CLIP of the month: Oxera study warns against heavy-handed regulation of digital platforms


At a time when legislators and competition authorities around the world are looking for ways to ‘tackle’ the impact of big tech, this month’s CLIP is an Oxera study that makes the case for digital platforms.  Commissioned by the Computer and Communication Industry Association – which counts Google, Apple, Facebook and Amazon among its members – the study explains how some of the practices that will be restricted by the EU’s Digital Markets Act (DMA) can create value for their users.  It concludes by proposing a more flexible and tailored framework for the regulation of digital platforms – one which is more aligned with the principles of competition law.

At a basic level, platforms act as intermediaries by connecting different types of users and are often characterised by positive direct and/or indirect network effects. However, the study explains that most modern-day platforms also generate significant value through:

  • aggregation: helping to unlock scale economies for other businesses, while reducing transaction costs and increasing quality and trust for consumers;
  • innovation: achieving economies of scope by adding new features and services, thereby fostering innovation and dynamic competition both within and between ecosystems.

The study examines the economic principles underlying three practices within the scope of the DMA: bundling and tying; self-preferencing; and leveraging.  Drawing on examples from the offline world, the study emphasises that these practices are neither new nor unique to the digital economy.  Equally importantly, the study shows that these practices are not inherently problematic: while some of them may pose risks to competition in certain circumstances, they can also deliver substantial benefits to consumers and businesses.

Against that background, the study argues that the DMA risks over-enforcement by restricting a series of common business practices, found offline as well as online, that can have net positive effects for society.  A “key concern” identified by the authors is that the DMA’s “excessive focus on short-run efficiency (favouring the protection of contestability and fairness) may come at the expense of value creation for consumers in the long term through innovation and dynamic competition, both on and between platforms”.  The study goes on to recommend that the EU should abandon its proposed ‘catch-all’ and ‘per se’ obligations approach, and instead introduce a more flexible framework which provides more scope for effects-based assessment of the conduct in question.  In doing so, the study suggests, the EU could draw inspiration from the European telecoms regulatory framework and the Digital Markets Taskforce’s proposals in the UK.

On 24 March, it was announced that EU legislators had signed off on a political agreement on the DMA.  After the negotiations, the rapporteur from the European Parliament’s Internal Market and Consumer Protection Committee, Andreas Schwab, said:

The agreement ushers in a new era of tech regulation worldwide. The Digital Markets Act puts an end to the ever-increasing dominance of Big Tech companies. From now on, they must show that they also allow for fair competition on the internet. The new rules will help enforce that basic principle. Europe is thus ensuring more competition, more innovation and more choice for users.”

The text of the revised DMA is not yet officially available. However, a leaked text that has been circulating does not appear to significantly shift the position under the original draft.  If that is indeed the case, only time will tell whether the DMA in fact has a chilling effect on innovation by existing platforms, and whether the hoped-for increase in competition from smaller businesses will materialise.