The Origins and Flaws of the Digital Markets Act
The Digital Markets Act (DMA) was initially designed as a tool for promoting competition. However, its development has become more complex over time. Despite this evolution, the DMA is built on shaky conceptual foundations that continue to pose challenges.
A few years ago, Margrethe Vestager, then the Competition Commissioner, warned about the potential risks posed by emerging technologies such as the metaverse and OpenAI. She emphasized the need for proactive measures, stating:
“We have certainly not been too quick to act – and this can be an important lesson for us in the future,” she said.
“We need to anticipate and plan for change, given the obvious fact that our enforcement and legislative process will always be slower than the markets themselves. For example, it is already time for us to start asking what healthy competition should look like in the Metaverse, or how something like ChatGPT may change the equation,” she added.
Around five to seven years ago, European regulators began shifting their approach. They started trying to prevent harmful technologies from gaining traction before they became widespread. While the goal is commendable, the execution has had negative consequences for both European businesses and consumers.
One clear example is Meta’s decision to shut down Horizon Worlds in June, although this was later reversed. This incident highlights the difficulty regulators face in predicting market outcomes accurately.
Regulatory Challenges and Misjudgments
Numerous examples illustrate the challenges of regulating rapidly evolving technologies. The EU AI Act, for instance, contained inconsistencies and assumptions that were already outdated when it came into effect. These issues underscore the difficulties of keeping regulations up-to-date with technological advancements.
At a recent event marking the 35th Anniversary of the Hungarian Competition Authority, US Federal Trade Commission Chair Andrew N. Ferguson provided a critical assessment of Europe’s regulatory situation.
“Over-regulation and over-vigorous competition enforcement has diminished Europe’s ability to compete […] It is no coincidence that nearly every firm declared a ‘gatekeeper’ by the European Commission under the Digital Markets Act is an American firm,” he said.
In Europe, big tech companies may appear large, but size does not necessarily equate to dominance. For example, Microsoft, one of the most strategically positioned companies in the sector, has struggled to make significant inroads in social media, consumer search, or the LLM market.
The Dangers of Premature Regulation
Premature regulation is not the only issue with the current regulatory approach. Thierry Breton, the architect of the Digital Services Act (DSA), sent a letter to X (formerly Twitter) warning that streaming an interview with a US presidential candidate could violate the DSA. This presumption of guilt reflects a broader trend in regulatory thinking.
Lazar Radic recently highlighted what many have long suspected: the DMA and its enforcers treat “Amazon.com like a 19th-century railroad.” Similar misconceptions are evident in how other American tech giants are viewed. This mindset puts European companies and consumers at a disadvantage.
Lessons from the Telecommunications Industry
The parallels with telecommunications industry regulations are instructive. When telecoms were regulated, European countries owned the underlying infrastructure, allowing local companies to compete on it. In the 21st century, however, Europe has effectively handed over the digital infrastructure layer to US firms.
Regulators have responded by applying the same logic used for telecoms decades ago: regulate access and enforce non-discrimination. However, this approach has a fatal flaw. It forces European companies that want to challenge US incumbents to compete on the platform rather than for the market. This is a battle that cannot be won.
A Call for Bold Reform
To truly own the market, European companies must be viable and efficient across all layers of the digital ecosystem. This requires a bold approach that goes beyond simply abolishing the DMA. Large-scale deregulation and a serious acceleration of internal market rule enforcement are needed.
The European Union needs an approach so bold that even figures like Javier Milei would admire its speed and conviction. However, such change appears structurally impossible given the EU’s institutional architecture.
The Inevitability of Market Forces
A reminder from Central and Eastern European countries highlights the dangers of relative success within a failing system. Even relative success within the Soviet Union amounted to failure when compared to the outside world. This pattern is repeated in the current regulatory environment.
Every politician, legislator, and regulator should remember that the law of supply and demand cannot be defied. It can only be suppressed at increasing cost to citizens and local businesses.
In conclusion, the DMA is not regulating competition; it is regulating failure. The path forward requires fundamental changes that go beyond the scope of the DMA itself.
