Spotlight

The Federal Trade Commission’s (FTC) antitrust suit against Amazon, originally filed in October 2023, is scheduled for trial in October 2026. In the meantime, the U.S. District Court for the Western District of Washington has scheduled a March 7 “economics day” hearing to focus on fundamental economic concepts that will shape the case—including the crucial question of market definition.

Market definition serves as the starting point for antitrust analysis. Before a court can determine whether a company has monopoly power or has engaged in anticompetitive conduct, it must first identify the relevant market in which the firm operates. This seemingly technical exercise serves to determine the lens through which the entire case will be viewed.

Read the full piece here.

I. Introduction

We appreciate the opportunity to comment on the Australian Government’s (“Government”) consultation on the implementation of a new digital competition regime.[1]

As we outline in our comments, the Government’s proposal rests on the assumption that there exists a broad global consensus on the need for ex-ante rules for digital platforms. This purported consensus is, however, largely overstated. Australia should not feel pressured to “catch up” with a trend that does not exist. Second, the Government promotes ex-ante digital competition rules as “complementary” to an expanding web of regulatory interventions. In practice, however, each new regulation compounds a broader regulatory overload that threatens to result in net social losses. Third, ex-ante digital competition rules may reflect the European Union’s (“EU”) distinct industrial policies that are not necessarily suited to Australia. The EU may also be willing, for political reasons, to accept tradeoffs that Australians are not. Fourth, the Government’s focus on ad tech is misplaced. Ad tech is not the hub of anticompetitive behaviour that the Government suggests it is. Fifth, the Government should take lessons from the international experience, particularly that of the EU. As we show, the Digital Markets Act (“DMA”) has led to unintended consequences for businesses and consumers alike—reducing functionalities and limiting visibility for smaller players, such as hotels. Finally, and relatedly, the rules and conduct requirements the Government envisions mirror the DMA’s flawed and are therefore likely to produce similar adverse outcomes.

II. No Global Consensus About the Need for Ex-ante Digital Competition Regulation

The Government and the Australian Competition and Consumers Commission (“ACCC”) both suggest that they do not want to be left behind by regulatory trends already adopted in other jurisdictions.[2] As a preliminary point, we contend that no such consensus exists.

To date, only a handful of countries have passed ex-ante competition rules for digital platforms.[3] In addition to the EU itself, Germany, Japan, and the United Kingdom have adopted regulatory regimes for digital markets that bear some resemblance to the DMA. Granted, other countries have contemplated adoption of such rules (most notably, Brazil, Turkey, South Korea, South Africa, and India), but whether these will ultimately become law remains anyone’s guess.

In short: the number of countries that have adopted ex-ante rules pales in comparison to those that have not. The United States, most notably, has rejected the path set out by the EU, as is evident from the slow death of the congressional antitrust legislative package in 2023.[4] Moreover, as Hong Dae-Sik and Daniel Sokol have pointed out:

The United States rejected such a legislative effort and its proponents have come under significant attack by academics and Congress. Likewise, most American courts have rejected this novel approach, and antitrust authorities that have brought lawsuits under such non-traditional legal theories have lost virtually every case, especially when seeking to block corporate mergers.[5]

Other countries’ commitments to follow this purported “global regulatory trend” are also teetering.[6] For example, it was recently reported that India could scrap proposed legislation to regulate digital platforms, amid fierce backlash from lawyers.[7] The South Korean government earlier backtracked on its plans to pass the Platform Competition Promotion Act (“PCPA”), which was likewise inspired by the DMA[8] The South Korean government is instead contemplating a more modest—albeit still questionable—reform of its Fair Trade Act.[9] The Philippines competition authority also recently ruled out a DMA-style bill.[10] With the United States increasingly signalling that it will not tolerate excessive foreign regulation of American technology companies, it is possible that more countries will back away from EU-style regulation on this front.[11]

Even in those jurisdictions that have taken steps to adopt “sector specific” competition rules for digital markets, there is no consensus about how such rules should be structured. To be sure, there are important thematic commonalities across so-called digital competition regulations.^[12] But on a legal and formal level, these approaches are vastly heterogeneous.

Digital competition rules exist in a “difficult epistemological situation”,^[13] caught between competition law, sector-specific regulation (despite digital markets lacking the homogeneity of a true “sector”),^[14] or something else entirely. Some have called them the “lost child of competition law”,^[15]  reflecting deeper uncertainty about their ultimate purpose—whether it should be fairness, consumer welfare, or equality. These goals are not always compatible and can, at times, be in direct conflict.[16]

For example, some digital competition rules are structured as an extension of the competition-law framework and are sometimes even formally embedded into existing competition law. In principle, where this is the case, it means that the standard goals and rationales of competition law still apply. Germany, for instance, has amended its Competition Act to enable early intervention against threats to competition by large digital firms.^[17] The new rules prohibit certain categories of conduct and impose remedies based on structural inquiries, regardless of abuse. Unlike the DMA, the Competition Act’s Article 19a permits targeted companies to justify their conduct, but shifts the burden of proof to the defendant, diverging from competition-law norms.

With its draft amendments to Law 4054 (Turkey’s Competition Act),^[18] Turkey has followed a similar path to Germany, although some of the new provisions go significantly further than even the DMA, partly due to their open-ended nature. For instance, the Turkish draft amendment would appear to prohibit all forms of tying and bundling, as well as potentially all exclusivity agreements. It also remains unclear whether the prohibitions would apply to all conduct by the designated digital platforms, or only to the “core platform services”.^[19]

As noted above, South Korea recently scrapped plans for the PCPA.^[20] The Korea Fair Trade Commission and the government of recently impeached and indicted President Yoon Suk Yeol[21] instead announced support for amendments to the existing Fair Trade Act.^[22] Under the new rules, in cases where designated digital platforms are accused of self-preferencing, tying, or imposing most-favored nation (“MFN”) clauses or restrictions on multi-homing, the amendments would raise fines, reverse the burden of proof, and allow interim orders, including cease and desists, to be issued immediately. It also appears—although it is not certain—that the new rules would give targeted companies some leeway to mount a defense, such as by showing procompetitive efficiencies.

There are other proposed and enacted digital competition rules that are at least nominally competition-based, although their approaches differ. The United Kingdom’s Digital Competition and Consumers Bill (“DMCC”) allows the Competition and Markets Authority’s (“CMA”) newly created Digital Markets Unit (“DMU”) to impose “bespoke” conduct requirements on companies with “strategic market status”. This approach contrasts with the DMA, which contains (allegedly) self-executing blanket prohibitions by which all gatekeepers must abide.^[23] By contrast, under the DMCC, the DMU determines how each designated firm must conduct itself in order to achieve the law’s stated objectives of “fair dealing”, “open choices”, and “trust and transparency”. These conduct requirements must be chosen from a list of “permitted types” (e.g., prohibiting self-preferencing, or requiring choice screens).

S. 29 of the DMCC provides for a “countervailing benefits exception” to conduct requirements. But apart from the fact that the exemption sets a high bar to clear (the behaviour must be “indispensable”), it also only applies once an investigation into breach of a conduct requirement is underway. It is questionable how useful this defense will prove to be in practice.^[24]

India is taking a middle path between the DMCC and the DMA, wherein certain firms would be designated as “systemically significant enterprises” and subject to six obligations and prohibitions, albeit with more space for customization by the enforcer. The Indian Draft Digital Competition Bill^[25] (“DDCB”) supplements the Indian Competition Act (“ICA”) but pursues different goals. The ICA’s stated goals are the protection of the interests of consumers and free trade, while the DDCB (like the DMA) pursues fairness and contestability.^[26]

Meanwhile, in the United States, several bills have been put forward in recent years that are formally separate from existing antitrust law, but cover some of the same conduct as would typically be addressed under U.S. antitrust law—albeit with seemingly different goals and standards.^[27] While the U.S. tech bills largely fail to describe their underlying goals, the bills’ titles, as well as statements made by their sponsors, suggest a set of overlapping concerns. These include preventing “material harm to competition” (which superficially sounds like an antitrust objective, but as the American Bar Association’s Antitrust Section has pointed out, isn’t);^[28] reducing “gatekeeper power in the app economy”; and “increasing choice, improving quality, and reducing costs for consumers”.^[29] But the measures also pursue other goals that are less obviously connected to competition, such as creating opportunities for small businesses and entrepreneurs, achieving a level playing field, and ensuring “fair” prices.

Brazil’s PL 2768,^[30] which has some of the lowest quantitative thresholds for a company to be considered a “gatekeeper” (roughly AU$19.21 million), pursues an expansive grab bag of social and economic goals, including freedom of initiative; free competition; consumer protection; reduced regional and social inequality; combating the abuse of economic power; widening social participation in matters of public interest; access to information, knowledge, and culture; and fostering innovation and mass access to new technologies and access models. Like the DMCC, the obligations would be tailored to each company. The provisions are broadly phrased, however, and some appear open to expansive interpretations. For example, Art.10(IV) prohibits gatekeepers from refusing access to business users—seemingly tout court (although Art.11 then requires enforcers to act with proportionality when establishing obligations).

Japan, whose Smartphone Act is part of an overarching policy shift “towards a new form of capitalism”,^[31] covers only four core platform services. By comparison, other digital competition rules typically cover around 10, replicating the DMA’s scope. Further, the Smartphone Act’s dos and don’ts would only apply when consumers access products or services on their phones (e.g., Google is only prohibited from engaging in self-preferencing on smartphones,^[32] but not on laptops or PCs). The Smartphone Act also allows greater scope for privacy and security exemptions. Whereas the DMA only allows for such exemptions in the case of interoperability and sideloading (the Smartphone Act does not mandate sideloading), it appears that privacy, safety, and user protection constitute valid justifications for most types of conduct covered by the Smartphone Act.^[33]

The South Africa Competition Commission (“SACC”) has called for remedial actions against popular intermediation platforms.^[34] These are largely the usual “GAMMA” suspects (Google, Apple, Meta, Microsoft, and Amazon); it explicitly would include Amazon, despite the company’s absence in South Africa at the time. Presumably, the SACC would impose these remedies within the framework of the South African Competition Act. Uniquely, the SACC explicitly admits that its proposed remedies aim to redistribute wealth from the targeted digital companies to South African companies, historically disadvantaged peoples (“HDPs”), and small and medium-sized enterprises (“SMEs”).[35] The SACC recommends requiring Google to add identifiers and filters to help consumers identify and support local platforms and to directly pay competing SMEs and black-owned firms ZAR150 million (roughly AU$12.84 million) to offset Google’s competitive advantage.[36]

This has at least two implications for Australia. First, the “consensus” the Government aims to replicate domestically is vastly overstated. Second, Australia’s proposal is unlikely to be “complementary and cohesive with international practices”, because those practices themselves lack cohesion. Instead, it would introduce yet another layer of regulatory complexity, further disrupting digital platforms, their users, and the businesses that rely on them.[37]

III. Ex-Ante Digital Competition Regulation Adds Fuel to Australia’s Bonfire of Overregulation

The Government’s Proposal Paper claims that ex-ante digital competition rules would “complement” existing and forthcoming regulations, including the proposed Scams Prevention Framework, the government’s response to the Privacy Act Review, Digital ID laws, the News Media and Digital Platforms Mandatory Bargaining Code, and ongoing initiatives related to artificial intelligence (“AI”). [38]

Rather than serving as complements, however, these rules are just as likely to deepen Australia’s growing problem of overregulation, thereby further hindering digital platforms’ ability to deliver value to users and businesses. In a sea of regulations, one more regulatory overreach might seem insignificant, or it could be the final straw that breaks the camel’s back.

Studies in regulatory theory often suggest that, when multiple regulatory frameworks are implemented simultaneously, their combined effect can lead to “regulatory overload”. This can cause inefficiencies and unintended consequences that are not easily anticipated by looking at each rule in isolation. In other words, regulatory overload has synergistic effects.

In this vein, researchers have shown how multiple overlapping regulations can obscure policy objectives and hinder the development of effective and clear regulation;[39] that the total regulatory burden from multiple regulations often exceeds what might be expected by merely adding individual regulatory impacts together, causing “convex deadweight costs”;[40] and how the accumulation of regulations can lead to increased costs and inefficiencies.[41] For example, one study showed that between 1949 and 2005, the accumulation of federal regulations slowed U.S. economic growth by an average of 2% annually.[42] If regulation had stayed at its 1949 level, the 2011 U.S. GDP would have been approximately $39 trillion—3.5 times higher—resulting in a loss of around $129,300 per person in the United States. Another study mentioned earlier showed that:

By distorting the investment choices that lead to innovation, regulation has created a considerable drag on the economy, amounting to an average reduction of 0.8 percent in the annual growth rate of the US GDP. This seemingly small annual reduction has large implications. The slower economic growth associated with regulatory accumulation resulted in an economy that was $4 trillion smaller in 2012 than it could have been without such regulatory accumulation.[43]

This flips the Government’s argument about “complementarity” on its head, suggesting that the cumulative impact of regulations is likely to be greater than the sum of their individual effects, potentially doing more harm to the Australian digital sector than each regulation would on its own.

