American policymakers have stalled their efforts to break up Big Tech–for now. With debt ceiling negotiations front and center and the House of Representatives busy with oversight hearings on everything from the southern border to the fallout from labor unions keeping schools closed during the pandemic, Congress is busy.
Across the pond, Europe has shifted gears as a controversial bill to curb Big Tech market power. The Digital Markets Act (DMA) is a worrisome competition bill that straddles Big Tech companies such as Apple, Meta, Amazon, Microsoft, and Google with many new limits on their ability to execute core functions.
As tech outlet Tech Crunch reports, the DMA which went into force in November technically applies as of last week. It won’t be for several more months that covered companies–so-called “gatekeepers”–-are named by European regulators.
By targeting U.S. companies, new foreign regulations have implications for domestic markets. Those impacts may work against your wallet and your business.
Background
The DMA is a European Union law that allows the European Commission to categorize large online platforms as “gatekeepers” if they meet certain quantitative thresholds such as user size, and then subjects these platforms to obligations and prescribes practices they can or cannot engage in.
The platforms covered by the DMA include search engines, social media networks, video-sharing platforms, operating systems, online marketplaces and app stores, online advertising networks, cloud services, and more.
Gatekeepers must comply with a host of rules such as prohibiting self-preferencing of their goods, ranking results, and even self-advertising across platforms; enabling the download of third-party apps; allowing users to determine the default apps for their phones; granting interoperability–or data sharing–for users and other businesses; requiring that applications allow app developers to access data and functionality; and much more.
Some of the rules seem reasonable on first reading such as requiring a platform to allow users to access services by subscribing. However, such restrictions strike at the heart of the business models for these companies by forcing them to expose proprietary information and unfairly prohibiting activities that other businesses–both online and brick-and-mortar as well as large and small–practice. They also create new data security and privacy issues for users.
As CEI scholar Henrique Schneider, the deputy CEO of the Swiss Federation of Small and Medium Enterprises, explained in a policy brief:
The practices the DMA seeks to regulate are not specific to the online realm, and are often deployed by both offline businesses models and firms using multiple marketing channels. Furthermore, businesses of all types are employing more digital tools to extract value from data, using digital outlets to branch out into new markets and update their marketing strategies. All these businesses, including their online activities, are already regulated by EU antitrust and other statutes.
The price that the DMA will place on technological growth and innovation, market competition, and consumer wallets has yet to be calculated, but it is likely to be steep. As Schneider added:
The DMA could hinder the widespread adoption of digital technologies across several industries. It would impose additional regulatory costs on companies that have already established an online presence, which could undermine those companies’ competitiveness. Akin to the GDPR’s effect of protecting big tech companies from new competition by startups by raising the costs of complying with the regulation and thereby creating a barrier to market entry by new competitors, the DMA imposes new regulatory costs that both raise existing barriers to entry and create new ones, which could slow down digital innovation.
…
It also does not yield clear benefits regarding consumer welfare and innovation, especially if the newly dominant firms’ services correspond less to consumer preferences.
If these critiques of the DMA sound vaguely familiar, it’s because American lawmakers have borrowed some of the ideas and copied them into proposed antitrust legislation.
What this means
Underpinning much of the motivation to use antitrust policy to break up Big Tech is the false philosophy that “big is bad.” There is a misguided assumption that to gain market leadership, companies must be engaged in anticompetitive, harmful actions. Even worse, there’s a willful bias against tech firms while lawmakers and regulators turn a blind eye toward offline companies that arguably use many of the same practices such as self-preferencing in retail.
Tech companies are not harmless. Censorship of conservative and opposing views spawned by viewpoint intolerance infects many tech companies. Yet, that is not a justification to punish them for innovation and growth.
Tech firms will likely alter their operations to ensure compliance with the new rules in their foreign operations. They may also exercise the option to pick up roots and leave those nations. In that case, foreign consumers may lose preferred options for goods and services, perhaps leaving a vacuum that ready Chinese Communist Party-owned competitors would be all too willing to fill.
U.S. business owners who find willing customers overseas and depend on platforms to drive marketing and sales could also be negatively impacted. As Carl Szabo, Vice President and General Counsel of NetChoice explained:
These proposed acts disincentive platforms from allowing small businesses to advertise their products and services to the European market.
With these new rules, the European Union is turning away from free expression and sliding dangerously towards a government-controlled internet. The Digital Services Act and the Digital Markets Act will arm bureaucrats with more power to control what Europeans see and read online,
If eager lawmakers are looking for an excuse to implement new antitrust rules in the U.S. model policies after the DMA, they should consider the price that will be paid.