existed, markets for bee pollination should not have existed. People have argued that inferior keyboards made it to market and succeeded, and that turns out to have not been incorrect. So again, I think we need to be a little bit careful when we jump from pretty elegant theories, but then to assume that those inevitability are what are driving the outcomes in digital markets, I think that’s maybe a step too far. But I guess the bottom line is we still have some work to do to understand these markets. That will be my big point.
TAYLOR:
Thank you. Well actually, yesterday raised a lot of questions when we have a law to try to address this and we don’t really yet what we’re doing and trying to address. But Aurelien, would you want to react to this?
Aurelien PORTUESE:
Yes. Thank you very much for having me. Thank you, Morgane, and thank you, Competition Policy International, for inviting me. I was to revert to Alex’s comments at the very beginning… There is a need for protectionism, and there is a concern for concentration. And I think that’s completely true, and we have to be honest and state what we are talking about. I think the DMA explicitly targets foreign companies and very concentrating companies. These big American and Chinese tech companies. This is not me saying it, it is written explicitly in some preparatory word of the DMA, the impact assessments on all these documents. So I think we have to be clear here of are we trying to address. We’re trying to take back control in the EU digital economy by targeting foreign companies.
But one question which is much more interesting, I think, is: Does this help small and medium-sized European digital companies? Does it help bring the innovation economy in Europe that we all want? Does it help? And I’m not sure we are addressing the real problems. What the U.S. economy has benefited from is primarily one thing, of course, its huge domestic market. And that’s what we need to create in Europe. That’s what we try to create with the single digital market. That’s completely legitimate, and that’s a necessary goal we need to achieve and to complete. The question is: Does the Digital Market Act help to achieve the single digital market? Well, the answer is no. Why? Because we know that the greatest, and I’m sure small app developers in Europe will understand what I’m saying, the greatest impediment to growth, to expansion is that we still are 27 national markets.
We are yet not one Digital Single Market. So the greatest impediments to the growth of apps are still national regulations. Does the digital single market act help to remove those regulatory impediments? Totally not. It completely overlooks those issues in the sense that it takes these concentrated tech companies as the main issue for the completion of the digital single market. And I think that’s a very problematic pitfall that we’re falling into… That, what is this regulation aim to achieve? I think at the end of the day, it doesn’t help to achieve the necessary scalability for European app developers and tech companies that are necessary for them to enjoy.
And so that’s one of the major criticisms that we can have. We can’t address the issues that we identify for tech companies, but it still leave the fact that we have 27 national regulations. And at the end of the day, as we see with the adoption of the German competition reforms. At the end of the day, the Digital Markets Act doesn’t help these removing national regulatory impediments. And therefore in Europe, we’re still lagging behind and we’ll still not be able to compete in the global markets with, let’s say American or Chinese tech companies, because we’re still fragmented. Completely fragmented.
I mean of course, the fact that we’ve chosen a regulation is much better than a directive, because a directive wouldn’t be a choice that is relevant for avoiding the fragmentation of digital market. But the very fact that we have a regulation for a handful of companies because we know it’s going to be 10 companies, as stated in the impact assessment of the European Commission. There was a lower threshold that would have targeted 15 companies, or a high threshold that would have targeted five companies. And the European Commission with the digital single markets act, has chosen an intermediate threshold. So we know it’s going to be 10 companies.
Can we make a regulation for 10 companies? I mean this resemble more individual decisions than a regulation of general scope. We understand regulations need to be of general scope, need to be without a clear designation of the companies, the natural person or the legal persons we identify. So I think we have something like a bundle of individual decisions that are mixed together in something which resemble regulation, and it doesn’t address the fragmentation of digital single markets in some sort.
TAYLOR:
Thank you, Aurelien. I think there are many points that we’ll come back to. But first, I will like to give the floor to Stan. Obviously, you have a very different perspective because you’re an app developer. And so my question to you will be to bring that perspective and talk about this evolution of online markets, because you’ve been in the industry for such a long time. What was it like? What was your biggest challenge 15 years ago, what is your challenge today, and how is it different? Sure.