Consider the News Media Bargaining Code. These regulations have already imposed significant costs and caused unintended consequences, which could easily be exacerbated by parallel ex-ante digital rules targeting the same companies. In response to the proposed code, Meta banned the sharing and viewing of news content on Facebook in Australia. This led to a significant reduction in news consumption on the platform. One study found that, while some users sought alternative news sources, others experienced a decline in news consumption, potentially increasing their exposure to misinformation.^[44] The Independent Media Alliance opined that the ban would be “terrible for not only the industry, but for Australian democracy”.^[45] While Meta eventually reversed the ban and reached a deal that allowed news sharing to resume, the situation had significant ramifications. Larger publishers negotiated deals for compensation from Meta, but smaller news outlets faced sunk revenue losses.

While Google, in comparison, has been more willing to negotiate, there is a caveat. In Australia, Google agreed to pay news companies only after intense negotiations. In the end, Google secured terms more favourable to its business model, opting for case-by-case payments rather than a fixed, uniform payment model. While large companies like Australia’s own News Corp can absorb these transaction costs, smaller outlets may struggle. Google also had the ability to choose which content to display—and pay for—on its platform. Put simply, if you turn Google into a news buyer, it will shop around.

More recently, Australia has considered shifting the News Media Bargaining Code to function as a digital-services tax, either explicitly or de facto. The de facto version would make it compulsory for companies to carry news links. As a result, the compelled companies would subject to extraction. This shift could mean that Australian companies lose whatever arrangements they have made with Google. When New Zealand proposed legislation (currently stalled) with a similar effect, Google stated it would withdraw from the country’s news market entirely if enacted.[46]

Ultimately, major media companies with significant bargaining power, like News Corp and Nine Entertainment, were the main beneficiaries of the agreements made under the News Media Bargaining Code. These large publishers offered more varied content that was valuable to Google because it attracted a larger audience and thus increased ad revenue. In addition, large publishers were able to command higher payments, making them more likely to receive favourable treatment, in terms of visibility on Google’s platform. Conversely, smaller or independent news outlets that did not strike agreements with Google risked being excluded from Google’s news services or search results or receiving much less exposure than they would have in a but-for world.^[47]

The question of how this scenario could be seen as benefiting the public—rather than large, politically powerful entities like News Corp—remains unanswered. Additionally, there is the issue of the combined impact of regulatory overload. Smaller outlets, who less able to negotiate for visibility on Google’s search engine, may face further challenges from prohibitions on self-preferencing. When self-preferencing is banned, companies like Google tend to auction off the top search spots, favoring incumbents with deep pockets.[48] As a result, smaller outlets that could previously appear at the top due to content relevance are now unlikely to secure those prime positions.

In other words, self-preferencing bans turn the currency of search rankings from relevance into actual money. While smaller companies could once compete based on relevance, they now face being crowded out by more financially robust competitors. The combined effect of the News Media Bargaining Code and a ban on self-preferencing could therefore lead to the demotion of content from smaller, yet relevant, business users—an outcome that would harm both these businesses and, most importantly, end-users.

In addition, prohibitions on the cross-use of data, or cumbersome requirements that are tilted against consent, could affect digital platforms’ ability to provide tailored, targeted ads. This would be another nail in the coffin of small businesses, which disproportionately rely on targeted advertising to break into new markets and reach customers.

IV. Australians May Not Want the Same Tradeoffs as the EU

It is hardly surprising that some countries would get “cold feet” about enacting strict ex-ante digital competition rules.[49] To the keen observer, the prospect always loomed that such rules might be little more than a quirk of EU industrial policy. As ICLE Senior Scholar Lazar Radic has noted,^[50] prior to the DMA’s adoption, many leading European politicians touted the law’s text as a protectionist industrial-policy tool that would hinder U.S. firms to the benefit of European rivals.^[51] French President Emmanuel Macron summarized it well when he said:

If we want technological sovereignty, we’ll have to adapt our competition law, which has perhaps been too much focused solely on the consumer and not enough on defending European champions.^[52]

Insofar as these goals are—or may be—unique to a particular time and place (i.e., the EU in the 2020s), it is reasonable to assume they will not necessarily be shared by everyone. Some countries may be more interested in attracting digital platforms than in regulating,^[53] “disciplining”,^[54] or punishing them.^[55] Echoing the argument that “one size does not fit all” when it comes to digital competition regulation,^[56] Dae-sik and Sokol note that among the reasons ex-ante digital competition rules are inappropriate for South Korea is the marked differences between that nation’s economic, legal and regulatory context and that of the EU:

Europe chose to regulate heavily for protectionist reasons. It lacks the tech infrastructure, innovative companies, and unicorns that are present in other vibrant economies like Korea. […] While Korea has approximately three times more unicorns than Japan, despite having a smaller gross domestic product, the adoption of a DMA-like approach may hurt Korea’s innovation advantage.^[57]

Similarly, Samir Ghandi argues that the DMA’s “one-size-fits-all” approach would not work “for a dynamic Indian market with its own vibrant tech ecosystem”.^[58]

Other, less technologically intense countries like South Africa might have a still different set of priorities, such as attracting foreign direct investment to drive growth and the development of essential infrastructure. As Radic and ICLE President Geoffrey Manne have written:

Developing countries like South Africa should be especially wary of importing untested competition rules that impose government-mandated designs on the business models and user interfaces of innovative companies. It’s not trite to say that South Africa’s market is not the same as the EU’s. The consequences of unsound competition policy here may be to stymie foreign investment and domestic innovation exactly where they are needed most. […] This is a far cry from the untested, pre-emptive constraints contemplated by the [SACC].^[59]

The point is countries’ needs are as varied as the countries themselves. This does not preclude the possibility of common rules and standards; after all, most of the world’s competition-law systems have converged around some version of the consumer welfare standard.^[60] But one explanation for this commonality can be found in how the consumer welfare standard fares when compared to the alternatives:

The objective nature of the choice and interpretation of legal antitrust standards exists on a spectrum, and the [consumer welfare standard’s] conceptual congruence, measurability, and its connection to aspects that are almost universally considered to be relevant parameters of competition (price, innovation, quality) brings it closer to objectivity and further away from subjectivity.^[61]

Conversely, once it is understood that the DMA represents an attempt to pass off a sui generis, subjective policy choice as a universal regulatory paradigm, the case for harmonization quickly withers. Clearly, not everyone is on board with trading economic performance for a set of questionable political goals.^[62] In this sense, one frequent criticism of ex-ante competition rules is that they ignore—or, at the very least, significantly downplay—the effects on consumer welfare and innovation (the traditional bastions of competition policy). Instead of focusing on protecting competition to the benefit of consumers, digital competition rules commit the cardinal antitrust sin of protecting competitors. As former Federal Trade Commission (“FTC”) Commissioner Maureen Ohlhausen has put it:

Some recent legislative and regulatory proposals appear to be in tension with this basic premise. Rather than focusing on protection of competition itself, they appear to impose requirements on some companies designed specifically to facilitate their competitors, including those competitors that may have fallen behind precisely because they had not made the same investments in technology, innovation or product offerings. For example, the Digital Markets Act (DMA) would force a ‘gatekeeper’ company to provide business users of its service, as well as those who provide complementary services, access to and interoperability with the same operating system, hardware, or software features that are available to or used by the gatekeeper. While this would restrain gatekeepers and presumably facilitate the interests of the gatekeeper’s rivals, it is not clear how this would protect consumers, as opposed to competitors.^[63]

This, of course, is only surprising if one falls for the story that digital competition rules—and the DMA, in particular—were ever intended to protect competition or consumer welfare. The readily apparent goal is instead to redistribute rents, protect competitors, and level down gatekeepers, even if it comes at the expense of consumers.^[64] There is no better example of this than the DMA, whose preamble explicitly disavows consumer welfare and economic efficiency as irrelevant under the new rules.

As commentators around the world have pointed out, this approach is likely to stymie dynamism in digital markets and harm consumers. As noted above, Dae-sik and Sokol argue against introducing ex-ante digital competition regulations in South Korea, contending that such rules would stifle innovation, decrease investment, hurt startups and consumers, and jeopardize South Korea’s status as a regional leader in tech innovation.^[65] Carmelo Cennamo and Juan Santaló further argue that the DMA could produce a host of other harmful unintended consequences.^[66] For example, undermining gatekeepers’ ability to control access to their platforms could ultimately lead to lower levels of innovation. Obligations like data-sharing could reduce gatekeepers’ incentives to accumulate and process data, thereby diluting the competitive benefits and product improvements that result from such collection.

Some consumers and policymakers may be willing to accept these tradeoffs in pursuit of equity, fairness, contestability, “reining in” tech giants, or some other goal.^[67] But others, reasonably, may not. Thus, commentators from both within and outside the EU have increasingly questioned the need for rules that mechanically apply preset default solutions to the complex tradeoffs that have typically characterized competition-law analysis. This is of particular concern in dynamic markets driven by innovation, where uncertainty is endemic and where, except in the most egregious of cases,^[68] even the wisest enforcers can’t know a priori whether or not given conduct is procompetitive.^[69] Against this backdrop, tales of a supposed consensus in support of a special set of competition rules for digital platforms are rooted more in fantasy than in reality.

There is also the question of whether the Government can make such far-reaching decisions about tradeoffs without substantial democratic discussion and debate. The Government’s proposed framework would include broad obligations to target anticompetitive conduct contained in primary legislation and service-specific obligations to clarify the broad requirements contained in subordinate legislation (e.g., regulations). Though many of the categories of conduct sound straightforward and technical, they implicate several policy-laden decisions that broad obligations cannot capture, as well as competing interests that subordinate legislation would struggle to balance.

For instance, “restrictions on interoperability that limit effective competition” implicates multiple types of interoperability (i.e., technical, syntactic, and semantic interoperability and organization) each of which poses unique and personal tradeoffs in terms of user security, privacy, and flexibility. Other categories the Government’s proposal would seek to regulate, such as digital advertising, affect broad swathes of the economy and thus implicate substantive matters of policy. Without meaningful democratic deliberation, the Government’s framework risks imposing rigid, one-size-fits-all regulations on complex and deeply consequential tradeoffs that require a nuanced and inclusive policymaking approach.

V. Focus on ‘Ad Tech’ as a Hub of Anticompetitive Conduct Is Misguided

The Proposal Paper states that advertising technology (“ad tech”) would be a priority for the new regime.[70] In a previous report, the ACCC found that:

there is a lack of transparency in the supply chain, and that Google’s vertical integration and strength in ad-tech services has allowed it to engage in a range of conduct which has lessened competition over time and entrenched its dominant position.[71]

These findings should, however, be put into context. For years, regulators and competition watchdogs have expressed concern about competition in the digital-advertising business. Like the ACCC and the Government, they have noted that digital advertising appears to be dominated by a handful of large firms, including Google, Facebook, and—to a lesser extent—Amazon. Some claim that this dominance allows these firms—and Google, in particular—to engage in anticompetitive conduct to extend their market power and to earn supercompetitive profits at the expense of advertisers, publishers, and consumers. But Manne and ICLE Senior Scholar Eric Fruits have argued that, based on the information that is publicly available, many of the most significant claims made against Google’s ad-tech business are based on a misunderstanding of U.S. antitrust law, or of the details of the ad-tech market itself.[72] While Manne and Fruits’ study focuses on the United States, the findings can, to a significant extent, be extrapolated to Australia.

As they note, digital advertising provides the economic underpinning for much of the internet. Targeted digital advertising on independent websites is often facilitated by intermediaries that match advertisers and websites automatically, displaying ads to those users for whom they are most relevant. The technology powering this intermediation has advanced enormously over the past three decades. Some now allege, however, that the digital-advertising market is monopolized by its largest participant: Google.[73]

Ultimately, however, this is a version of the “big is bad” argument, in which conduct by dominant incumbent firms that makes competition more difficult for certain competitors is viewed as inherently anticompetitive—even if the conduct confers benefits on users. Under this approach, the largest firms are seen as acting anticompetitively if they do not share their innovations or reveal their business processes to competing firms. As a result, creating new and innovative products, lowering prices, reducing costs through vertical integration, and enhancing interoperability among existing products is miscast as anticompetitive conduct.

In contrast, competition laws—including Australia’s own—are intended to foster innovation that creates benefits for consumers, including innovation by incumbents. The law does not proscribe efficiency-enhancing unilateral conduct on the grounds that it might also inconvenience competitors, or that there is some other arrangement that could be “even more” competitive. While this might benefit some competitors in the short run, over the longer term, it will tend to stifle competition by discouraging innovation and investment and promoting free riding.

Moreover, competition law generally does not second guess unilateral conduct simply because it may hinder rivals. Any such conduct must first be shown to be anticompetitive—that is, to harm consumers or competition, not merely certain competitors. In multisided markets, this means finding not simply that some firms on one side of the market are harmed, but that the combined net effect of challenged conduct across all sides of the market is harmful.

Regulators, however, often fall into what has been deemed the “nirvana fallacy”, in which real-life conduct is compared against a hypothetical “competition-maximizing” benchmark and anything that falls short is deemed worthy of intervention. That fanciful approach would pervert businesses’ incentives to innovate and compete and would make an unobtainable “perfect” that exists only in the minds of some economists and lawyers the enemy of a “good” that exists in the market.

