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Gating the Gatekeepers (2): Competition 2.0?

Posted on    by Magali Eben

Gating the Gatekeepers (2): Competition 2.0?

By 23 March 2021December 1st, 2023No Comments
Photo by Masaaki Komori on Unsplash

The European Commission presented its Proposal for a Digital Markets Act with much aplomb in December. If adopted, the DMA would usher in a new era of market regulation for the ‘digital sector’, fundamentally changing the conduct and potentially the business models of so-called ‘gatekeepers’. 

Let’s take a whistle-stop tour through the scope of the DMA, before raising some reflections on the place of the DMA within the wider framework of competition policy. 

Gatekeepers providing core platform services 

Only a small number of companies should start preparing to abide by the obligations in the DMA. The DMA’s intended addressees are ‘gatekeepers’ providing ‘core platform services’ to users in the European Union (Article 1 of the Proposed DMA).  

There are 8 such core platform services: online intermediation services, online search engines, operating systems, online social networking, video sharing platform services, number-independent interpersonal communication services, cloud computing services and online advertising services.  

This may seem like a varied list, but not every company offering a core platform service is caught. Only those who provide a core platform service and are gatekeepers have to abide by the provisions.  

Gatekeepers connect end users and business users, intermediating between them. Because of their position as go-between and the several advantages they enjoy (such as scale economies, network effects, lock-in, and more), the gatekeepers are often the main route through which businesses access consumers. The provisions of the Regulation are inspired by the concern about the economic power a gatekeeper has to dictate onerous terms for access, use its position in a way which harms its users or closes off access to (other) markets. Thus, the obligations in the DMA only apply once a company has been designated as a gatekeeper by the European Commission. 

Designating a gatekeeper: 

The European Commission will designate an undertaking (an entity engaged in an economic activity) as a gatekeeper where it 

  • has a significant impact on the internal market and is active in multiple EU countries 
  • serves as an important gateway for business users to reach end users (i.e. a strong intermediation position), and 
  • enjoys (or will soon enjoy) an entrenched and durable position in the market. 

Despite what appears to be 3 qualitative criteria, the designation happens primarily through a quantitative assessment.  The DMA creates a rebuttable presumption that these 3 criteria are satisfied where these thresholds are met: 

  • Significant impact on internal market: a turnover equal or above €6.5bn or market capitalization of at least €65bn; as well as operations of the core platform service in at least 3 Member States. 
  • Important gateway: more than 45mn monthly active end users in the EU and more than 10,000 yearly active business users. 
  • Entrenched and durable position: over 3 consecutive years. 

These quantitative thresholds do not entirely rule out a qualitative assessment, but a designation based on qualitative analysis alone would require an extra process through the DMA’s ‘market investigation’ tool  (Article 3, §4).  

Obligations and prohibitions in the DMA 

Once an undertaking has been designated as a gatekeeper, it will have to comply with the obligations and prohibitions in Articles 5 and 6 of the DMA. Article 5 includes several prohibitions: gatekeepers are not allowed to combine personal data across services unless there has been consent in accordance with the GDPR; they cannot force business users to use their identification service or another of their services as a condition for the use of the core platform service the users actually want (so-called ‘tying’); they cannot prohibit business users from contacting customers or offering better conditions outside of the platform. It also includes some obligations, such as on the transparency of advertising prices. Article 6 includes prohibitions on the use by gatekeepers of non-public data about business users to compete with them; and types of ‘self-preferencing’. It includes obligations on access and interoperability, data sharing, and data portability.   

At first glance, the proposed DMA appears a different beast than the proposals in the UK on firm-specific ‘Codes of Conduct’ for companies with ‘Strategic Market Status’. Whereas the codes of conduct in the UK would be developed in cooperation with the firm during the designation process, the obligations under the DMA would apply automatically once an undertaking has been designated a gatekeeper. Yet despite this apparent difference, there is a peculiarity in the proposed DMA which may go some way to bridging the gap in approaches. 

