As more and more consumers around the world reap the benefits of curated online marketplaces (COMs) based in the United States, foreign competitors are asking their governments to act against COMs’ core business conduct. The European Union’s (EU’s) Digital Markets Act (DMA) is the first major step in this direction, imposing ex ante-style regulation to comprehensively restrain or eliminate COMs’ management functions. In doing so, the EU produced a meaningful barrier to digital trade aimed primarily at American companies. DMA targets six major tech companies (Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft), five of which are headquartered in the United States, designating some of their offerings as “gatekeepers.”
Even as DMA undermines the export of American ingenuity, the EU has made significant strides toward exporting versions of DMA to governments on other continents, including, ironically, the United States. Two DMA-style manifestations appeared last Congress: The American Innovation and Choice Online Act (AICOA) and the Open Apps Market Act (OAMA). Although Congress ultimately rejected these proposals, they gained notable bipartisan backing. Having bled away cosponsors and momentum since then, the bills nonetheless remain a feature of debates around digital markets.
Our panel on July 26th, “Will Europe Eat the World?”, featured three experts in platform competition, digital privacy, and security to discuss the effects of DMA and its global ripple effects. Given Congress’ continued appetite for “reining in” COMs, our discussion illuminated domestic proposals through the lens of the DMA’s experiences. With many countries contemplating similar regulations, the question arises: What are the EU’s true intentions, and how will these new regulations affect small business innovators?
Jessica Melugin, antitrust and competition fellow at the Innovators Network Foundation (INF), opened the discussion by referencing recent remarks from Margrethe Vestager, European Commissioner for Competition. Vestager’s comments to Politico about Apple’s decision to delay AI tool deployment in the EU prompted Vestager to express relief at not receiving an AI-updated service on her iPhone, stating, “It would be a ‘thank you but no thank you’ for me.” Jessica critiqued the EU’s stringent regulatory stance, which she believes stifles growth among EU developers, contrasting it with the U.S.’s understanding of the roles “gatekeepers” play in the digital ecosystem. Jessica recalled a past panel with an EU regulator, highlighting a fundamental disconnect in perspectives on regulatory success. She says this:
“[Vestager’s quote] reminded me of being on a panel years ago with an EU regulator wherein I tried to point out the folly of their regulatory approach, citing the fact that the EU could not claim one of the top ten global tech companies as their own. She viewed that same fact as proof of their success. So we are, in some sense, continentally talking past each other. I would argue that America understands the role that these ‘gatekeepers’ play in the larger tech ecosystem, benefiting consumers with innovations and smaller players with scope and exit strategies. The EU seems to disagree.”
Platforms, developers, and regulators form a complex, interdependent relationship crucial for a thriving digital ecosystem. Small and mid-sized businesses (SMBs) leverage existing COMs to reach their global markets and drive competition and innovation in doing so. However, the DMA’s stringent rules, aimed at curbing large companies’ influence, threaten to stifle EU small to mid-sized developers’ ability to innovate. By adopting an ex-ante regulatory framework, the DMA seeks to reshape digital platform operations, with significant implications for consumers worldwide. Aurelien Portuese, founder of the George Washington Competition and Innovation Lab, highlighted how the DMA’s restrictions narrowly focus on competition within COMs, completely missing the fact that there is competition between COM business models:
“The DMA’s provisions deny end-users the ability to express preferences… these preferences in what consumers want are essential to competition. The competition is between business models.”
The resulting regulatory structure limits consumer choices between COM business models, supplanting consumers as the arbiters of winning COM approaches with regulator preferences. Aurelien further encouraged the audience to recognize the costs of eliminating this axis of competition and redirecting it to a system that protects competitors rather than consumers, which he argued could inadvertently create more barriers for EU developers, contrary to its goals.
“The fundamental problem with the DMA is that by ignoring consumer preferences, we shift away from the consumer welfare standard towards a business-user or competitor standard. The DMA is not focused on increasing competition for consumer choice but rather on increasing the ways business users operate on platforms. This results in selective competition. We need choices between business models, products, and services. Unfortunately, the DMA overlooks the importance of inter-platform competition, instead focusing on supporting larger incumbent platforms like Epic Games and Spotify.”