In the case of the Proposal Paper, many of the interventions appear to be geared toward destroying or undermining Google’s vertical integration in ad tech.[74] But these heavy-handed interventions risk hampering the quality of Google’s ad-tech service. Vertical integration plays a crucial role in streamlining supply chains by reducing inefficiencies and coordination issues, ultimately lowering transaction costs, and passing the benefit onto consumers. Additionally, forcing Google to unbundle its ad-tech operations could diminish its incentive to innovate, as it would expose proprietary advancements to potential replication by rivals. Rather than fostering competition and efficiency, these interventions may disrupt a well-functioning market, leading to higher costs, reduced service quality, and slower innovation in digital advertising.

VI. The Comparative Experience with Ex-Ante Rules for Digital Platforms

The Government is adamant that ex-ante rules for digital platforms will benefit everyone in Australia, but especially businesses and consumers. The EU’s experience with the DMA, however, tells a much more nuanced and less flattering story. Two lessons emerge from the DMA’s implementation for the Government’s ex-ante proposal: there are going to be winners and losers, and there will be unintended consequences. The Government and Australians more generally should brace themselves for both. Below are concrete examples of the inherent tradeoffs and unintended consequences following the EU’s implementation of the much-vaunted DMA.

Take, for example, self-preferencing. The DMA’s self-preferencing ban has made it increasingly difficult for platforms to offer certain functionalities in Europe. For example, Google has removed features like maps, hotel bookings, and reviews from its search results. Until it can accommodate competitors who offer similar services (if this is even possible), these specialized search results will remain buried several clicks away from users’ general searches. Not only is this inconvenient for consumers, but it has important ramifications for business users.

Take hotel bookings, for example. Early estimates suggest that clicks from Google ads to hotel websites decreased by 17.6% because of the DMA. DMA implementation also caused clicks and bookings on Google Hotel Ads to sink by as much as 30%.^[75] As a result, the volume of direct bookings dropped as much as 36%, “increasing hotel dependence on intermediaries, which seriously damages their profitability”.

By prohibiting Google from placing its own vertical services (Google Maps, Google Flights, and Google Hotel Ads) first, “the presentation of hotel offers to users based in DMA markets is less organised, clear and intuitive”.^[76] Previously, Google Search provided a direct display of hotels, featuring relevant details like prices, distance from the user, and images. Now, the top search results point to intermediaries like Booking.com and eDreams (see Figure 1). The irony, of course, is that Booking.com is itself a designated “gatekeeper” under the DMA.

FIGURE 1: Post-DMA Google Search for Madrid Hotels

This sort of regulatory intervention does not make the market more “fair or contestable”. It merely robs Peter to pay Paul, while also robbing the consumer. As a study by hotel-industry consultant Mirai finds:

Prior to DMA, Google’s taxonomy of results was the result of decades of effort by the company to refine its results in order to provide an optimized search experience that would connect supply and demand in a way that was ideal for both.

This pre-DMA search experience offered hotels participating directly in the Google Hotel Ads product, the option to present their inventory (availability and room rates) in a way that was both efficient from the standpoint of distribution cost, and enriched for the user, as it integrated the experience of other services, e.g. Google Maps. This way of presenting information was clear, relevant and intuitive, and maximized purchasing decisions such as hotel bookings for those users who were so inclined.^[77]

Users therefore now face a less intuitive booking experience, with limited access to aggregated hotel offers, simplified calendar pricing, and streamlined tools like Google Travel. Consumer frustrations include being redirected to search-engine results instead of the Travel section, and additional clicks being required to complete actions that previously required just one.

So, who has Art.6(5) really benefitted? Clearly not hotels: they have been subjected “to the toll of intermediation, strangling direct sales and holding users and hotels captive to less profitable, less independent business models”.^[78]

Google has also removed other functionalities to comply with Art. 6(5). In March 2024, the company announced it had “removed some features from the search results page which help consumers find businesses, such as the Google Flights unit”.^[79] Google noted that the DMA had produced unintended consequences, including a suboptimal user experience and impact to businesses.

We’ve always been focused on improving Google Search to help people quickly and easily find what they’re looking for. … Rules that roll back some of these advances represent a fundamental shift in competition policy. We encourage other countries contemplating such rules to consider the potential adverse consequences — including those for the small businesses that don’t have a voice in the regulatory process.^[80]

For its part, Apple has highlighted another quality-degrading consequence of the DMA: the obligation to allow competing app stores onto the iOS platform and to allow apps to be downloaded directly from their websites (commonly known as “sideloading”).[81] In practice, this “openness” means allowing third-party applications to bypass controls and protections implemented to safeguard users’ security and privacy.[82] This is already happening in Europe, where Apple has been forced to allow Epic Games to launch an alternative app store on iOS.[83] While this may seem a positive development for (some) developers and consumers, it could also harm user trust in the platform and thus decrease the total number of transactions, to the detriment of all parties involved (business users, consumers, and the owner of the platform).

Indeed, “[p]hishers are using a novel technique to trick iOS and Android users into installing malicious apps that bypass safety guardrails built by both Apple and Google to prevent unauthorized apps”.[84] This sort of attack will be more effective in the absence of the protections provided by Apple’s App Store.[85] Recently, a porn app, “Hot Tub”, made its way into the iOS, further validating at least some of Apple’s concerns over safety, privacy and security (and undermining the integrity of the iOS’ “clean” brand image in the process).[86]

In addition to diminishing the quality of existing digital services, the DMA has significantly delayed the introduction of new digital products and services in the EU. A notable example is Meta’s Threads, which launched nearly six months later in the EU than in other regions–frustrating users eager for an alternative to X.com (formerly known as Twitter) following Elon Musk’s acquisition of the company.[87]

Delayed releases appear to be a trend in the EU, as Apple recently announced that it would withhold the release of its latest features from the EU market, including Apple Intelligence, due to regulatory uncertainties.[88] Apple Intelligence is now scheduled to be released in Europe in April 2025,[89] seven months later than in the United States and closer to the release of the iPhone 17 than the iPhone 16.  These events indicate that, rather than fostering a more competitive digital landscape, the DMA risks isolating EU consumers from innovative technological advancements, undermining its intended purpose.

VII. Assessing the Government’s Proposed Interventions

The Government outlines several potential interventions, ranging from default pre-installation interventions to prohibiting self-preferencing and tying. Ultimately, these interventions must be carefully evaluated against current market realities and the risk of unintended consequences.

A. Default and Preinstallation Interventions

The Government contemplates additional restrictions on default search positions and pre-installation agreements.[90] Such interventions should, however, be evaluated against existing measures and changing user behaviour. Recent empirical work suggests that choice screens’ effectiveness depends heavily on their design and implementation.[91] Furthermore, default restrictions could have unintended consequences for competition. Many smaller search engines currently compete for default positions through revenue-sharing agreements with device manufacturers and browsers. With two-sided markets, however, restricting these agreements could paradoxically harm competition by removing a key mechanism through which alternative search engines currently reach users.[92]

B. Forced Interoperability

The Government favours mandating interoperability, including of third-party app stores.[93] As noted above, sideloading and third-party app stores can lead to significant security and privacy risks. As Jane Bambauer has observed:

EU lawmakers should be aware that the DMA is dramatically increasing the risk that data will be mishandled. Nevertheless, even though a new scandal from the DMA’s data interoperability requirement is entirely predictable, I suspect EU regulators will evade public criticism and claim that the gatekeeping platforms are morally and financially responsible.[94]

Indeed, some of these privacy and security concerns have already materialized.[95] Relatedly, the decreased control over an operating system’s content would, in turn, also eliminate one of the primary competitive differences between the iOS and Android. Indeed, centralized app distribution and Apple’s “walled garden” model increase interbrand competition because they are at the core of what differentiates Apple from Android. Apple’s business model historically has focused on being user-friendly, reliable, safe, private, and secure. For Apple (and its users), the touchstone of a good platform is not its “openness”, but its carefully curated selection and security, understood broadly as encompassing the removal of objectionable content, protection of privacy, and protection from “social engineering”, and the like.

By contrast, Android has bet on the open platform model, which sacrifices some degree of security for the greater variety and customization associated with more open distribution. These are legitimate differences in product design and business philosophy. As Jonathan Barnett has explained:

Open systems may yield no net social gain over closed systems, can impose a net social loss under certain circumstances, and . . . can impose a net social gain under yet other circumstances.[96]

Because consumers and developers could reasonably prefer either ecosystem, it is not clear that loosening Apple’s control over the App Store would necessarily improve consumer welfare or lead to more app transactions market wide. Under the guise of fostering competition on Apple’s platform, the forced standardization of interoperability mandates would thus instead eliminate competition where it matters most—i.e., at the interbrand, systems level.

C. Banning Self-Preferencing

The Proposal Paper also advocates a prohibition of self-preferencing.[97] As noted above, self-preferencing prohibitions have led to some unexpected—and probably unwelcome—outcomes in the EU.[98] The notion that the ability to give preferential treatment to one’s products is inherently anticompetitive contradicts “over a century of antitrust jurisprudence, economic study, and enforcement agency practice” that have firmly established that “the competitive effects of a vertically integrated firm’s ‘discrimination’ in favor of its own products or services… generally produce significant benefits for consumers”.^[99]

It also flatly contradicts a number of empirical studies showing that even the welfare of competitors (to say nothing of consumers) may often be improved by such self-preferencing.^[100] While enforcement of such provisions may benefit certain competitors in the short run, they create perverse incentives over the long run for rivals, who may underinvest in ensuring their own viability due to such regulations inefficiently insuring them against their own business misjudgements.^[101]

D. Limiting Product Integration

The Proposal Paper also targets tying and bundling, including the bundling of in-app payment systems (“IAPs”) with app stores.[102] The latter concern likely pertains to Apple’s imposition of a 30% fee on payments made through its iOS platform, while simultaneously prohibiting third-party in-app purchases (IAPs).

But it should be asked what outcomes the Government hopes to achieve by compelling Apple to permit third-party IAPs on iOS. Even under such a scenario, Apple would still be entitled to compensation for platform access and the use of its intellectual property. Interestingly, the 30% fee appears to align with industry norms, as Steam, Nintendo eStore, PlayStation, GOG, and Xbox Game Store all apply similar charges.[103] This raises the pertinent question of why Apple is being singled out for regulatory scrutiny. Are all these companies operating as monopolies and gatekeepers? If so, why are they not encompassed within the Government’s proposed ex-ante regulatory framework?

Moreover, even if Apple is required by law to allow third-party IAPs, the company could then allow independent payment processors to compete, charge an all-in fee of 30% when Apple’s IAP is chosen, and, in order to recoup the costs of developing and running its App Store, charge app developers a reduced, mandatory per-transaction fee (on top of developers’ “competitive” payment to a third-party IAP provider) when Apple’s IAP is not used.

Indeed, where such a remedy has already been imposed, that is exactly what Apple has done. In the Netherlands, where Apple was required by the Authority for Consumers and Markets (“ACM”) to uncouple distribution and payments for dating apps, Apple adopted the following policy:

Developers of dating apps who want to continue using Apple’s in-app purchase system may do so and no further action is needed. … Consistent with the ACM’s order, dating apps that . . . use a third-party in-app payment provider will pay Apple a commission on transactions. Apple will charge a 27% commission on the price paid by the user, net of value-added taxes. This is a reduced rate that excludes value related to payment processing and related activities.[104]

It’s not hard to see the fundamental problem with this approach. If a 27% commission, plus a competitive payment-provider fee, permits more “competition” than complete exclusion of third-party providers, then surely a 26% fee would permit even more competition. And a 25% fee more still. This would entail precisely the kind of price management by regulators that has generally been considered antithetical to competition and competition law.

VIII. Conclusion and Recommendations

The Government’s proposal rests on the mistaken premise that there is a global consensus on ex-ante digital competition regulation. Australia’s push to match similar measures enacted in a handful of other jurisdictions risks exacerbating an already burdensome regulatory landscape. While the EU has embraced strict digital platform rules, Australians may not be willing to accept the same tradeoffs in terms of innovation and consumer choice.

The Government’s focus on the ad-tech sector as a hub of anticompetitive conduct overlooks that market’s complexity and existing competitive dynamics. Comparative experience with ex-ante rules for digital platforms highlight both the risks and limited successes of such interventions, raising concerns about their effectiveness in the Australian context.

Drawing on both the empirical evidence and theoretical frameworks discussed above, the Government should carefully reconsider the need for ex-ante competition regulation of digital platforms. The rapidly evolving nature of digital search markets suggests a more nuanced approach may be appropriate.

If the Government nonetheless proceeds, we recommend the following principles for any subsequent interventions:

• Adopt an “innovation first” approach to remedies that preserves incentives for both incumbents and new entrants to develop novel search technologies.
• Focus on removing barriers to competition, rather than imposing detailed conduct requirements. Light-touch interventions often prove more effective than prescriptive regulation in fast-moving technology markets.
• Establish regular review periods to assess the continued appropriateness of any interventions.

By carefully considering the dynamic nature of competition and focusing on forward-looking analysis, the Government can help ensure that Australian consumers and businesses benefit from continued innovation in the digital economy.

[1] Digital Platforms — A Proposed New Digital Competition Regime, Aust. Gov. Treas. (2 December 2024), https://treasury.gov.au/consultation/c2024-547447 (hereinafter “Proposal Paper”).

