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Market Regulation: Europe is Losing and Only a Few Recognize It Why—Part I.

Enrico Letta just published a report on the Single Market on the 17th of April. Almost at the same time, Mario Draghi delivered a speech about reforming certain aspects of the single market. While these reports were asking for more competitive European champions, Margarethe Vestager a day later at a conference on the 10th anniversary of the Merger Regulation directly contradicted these calls. Recent regulatory interventions and calls for a certain type of industrial policy, with a very strong lead by Thierry Breton, are in direct contradiction with the competition policy.

Since the European Commission has many faces (aka DGs), the European Commission is also the champion of modern regulation on big tech companies, especially on most of the Magnificent Seven. There are hundreds of articles and posts on the dangers and possible consequences of the DMA (Digital Markets Act) and the DSA (Digital Services Act). And most of these calls seem to become reality it seems. E.g., one of the main propositions of Apple was that opening up the Apple ecosystem would lead to less security and data protection. On the 17th of April, the first alternative AppStore was published (AltStore). Only two persons are the developers, their privacy page was not working, and they basically have no prior proven revenue stream or history which would make this a good or even a reasonably bad alternative. Was this in the mind of the regulators?

There are European values and public interests which need to be protected. Protecting children against dark patterns and harmful content is of utmost importance. The protection of sensitive data is at the top of the priority list. One can list plenty of particularly important values and policy considerations here. There is however recently a trend on the European Union level to adopt overly extensive and generalized regulations and expand unnecessary red tape, many times disguised as necessary regulation of markets. Some of the recent examples include the DSA and DMA.

On the other side of the fictional scale are those who are true believers in market forces, open markets, and the power of innovation. One of the very fundamental books everyone should read is the book by Clayton M. Christensen: The Innovator’s Dilemma. The book shows very well how companies that were thought to be dominant or market leaders and unsurmountable lose their edge in almost no time. And it is difficult not to see similar developments recently. Many major players shown as examples in the book were just making incremental innovations which made it possible to leapfrog them. We see this trend happening also today. Just to refer to the absurdity of the current situation: while we in Europe are discussing how to strengthen certain old industries and cement regulations on digital markets and big tech companies, AI development is at full throttle and will not slow down for Europe. Some might have the feeling that we will be “riding horses” when others will be already driving Teslas.

Anyone—even if she has a distaste for the ideas there—shall listen to Javier Milei’s speech in Davos and read the Techno-Optimist Manifesto. Every regulator who thinks they can outsmart the markets will just harm the citizens. What we generally need is laser focused regulations of markets with a clear theory of harm and workable remedies. Many times, regulators just seem to lack a vision for workable remedies, so even if the goal might be something to be promoted, the remedies are not thought out well. This can be seen very clearly with DMA and DSA enforcement. One has the feeling that VP Vestager was not joking when she said that the competitors of gatekeepers will decide upon the remedies proposed by the gatekeepers.

The main problems with the current regulations in the EU are several, in this short article we just highlight some of these and will elaborate on two specific ones in Part 2 and 3.

Market power. Reading many articles, posts, and speeches favoring more intervention it seems market power is often misunderstood. Antitrust law had extraordinarily long time to distill the notion. Over 130 years of litigation, research, experiments, etc. and this is proven both in economics and law. Without market power, it is not possible to substantially harm consumers or competitors. One of the main new “enemies” seems to be Apple both in the EU and for US federal agencies. However, Apple is losing market share (Samsung overtook Apple), and even without losing market shares iOS is just the second most favored mobile operating system, far behind Android. Without applying the principles known in collective dominance cases, it shall not be supposed that a market player who is a distant second is dominant. We have a law (antitrust law) tested and tried that has experience with companies like these and we know that such a player is not able to substantially harm consumers or competitors (only in a very limited number of cases might that be the case). So what do you (I mean the regulators in the EU) do? They adopt thresholds, call them gatekeepers, and create a legal presumption basically that they nevertheless can do that (harm consumers and competitors) to the extent that warrants ex ante regulation. And who are the main beneficiaries of these legislations? Not the consumers, but the competitors of these companies. Anyone who understands to a reasonable level how markets work knows that more competition does not mean that there needs to be more competitors or that we need to protect inefficient competitors. What other values are protected if Spotify (the market-leading music streaming platform) is better off by restricting the behavior of Apple? Should not it be self-evident that competition is working fine if even after a decade neither Google nor Apple could dethrone Spotify as the market leader, even though they tried hard?