Stanislas DEWAVRIN:
Thanks, Morgane. To be absolute transparent, I’m not an expert in competition law but I will do my best to try to give you an honest overview of my experience. So basically, I’ve been an app developer since 20 years right now. I used to work at Gameloft before I created my own company. I’ve created the games that have been downloaded billions number. So I have most of experience in creating content and more using platform during these days.
So what I can say is, actually during these 15 years, I’ve seen a lot of rise and fall of what you call the gatekeeper, and what we call the platform. We saw these being the only way for us to distribute our apps. And we saw the rise of Google, Apple, Facebook, all these guys. And what we have seen is all these guys got the success they got because they simply were offering a better proposition to the developer and the consumer.
We used to be only receiving 30% of our revenue, and the Republican IMPOT would take 70%. When these guys arrived they offer us to get the 70% and they will only take the 30%. And even this type of number is being turned right now, and is moving in a good direction. And what we have seen is this guy became so integrated into the digital ware and the fabric of society because simply, they were the most efficient way to know, share information, connect each other, get access to a greater mobile phone content, and so on.
I think they have raised to this position because of the great value proposition that’s provided to the world. If they want to create something which is actually not desired by the consumer or the app developer we will simply have turn our back to them. There was a lot of platform which simply rise and fall during that time, whether it’s Myspace. Even the position of a company like Facebook is being changed. It was a change quite a few times during these years. And I can almost guarantee you that the world in 10 years or 20 years is going to be different, and we are going to be having a few other innovator in the business that are simply going to use their imagination to provide a better value proposition to everyone, and if it’s the case everyone will follow us.
TAYLOR:
Thanks, Stan. And I think Alexandre wanted to react for a different comment.
DE STREEL:
Yeah. Thank you very much. And I wanted to recall on one or two things. So first, on whether the internal market is an objective or not. No, maybe it won’t be perfectly achieved but I really think this is an objective. And the issue is always counter factual. I think without DMA, you may have more diversity that you will have. And then on the number of players, I don’t see a problem of the regulation which identify on the basis of objective criteria, a small number of players. I mean this is the case for in terms of telecom regulation as well.
So I wouldn’t see that as a problem, provide of course, that the criteria are sufficiently objective here, and I think they are. And on the point on the insufficiency of competition law… Because Nicolas mentioned that one of the perception is that, if I understood well, is that competition law has been too accommodating the big company. Not to single the big digital company, the big company in general. That may be a concern, but I don’t know. And now the concern that I see is that over the last 20 years my impression is that competition law tends to favor short term over long term.
So short term efficiency and harm. So you may have some behavior which are creating short term efficiency in decreasing competition on the long term, which were addressed by competition law before and are not addressed anymore. And my feeling, and I don’t know what the other thinks, but my feeling is that the DMA tends to try to reverse this tendency that we have seen in competition law, of favoring short term over long term. And this is why this contest-ability point, which is a very stand-up, older liberal argument. It’s nothing new, really… is coming back to the debate. I think that is my understanding of one of the objective of the DMA.
TAYLOR:
Nicolas, you wanted to react on the fact that we might not be achieving having a true digital single market objective here.
PETIT:
Yeah. And I will also jump on what Alexandre just said about the short term and the long term. But on the single market, Aurelien was very right to say that the DMA doesn’t attack the main source of fragmentation that impedes scaling by innovators in Europe. There is so much to do. I mean language culture, aversion to risk, university and education systems, national labor markets. But it’s true that the DMA doesn’t attack, really that, and maybe could not possibly do that. But I think there’s another problem with the DMA, which is that actually the DMA introduces a real fragmentation risk by explicitly saying at paragraph 10, that’s its objective is complementary but different from protecting and restoring competition.