[2] Press Release, ACCC Welcomes Consultation on New Digital Competition Regulation, Aust. Compet. Consum. Comm. (3 December 2024), https://www.accc.gov.au/media-release/accc-welcomes-consultation-on-new-digital-competition-regime. (“The proposed regime is directionally similar to reforms already being implemented or proposed in many international jurisdictions including the European Union, the United Kingdom, Japan and India…This is an opportunity to build on the progress made overseas and by introducing similar changes here, it will help ensure Australian businesses and consumers aren’t left behind… We believe the proposed regime will be fit-for-purpose for Australia while being complementary to and cohesive with international approaches”).

[3] Thomas Graf, Jackie Holland, Henry Mostyn, & Patrick Todd, Digital Markets Regulation Handbook, Cleary Gottlieb, https://content.clearygottlieb.com/antitrust/digital-markets-regulation-handbook/index.html (last visited 13 February 2025).

[4] Lazar Radic & Geoffrey A. Manne, The ABA’s Antitrust Law Section Sounds the Alarm on Klobuchar-Grassley, Truth Mark. (12 May 2022), https://truthonthemarket.com/2022/05/12/the-abas-antitrust-law-section-sounds-the-alarm-on-klobuchargrassley.

[5] Hong Dae-sik & D. Daniel Sokol, Korea Should Prioritize Innovation, Not Misguided Platform Regulation, The Korea Her. (12 May 2024), https://www.koreaherald.com/view.php?ud=20240512050148.

^[6] Sangyun Lee, LinkedIn (27 September 2024, 00:35:22), https://www.linkedin.com/posts/sangyunl_indian-digital-competition-law-teeters-lawyers-activity-7245289899409448960-0rtV?utm_source=share&utm_medium=member_desktop.

^[7] Charles McConnell, Indian Digital Competition Law Teeters, Lawyers Call for Rethink, Glob. Compet. Rev. (26 September 2024) https://globalcompetitionreview.com/article/indian-digital-competition-law-teeters-lawyers-call-rethink.

^[8] Chosun Ilbo, ‘Monopoly Platform’ Regulation Law Falls Away… Fair Trade Commission Cancels Plan Due to Industry Opposition, Naver News (9 September 2024), https://n.news.naver.com/mnews/article/023/0003857596?sid=101.

^[9] Kang Shin-woo, Amendment of the Fair Trade Act to Regulate Large Platforms… ‘Google, Apple, Naver, Kakao’ to Have Jurisdiction, Naver News (9 September 2024) https://n.news.naver.com/mnews/article/018/0005832606?sid=101; see also Heo Ji-hye, Platform Law that Changes Direction… Concerns Increase over Standards for Proof of Competition Restriction, Pressman (9 September 2024), https://www.pressman.kr/news/articleView.html?idxno=84619. Under the revisions, platforms must prove directly that their actions do not harm competitors, and that they benefit consumers and have positive impacts on the market. In other words, the reforms essentially reverse the burden of proof. Critics like Hong Dae-sik warn that stringent oversight could discourage businesses to pursue new initiatives due to a lack of confidence in their ability to meet criteria. (“Ultimately, if companies are not confident in the reasons they present to the Fair Trade Commission when taking certain actions, they will not take the actions”.)

^[10] Charles McConnell, Exclusive: Philippine Competition Watchdog Rules Out DMA-Style Bill, for Now, Glob. Compet. Rev. (20 September 2024) https://globalcompetitionreview.com/article/exclusive-philippine-competition-watchdog-rules-out-dma-style-bill-now.

[11] @KTmBoyle, X.com (11 February 2025, 9:16 AM), https://x.com/KTmBoyle/status/1889317529039913301.

^[12] Lazar Radic, Geoffrey A. Manne, & Dirk Auer. Regulate for What? A Closer Look at the Rationale and Goals of Digital Competition Regulation 22 Berkeley Bus. L.J. (Forthcoming 2025).

^[13] Pierre Larouche & Alexandre De Streel, The European Digital Market: A Revolution Grounded on Traditions, 12 J.E.C.L. & Pract. 542 (2021), (arguing that the DMA’s conceptual nature is in a “difficult epistemological position”).

^[14] Lazar Radic, Gatekeeping, the DMA, and the Future of Competition Regulation, Truth Mark. (8 November 2023), https://truthonthemarket.com/2023/11/08/gatekeeping-the-dma-and-the-future-of-competition-regulation.

^[15] Belle Beems, The DMA in the Broader Regulatory Landscape of the EU: An Institutional Perspective, 19 Eur. Competition J. 1–29 (January 2023), https://www.tandfonline.com/doi/full/10.1080/17441056.2022.2129766.

[16] Giuseppe Colangelo, In Fairness We (Should Not) Trust: The Duplicity of the EU Competition Policy Mantra in Digital Markets, 68 Antitrust Bull. 618 (2023), (Arguing that the inherent vagueness of the “fairness” concept is likely to grant regulators excessive discretion for intervention).

^[17] Press Release, Amendment of the German Act Against Restraints of Competition, Bundeskartellamt (19 January 2021), https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2021/19_01_2021_GWB%20Novelle.html.

^[18] Bahadir Balki, Nabi Can Acar, Helin Yüksel, Mehmet Mikail Demir, Seda Eliri, & Erdem Aktekin, A New Age for Digital Markets in Turkey? The Draft Amendment to the Law No. 4054 on the Protection of Competition, Kluwer Compet. Law Blog (25 October 2022), https://competitionlawblog.kluwercompetitionlaw.com/2022/10/25/a-new-age-for-digital-markets-in-turkey-the-draft-amendment-to-the-law-no-4054-on-the-protection-of-competition.

^[19] Henry Mostyn, Patrick Todd, & Goksu Kalayci, Turkiye, Cleary Gottlieb (December 2023), https://content.clearygottlieb.com/antitrust/digital-markets-regulation-handbook/turkey/index.html.

^[20] Ilbo, supra note 8.

[21] Jean Mackenzie & Ruth Comerford, Impeached S Korean President Charged with Insurrection, BBC News (26 January 2025), https://www.bbc.com/news/articles/cr53r1d0jz4o.

^[22] Shin-woo, supra note 9.

^[23] Robert Wildner, The Digital Markets Act: What a Difference a Month Makes, Mob. Mark. (9 April 2024), https://mobilemarketingmagazine.com/the-digital-markets-act-what-a-difference-a-month-makes.

^[24] Dirk Auer, Matthew Lesh, & Lazar Radic, Digital Overload: How the Digital Markets, Competition and Consumers Bill’s Sweeping New Powers Threaten Britain’s Economy, Inst. Econ. Aff. (18 September 2023), https://iea.org.uk/publications/digital-overload-how-the-digital-markets-competition-and-consumers-bills-sweeping-new-powers-threaten-britains-economy.

^[25] Report of the Committee on Digital Competition Law, Gov. India Minist. Corp. Aff., (27 February 2024), https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open.

^[26] The Competition Act, No. 12 of 2003, India Code (2003), available at https://www.cci.gov.in/images/legalframeworkact/en/the-competition-act-20021652103427.pdf.

^[27] H.R. 3849, 117th Congress (24 June 2024), https://www.congress.gov/bill/117th-congress/house-bill/3849/text; S. 2992, 117th Congress (2 March 2022), https://www.congress.gov/bill/117th-congress/senate-bill/2992/text; S. 2710, 117th Congress (17 February 2022), https://www.congress.gov/bill/117th-congress/senate-bill/2710.

^[28] Radic & Manne, supra note 4.

^[29] Id.

^[30] PL n. 2768/2022, Câmara dos Deputados (Brazil), (10 November 2022), https://www.camara.leg.br/proposicoesWeb/prop_mostrarintegra?codteor=2214237&filename=PL%202768/2022.

^[31] Grand Design and Action Plan for a New Form of Capitalism: 2023 Revised Version, Jpn. Cabinet Secr. (2023), available at https://www.cas.go.jp/jp/seisaku/atarashii_sihonsyugi/pdf/ap2023en.pdf; Outline of the Act on Promotion of Competition for Specified Smartphone Software, Jpn. Fair Trade Comm. (Jun. 2024), available at https://www.jftc.go.jp/file/240612EN3.pdf; @laz_radic, X.com (14 August 2024, 6:17 a.m.), https://x.com/laz_radic/status/1823665316200899036.

^[32] Simon Vande Walle, Is the EU’s Digital Markets Act Going Global? How Japan Is Crafting Its Own Version of Digital Regulation with the Smartphone Act, EU Renew (21 August 2024), https://eu-renew.eu/is-the-eus-digital-markets-act-going-global-how-japan-is-crafting-its-own-version-of-digital-regulation-with-the-smartphone-act.

^[33] JFTC, supra note 31.

^[34] Online Intermediation Platforms Market Inquiry, Compet. Comm. S. Afr. (2000-2019), https://www.compcom.co.za/online-intermediation-platforms-market-inquiry.

[35] Id. at 1.

[36] Id. at 3.

[37] Proposal Paper, supra note 1, at 4-5.

[38] Id., at 5.

[39] J.M.M. van den Brink, M.J.M. van Rijswick, & J.M.A. van Kempen, Regulatory Overlap: A Systematic Quantitative Literature Review, 17 Reg. Gov. 1131, 1132 (2021) (finding that “Regulatory failure caused by overlapping regulations is ubiquitous, with examples in all jurisdictions across a range of disciplines”).

[40] Economic Report of the President, Exec. Off. Pres. (March 2019), 81, available at https://www.govinfo.gov/content/pkg/ERP-2019/pdf/ERP-2019.pdf (“The deadweight cost function is convex; if the tax is increased by 10 percent, the deadweight costs of the tax increase by more than 10 percent. As we discuss in detail below, the regulatory deadweight cost function is also convex. A new regulatory action that increases regulatory costs by 10 percent increases the cumulative regulatory cost burden by more than 10 percent”).

[41] Patrick MacLaughlin, Nita Ghei, & Michael Wilt, Regulatory Accumulation and its Costs, Mercatus Policy Brief (2016).

[42] John W. Dawson & John J. Seater, The Economic Impact of Regulation: A Literature Review, 18 J. Regulatory Econ. 137 (2013).

[43] MacLaughlin, Ghei, & Wilt, supra note 41.

^[44] Ying Gu, Stephanie Lee, & Yong Tan, News in the Dark: Effects of Facebook’s Australian News Ban on News Consumption, SSRN (5 April 2024), https://ssrn.com/abstract=4790864.

^[45] Josh Taylor, Facebook’s Potential News Ban Already Affecting Smaller Australian Media Outlets, Inquiry Told, The Guardian (21 June 2024), https://www.theguardian.com/media/article/2024/jun/21/facebooks-potential-news-ban-already-affecting-smaller-australian-media-outlets-inquiry-told.

[46] Giles Dexter, Fair News Bargaining Bill in Limbo as Minister Says It Is Not Ready, Radio N.Z. (13 November 2024), https://www.rnz.co.nz/news/political/533666/fair-news-bargaining-bill-in-limbo-as-minister-says-it-is-not-ready.

^[47] Paul Karp, Amanda Meade, & Josh Butler, Meta, TikTok and Google Will Be Forced to Pay Australian News. What Does It Mean for You?, The Guardian (12 December 2024), https://www.theguardian.com/australia-news/2024/dec/12/meta-tiktok-and-google-to-be-forced-to-pay-for-australian-news.

[48] See infra, Section VI.

[49] See McConnell, supra note 7; Ilbo, supra note 8; McConnell, supra note 10.

^[50] Radic, supra note 14.

^[51] Mathieu Pollet, France to Prioritise Digital Regulation, Tech Sovereignty During EU Council Presidency, Euractiv (14 December 2021), https://www.euractiv.com/section/digital/news/france-to-prioritise-digital-regulation-tech-sovereignty-during-eu-council-presidency; Lazar Radic, Digital-Market Regulation: One Size Does Not Fit All, Truth Mark. (17 April 2023), https://truthonthemarket.com/2023/04/17/digital-market-regulation-one-size-does-not-fit-all.

^[52] Barbara Moens & Paola Tamma, Macron and Merkel Defy Brussels with Push for Industrial Champions, Politico (18 May 2020), https://www.politico.eu/article/macron-and-merkel-defy-brussels-with-push-for-industrial-champions.

^[53] Oles Andriychuk, Do DMA Obligations for Gatekeepers Create Entitlements for Business Users?, 11 J. Antitrust Enforc. 123, 123-32 (28 December 2022), https://academic.oup.com/antitrust/article/11/1/123/6964483.

^[54] Geoffrey A. Manne, Dirk Auer, & Sam Bowman, Should ASEAN Antitrust Laws Emulate European Competition Policy?, 67 Singap. Econ. Rev. 1637 (31 March 2021), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3709730.

^[55] See, e.g., Oles Andriychuk, Do DMA Obligations for Gatekeepers Create Entitlements for Business Users?, 11 J. Antitrust Enforcement 123, 127 (2022) (“The means for allowing the second-tier ersatz-Big Tech to scale up is punitive: to slow down the current gatekeepers by imposing upon them a catalogue of exceptionally demanding obligations”.) (Emphasis added); id. at 131 (“This punitive nature of the DMA also means that the obligations can be blatantly arduous and interventionist”.) (emphasis added).

^[56] Radic, supra note 51.

^[57] Dae-sik & Sokol, supra note 5.

^[58] McConnell, supra note 7.