The proposed Regulation makes a distinction between Article 5, which is self-executing, and Article 6 obligations, which are ‘susceptible of being further specified’. The preamble to the proposal gives us a glimpse into the European Commission’s mind: it recognises that, while Article 5 obligations are sufficiently clear to apply automatically, Article 6 provisions may need further clarification by the Commission ‘following a dialogue with the gatekeeper concerned’ (Recital 58). The possibility to ‘further specify’ the obligations of Article 6 of the DMA in discussion with the gatekeepers may reduce the divergence in practice, particularly as the UK codes of conduct will be based on overarching principles which could be the same across all firms. 

Gatekeepers have little hope to get out of their obligations under the current DMA. The proposed regulation provides for derogations in only a very limited set of circumstances. A gatekeeper may request for a suspension of a specific obligation where, because of exceptional circumstances beyond its control, the specific obligation endangers the economic viability of its operations (Article 8). The preamble to the DMA refers, for example, to ‘an unforeseen external shock that has temporarily eliminated a significant part of end user demand for the relevant core platform service’ (Recital 59). It seems the European Commission was anticipating the effects of another economic or industry crisis when it wrote Article 8. It seems unlikely that this circumstance will arise very often (or so we would hope).  

In traditional EU fashion, the regulation also foresees for exemptions for overriding reasons of public interest, limited to reasons of public morality, public health, and public security (Article 9). If previous practice is anything to go by, this is unlikely to provide much wiggle room for the undertakings who are subject to the regulation.   

The DMA is (not) competition law 

The DMA is a regulation ‘on contestable and fair markets in the digital sector’, designed to address a wide range of concerns related to the unfair conduct of gatekeepers and the lack of openness and contestability of markets. The concern is not merely that gatekeepers may reduce access by other businesses to the gatekeepers’ own markets, but that they may impede access to other (existing or future) markets. The clue is in the name: a gatekeeper’s platform (service) is the entry point into a variety of other industries, and its conduct is holding the door closed to new businesses. 

There has always been a bit of a tension in competition law between practices which hurt competing businesses in their individual interests, and practices which hurt competition in itself as a common good. Some people may argue that the DMA falls within a broader understanding of competition policy, which seeks to protect the individual interests of competitors as well as competition as an institution. The debate about the objectives of competition law has raged for years – and the DMA has added fuel to that fire.  

Yet even this debate overstates the DMA’s similarity with modern competition law.  

The DMA’s obligations apply ex ante: this means not only that they apply generally rather than on a case-by-case basis, but also – and crucially – that they apply even where there is no evidence of harm to competition (or competitors). Whereas competition law enforcement requires (more or less) that the authority or complainant provide evidence of harm, the DMA does not.  

This makes it possible, theoretically, for the DMA to pursue a myriad of objectives and protect multiple interest groups.  

Harm to specific groups or society may be the rationale for the regulation, but it is rather meaningless in practice. There is no need for the European Commission to question whether individual interests of business users may conflict with the interests of end users, or to weigh them against each other where harm to one group may be to the benefit of another. Nor does it have to consider whether protecting individual businesses is to the good of society as a whole. The obligations and prohibitions in the DMA apply regardless. The lack of room for gatekeepers to defend their practices plays into this narrative. Even where business practices may be efficient and/or lead to more benefits than harm, a gatekeeper will not be able to diverge from the obligations under the DMA. 

Although the DMA is, therefore, not competition law in a strict sense, it will be likely to have a significant impact on competition policy throughout the European Union. The myriad of objectives pursued by the DMA may influence the enforcement of competition rules as we know them, opening the door to broader concepts of market power and harm to competition.  

The DMA is also likely to have repercussions on the practice in different Member States. The DMA is meant to nip divergent national approaches in the bud, to avoid a fragmentation of the internal market. Although the DMA recognises that there is still scope for EU and national competition law (since, after all, the DMA is not competition law), the current text of the DMA raises questions about how far national competition law can still go where gatekeepers are concerned. Article 1 (6) allows national competition rules only ‘insofar as they are applied to undertakings other than gatekeepers or amount to imposing additional obligations on gatekeepers’. As Member States adopt competition provisions specifically to gatekeepers (or ‘undertakings of paramount significance for competition across markets’ in Germany), the debate on the scope of competition law seems far from over.  

Expect much lobbying in the months ahead… from both Big Tech and Member States.