So that sounds a bit technical but the implication is that the European preemption of national legislation is limited and does not cover national competition legislation. Which means, to be very practical, that every member state in Europe after the DMA, will have ability to adopt and ad hoc specific competition law for digital markets. And we are already seeing this with Germany advancing at full speed to adopt what it calls a competition law for digital players. What’s going to happen? You’re going to have some member states in which there is political appetite to legislate on national law grounds, to regulate the big tech companies. So you will have not only the European DMA, but also here and there, national legislation covering the gatekeepers, the systemic players, the cross-market players, as the Germans I think call them, or something of this kind.
This will not only be a loss for the gatekeepers who have the resources to comply with complicated legislative environments, but it will be a big loss for start-ups who want to operate in more than one member state and have to make sure that their agreements and their transactions with big tech comply with multiple legislation. So if there was something very clear to do in the DMA, it would be to recognize that the DMA is ad hoc competition law, at the European level, for the single market. The DMA should stop saying that it is different from competition. And if you want proof of that…- I’m very strongly opinionated on that- f you want proof of that, the 18 obligations in article five and six all come from competition cases. There is not one of them that has no ties with a competition case. So then again, the statement whereby the DMA is different from the interest protected by the competition law is wrong and false as a matter of facts and law. And this is an area of priority if we don’t want to kill the single market.
TAYLOR:
Thank you, Nicolas. Aurelien, you wanted to react.
PORTUESE:
Yeah. I think that’s the totally crucial point to make. These national regulations that not only we don’t address, but we just incentivize for booming and developing and flourishing, which is of course a huge hindrance to scalability. Not to gatekeepers, again because they have the resources, but to app developers, to small companies in Europe. And that’s a very regrettable turn of this situation. But just to react on the short term point that Alex has made… I think it’s very important to be clear, here. That’s true that the DMA is short term. It is short term in order to regulate companies that are essentially, long term. So this reveal the huge discrepancy that the regulator, as an approach, takes in order to regulate the subject here. Tech companies, which are inherently long term based.
I mean when we read that Amazon is not just making any profit for the first 15 years of its existence, and it has been threatened to be bought out millions of times. When we know the cost of launching an app, it makes no profit, no benefit whatsoever for let’s say the first five years or first 10 years, and we as a regulator take a short term approach, it cannot match the business reality and the markets reality where precisely they are long term driven.
They are long term driven because the startup costs are huge, the network effect, if they are ripped off intimately, will be enormous, but there is no guarantee for them to be ripped off. And there’s a lot of failures, and a lot of failures in the digital ecosystem which need to be integrated. So I think the fact that we have a DMA that is explicitly short term in order to regulate long term businesses just reveal fundamental discrepancy and the fundamental gap that we will have in the regulatory dialogue that we call for. There cannot be a regulatory dialogue when we speak different languages. And that’s precisely what we organize with the DMA.
TAYLOR:
Thank you, Aurelien. So I mean, one of the underlying objective of the European Commission, is really sufficely, to create a discourse, to have more champions. So clearly we’re looking at… You’re mentioning that we’re looking at short term objectives, and there’s something completely wrong there. So maybe I can turn to Stan, as an app developer what will you like to see as incentive in the act to create more European digital champions? What will you like to see in Europe law, for example?
DEWAVRIN:
Well concerning the law, I will not be the most efficient panelist to answer that, and I will leave that to my co-panelists. But what I feel… Actually, I’m learning a lot of stuff from my co-panelists in real time. And as I understand, the single digital market is a concept which is very interesting because it is also why Chinese and American company are so powerful. And in our daily basis we are fighting against these guys also. As I’m creating games, I have a high competition with these type of company. And it’s true that they are protecting their internal market and they way they are creating their content, to a very aggressive extent.