^[59] Lazar Radic & Geoffrey A. Manne, South Africa’s Competition Proposal Takes Europe’s DMA Model to the Extreme, Truth Mark. (15 August 2023), https://truthonthemarket.com/2023/08/15/south-africas-competition-proposal-takes-europes-dma-model-to-the-extreme.

^[60] Christine S. Wilson, Welfare Standards Underlying Antitrust Enforcement: What You Measure Is What You Get, Fed. Trade Comm. (15 February 2019), available at https://www.ftc.gov/system/files/documents/public_statements/1455663/welfare_standard_speech_-_cmr-wilson.pdf; Svend Albæk, Consumer Welfare in EU Competition Policy, Eur. Comm. (2013), available at https://competition-policy.ec.europa.eu/system/files/2021-09/consumer_welfare_2013_en.pdf.

^[61] Nicolas Petit & Lazar Radic, The Necessity of a Consumer Welfare Standard in Antitrust Analysis, ProMarket (18 December 2023) https://www.promarket.org/2023/12/18/the-necessity-of-a-consumer-welfare-standard-in-antitrust-analysis.

^[62] Dirk Auer, The Broken Promises of Europe’s Digital Regulation, Truth Mark. (12 March 2024), https://truthonthemarket.com/2024/03/12/the-broken-promises-of-europes-digital-regulation.

^[63] John Taladay & Maureen Ohlhausen, Are Competition Officials Abandoning Competition Principles?, 13 J.E.C.L. & Pract. 463 (5 July 2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4042226.

^[64] Radic, Manne, & Auer, supra note 12.

^[65] Dae-sik & Sokol, supra note 5.

^[66] Carmelo Cennamo & Juan Santaló, Potential Risks and Unintended Effects of the New EU Digital Markets Act, Esade EcPol (February 2023), available at https://www.esade.edu/ecpol/wp-content/uploads/2023/02/AAFF_EcPol-OIGI_PaperSeries_04_Potentialrisks_ENG_v5.pdf.

^[67] Adam Cohen, New Competition Rules Come with Trade-Offs, Google Blog (5 April 2024), https://blog.google/around-the-globe/google-europe/new-competition-rules-come-with-trade-offs.

^[68] Mario Monti, Why and How? Why Should We Be Concerned with Cartels and Collusive Behaviour?, Eur. Comm. (11 September 2000), https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_00_295.

^[69] Geoffrey A. Manne, Error Costs in Digital Markets, GAI Report on the Digital Economy 3 (November 2020), available at https://gaidigitalreport.com/wp-content/uploads/2020/11/Manne-Error-Costs-in-Digital-Markets.pdf.

[70] Proposal Paper, supra note 1, at 6, 9-10.

[71] Digital Advertising Services Inquiry 2020-2021, Final Report, Aust. Compet. Consum. Comm (28 September 2021) https://www.accc.gov.au/about-us/publications/digital-advertising-services-inquiry-final-report.

[72] Geoffrey A. Manne & Eric Fruits, The Antitrust Assault on Ad Tech: A Law & Econ Critique, Int’l Ctr. L. Econ. (2022), available at https://laweconcenter.org/wp-content/uploads/2022/11/ICLE-White-Paper-2022-11-03-The-Antitrust-Assault-on-Ad-Tech-A-Law-Economics-Critique.pdf.

[73] United States v. Google LLC, No. 1:23-cv-00108 (D.D.C. 2023).

[74] Proposal Paper, supra note 1, at 20-21.

^[75] Javier Delgado, DMA Implementation Sinks 30% of Clicks and Bookings on Google Hotels Ads, Mirai (7 May 2024), https://www.mirai.com/blog/dma-implementation-sinks-30-of-clicks-and-bookings-on-google-hotel-ads.

^[76] Id.

^[77] Id.

^[78] Id.

^[79] Oliver Bethell, Complying with the Digital Markets Act, Google Blog (5 March 2024), https://blog.google/around-the-globe/google-europe/complying-with-the-digital-markets-act.

^[80] Cohen, supra note 67.

[81] See Jon Porter & David Pierce, Apple Is Bringing Sideloading and Alternate App Stores to the iPhone, The Verge (25 January 2024), https://www.theverge.com/2024/1/25/24050200/apple-third-party-app-storesallowed-iphone-ios-europe-digital-markets-act.

[82] See Complying with the Digital Markets Act, Apple (2024), available at https://developer.apple.com/security/complying-with-the-dma.pdf.

[83] Kim Mackrael, Apple’s Hold on the App Store Is Loosening, at Least in Europe, Wall St. J. (16 August 2024), https://www.wsj.com/tech/epic-games-apple-app-store-europe-44ceda50.

[84] Dan Goodin, Novel Technique Allows Malicious Apps to Escape iOS and Android Guardrails, ArsTechnica (21 August 2024), https://arstechnica.com/security/2024/08/novel-technique-allows-malicious-apps-toescape-ios-and-android-guardrails.

[85] See id., at 6 (“Both mobile operating systems employ mechanisms designed to help users steer clear of apps that steal their personal information, passwords, or other sensitive data. iOS bars the installation of all apps other than those available in its App Store, an approach widely known as the Walled Garden”).

[86] Jess Weatherbed, The First “Approved” iPhone Porn App is Coming to Europe, The Verge (3 February 2025) https://www.theverge.com/news/604937/iphone-ios-porn-app-hot-tub-altstore-pal-eu.

[87] Clare Duffy, Meta’s Threads is Now Available in the EU, CNN (14 December 2023), https://www.cnn.com/2023/12/14/tech/metas-threads-eu-launch/index.html.

[88] Rohan Goswami, Apple Intelligence Won’t Launch in EU in 2024 Due to Antitrust Regulation, Company Says, CNBC (21 June 2024) https://www.cnbc.com/2024/06/21/apple-ai-europe-dma-macos.html.

[89] Apple Intelligence Is Available Today on iPhone, iPad, and Mac, Apple (28 October 2024), https://www.apple.com/ie/newsroom/2024/10/apple-intelligence-is-available-today-on-iphone-ipad-and-mac (“This April, Apple Intelligence features will start to roll out to iPhone and iPad users in the EU. This will include many of the core features of Apple Intelligence, including Writing Tools, Genmoji, a redesigned Siri with richer language understanding, ChatGPT integration, and more”).

[90] Proposal Paper, supra note 1, at 21.

[91] Omar Vasquez Duque, Active Choice vs. Inertia? An Exploratory Assessment of the European Microsoft Case’s Choice Screen, 19 J. Comp. L. & Econ 60. (2023).

[92] Erik Hovenkamp, The Competitive Effects of Search Engine Defaults, SSRN (14 November 2024), at 21, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4647211 (“If a potential entrant (if successful) can obtain a default, this increases its ex ante investment and raises the probability of entry. In this case, the default may raise dynamic consumer welfare”).

[93] Proposal Paper, supra note 1, at 22.

[94] Jane Bambauer, Reinventing Cambridge Analytica One Good Intention at a Time, Lawfare (8 June 2022) https://www.lawfaremedia.org/article/reinventing-cambridge-analytica-one-good-intention-time.

[95] See infra, Section VI.

[96] Jonathan M. Barnett, The Host’s Dilemma: Strategic Forfeiture in Platform Markets for Informational Goods, 124 Harv. L. Rev. 1861, 1927 (2011).

[97] Proposal Paper, supra note 1, at 21.

[98] See infra, Section VI.

^[99] See Geoffrey A. Manne, Against the Vertical Discrimination Presumption, Concurrences No. 2-2020 (2020), at 1; see also Barnett, supra note 96; Andrei Hagiu & Kevin Boudreau, Platform Rules: Multi-Sided Platforms as Regulators, in Platforms, Markets and Innovation (Annabelle Gawer, ed. 2009).

^[100] Manne, id., at 1-2 (citing examples from the literature showing that complementors and consumers alike often benefit from platform self-preferencing); see also Sam Bowman & Geoffrey A. Manne, Platform Self Preferencing Can be Good for Consumers and Even Competitors, Truth Mark. (4 March 2021), https://laweconcenter.wpengine.com/2021/03/04/platform-self-preferencing-canbe-good-for-consumers-and-even-competitors.

^[101] On self-inflicted dependence, see Geoffrey A. Manne, The Real Reason Foundem Foundered, Int’l Ctr. L. Econ. (2018), at 6, available at https://laweconcenter.org/wp-content/uploads/2018/05/mannethe_real_reaon_foundem_foundered_2018-05-02-1.pdf (“A content provider that makes itself dependent upon another company for distribution (or vice versa, of course) takes a significant risk. Although it may benefit from greater access to users, it places itself at the mercy of the other—or at least faces great difficulty (and great cost) adapting to unanticipated, crucial changes in distribution over which it has no control. This is a species of what economists call the ‘asset specificity’ problem”).

[102] Proposal Paper, supra note 1, at 21.

[103] Tom Marks, Report: Steam’s 30% Cut is Actually the Industry Standard, IGN (7 October 2019), https://www.ign.com/articles/2019/10/07/report-steams-30-cut-is-actually-the-industry-standard.

[104] Distributing Dating Apps in the Netherlands, Apple, https://developer.apple.com/support/storekit-external-entitlement (last visited 13 February 2025).

Your Feb. 10 editorial “Trump, CBS, and ‘News Distortion’” highlights the sclerotic nature of U.S. telecommunications law. As you note, it’s absurd that flipping the channels on one’s television can mean oscillating between regulated and unregulated content. This can often apply to the same substance: Americans could watch this year’s Super Bowl on heavily regulated broadcaster Fox or via lightly regulated streamers such as Tubi and Fubo.

Read the full piece here.

The Federal Trade Commission is requesting public comments on “technology platform censorship,” a long-standing gripe for conservatives who believe social media companies have been censoring them and their ideas. To date, courts have rejected cases alleging censorship by the so-called Big Tech platforms on grounds that the plaintiffs failed to show “state action” on the part of government agents.

The Federal Trade Commission’s (FTC) antitrust suit against Amazon, originally filed in October 2023, is scheduled for trial in October 2026. In the meantime, the U.S. District Court for the Western District of Washington has scheduled a March 7 “economics day” hearing to focus on fundamental economic concepts that will shape the case—including the crucial question of market definition.

Market definition serves as the starting point for antitrust analysis. Before a court can determine whether a company has monopoly power or has engaged in anticompetitive conduct, it must first identify the relevant market in which the firm operates. This seemingly technical exercise serves to determine the lens through which the entire case will be viewed.

Read the full piece here.

In recent months, we’ve been hearing about the European Commission’s call for simplification of regulations—an agenda championed by President Ursula von der Leyen. She rightly noted that businesses are overwhelmed by regulations that are “too complex and costly to comply with.” She echoed the seminal Draghi report, which underscored that a lighter and clearer regulatory hand can spur innovation and growth that Europe desperately needs.

Read the full piece here.

TL;DR

Background: While President Donald Trump’s various tariff proposals continue to grab headlines, non-tariff barriers (NTBs) represent a more pervasive form of trade protectionism, with dramatic effects on the global flow of goods and services. 

NTBs are often justified as needed to correct some alleged market failure. These include preventing environmental damage (e.g., banning imported mahogany to prevent deforestation), correcting asymmetries in consumer information (“Made in the USA” labeling regulations), or protecting public health (banning imports of hormone-treated beef). 

But… In practice, many NTBs function as tools for rent seeking, wherein special-interest groups exploit regulations in order to gain economic advantages at the expense of broader social welfare. To make matters worse, NTBs often become entrenched due to regulatory capture, where agencies prioritize industry interests over the public welfare.

However… NTBs represent a dual-edged sword in global trade policy. An optimal NTB design requires recognizing that the claimed benefits of improved consumer protection, national security, and public health and safety may come at significant financial cost and reduced consumer choice.

KEY TAKEAWAYS

What Are Non-Tariff Barriers?

NTBs include a wide range of regulatory, administrative, and procedural measures that governments use to influence trade flows without relying on direct tariffs. Common NTBs include import quotas and licensing requirements; technical standards and sanitary regulations; local-content requirements, like “Buy American”; and overly complex customs procedures

The proliferation of NTBs has accelerated even as global tariffs have declined under multilateral agreements, like those administered by the World Trade Organization. Some of these NTBs are inadvertent side effects of measures taken to address legitimate public-policy objectives (e.g., environmental protection, consumer safety). But many (perhaps most, including many that also seek to address ostensibly legitimate public-policy goals) are driven by the goal of protectionism.

We Must Protect the Public

NTBs are often justified to correct alleged market failures, such as negative externalities or information asymmetries. For example, it’s argued that the United States bans the import of mahogany wood to reduce widespread illegal logging and unsustainable harvesting practices that threaten the survival of mahogany trees in their native habitats. The country’s strict “Made in the USA” labeling regulations are deemed necessary to reassure consumers that, if they buy a product that advertises it was made domestically, then nearly all of that product was made in the United States.

When a market failure cannot be identified, proponents of NTBs often fall back on national security or industrial policy as justification. For example, the Jones Act restricts waterborne cargo transport within the United States to U.S.-flagged, U.S.-crewed, U.S.-owned, and U.S.-built vessels. The law was meant to bolster the U.S. maritime sector and create a ready labor pool from which the military could draw when needed.

