EU Starts Thresholds Checks for Gatekeepers

In July 2023 the European Commission starts the process of designating gatekeepers on digital markets. Large digital companies deemed to have a large user base and a strong economic and intermediation position on the internal market will have to comply with certain “do’s” and “don’ts” in their daily operations. The new rules imposed by the Digital Markets Act are expected to bring unintended consequences for users and curb technology innovation and start-ups with rapid growth potential.

“By pre-defining obligations and bans for tech companies, the Digital Markets Act marks a turning point in competition policy,” Martynas Gruodis of the Lithuanian Free Market Institute said. “From now on the digital markets for platform users, business clients and technology start-ups will increasingly be shaped by the regulatory interventions rather than consumer preferences and market processes.”

For example, digital companies classified as gatekeepers may no longer treat their own services or products in their core platform service more favourably than similar services or products offered by third parties on the gatekeeper’s platform. Also, big techs may not prevent their users from un-installing any pre-installed software or application if they wish so.

“In other words, the online retail giant Amazon will not be able to differentiate its products from others and display them higher in ranking, while Apple will have to allow other app stores and products from other developers into its devices, which previously were predominantly made by Apple or its trusted partners. Google will be banned from self-preferencing its own Google Maps on the Google search engine. Apps pre-installed on some smartphone models will now be easily replaced by others. This means that the functionality of many devices will get standardised and exclusive brands will lose their uniqueness over time,” Martynas Gruodis said. This could lead to more market concentration, thereby undercutting the core issue the Digital Markets Act is crafted to solve.

The Digital Markets Act stipulates that non-compliance with the new do‘s and don‘ts may result in fines of up to 10% of of the company’s total global annual turnover.

According to Mr. Gruodis, compliance with the new rules means that online platforms will have to make a number of legal and technological changes and alter their algorithms as well as the functionality of their devices or services. Mitigating compliance costs might also absorb what was previously spent on investments in innovation and skills development, slowing down technological innovation and the growth of start-ups. Importantly, all this may translate into higher prices for end users and business clients or lower quality and supply of digital products and services.

Read more The EU Activates Digital Markets Act. What business users, customers and innovators need to know.