For example, a European company of mobile games cannot sell games in China without an ISBN, that you are never going to get. So basically they have an unfair advantage over us. And I’m all in favor. I’m finding the systems that will help European companies to be more efficient on European soil. It’s maybe the case in the U.S. also, because they have such a big demographic and the reputation of wealth is also very specific to their country. But in the end they have an advantage on their own ground. And I believe we need to find our own ways to create this type of advantage for the uniqueness of Europe.
TAYLOR:
Thank you, Stan. I might just continue to the other questions that I had in mind. So under gatekeeper definitions and threshold… So the current provisions allow for the identification of tipping markets, and moving thresholds for gatekeepers. So my question to you would be: What is the right balance between flexibility and legal certainty? And so, what effects does legal uncertainty have in investment and have in growth? I don’t know if Dirk, you want to start?
AUER:
Yeah, sure. I think it’s open question, exactly how these thresholds and criteria will be implemented. I think you can imagine it going one of two ways. The first is, well there’s this article 3,2, that gives you very precise thresholds of: When will a company potentially fall within the provisions of the DMA. And you can imagine the other conditions being applied in a very light way. So basically, firms, when they hit those thresholds they know that they are likely to be regulated in some respect.
But there’s another version which I think if you read the text properly, is equally applicable, which is, the thresholds, when you look at them, they only establish a presumption that you’ve fulfilled one of the three criteria to be classified as a gatekeeper. And the two others are that the company is the gateway, and the second is that it’s entrenched. What do those words mean, is really anyone’s guess. And there is a history of acts being adopted with vague, legal terminology. And the spoiler alert is, the Sherman Act, it took over a century and it’s still ongoing to understand what those words mean.
So I think that has really important consequences for the DMA going forward. The first is, we’re giving a huge amount of power to whoever is going to enforce those provisions. They’re extremely open ended. And the second thing, I think very key implication, is that we should expect it to take quite a long time for decision makers, firms and courts to add meaning to what are quite open ended terms. And that’s just knowing whether a firm will be marked as a gatekeeper or not. So there a long way to go. Then the question is… I think it’s hard to square that with the state of goals of the Commission. If your goal is to, right now, have a tool that enables you to go after tech firms, I’m not sure that this is really the short term swords that the Commission is really contemplating. We’ll have to see how it plays out.
TAYLOR:
Thank you. Aurelien, you want to react?
PORTUESE:
Right. So before looking at whether or not this was the scope for gatekeepers… And of course, number of companies going to be included in the notion of gatekeepers without knowing, and I come to that point in a minute. But we can’t discuss all these concepts, as Dirk has just referred… We can’t discuss all these concepts as if we know what we talking about. We don’t know what we talking about, in a sense that new words, new concepts are being introduced with that regulation. And this is quite new. That’s quite original and unique for the European Commission to, with a regulation, introduce new concepts.
First of all, we’re talking about Digital Markets Act, but there’s no such a thing as a digital market. And of course, there’s no reference whatsoever, in the regulation to relevant markets, to market shares, to anything that makes a market. There’s no such a thing as a digital market. Why? Because there are digital distribution channels amongst all other channels, right? This is not me saying it. It’s, for example if you take the French Competition Authority decision of Fnac and Darty, where it says that there’s no such a thing as a online market. Online and offline are very well integrated altogether.
And so the relevant market is not only online market, is also offline market. I mean, there’s no such a thing as a digital market for groceries. Amazon doesn’t compete with other e-commerce. It competes with the next door shop. There’s no such a thing as a market for payment services. All the apps on payments compete with traditional banks which have their own apps, right? So we talk about digital market as if it was something completely separated from the offline world. I mean the law, the economics, has told us for decades now, that’s not the case. So we discuss the Digital Markets Act, whereas the notion of market itself is not defined in the regulation itself. That’s very problematic.