We Must Protect Producer Profits

In practice, concentrated interest groups exploit regulatory processes—such as NTBs—to increase profits and extract rents, imposing deadweight losses on the economy through reduced competition and higher consumer prices. On this view, NTBs are seen as a form of rent seeking, with alleged market failure or national-security and public-health concerns serving as a fig leaf for the true motivation.

For example, nearly every economics textbook points to the U.S. sugar-quota program as an example of such rent seeking. Paul Krugman and Robin Wells’ textbook notes: “This quota is difficult to rationalize in terms of any economic argument.” Nevertheless, sugar growers “are very aware of the benefits they receive from the quota and make sure that their representatives in Congress are also aware of their interest in the matter.”

It Usually Ends in Regulatory Capture

Regardless of the stated justifications for NTBs, if they are left in place for a sufficiently long time, an entrenched group of the rules’ beneficiaries will lobby to keep or expand the barriers. This is the well-known concept of regulatory capture, in which the agencies that regulate an industry act to advance that industry’s interests, rather than the public good.

The U.S. sugar quota and the Jones Act have existed for generations. Despite mounting evidence that these NTBs harm U.S. businesses and consumers, little serious legislative effort has been made to remove these barriers. While proponents of these protectionist policies make up a small slice of the electorate, they have acquired pockets so deep that they can successfully lobby to keep the programs in place.

Efforts to address NTBs, such as the Transatlantic Trade and Investment Partnership (TTIP), highlight the tension between regulatory coherence and industry influence. The TTIP aimed to harmonize U.S.-EU standards, but faced resistance from sectors that feared losing regulatory autonomy. For example, U.S. proposals to streamline testing and certification processes for industrial goods were seen as a way to benefit U.S. firms competing in EU markets. At the same time, EU demands for place-of-origin appellations (e.g., “Champagne”) were seen as a way to protect niche agricultural producers. The first Trump administration halted TTIP negotiations, with the European Commission declaring soon thereafter that the discussions were “obsolete and no longer relevant.”

Tit-for-Tat, or Realpolitik?

Early in his second term, President Donald Trump announced a new tariff policy outlined in a presidential memorandum entitled the “Fair and Reciprocal Plan.” The memo directs key trade and economic U.S. government agencies to take action against trading partners that impose tariffs, taxes, NTBs, or other restrictions on U.S. goods and services.

Trump’s approach to trade has been derided as little more than a tit-for-tat policy, but it may also involve a dash of realpolitik. The threat of tariffs can be used to extract other policy concessions—such as Trump’s tariff threat to encourage Colombia to accept military flights carrying deportees as part of his immigration crackdown.

That’s the stick, but there’s also a carrot. Once tariffs or NTBs are in place, the promise of removing these trade barriers can be dangled to extract additional concessions.

NTBs may be useful in addressing potential market failures, but they are also prone to capture by protectionist interests. An optimal NTB design requires recognizing that the claimed benefits may come at a significant financial cost and reduced consumer choice.

For more on this issue, see the Truth on the Market post “The Only Thing Worse Than Tariffs Is Non-Tariffs.”

The Federal Trade Commission is requesting public comments on “technology platform censorship,” a long-standing gripe for conservatives who believe social media companies have been censoring them and their ideas. To date, courts have rejected cases alleging censorship by the so-called Big Tech platforms on grounds that the plaintiffs failed to show “state action” on the part of government agents.

Hewlett Packard Enterprise (HPE) proposed a $14 billion deal in early 2024 to acquire Juniper Networks. HPE, it should be noted, is not the Hewlett Packard (HP) of printer and ink fame, as it was spun off from the larger HP corporation in 2015. Instead, HPE is, like Juniper, involved in connectivity—specifically, wireless technology, including software and hardware to deliver internet access to large enterprises and campuses.

After a nearly yearlong investigation under the Biden administration, the U.S. Justice Department (DOJ)—under President Donald Trump’s interim head of the DOJ’s Antitrust Division—issued a complaint Jan. 30 seeking to block the acquisition. This decision is particularly notable because the acquisition has already been approved by 14 other international regulators, including the European Commission (which found that “HPE and Juniper are not each other’s closest competitors”) and the United Kingdom (which explained that the acquisition “does not give rise to a realistic prospect of a substantial lessening of competition”).

Read the full piece here.

TL;DR

Background: The rise of video streaming has caused a seismic shift in the market for video content. The internet has fundamentally altered the technology and economics of content delivery, enabling the emergence of numerous streaming platforms and drastically changing how consumers access and view content. This shift presents significant challenges for both traditional providers and policymakers alike. 

But… Linear-programming distributors are struggling. Cable-television providers are losing subscribers, while local broadcasters are losing viewers. Linear distributors face declining revenues from both subscriptions and advertising. On the other hand, deals struck between sports leagues and streamers will boost streaming subscriptions at the expense of linear distributors. Policymakers are under pressure to “do something” to slow the shakeup in the video marketplace.

However… Policymakers should be cautious. Heavy-handed regulation—such as price controls or mandated unbundling of sports content—would be counterproductive and lead to unintended consequences, such as reduced investment in new programming.

KEY TAKEAWAYS

The Internet Changed Everything

In the still-recent past, broadcast and cable relied on access to airwaves or heavy investment in coaxial-cable hookups. This backdrop created significant barriers to entry and served to limit competition—so much so that providers were seen (and regulated) as monopolies.

The internet fundamentally changed the technology and economics of content delivery.  Leveraging existing internet infrastructure drastically reduced the cost of entry for new content providers. 

The relatively low cost of entry, combined with a relatively light regulatory burden, fostered the rise of streaming services. Companies like Netflix (initially a DVD-rental service) recognized the potential of online streaming, and capitalized on it by launching its streaming service in 2007. Netflix was soon followed by Hulu, initially a joint venture between News Corp and NBC Universal. Today, viewers can view content on more than 200 streaming platforms.

Cord-Cutting and the Decline of Linear

The average U.S. household subscribes to four streaming services, spending $61 monthly for that content. With more than 200 streaming platforms available, viewers spend 10.5 minutes just searching for content, according to Nielsen. 

In response, providers are moving toward various bundling strategies, while also incorporating advertising to drive revenue growth. Ad-supported streaming tiers now account for about 40% of streaming minutes viewed.

Cable subscriptions peaked in 2010, with the number of subscribers dropping by more than 35% in the years since. Millions of consumers have “cut the cord” and switched entirely from channel packages offered by cable and DBS-satellite providers to streaming services delivered over the internet. The Washington Post reports that barely half of American homes now pay for “linear” service from cable, satellite TV, or an internet-delivered vMVPD (virtual multichannel video programming distributor) like YouTube TV.

Local Broadcasters Languish

With the decline of so-called “linear” programming—a term generally used to refer to live TV, especially broadcast and cable—local broadcasters have suffered steep declines in revenues. Advertising revenues have been hit by a double whammy of fewer “eyeballs” and a shift by advertisers toward more targeted digital advertising. In addition, the decline in the number of cable subscribers has reduced local stations’ revenues from retransmission-consent fees. 

On top of that, local stations have lost their near-monopoly on providing “late-breaking” relevant news, weather, and traffic, as consumers shift to apps, online sources, and social media for timely news updates. As if that weren’t bad enough, local stations allege that networks’ direct-to-consumer services—such as NBC’s Peacock and CBS’ Paramount+—are cannibalizing viewers from local stations.

Sports: The New Battleground

Broadcasters and cable companies traditionally dominated the distribution of sports content. Over the past few years, however, this dominance has been eroded by streamers, who see sports as a key offering to attract and retain both consumers and advertisers. Sports have become such a key feature that they have been described as the “new battleground” in video competition.

Sport programming can be a powerful tool to attract new subscribers and reduce churn. Unlike linear and on-demand content, live sports events offer a unique draw, creating appointment viewing. They remain the primary driver of traditional TV viewership. 

As audiences move to streaming, sports content is following suit. This move has been accelerated by tech companies acquiring sports-broadcasting rights, such as Amazon’s 10-year exclusive deal to carry the National Football League’s (NFL) Thursday Night Football package on Amazon Prime for $1 billion a year.

What to Watch

Even More bundles: Streaming services are increasingly experimenting with bundling strategies, combining multiple services or products into a single package. These experiments could be a first step toward further consolidation in the industry.

Consolidation: As local broadcasters struggle to survive in the new landscape, we expect to see more mergers and acquisitions. The three largest station owners control 40% of all local news stations and are present in more than 80% of U.S. media markets.

A New FCC: With Brendan Carr’s appointment as chairman of the Federal Communications Commission (FCC), many anticipate a more favorable regulatory environment for mergers. Carr has, however, also expressed interest in revisiting the FCC’s “public interest” standard, potentially leading to heavy-handed interventions in content providers’ business decisions.

Sports Lawsuits: High-stakes legal battles over exclusive sports-streaming deals are likely to continue, as demonstrated by the recent class-action lawsuit against the NFL over its Sunday Ticket package, as well as FuboTV’s now-settled lawsuit against the media giants Disney, Fox, and Warner Bros. Discovery.

As the video-content landscape continues to evolve rapidly, policymakers must carefully navigate the challenges of updating regulations to reflect the new reality. They should avoid implementing heavy-handed rules that could stifle innovation and investment, while ensuring a level playing field for competition. Price controls and mandated unbundling of sports content, for example, could lead to such unintended consequences as reduced investment in sports programming and limited consumer choice.

For more on this issue, see the Truth on the Market post “Video Competition in 2025: It’s Literally on Heebee.”

Your Feb. 10 editorial “Trump, CBS, and ‘News Distortion’” highlights the sclerotic nature of U.S. telecommunications law. As you note, it’s absurd that flipping the channels on one’s television can mean oscillating between regulated and unregulated content. This can often apply to the same substance: Americans could watch this year’s Super Bowl on heavily regulated broadcaster Fox or via lightly regulated streamers such as Tubi and Fubo.

Read the full piece here.

AFeb. 20 press release from the Federal Trade Commission (FTC) announces “Federal Trade Commission Launches Inquiry on Tech Censorship.” That is, “a public inquiry to better understand how technology platforms deny or degrade users’ access to services based on the content of their speech or affiliations, and how this conduct may have violated the law.” Specifically, the agency published a “Request for Public Comment Regarding Technology Platform Censorship.”

Read the full piece here.

Well, you’ve gotta hand it to President Donald Trump. Trade policy is the topic du jour, with tariffs and tariff threats grabbing most of the headlines. When Trump announced 25% tariffs on steel and aluminum imports, my neighbor rushed out to replace her refrigerator, fearing rising prices. 

The small slice of the population with a “Principles of Economics” textbook on their bookshelf looked up the chapter on tariffs, read a few paragraphs, shut the book, and mumbled, “Yup, tariffs are bad.” The larger slice of the country that gets their economics from cable news either likewise got this version of the story or else another version that explains how tariffs are a key strategy in 4-D chess that can unleash unheard-of prosperity. Which story you get depends on what channel your TV is stuck on.

Step away from the textbooks and TV, and you’ll see that some big-time policymakers are rethinking not just tariffs, but overall trade policy—namely non-tariff trade barriers.

Read the full piece here.

Egg prices are in the news again. Policy responses will likely follow. But not all policy responses make sense.

Commissioner Alvaro Bedoya of the Federal Trade Commission (FTC) recently highlighted empty egg shelves and skyrocketing prices, calling for an investigation into potential market manipulation. While his concerns about the egg industry’s supply chain deserve attention, basic economics suggest a simpler explanation may account for much of what we’re seeing.

Read the full piece here.

In a recent memo to staff of the Federal Trade Commission (FTC), Chairman Andrew Ferguson explained that they should continue using the merger guidelines that the FTC and U.S. Justice Department Antitrust Division adopted jointly in 2023.

Ferguson’s memo noted that “the clear lesson of history is that we should prize stability” in merger policy. Gail Slater, President Donald Trump’s nominee to become assistant U.S. attorney general in charge of the DOJ Antitrust Division, echoed this sentiment during her confirmation hearing.

The argument seems compelling on the surface; regulatory certainty has value. But we need to think carefully about what we’re trying to stabilize.

Read the full piece here.

Less than a month has passed since President Donald Trump’s inauguration, but it is already clear that tariffs will be central to his administration’s economic policy and geopolitical strategy. Following an initial round of tariff threats against Mexico and Canada, and hiked tariffs on China, Trump is setting his sights on new targets—the European Union chief among them. Most recently, Trump declared that he will treat value-added taxes (VAT) like those assessed by EU members to be a form of tariff, and to assess equivalent reciprocal tariffs in return.

Counterintuitively, this might actually be good news for Europe’s tech sector.

Read the full piece here.

Children’s online safety is back on the agenda with the U.S. Senate Commerce Committee’s recent markup of the Kids Off Social Media Act (KOSMA). That bill would make social-media platforms liable for allowing kids under age 13 to create or maintain a profile.

But it’s worth considering whether KOSMA could possibly be effective if kids (and teens) continue to lie to create social-media profiles—sometimes, even with help from their parents. In attempting to avoid First Amendment limitations on online age verification, the law undercuts its own effectiveness.

Moreover, KOSMA would make social media noticeably worse for teen users by limiting platforms’ ability to curate content for them effectively. The end result would be increased incentive for teens to lie about their age as well.

Read the full piece here.