Or let us look at browser choice. It seems that forced browser choice never actually worked. The remedy imposed by the European Commission on Microsoft with IE has not worked. A choice screen by Google has not worked. Many attribute that to the default effect. However, that does not work either for products where the default is worse. Just look at the company that really is dominant: Microsoft. Even though Edge is the default browser and Bing was the default search engine on every single Windows computer, Microsoft could not achieve a breakthrough. Basically, anyone on Earth buying a Windows computer had Edge and Bing. And yet they changed. Despite being the default. Of course, time will tell, but we suppose that the solutions in recent regulation on EU level will not have their intended and lasting effect. (There is some evidence of large increases in downloads of certain browsers. But growing from a low objective number of downloads is easy, the main question is whether consumers will stick or not and how large their relative shares will be.)

There are new phenomena too. Labor market harm is one example. (See a good blog post on the recent Albertson/Kroger controversy). This is and shall be absolutely no concern to a competition authority. They are neither suited to deal with it nor shall they deal with social issues. Basically, if one can lower costs upstream, that is in most cases good for the society at large. If we want redistribution from the citizens to the workers, that shall be the task for social and tax policy. The reason is quite simple. Workers raising the cost of a company is no less harmful than a cartel in the upstream chain. Both harm everyone except those few who enjoy the benefits.

We must keep in mind: there are only very few lasting monopolies and most of those are not from the tech industry. You just have to look around. Even Intel (who was close to being the absolute monopolist if it would have succeeded with the exclusion of AMD) is now losing lots of relevance and there is the new kid on the block, NVIDIA. Intel is not even part of the Magnificent Seven, even though not so long ago it was part of the MAFIAA (Microsoft, Apple, Alphabet, Facebook, Intel, Amazon).

What about the pay-or-okay model? Recently the European Court of Justice accepted that companies must be able to charge a fee for their services. Competition law knows the complexity and difficulties of this. What price is not exploitative? (Let us just forget that most probably under traditional antitrust analysis Meta’s Facebook would never be a dominant undertaking, especially in 2024.) The recent opinion of the European Data Protection Board is forgetting about the fact that the GDPR is an overarching general regulation that tries to create a requirement only for large online platforms. There are no different rules for businesses under the GDPR. Also, there is no requirement to take economic power into account when data protection rules are applied. The EDPB seems to overstep the boundaries of its powers with such a reinterpretation of the rules and with creating a dual (or even more) layered data protection system. (See also: The EDPB invalidates Meta’s use of Pay or Okay. What next? | Mobile Dev Memo by Eric Seufert)

Let us look also at dark patterns. As a very recent hot topic, every new legal instrument on digital platforms seems to include rules on dark patterns. (For a regular overview see: Dark patterns, neuromarketing | Szilágyi Pál | Substack) However, there is—let’s say—only minimal consistency between the rules and one can’t really define the norm. Is malicious intent necessary? Or is intent necessary? Or is there an objective liability? If so, which actual sales practices are prohibited, since almost all of them have an effect on our subconscious? Why is there a need to mention dark patterns everywhere if the main substantial provision prohibiting dark patterns (of the unfair commercial practices directive) has worked very well and can be easily applied to this new phenomenon as shown by recent studies commissioned by the European Commission?

There are obvious signs that many of the recent rules adopted by the EU institutions are designed with an end goal in mind, but they lack a vision of the foundation or a workable remedy. Many of the new regulations have very valuable parts. But those are not the ones that are disguised as rules regulating the markets, but those that protect some—not clearly defined—values we prefer in the European Union. The state, or in some instances the European Union, shall clearly take over decision-making based on certain values (for example by adopting an EU-wide prohibition on pot, smoking, or abuse of children, etc.), but we all would be better off if regulators would only adopt laser focused interventions, mainly ex post, when regulating market behavior in general. It is no wonder that the US is well ahead of Europe in competitiveness and the gap is just widening. In the next part, we will elaborate on some specific rules in more detail.

Dr. Pál Szilágyi is the director of the Competition Law Research Center and Associate Professor of Law and Political Science at Pázmány Péter Catholic University, where he teaches competition law & policy and European Union law. He obtained his law degree at PPKE JÁK, then obtained postgraduate diploma in European law at the University of Cambridge, competition law at King’s College London, and an LL.M. in Competition Law degree at the latter institution. Pál is the program director of the LL.M. course in competition law at his home university, the author of numerous domestic and foreign publications, and the developer of the successful Competition Law Online platform. He is the author of several blogs, like Antitrust and the Bounds of Power or Dark Patterns, neuromarketing.

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