Shane Tews, a nonresident senior fellow at the American Enterprise Institute, warned that dismantling integrated services like Google Maps could fragment user experiences and introduce new security risks. Shane stressed the need for policies that balance innovation with safeguards, cautioning against the DMA’s subversion of consumer expectations in the digital economy.
“Consumer expectations have developed over decades around these services. I use and love Google Maps on my Apple device because I have the choice. However, many of these functions won’t work if the EU starts dismantling them. For example, Google disabling integration across its services will fragment the user experience, creating vulnerabilities and challenges in maintaining both customer service and security. By dismantling these collaborative environments, consumers may face new security risks they never had to worry about before.”
Shane highlighted the critical need to continue to allow COMs to prioritize user safety, privacy, security, and data protection, alongside ensuring device functionality. Policy objectives should strike a balance between fostering innovation and incorporating necessary safeguards. Such a balance is unlikely to prevent the enactment of overly restrictive legislation, such as the DMA, from hindering progress. The DMA’s current approach overlooks the importance of having integrated services in the digital economy, which often enhances privacy and security for consumers and provides better, more accessible input options at lower costs for developers.
In understanding the critical relationship between developers, consumers, and COMs, the panelists then drew on real-world examples to illustrate the frustrations DMA introduces. Jane Bambauer, antitrust and competition fellow at INF, delved into the DMA’s potential pitfalls concerning data privacy and security. Drawing parallels to familiar scandals, she noted the irony that DMA’s mandates require platforms to roll out the red carpet for a future Cambridge Analytica. Jane emphasized the tension between GDPR and DMA compliance, suggesting that platforms might face substantial fines regardless of their actions.
“Well, that is more or less what the DMA is requiring. When I’ve spoken to EU regulators, they say ‘well, you also have to comply with GDPR,’ but the tension between GDPR and the DMA is far from clear. It seems likely that platforms will face huge fines regardless of what they decide to do. Beyond privacy concerns, there are so many bad apps. Google and Apple have built strong reputations for their app stores because they filter out apps that pose data security risks or are simply inefficient, battery-draining, or outright scams. A law like the DMA puts pressure on companies to treat all apps equally, potentially leading to worse outcomes than the pro-competition intentions of the law.”
Shane further explained that dismantling the plug-and-play model of COMs on mobile devices would only complicate the user experience. COMs play a crucial role in the relationship between business users and consumers, operating in a two-sided market that serves both consumer and developer needs. Disrupting this model would force SMBs to navigate a sea of compliance and delivery challenges rather than focusing on developing and innovating their core services and products. Shane explained:
“Breaking that plug-and-play element and forcing consumers to make all these choices, rather than having them made for them, is like turning the mobile system into a piece of Ikea furniture. Nothing is more frustrating than purchasing a new set and missing that one piece needed to assemble it correctly. Why would we want to replicate that experience for consumers in the digital medium? We want things to be user-friendly. The idea that breaking down components will make consumers smarter doesn’t seem like a good approach to improving the user experience, which the EU claims to be aiming for.”
As the webinar concluded, the panelists considered the DMA’s global implications, particularly for the U.S. market. With antitrust bills like AICOA and OAMA circulating in Congress, Aurelien cautioned against adopting DMA-style regulations, citing potential security and user experience problems.
“The provisions in OAMA allow any app developer, regardless of their merits or intentions, to be entitled to a spot on app stores. This is highly problematic, as it would prevent app stores from de-platforming services that pose risks. The presumption of illegality in platform management, as imposed by these antitrust bills, is very concerning. Why would we want to copy something in the U.S. that is already failing in Europe under the DMA?”
The Innovators Network Foundation (INF) acknowledges the EU’s efforts to enhance the digital economy. However, the DMA’s ambitious goals to regulate digital platforms may inadvertently hinder SMB innovation. A balanced approach that recognizes the value small businesses derive from integrated COMs is essential to fostering a truly equitable and innovative digital ecosystem. To learn more and to check out our competition fellows’ work, follow the link here. To watch the full webinar on our YouTube channel click hereor see the embedded video below! Don’t forget to follow us on X as well for the most recent news and written pieces on tech issues!