If you’re of a certain age, you remember the old days of watching TV. Over the antenna, you could get the three major networks, PBS and, in larger markets, perhaps some independent channels—some of which would begin airing programming from the new Fox network in 1986. If you made enough money, you could get a couple dozen channels from your local cable provider. If you lived in the sticks, you might have one of those massive C-band satellite dishes, informally known as the State Flower of West Virginia. You probably had a stack of VHS cassettes and an outstanding late fee at the local Blockbuster.

Those days are long gone.

Read the full piece here.

In 2022, and then again in 2023, Sens. Richard Durbin (D-Ill.) and Roger Marshall (R-Kan.) introduced legislation that would have required U.S. issuers of most Visa- and Mastercard-branded credit cards to include a second network on their cards, and to allow merchants to route transactions on a network other than the primary network branded on the card. A recent study by Oxford Economics, however, cautions that such legislation could do immense harm to the American economy.

Read the full piece here.

The concept of transformative use has emerged as a pivotal issue in fair-use analysis, particularly in cases that involve training data for artificial intelligence (AI). At its core, the transformative-use inquiry asks whether the new work repurposes original material to serve a markedly different function or market than that of the copyrighted work.

In this regard, the revised summary judgment handed down today in Thomson Reuters v. Ross Intelligence provides a significant touchstone, as the U.S. District Court for the District of Delaware held that Ross Intelligence’s use of Westlaw headnotes to train its AI legal-research tool failed the transformation test. By repackaging the headnotes in a manner that directly replicated Westlaw’s legal-research service, the court found that the AI tool operated in the same market as Westlaw, thereby undermining any claim to transformative use.

This perspective resonates with the earlier 2nd U.S. Circuit Court of Appeals precedent set in American Geophysical Union v. Texaco, where the court rejected the argument that photocopying entire journal articles for research purposes constituted a transformative use. The Texaco decision elucidated that mere duplication—even if it facilitates broader research or innovation—does not suffice to transform the original work if the material is consumed in its original, unaltered form. Indeed, that case provides what may be an appropriate analogy to AI training, in which the systems are trained on the expressive content of protected works for that expressive content directly. That is, AIs “learn” from the copies they make in much the same way that humans “learn” about expressive works by directly perceiving them.

As I will discuss below, the Ross case pushes a similar line of reasoning with a different set of cases. Nonetheless, even with this potentially adverse precedent, there is a potential distinction to be made between Ross and its purpose-specific legal research tool, and general-purpose large language models (LLMs).

Read the full piece here.

In the first investigation conducted under the new ex-ante regulatory framework established by the Digital Markets, Competition and Consumers Act (DMCC), the United Kingdom’s Competition and Markets Authority (CMA) is seeking to ascertain whether Google has “strategic market status” (SMS) in the search and search-advertising-services markets. The CMA is also tasked with weighing whether ex-ante remedies are needed to address potential anticompetitive harm caused by Google’s position.

In conducting this analysis, the CMA should build on other jurisdictions’ experience. The authority must carefully distinguish between conduct that is genuinely anticompetitive and harmful to consumers and conduct that—while not anticompetitive or harmful—conflicts with the CMA’s vision of how the online search market should be structured.

In defining the boundaries between “fair” and “unfair” or “informed” and “uninformed” choices, as well as between “competitive” and “anticompetitive” conduct, the CMA confronts a pivotal question: does it seek to enable market-driven outcomes or does it intend to impose its own? While it’s likely premature to assess the effectiveness of those interventions taken by other jurisdictions, the experience to-date does offer some clues as to where the line between regulators’ ambitions and consumer interests should be drawn.

Read the full piece here.

“The best of all monopoly profits is a quiet life,” observed the late British economist and Nobel laureate Sir John Hicks. But there’s no quiet life in artificial intelligence.

When Chinese startup DeepSeek recently demonstrated it could train world-class AI models using a fraction of the computing resources required by industry leaders, it revealed something crucial about competition in AI: dominance is more fragile than markets and regulators believed. Through clever engineering, DeepSeek claims to have achieved performance rivaling top firms OpenAI and Anthropic. And it did so while reportedly spending just $5 million on compute—a rounding error compared with the budgets of leading AI labs.

Read the full piece here.

Way back in late January, I wrote a piece called “Lina’s Lingering Legacy?” Lina Khan—at that time, Commissioner Khan, and the week before that, Chair Khan—had not yet left the Federal Trade Commission (FTC) building. But she had been replaced as chair by presidential fiat (as per Section 1 of the FTC Act) and she had announced that she would leave the FTC by close of business Jan. 31.

And she did, in fact, depart Jan. 31. But I had gotten ahead of myself, at least a little. There were matters afoot, and in court, and Khan’s track record slid a bit further during her last week at the commission. The same day that Khan departed the commission, Judge Charles Eskridge of the U.S. District Court for the Southern District of Texas denied the FTC’s motion for a preliminary injunction against Tempur Sealy’s acquisition of Mattress Firm.

Read the full piece here.

The U.S. Justice Department (DOJ) won its antitrust case against Google last year, establishing that the company illegally maintained its monopoly in “general search” and “general search text advertising” markets through exclusive default contracts. Now comes the hard part: crafting effective remedies.

I’m on record as saying the question of remedies would be difficult in this case, but new research from the National Bureau of Economic Research (NBER) suggests it may be even harder than I originally thought. In fact, the findings from researchers Hunt Allcott, Juan Camilo Castillo, Matthew Gentzkow, Leon Musolff, and Tobias Salze challenge many of our assumptions about competition in search markets and raise serious questions about whether any of the proposed antitrust remedies would actually help consumers.

Read the full piece here.

For more than a year, competition regulators around the globe have been unified in issuing a clarion call that artificial intelligence (AI) risks becoming dominated by just a handful of firms.

International competition agencies issued a joint statement in December warning that AI could entrench “market power” and reduce competition. Andreas Mundt, president of Germany’s Bundeskartellamt, earlier worried that AI would lead to “even deeper concentration of digital markets.”

Read the full piece here.

Policy chaos doesn’t just make headlines; it fundamentally disrupts economic calculation and prosperity. Like a stone thrown into still water, chaos ripples through the economy in ways that are hard to see but that can be profoundly destructive to prosperity and growth.

Its effects also ripple outward: freezing investment, distorting prices, and disrupting the calculations upon which markets depend. When businesses and individuals can’t predict the basic rules of the game, economic activity is stalled in ways that compound over time.

Read the full piece here.

Following an extensive consultation period, Brazil’s Ministério da Fazenda (Ministry of Finance) last October unveiled its final digital-platform report. Given the public stances previously taken by Brazil’s would-be digital regulators—the antitrust agency Conselho Administrativo de Defesa Econômica (CADE) and the telecommunications regulator Agência Nacional de Telecomunicações (Anatel)—it was likely inevitable that the report would endorse some kind of regulation of large digital platforms. That’s not to mention the peer pressure the ministry felt from other competition authorities like the European Commission or the views expressed by Brazil’s executive branch on other forms of digital market regulation

It is nonetheless useful to give a close look at the report’s findings and the context of the public consultation, as there are both positive and negative aspects to consider.

Read the full piece here.

Arecent controversy over pornographic apps being downloaded to iPhones in the European Union illustrates a fundamental tension in the EU’s Digital Markets Act (DMA): the conflict between mandated openness and established user-safety expectations.

While the DMA aims to promote competition and user choice, the recent case of the pornographic-video app Hot Tub, distributed to iPhone users through the third-party app store AltStore PAL, demonstrates how improper application of the regulation can compromise the user-safety mechanisms upon which consumers have come to rely.

Read the full piece here.

Introduction

Thank you for the opportunity to submit comments regarding the Intellectual Property Office’s (IPO) consultation on copyright and artificial intelligence (AI).[1] The International Center for Law & Economics (ICLE) is a nonprofit, nonpartisan research centre with a roster of more than 50 academic affiliates and research centres from around the globe. Our mission is to promote the use of law & economics methodologies to inform public-policy debates, including those involving the subject of intellectual property. Our scholars have produced significant research on issues related to AI, including its interaction with copyright law and competition policy.

These comments offer a law & economics background that we hope will help the IPO to weigh the tradeoffs involved in balancing the need to protect the rights of copyright holders with promoting the growth and development of AI. We have concerns that the consultation’s proposed approach to copyright and AI will unduly inhibit the growth of the AI sector in the UK by focusing on inputs without considering the broader nascent market that AI outputs can provide. In this broader market, the long-term interests of creators will likely be enhanced by providing new opportunities for commercialization that do not currently exist.

I. The Economics of Copyright and Innovation

Copyright is an important tool to stimulate innovation by fostering incentives, in the form of exclusive property rights, for authors to invest in the production of creative works. Copyright holders can then use those rights to prevent commercial free riding by other entities. The economic justification for copyright is that promoting creative output enhances social welfare in the long run.[2] Because creative works are otherwise non-excludable and non-rivalrous, they are a public good that would be underproduced in the absence of copyright, as they would be too easily copied, thereby reducing the expected value of production.

On the other hand, copyright law does give the rightsholder some degree of market power, which includes the ability to raise prices and hold up others’ ability to use copyrighted material. Thus, term limits and exceptions for fair use or fair dealing exist to provide some release valve for exceptional public-interest considerations. The need to grant both creators the ability to be compensated for their work and others the ability to use and enjoy that work (as well as the ability to realize the social benefits of fostering technological progress) is the basic tension inherent in copyright law.

This fundamental tension creates what we might call a ‘hydraulic system’; when pressure is applied in one area of copyright protection, it necessarily creates corresponding effects elsewhere in the system. Just as with actual hydraulics, where compressing fluid in one chamber causes movement in another, strengthening creators’ rights in one domain may require greater flexibility in another to maintain the system’s balance.

This hydraulic nature is particularly evident when disruptive technologies like AI challenge traditional frameworks. If we restrict AI systems at their input stage by limiting the materials upon which they can train, we may need to provide more flexibility at the output stage, or vice versa. Understanding this hydraulic relationship is crucial when considering how copyright law should evolve to accommodate AI technologies, while still fulfilling its foundational purpose.

Recent technological changes have introduced new challenges for policymakers seeking to strike the proper balance between promoting the production of creative works and permitting the consumption and use of copyrighted material as an input for further production. Allowing copyrighted material to be used as an input in AI models could, over the long term, change the incentives for creative output. But granting rightsholders the ability to reserve all rights could also unduly hold up AI developers’ ability to make their models to be as useful as possible. While AI is the most recent challenge to the paradigm of copyright law, it is necessary to keep some basic principles in mind.

First, copyright protects the expression of ideas, not the underlying ideas themselves. Expressing underlying ideas in a different manner than a copyright holder has does not normally violate copyright law. The fair-use exception in the United States, for instance, arguably allows AI developers to use many copyrighted materials as inputs for their models. This does, however, remain a subject of controversy within U.S. legal circles. The many good-faith arguments raised on all sides of that debate demonstrate that the sui generis case of AI training leaves it far from clear how traditional copyright principles ought to be applied to this innovative technology.[3]

Second, requiring AI developers to obtain individual licenses for all pieces of copyrighted material used in AI training would pose enormous practical challenges and generate tremendously high transaction costs.[4] A single large AI model might be trained on billions of text snippets or images drawn from across the internet. Negotiating a separate license for each copyrighted work (or a blanket license with each rightsholder) in such a corpus would entail thousands or even millions of transactions?.[5] The time and administrative overhead of this process would make it effectively impossible to license everything at the necessary scale. Thus, transaction costs would be ‘prohibitively high if developers had to agree a licence with each and every copyright holder individually’, given the sheer number of works involved.[6]

Because individual work-by-work licensing would be so unwieldy, some experts have suggested collective-licensing models as a possible solution.[7] The idea is to have a central entity or clearinghouse negotiate blanket licenses on behalf of large groups of rightsholders, similar to how music performing-rights societies operate. The main appeal of such collective licensing is that it would lower transaction costs by pooling rights?.[8] In theory, this approach could make access to training data more efficient and ‘affordable’.[9] Significant hurdles would, however, remain. First, not all content owners may join a collective, leaving gaps in the coverage?.[10] Sources of AI training data are highly diverse and diffuse; a collective-licensing regime might cover only certain classes of creative works (e.g., those owned by major publishers or contained in large image libraries) but miss independent creators who aren’t represented.[11]?

Second, if collective licensing became mandatory, it could introduce its own concerns. For instance, competition experts warn that forcing all licensors into a single pool might create a monopoly, eliminating competitive pressure among content suppliers?.[12] In the absence of clear market failure, businesses might prefer voluntary solutions, as can be seen with some media companies already striking deals)?.[13] In practice, we are seeing a mix of approaches: some large content owners have, indeed, banded together (or opted out of free use) to demand licenses, while many smaller creators remain outside any collective mechanism?.[14] This patchwork translates into uncertainty, while high costs persist for AI developers who try to assemble training datasets lawfully.

Third, calculating license fees will be very difficult. AI models use billions of inputs that contribute to an output. Determining the value of an input at the training stage may prove impossible. Moreover, given the sheer volume of input data needed, the marginal value of any piece of content—even content that may be quite valuable in other contexts—may be extremely small.

Once an output is generated and used commercially, it may be possible to assign value in novel output markets. Determining how much any given input contributed to that output, however, will depend on the degree of similarity. Such a system could theoretically work in much the same manner as YouTube’s ContentID system.[15] Further, there are likely new avenues for commercialization that would become available to creators if they were allowed to bargain with AI producers for the use of their name, image, and likeness in the content-generation stage.[16] But both of these potential solutions, as well as many yet-unconceived solutions, could be stymied by an overly aggressive application of traditional copyright principles to this new technology.