On the concept of gatekeepers… Of course you may think of these big tech companies being included in the definition, and that’s for sure. I mean the regulation is meant for that. So at least it achieves the fact that these big tech companies will be included. But do those small European, medium sized companies, will be included in the DMA? The short answer is yes. They will be included because foreseeable gatekeepers can be subject to a number of conditions. It’s article 15(4) that says that if you enjoy some power, unavoidable trade power, or let’s say an unassailable market position, that can be enjoyed in a foreseeable future, you may be subject to Article 5 obligations. This is article 15(4), that said it very clearly, “Foreseeable gatekeepers”. What does it mean? I don’t know, and no one knows.
So, let’s put ourself into a shoe of an app developer and the lack scalability in Europe. They want to do… I mean, they struggle to grow and they will struggle to expand. Fine. They either invest in a lot of assets, or they may merge with other apps in order to get this big size and this necessary scalability.
And well then, there’s a huge threat for them to suddenly fall within the ambit of the DMA. What I’m saying is that any app developers which is of medium sized considering of merging with another app developer that may reach this six billion a year turnover, which is not that big because we’re talking about turnover and of course not profits… Then they might fall within the scope of the DMA. So app developers throughout Europe will think twice, if not, will be fully deterred from growing, expanding and merging as a route for expansion. And so just to think that the DMA applies and is applicable to digital gatekeepers that we love to hate, the U.S. or Chinese tech companies, it’s just wrong. I mean we can have a Stanislas app on games. If he wants to expand, he might want to expand by merging with a German rival or different apps, right? Well he will think twice, because if he’s present in three member states, if he has a foreseeable role of having a position that is entrenched, then article 5 will apply to him. I mean this is a best deterrent we can give to scalability. Scalability is however, very core to growth.
TAYLOR:
Thank you, Aurelien. And I’m already sorry for Stanislas, giving such a moving perspective on the market. There’s been a lot of discussions in legislative process. But Alexandre, you wanted to react.
DE STREEL:
Yeah. I mean I don’t think that that is that gloomy. Because I mean to be an emerging gatekeeper you need to have, as you say, at least more than five billion Euro turnover, and to have more than 40 million user, and more than 10,000 business user. So I don’t think that is an SME anymore. And the question about emerging is that you have to have that… It is perspective that it will stay like that. But you have to have at least that to be an emerging. So I don’t think we can call it an SME, so I wouldn’t be too worried for the SME to be directly designate as a gatekeeper.
Where maybe we may have an issue however, is that by regulating the gatekeeper you have some effect on those business user of the gatekeeper. Some of you were mentioning that the fact that they may be regulating them differently mainly to differently results. So I think there, there is an issue and this is why I think it will be extremely important that small app developer or medium sized app developer are involved in the implementation of the rule. And there, I have a bit of a concern in the sense that…
So I don’t have the same concern as Aurelien, but I have another kind of concern which is to say that once the Commission will have, as an implementer, as an enforcer of the DMA… Will have to design to specify the measure which will be applicable to the big gatekeeper. It would be good that the voice of the SME and the small app developer, are heard. And the DMA don’t exclude that, but don’t provide explicitly for that. And this is what I call, we need to have a kind of an ecosystem of enforcement. We don’t need to have just a bilateral dialog between the Commission and the gatekeeper, but we need to involve much more actors, like you and like Stan and others if they have time, to help the Commission to design a remedy which is good for the small players. But really, I wouldn’t be worried at all, that are identify as such.
And the second point I wanted to say is that, Dirk were complaining that is it a new concept, we don’t know what it is and so on. But it’s true because it’s new problem. We couldn’t say, “We have a new economy and we adapt the old concept,” because otherwise people will complain that it’s old concept. So it’s obvious that we need new concept. But is it clear enough? There, I see your point. I think the economy criteria that are proposed in article 3.6, which are multi-homing, the barriers to entries and so on, are of the right one, but maybe indeed the Commission could come with guidelines to explain how they will apply that concept. But I think with a new problem it’s normal that you have new legal concept, and it will take time indeed for those concept to be clarified. But every time you have a new law it is like that. So I don’t think there is particularly new again, here.
