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Economic analysis of Digital Markets Act

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The European Commission has presented a proposal for The Digital Markets Act (DMA). Its goal is to create fair and competitive digital markets in the EU. It aims to achieve this by introducing new ex-ante regulations that will automatically apply to so-called "gatekeepers". The gatekeepers are to be large internet platforms that meet selected size criteria, writes Robert Chovanculiak, PhD.

In a new joint publication entitled Economic Analysis of Digital Markets Act, prepared by four think tanks: INESS (Slovakia), CETA (Czech Republic), IME (Bulgaria), and LFMI (Lithuania), we point out the shortcomings of the DMA and highlight the possible unintended consequences of this regulation. In addition, we also suggest a way to modify the proposed procedure for regulating internet companies.

Among the main shortcomings is the very definition of 'gatekeepers'. They do not really occupy a dominant position within the economy as a whole. Even within digital services, there is intense competition between platforms against each other, while at the same time their position in the market is constantly being challenged by new innovators.

The only space where gatekeepers have the ability to influence the rules of the game is on their own platform. However, even though they have full control over setting the terms and conditions for users, they have no incentive to set them unfavourably. This is best seen when it comes to various practices that the DMA proposal restricts or outright prohibits.

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In the study, we show that these business practices are time-tested and are legitimately used by many companies in the offline world. Moreover, there are a number of economic explanations in the literature as to why these business practices are not a manifestation of anti-competitive behaviour, but instead provide increased welfare for both the end and business users of the platform.

We therefore recommend that the DMA rethinks the centralization and automation of the entire process of identifying "gatekeepers" and individual prohibited business practices. From the perspective of the CEE region, it is important to maintain the dynamic element of competition. This can be achieved by replacing the static and ex ante approach in the DMA with a polycentric approach where national capacities are involved in decision making while maintaining an open regulatory dialogue in which internet companies themselves have the opportunity to participate.

Robert Chovanculiak, PhD is an analyst at INESS and lead author of the Economic Analysis of Digital Markets Act.

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First calls for proposals under the Digital Europe Programme are launched in digital tech and European Digital Innovation Hubs

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The Commission has announced the first set of calls for proposals under the Digital Europe Programme. This follows the adoption of the work programmes allocating nearly €2 billion for investments aimed to advance on the digital transition. The calls are open to businesses, organizations, and public administrations from the EU member states, as well as entities from other countries associated to the Digital Europe Programme.

These grants will be targeted towards an investment of over €415 million in cloud to edge infrastructure, data spaces, artificial intelligence (AI), quantum communication infrastructure, in advancing people's digital skills, and projects that promote a safer internet, fight child sexual abuse, and disinformation, until the end of 2022. The first call for proposals is also opening for the set-up and deployment of the European Digital Innovation Hub (EDIH) network. These hubs will support private companies, including SMEs and start-ups, and the public sector in their digital transformation.  More information as regards applying for grants under this set of calls for proposals is available online. Further calls will be published in early 2022.

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Digital Economy and Society Index 2021: Overall progress in digital transition but need for new EU-wide efforts

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The Commission has published the results of the 2021 Digital Economy and Society Index (DESI), which tracks the progress made in EU member states in digital competitiveness in the areas of human capital, broadband connectivity, the integration of digital technologies by businesses and digital public services. The DESI 2021 reports present data from the first or second quarter of 2020 for the most part, providing some insight into key developments in the digital economy and society during the first year of the COVID-19 pandemic. However, the effect of COVID-19 on the use and supply of digital services and the results of policies implemented since then are not captured in the data, and will be more visible in the 2022 edition.

A Europe Fit for the Digital Age Executive Vice President Margrethe Vestager said: “The message of this year's Index is positive, all EU countries made some progress in getting more digital and more competitive, but more can be done. So we are working with member states to ensure that key investments are made via the Recovery and Resilience Facility to bring the best of digital opportunities to all citizens and businesses.”

Internal Market Commissioner Thierry Breton added: “Setting ourselves 2030 targets was an important step, but now we need to deliver. Today's DESI shows progress, but also where we need to get better collectively to ensure that European citizens and businesses, in particular SMEs, can access and use cutting-edge technologies that will make their lives better, safer and greener.”

All EU member states have made progress in the area of digitalization, but the overall picture across member states is mixed, and despite some convergence, the gap between the EU's frontrunners and those with the lowest DESI scores remains large. Despite these improvements, all member states will need to make concerted efforts to meet the 2030 targets as set out in Europe's Digital Decade. You will find more information in a dedicated press release and Q&A.

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Facebook whistleblower outlines three areas where MEPs should shape the Digital Services Act

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MEPs met with whistleblower and former Facebook employee Frances Haugen (8 November). The hearing came at an important time as the revelations will have an impact on the Digital Services Act, which will soon be adopted by the parliament. 

Haugen was excoriating on what she described as “Toxic Facebook” which put its own profits ahead of safety and amplified division. She welcomed the EU’s proposed Digital Services Act, but called for caution.

On transparency she said: “Almost no one outside of Facebook knows what happens inside of Facebook. The company's leadership keeps vital information from the public, the US government, its shareholders and governments around the world. The documents I have provided prove that Facebook has repeatedly misled us about what its own research reveals about the safety of children. Its role in spreading hateful and polarizing messages, and so much more.” Haugen called for full access to data for research and more experts to study the data. She said that there should not be a broad exemption for trade secrets, otherwise Facebook will classify everything as a trade secret. 

Secondly, Haugen described engagement based ranking systems as dangerous. She quotes Marc Zuckerberg in 2018 saying that it was dangerous because people are more drawn to extreme content than more mainline content, therefore giving a larger fraction of the public platform to the most extreme. 

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Thirdly, Haugen warned of the dangers of loopholes and exemptions. In particular, she warned against exemptions for news media content, saying that ‘neutral’ rules means that nothing is singled out and nothing is exempted: “Let me be very clear. Every modern disinformation campaign will exploit news media channels on digital platforms by gaming the system. If the DSA makes it illegal for platforms to address these issues, we risk undermining the effectiveness of the law.” 

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