Strategic Reactions to the DMA: will prices rise?

With the entry into force of the Digital Markets Act (DMA), regulation comes to big tech. The DMA introduces obligations for gatekeepers to regulate digital industries and tackle potential market failure. If the DMA is successful, it will have a significant impact on the business models of such gatekeepers; it will limit their capabilities to leverage their market power and data advantages to gain foothold in adjacent markets. We expect that gatekeepers will react strategically to these limitations, and will likely use their advantages in a more direct way as a result; on their core platform itself.

The DMA does not impose any restrictions on prices charged by gatekeepers for their main service on core platforms. Therefore, gatekeepers are free to set any price within the boundaries of Article 102 TFEU. We see this lack of price regulation as a potential weakness in the DMA. Time will tell if in its current form, the DMA is effective in establishing properly functioning digital markets.

Regulation traditionally rests on three main pillars; (non-discriminatory) access, transparency of conditions and prices, and price regulation.

• Non-discriminatory access is necessary to enable business users to effectively compete with products offered by the owner of the core platform (“gatekeeper”) on its core platform. This is also covered by the DMA. For example, to comply with the DMA, gatekeepers need to apply fair and non-discriminatory general conditions of access for business users to its software application store.[1]

• Transparency is required in some digital markets in which prices are currently not transparent, such as the intermediary markets that connect advertisers with publishers. The DMA covers this by introducing the obligation on gatekeepers to provide information about the prices paid by the advertisers and publishers, to the advertisers and publishers to which it supplies advertising services.[2]

• Intuitively, regulation of prices would also be necessary to prevent gatekeepers from squeezing the margins of its business users that compete directly with the gatekeeper and avoid exploitation of these business users. Although the DMA does include certain obligations for gatekeepers to provide certain services free of charge, it does not pose any restrictions on the pricing of the main services on the core platform.

Additionally, the DMA includes restrictions on the use of data, and aims to prevent gatekeepers from leveraging their market power in one market to other markets.

For example, the DMA restricts the use of data generated through the activity of business users through the core platform in competition with business users. [3] These restrictions are based on the current business model of most big tech firms, which is mainly focused on growing their business by vertical integration and/or diversification of their product portfolio. For example, Google once started as a search engine, but currently also exploits a mobile operating system, holds a position in each link of the value chain for the distribution of ads to websites and develops (mobile) apps. Amazon started as a webstore, but is now also a book publisher, a movie producer, a streaming service and much more. It also integrated vertically by manufacturing its own consumer product lines and setting up its own distribution network.

Big tech firms have been able to successfully implement these strategies by using their data advantage and leveraging the market power of their core platform(s). Google , after acquiring DoubleClick for Publishers (“DFP”), a platform that publishers use for the display of ads, tied DFP to AdX, Google’s platform to run auctions for ads to be displayed on the website of publishers, by introducing features on DFP that were only available in combination with AdX.[4]

Amazon offers a variety of consumer products that it sells on its own platform, for which it can use sales data generated by their competitors on their platform to their benefit.[5]

The Commission notes that core platforms “feature an ability to connect many business users with many end users through their services which, in turn, allows them to leverage their advantages, such as their access to large amounts of data, from one area of their activity to new ones”. The combination of lack of contestability of core platforms and their ability to leverage their (data) advantages increases the likelihood that underlying markets do not function well or will soon fail to do so, resulting in higher prices, lower quality and/or less choice and innovation. [6]