TAYLOR:
And quickly before we move on to our last and final question, because I see we’re running out of time, Nicolas, you want to react.
PETIT:
Yes. So I want to say that I would not be too hard on the adoption of a new concept of gate-keeping, to the extent that we have to understand where it come from. We had this very unproductive discussion in Commission cases on market definition, which takes a lot of time and makes no one happy. There’s always endless discussions amongst experts, endless resources wasted on economic uncertainty services, lawyering and so on, about: What is the relevant market, is Google a competitor to Facebook, to Apple, and so on and so forth… And there is no clear answer.
So the point is that existing concepts have not brought us much clarity. And I think the Commission can be commended for trying to move the needle and give us more legal certainty. I think the idea is to go faster and understand that in some markets indeed, you have tipped the market positions. I think no one disagrees with the idea that some markets can tip. The question then is, if the gatekeeper concept introduced here does a good job at translating this concept of tipping into law that is practical. And one point of comparison is what has been done in the telecoms environment with the SMP designation process, in the credit rating services industry with the designation of credit rating agencies that have to obey to certain types of behavioral remedies.
But also in the DSA, where the Commission says that to designate very large platforms, it will adopt a designated act leading to a discussion with an ecosystem of players, as Alex was saying, about the right criteria to take account of to address the problem of tipping. And so this is where I’m less commending on the Commission, to the extent that I don’t think that the gatekeeper concept in current formulation really captures the essence of what is a tipped market and what is not a tipped market. And I think we could benefit from spending more time together trying to define a filter that would make everyone happy at the principled level. Not just trying to have a personalized law that targets the big, bad tech players.
TAYLOR:
Thank you very much. That would be a great idea. I’m going to my last question because I may ask you to be brief on this one so we can wrap up the debate. So all of this about gatekeepers and so on, this leads to the question of the obligations that are imposed on them. And so the text outlines a list of do’s and don’ts to those platforms that are considered as gatekeepers. Stan first, maybe concerning app developers, new obligations for example, include a ban on preferential treatment, to impose also a side-loading of app stores. What would be your take on this?
DEWAVRIN:
Well it totally depend on the type of apps we are talking about. But in the end Google is also producing apps, Apple is also producing apps. You are able to download them. And most of the times these app are competing with the world. And it’s very rare that this app gets any challenge, and are preferred by the public. If you take a very simple example, the Apple Map application, it was outperformed by Google, or even Waze. So in the end I think consumer are very quick to react and they will simply follow the best product.
In term of side-loadings app, on Google and on Android to put our game on more than one star. And most of the times not a lot of company actually do that, because in term from a business point of view, it create costs to simply be there. You have to develop to new specific scheme. And at the same times you are going to address very small size of player. So even if all this situation will have us by law trying to enforce lesser quality into the ecosystem. In the end, if consumer are not there, or app developer, they don’t see the value for them it’s going to be hard for people to simply accept this new stuff.
So for me I will say, the whole ecosystem is super dynamic. It’s not even mechanical, it’s really more electronical. It’s about electrons. Stuff that move very, very, very fast, and you cannot predict where it’s going to be. You close one doors it will move through the windows, and it’s super fast. We are in a good relationship with the consumer, we know a lot of things. And the way we see things is that people in every situation will always go for the better proposal. And the question for me is: Today, can a better proposal appear on the app stores and on all this stuff? And most of the time I will say yes. And it’s just a matter of time to see machinations. If you pay close attention to what is going on on the App Store, for example, you will see a lot of innovation going on. A lot of new stuff are coming, and the probabilities that disruption is going to happen is still very, very high.
TAYLOR:
Thank you, Stan. That’s an interesting perspective. So maybe I’ll turn to the rest of you. Dirk, what do you think about… So the goals of the litigation is to enhance contestability, fairness. What platforms consider as fair, and what considers fair can be different. So are these obligation reaching the goal and the objectives set?
