Geopolitics in turmoil: How to manage the impact on your workforce
Geopolitical disruption requires a systems thinking approach from CHROs, argue IMD’s Katharina Lange and Simon Evenett....
Geopolitics
Europe’s Digital Markets Act: Bold reform or stifling regulation?
As the EU enforces the Digital Markets Act, tech giants face strict new rules aimed at curbing their dominance – but critics warn the move could stifle innovation and limit consumer choice.
In March, the EU began enforcing its Digital Markets Act (DMA), a key regulation designed to curb the power of major tech companies, open digital markets, and ensure fair competition. As part of the EU’s plan to make Europe “fit for the digital age”, the DMA sets strict rules for “gatekeepers” like search engines, app stores, and other platforms. And, unlike existing competition laws, the DMA is centrally enforced to prevent delays and fragmentation.
Currently, the DMA has formally designated six gatekeepers – non-EU tech giants Alphabet, Apple, Amazon, ByteDance, Facebook parent company Meta, and Microsoft. Apple and Meta have already been charged with non-compliance.
Some experts see the DMA as a bold move, setting a global standard for regulating the digital economy. Others, however, argue it distracts global market leaders and infringes on property rights to shield less competitive European firms.
Critics further claim the DMA overrides consumer preferences, blocks efficiency defenses for business practices, and imposes overly strict rules that are based on vague ideas of fairness and argue it centralizes regulatory power and weakens member states’ ability to enforce their own laws. I believe the situation may be even more troubling than that.
The stage was set long ago. A 2018 article in The Economist titled How to tame the tech titans predicted today’s regulatory challenge: how do you rein in powerful tech giants without hurting consumers or stifling innovation? The debate centers on whether utility-style regulation or tougher competition rules are the solution. But while our understanding of digital platforms has evolved, consensus on how to regulate them remains elusive.
This is largely because they bring big benefits. Platforms like search engines, social media, and marketplaces lower transaction costs, increase price transparency, and offer vast opportunities for consumers and businesses at minimal cost.
They provide these user benefits through economies of scale and scope. Yet their ability to aggregate data makes them appear as powerful gatekeepers, potentially stifling competition. This dynamic raises the risk of market dominance, where a single winner could take all. But is this really the case?
Is it user preference for better platforms or practices that block competition? When does making a platform more attractive limit market entry? Should data and algorithms be public resources? Are companies obligated to help competitors? How do we distinguish between competitive advantage and abuse of dominance? And is regulation protecting competition or competitors?
There is some precedent. About 25 years ago, the EU Commission tackled similar regulatory issues by reforming competition policy. It set limits on market share and published a list of banned contract clauses between firms and their suppliers or buyers. Companies exceeding the limit had to justify any exceptions, while third parties were encouraged to monitor behavior, with penalties raised for violations.
For instance, digital advertisers still compete with print media, and niche dating apps like Grindr and J-Date still challenge larger platforms.
Back then, the EU had recognized that the complexities of contracts required regulation to be decentralized, relying on those closest to each case. However, the new DMA reverts to broad, top-down rules – a method the Commission appeared to abandon a quarter of a century ago. So why change tact?
One reason is that digital platforms connect various user groups, offer services, and monetize user data and these strong network effects and economies of scale can tilt competition in favor of a dominant platform. However, this “tipping” risk is reduced by users engaging with multiple platforms (called multi-homing) and market segmentation.
For instance, digital advertisers still compete with print media, and niche dating apps like Grindr and J-Date still challenge larger platforms. While network effects and proprietary data can disadvantage such smaller competitors, dominance and abuse must be clearly defined, and markets properly assessed before making any assumptions.
America offers a case in point. US antitrust guidelines clarify that having market power, even a monopoly, from a superior product or business acumen doesn’t violate the law. Refusing to share assets is seen as exclusionary, but legitimate. In contrast, the EU with its DMA now considers refusal to share as potentially raising antitrust issues.
Indeed, the EU’s old “as efficient competitor” test asked if a dominant firm could survive its own exclusionary practices. Now, with the DMA, this test extends to “not yet efficient competitors”, undermining first-mover advantages and redefining competition as cooperation to help weaker rivals.
Nearly 25 years ago, the Commission restructured EU competition policy around three key pillars: clear legal standards, stronger ex-post control, and corporate self-assessment. The DMA lacks all three and should, in my view, be revised.
The DMA in short
Article 3 of the DMA defines gatekeepers as online platforms with a stable position, connecting large user bases and businesses across the EU for at least three years, with a review every three years (Article 4).
These gatekeepers must meet obligations to ensure interoperability with third parties, such as providing access to key data, allowing external transactions, ensuring non-discrimination, and permitting users to remove pre-installed apps (Article 5).
There is no efficiency defense allowed, as economic benefits cannot justify unfair practices (Articles 9 and 10). Noncompliance may lead to fines, up to 20% of global turnover for repeat offenses, with the possibility of breaking up parts of the business for repeated violations. The EU Commission can update obligations and investigate new services for further regulation (Articles 12 and 19).
Many analysts have weighed in on the DMA, but what’s often missed in the debate is that the new rules signal a broader shift in the Commission’s enforcement priorities. This shift, which the EU itself describes as a “dynamic and workable, effects-based approach”, is based on a 2023 review of court decisions.
In practice, the DMA lowers the standards for proof, considering actions harmful if they seem likely to cause harm, rather than requiring clear evidence. It also extends competition concerns from “as efficient” competitors to “not yet as efficient” ones. By sidestepping detailed economic assessments, the Commission gains more power but sacrifices regulatory clarity. And that potential hurts digital platforms – and the advantages they offer through their networks.
Authors
Related
Tariff wars: how business leaders can survive
US President Donald Trump's brazen assault on the global trade order will disrupt international capital flows, affecting everything from supply chains to labor mobility. Here's a checklist for reconsidering corporate strategy....
America’s tariff shock: Why trade deficits now mean penalties, not ‘unfair policies’
The United States has finally abandoned traditional trade diplomacy in favor of a formula-based tariff regime that penalizes bilateral trade surpluses. For firms with cross-border supply chains, the implications extend far beyond...
3D chess: adapting to a new geopolitical game
It may feel like Donald Trump is capsizing the geopolitical boat, but could he just be accelerating a longer-term trend in the balance of global power? Geopolitics have long been heading for...
Audio available
Learn Brain Circuits
Join us for daily exercises focusing on issues from team building to developing an actionable sustainability plan to personal development. Go on - they only take five minutes.
Explore Leadership
What makes a great leader? Do you need charisma? How do you inspire your team? Our experts offer actionable insights through first-person narratives, behind-the-scenes interviews and The Help Desk.
Join Membership
Log in here to join in the conversation with the I by IMD community. Your subscription grants you access to the quarterly magazine plus daily articles, videos, podcasts and learning exercises.