AUER:
Yeah. So the fairness, in some universities in America, they call that the F-word, because what does fairness mean? And I think it seems like a silly anecdote but it’s important. And that’s why in competition law we often talk of as efficient competitors, because that seems to be more tractable. You can think: Maybe that firm is as efficient, and for some artificial reason it can’t access the market. So let’s imagine that when we speaking of fairness that’s the concept we had in mind. Maybe someone will differ afterwards. I still think that buy and large, these obligations, I don’t think they will make a huge difference.
So the first thing you can think about is: Will it enable European champions to emerge? Well if that was the case, if these behaviors that we think are the GAFA are implementing, and we think that they prevent European firms from emerging, the question we should ask is: Why is it always American and Chinese firms implementing these practices? Why is it that the incumbents are American and Chinese? That could be some random act of god. But maybe it’s not the practices themselves that prevent the emergence of European firms, maybe there’s something else.
So I’m very skeptical about just taking away those practices will generate European giants. Then at a more granular level, I think the question we need to ask is: Have we seen these theories of harm and the remedies that ensue, have we already seen them play out? And the answer, I think, is yes. We’ve seen very similar remedies and prohibitions in both the Microsoft and the Google Search… Google, Android cases. And every time you arrive at the same place, which is, competition authorities don’t really like the outcomes that’s happened after those remedies, because the result never lives up to their expectations.
Competition authorities think that by removing those prohibition all of a sudden the rivals are going to prosper and are going to become the dominant platforms or become equivalent platforms, and that just hasn’t been the case, like if you look back at the most recent one, the Google-Android-Search question, and lo and behold… You could have said are DuckDuckGo, Ecosia, are they excluded because it’s artificial or are they excluded because they’re less efficient? Well then, Google implements an auction and lo and behold, they don’t win that auction. And you can say maybe the auction is badly structured, as some have said, but I think you also have to contemplate the other alternative, which is just that these firms are not efficient enough. They don’t make enough money per user to be able to profitably place their product, and no amount of regulation will change that for them, unfortunately.
TAYLOR:
Thank you. I think somebody else wants to react. Aurelien?
PORTUESE:
Yes, I can react on the obligations. I mean those obligations are very numerous. You look at article 5, article 6, there are many obligations. And of course, you can try to map out which obligations apply to which company. And this is quite clear from the obligations. But I mean, we started the discussion by talking about the digital single market. Big, huge market, big objectives. Big and ambitious objective. And we end up talking in the DMA, to very trivial things, such as signing in.
If you look at the obligations of the gatekeepers there are a lot of obligations that relate to signing in for business users, and the ability for consumers to be able to sign in with different options. Just to take this example of signing in, does it make the digital single market more like a reality? Well, I’m not sure. Do the consumers gain by the fact that these big gatekeepers won’t be able, tomorrow to provide some automatic sign in to the app developers? I’m not sure neither.
So what we talking about is trying to say that we’re going to instill increased contestability in some markets without guarantee that this will increase really the contestability, but at the end of the day we are sure that it will increase consumer cost for searching, for signing in, and for also accessing those apps. So I’m not sure the digital ecosystems that we have and also the apps that are benefiting from these gatekeepers, would benefit from these increased obligations.
And I think we need to be very careful about these obligations that we imposed without consent for competition innovation. Just take an example on this signing in aspect, we have been considering that this is a lock-in effect. That’s what the DMA says. But for example, Apple has introduced a signing in last year… Two years ago, in 2019. This can be seen as a lock-in effect, but in fact it was a competition against the signing in of Facebook and Google. So it’s in all the cases that we have, in all the gatekeepers obligations that we have, we can see the issues on the two sides of the coin. We can either see that this is an increased vertical integration, this increased the control of the gatekeepers over the app ecosystem, or we can see that this is an increased competition out of innovation. There’s always two ways of looking at the things. And fortunately, the DMA looks at the services and also the potential innovation that these big platforms offer only as a way to locking to reduce the contestability. Whereas Nicolas has written in his book, it’s also a way for these big companies to compete against one another. And the DMA completely overlooks this side of the competition. The competition between platforms. And of course competition between platforms can also involve greater vertical integration. But it doesn’t mean that competition is reduced, and unfortunately the DMA does not represent this full view.
TAYLOR:
One final word, Alexandre or Nicolas?
PETIT:
Yeah, I’m happy to say something.
TAYLOR:
Nicolas.
PETIT:
Yeah. So I’ve been thinking a lot about a question you asked us when we discussed the panel, which was about trying to understand if this is going to harm small firms. So I’ve been thinking a lot about that. And I think one way to think about this is to try to understand what could be the mechanics by which small firms could be harmed. So a lot of people like to recall the example of GDPR, which imposed a lot of compliance costs on small businesses. I don’t think we are talking about that problem here. This a law of bigness. It’s mostly a problem of compliance for big firms. And so I don’t think that’s the mechanics of harm to small firms might be compliance related.
By contrast, I think there is one risk, and it’s a long term and abstract one, but it’s an important one to keep in mind. Here’s the issue. When a platform invests in value creation by helping and selecting and coordinating small firms in its ecosystem, by sharing know-how or by providing capital or managerial supervision, it does so with the anticipation that one day it will recoup its investment. This is something that’s called value capture. So you invest in value creation in the anticipation of value capture. And the article five and six obligations, which creates soft line business restrictions, limits the overall ability to profit from innovation by sharing and licensing widely, and so on and so forth, and thus reduce the opportunities for value capture in the long term.
And so you have a risk here, which is that the platforms will no longer be very incentivized… The danger would be that they would not be incentivized to invest in value creation, because the value capture opportunities are curtailed by article five and article six. And understand that this plays also in the other sense because… If you think of a firm like BMW or a game developer, that makes what we call asset specific investment, to actually have its product for work very well with one platform.
Why would they do that in the anticipation that further in the future, the specific investment that they’ve made, the know-how generated, will be shared with all other application developers and ecosystem partners in the future? Why would you do that? Why would you design your products to fit well with Google, if in the future your competitor, your BMW, Mercedes, can actually go there and take everything? So this logic is not well thought out. And the problem is not that the DMA has not thought about that, the problem is that the DMA has not explicitly taken a position on these very important issues, that most economists agree are important.
TAYLOR:
Thank you, Nicolas. Alexandre, you’ll have the last word.
DE STREEL:
Yeah. I wanted to agree with Nicolas, and to go further. I think if indeed there is a trade-off in incentive, an innovation incentive, between a big platform and a smaller player, the DMA implicitly, but certainly to some extent, would favor the incentive of the smaller player against the bigger… If there is a trade-off. So I agree with you that we need to discuss more, and that’s at the core of the DMA, is the incentive trade-off between the big and the small one. But my understanding, my reading of the DMA is that it is favoring the incentive of the small one again, if there is a trade-off, against the big one. But I agree that this needs to be discussed much more and made much more explicit, because some of those provision are not… I mean, would go to court to be interpret, and if the court doesn’t have a clear view of what is at stake here, I’m not sure what they would do.
TAYLOR:
Thank you very much, Alexandre. I think we’ll have to end our session here. I had many other questions to ask, and it was a very interesting debate. One thing for sure is that we are at the start of the legislative process. Policy makers will want to start now to discuss this in the parliament and also in the different member states, and there will be many hard questions to be answered. So panel, you did a terrific job in addressing these challenges. There’ll be many more panels over the weeks to come. So to wrap things up, I hope you can all join us also for our next session next week, which will focus more on the U.S. side of things, and the changes in the new administration. So thank you again, and have a great day/afternoon. Bye.
PORTUESE: Thank you.