In sum, focusing on the input side may upset the balance of copyright law. A better approach would be to offer creators the ability to challenge outputs that are too similar to their own works. Below, we will consider in greater detail how this applies to the IPO’s proposal.

II. Problems with the Reservation-of-Rights Approach

The IPO proposes ‘a data mining exception which ensures that rights can be reserved, underpinned by developer transparency’.[17] The outline of how this would work is as follows:

(a) It would apply to data mining for any purpose, including commercial purposes.

(b) It would apply only where the user has lawful access to the relevant works. This would include works that have been made available on the internet, and those made available under contractual terms, such as via a subscription. This would allow right holders to seek remuneration at the point of access – for example, in the price of a subscription to a library of research material.

(c) It would apply only where the right holder has not reserved their rights in relation to the work. If a right holder has reserved their rights through an agreed mechanism, a licence would be required for data mining. Possible types of rights reservation, and the extent to which they can be supported using technology, are explored in more detail below.

(d) It would be underpinned by greater transparency about the sources of training material, to ensure compliance with the law and build trust between right holders and developers. Possible approaches to transparency are set out in more detail below.[18]

The legal effect would be to allow rightsholders to reserve their rights and prevent the use of their works for AI training.[19] If a reserved work is copied for an AI model, this would be considered an infringement of copyright law. The intent is to create a market for licensing copyrighted works as inputs in AI models.[20]

The problem with this approach is that it focuses too much on the use of inputs without adequately considering how this nascent technology could enable new modes of monetization for both creators and AI producers. As such, the proposal is more likely to prevent the growth of AI and reduce the social benefits that might flow from its use, while doing little to remunerate creators.

First, allowing rightsholders to reject the use of their materials as AI inputs would grant them a right that potentially exceeds the protections of traditional copyright. Copyright only protects the expression of an idea, not the idea itself. At this point, there is no legal consensus on what these AI systems are doing, even on a conceptual level. An argument can be made that unsanctioned use of copyrighted works in AI training amount to straightforward copyright violations, as the models are ‘memorizing’ creators’ content and using it to create new potentially infringing content.[21] But this is not obviously true, nor does it appear to be the consensus view. For example, research demonstrates that careful curation of data sets can lead to significant (if not total) reductions in the quantity of apparently ‘memorized’ content.[22]

Further, AI systems only make ‘true’ copies of works in the training phase; they do not literally copy them into their model weights. Instead, they analyse the statistical relationships among ‘tokens’ (smaller pieces of text or image chunks within a file) and learn the various patterns that human output takes for billions or trillions of similar input patterns.[23] This process is fundamental to how large language models (LLMs) process language, and it means the model never stores the original text as a readable sequence. Instead, each work in the training data is transformed into tokens and ultimately into abstract ‘weight’ adjustments. By the end of training, the model consists of billions of tuned parameters (essentially a complex array of numbers), or as Lee Gesner as described it, into ‘a vast sea of numbers, with no direct correspondence to the original text’.[24] In other words, the model only retains statistical information about language usage.[25] Tokenization enables an AI model to learn the patterns and structure of language without reproducing creative expression in its permanent files?.[26]?

Thus, in the United States, the fair-use argument remains a live controversy. More broadly, policymakers around the world should pause before rushing too quickly to apply traditional assumptions about either how AI technology operates or the markets it could facilitate.[27] Moreover, while the exceptions for fair dealing in the UK are more limited than fair use in the United States, the underlying logic remains the same: there are otherwise infringing uses of copyrighted material that are permitted as in the public interest.

Second, the reservation-of-rights approach would create large transaction costs that will, in many instances, serve as an impediment to bargaining. While the consultation is hopeful about the possibility of collective licenses,[28] much of the internet content that is scraped for use by AI models is not subject to such management. AI developers would likely be unable to identify all the rightsholders with whom they would be bound to negotiate licenses. Even if they could, as noted above, the transaction costs would be onerous, likely leading to less-capable AI models due to a lack of inputs. Another alternative is that such models would be forced to rely primarily or completely on synthetic data, which could likewise have deleterious effects on model quality.[29]

Third, lacking the ability to assign value at the input stage would greatly reduce AI’s ability to foster a market for licensing. Even assuming that transaction costs are not insurmountable, there are two problems with focusing on input-licensing markets: the low marginal value of works in training sets and the difficulty of assigning value. There is no obvious way to calculate the monetary value of a particular work as an AI input.

This conclusion has been supported by analysis from the U.S. Copyright Office: because foundation models ingest millions or even billions of works, the influence on the model of any one copyrighted work is likely to be so diluted that even a small transaction cost arising from licensing negotiations would exceed the work’s share of the model’s utility?.[30] While some data may be more important to a training set than other data, this is only on a relative basis. The entire collection of Roald Dahl’s works represents an important contribution to English-language writing, but it remains only a drop in the ocean of the English-language corpus. Even these very valuable properties would be worth a pittance in the context of a vast training set. This makes traditional valuation methods impractical; one can’t simply multiply a ‘per-work’ fee by millions of works without the total cost becoming astronomically high (and divorced from each work’s actual impact on the model).

One reason that valuation is difficult is that the monetization in generative AI happens at the output stage, not when the data is ingested. The training data is not sold or consumed directly; rather, value is realized when the model produces useful output (text, images, etc.) for which users will pay, or that otherwise enables a commercial service. The contribution of any given training example is indirect and intertwined with countless others. Thus, without a means to determine the connection between a particular piece of generated content and a piece of content present in a training set, any method of assigning a monetary value to a piece of training data will be highly speculative. For most individual works (especially those by independent creators scattered across the web), there is no clear market rate for ‘AI-training usage’. The value is context-dependent and likely de minimis on a per-work basis?.

Relatedly, when considering restrictions on AI-training data, we must acknowledge the critical importance of dataset diversity to prevent algorithmic bias. In creating a system in which only commercially negotiable properties are readily accessible for training, we risk developing AI models that disproportionately reflect the perspectives, experiences, and cultural contexts of those with market power or established licensing frameworks. This would inevitably lead to AI systems with blind spots, particularly undermining representation of independent creators and non-commercial sources of knowledge or expression.

The reservation-of-rights approach could therefore inadvertently create AI systems that are not only less capable but fundamentally biased toward commercially dominant viewpoints. True innovation and society at-large would both benefit from AI trained on diverse datasets that reflect the full spectrum of human knowledge and creative expression, not just those segments with the resources to participate in licensing markets.

III. A Better Way Forward: Focus on Outputs

A better approach would be to focus on finding solutions on the output side. Such an approach would recognize the ‘hydraulics of copyright’—that is, when pressure is applied in one area of copyright law, it creates a pull in another. If we allow broader use of copyrighted works as inputs for AI training, we should counterbalance this by strengthening creators’ rights regarding outputs that resemble their works.

When AI models are trained on copyrighted materials, they can produce outputs that are very similar to inputs. The IPO should, of course, consider ways to rebalance copyright law that would grant creators the ability to challenge outputs that are exceedingly similar to protected works. As it is put in the consultation document, ‘[c]ontent generated by an AI model will infringe copyright in the UK if it reproduces a “substantial part” of a protected work’.[31]

While there are difficulties in policing AI, ‘the copyright framework in relation to infringing outputs is reasonably clear and appears to be adequate’.[32] Promoting transparency in outputs generated by AI and adding additional protections for rightsholders when their creative works are substantially copied in AI outputs, would allow for AI models to grow while promoting the creation of new works.

This approach would acknowledge the tension inherent in copyright’s purpose: both protecting creators and encouraging innovation. Training AI systems requires large-scale data ingestion, reflecting the significant potential social benefits that AI may offer; these include democratizing access to information, spurring creativity, and driving technological progress. Rather than restrict this process at the input stage, which could severely hamper AI development, we should focus on the market impact at the output stage and build upon the IPO’s concern for AI-generated outputs.

For instance, in some jurisdictions within the United States, there are common-law protections for the use of an individual’s name, image, and likeness. If an AI model were to reproduce someone’s likeness or voice, this could possibly violate the ‘right of publicity’.[33] While a model could train on a variety of voices and images, it could be a violation if the output is too similar to a known person. The IPO should consider how to adopt similar standards for individuals to control their own ‘likeness’.

Beyond likeness rights, the IPO could explore revenue-sharing mechanisms tied to AI-generated outputs that substantially resemble copyrighted works, thereby ensuring that creators share in the benefits without stifling innovation. Such mechanisms would acknowledge that, while broad training may fall within fair-dealing exceptions, commercial outputs that compete with original works present a different consideration entirely.

A robust framework will need to evaluate whether the necessity of large-scale use of copyrighted works for AI training outweighs potential harms to creators, while simultaneously developing mechanisms to ensure fair compensation when outputs closely resemble original works. This approach would seek to preserve the foundational purpose of copyright: to protect creators while encouraging progress and innovation.

IV. Conclusion

The reservation-of-rights approach proposed by the IPO, while well-intentioned, risks undermining both the development of AI technology and the long-term interests of creators. By focusing primarily on input restrictions, this approach misunderstands the fundamental economics of copyright in the context of generative AI and fails to account for the need to balance pressures throughout the copyright system.

As we have detailed, the proposed input-focused framework presents several critical problems:

• It potentially expands copyright beyond its traditional scope of protecting expression rather than ideas, applying old frameworks to a technology that functions in fundamentally different ways than traditional human consumption of creative works.
• It introduces prohibitively high transaction costs that would prevent effective bargaining between AI developers and the vast number of rightsholders whose works appear online, ultimately creating market inefficiencies.
• It overlooks the practical impossibility of calculating accurate values for individual works used as inputs in massive training datasets, where even culturally significant works represent only a tiny fraction of the total data.
• It risks embedding algorithmic bias by limiting training to ‘commercially negotiable’ properties, thereby potentially creating AI systems that reflect only the perspectives of those with market power and established licensing frameworks.

A more effective and balanced approach would preserve the essential purpose of copyright law—promoting both creative production and innovation—by focusing regulatory attention on outputs, rather than inputs. This would allow AI models to train broadly on diverse datasets while creating stronger mechanisms for creators to challenge, control, or be compensated for outputs that substantially resemble their protected works.

If it were to adopt this output-focused framework, the UK would seize the opportunity to position itself as a leader in AI innovation, while still respecting and protecting creators’ rights. Such an approach would better serve the public interest. It would enable a flouring of the expected social benefits of AI technology—democratizing access to information, spurring creativity, and driving technological progress—while ensuring that creators can participate meaningfully in these new markets.

The future of copyright in the age of AI requires thoughtful recalibration, rather than restriction. We urge the IPO to consider how the hydraulics of copyright might be better balanced by strengthening creators’ rights at the output stage, while allowing for the broad training necessary for AI to realize its full potential for society.

[1] Copyright and AI: Consultation, UK Intellect. Prop. Off. (December 2024), available at https://assets.publishing.service.gov.uk/media/6762c95e3229e84d9bbde7a3/241212_AI_and_Copyright_Consultation_print.pdf [hereinafter ‘Consultation’].

[2] For more on the economics of copyright, see Brent Luches, Introduction 1-3, in Identifying Economic Implications of Artificial Intelligence for Copyright Policy (U.S. Copyr. Off., February 2025), available at https://www.copyright.gov/economic-research/economic-implications-of-ai/Identifying-the-Economic-Implications-of-Artificial-Intelligence-for-Copyright-Policy-FINAL.pdf.

[3] See, e.g., Kristian Stout, AI Training Is Not Fair (According to One Court), Truth Mark. (11 February 2025), https://truthonthemarket.com/2025/02/11/ai-training-is-not-fair-according-to-one-court.

[4] See Richard A. Posner, Economic Analysis of Law 42 (7th ed. 2007), (discussing the transaction costs involved with copyright as including the tracing costs of identifying the copyright holder and negotiation costs of negotiating the license with the copyright holder).

[5] See Jorge Padilla & Kadambari Prasad, Demystifying Licensing Debates: Should GenAI Developers Pay to Train Their Models on Copyright Protected Content?, Compass Lexecon (25 February 2025), https://www.compasslexecon.com/insights/publications/demystifying-licensing-debates-should-genai-developers-pay-to-train-their-models-on-copyright-protected-content.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] See Michael D. Smith & Rahul Telang, The Effect of AI Ingestion on Rightsholders’ Incentives 35-38, in Identifying the Economic Implications of Artificial Intelligence for Copyright Policy (U.S. Copyr. Off., February 2025), available at https://www.copyright.gov/economic-research/economic-implications-of-ai/Identifying-the-Economic-Implications-of-Artificial-Intelligence-for-Copyright-Policy-FINAL.pdf (discussion of the limitations of collective licensing for AI training).

[11] See id. at 37.

[12] Padilla & Prasad, supra note 5; see also Press Release, Runway Partners with Lionsgate in First-of-Its-Kind AI Collaboration, Lionsgate (18 September 2024), https://investors.lionsgate.com/news-and-events/press-releases/2024/09-18-2024-140126979.

[13] Padilla & Prasad, supra note 5.

[14] See, e.g., Christophe Geiger, To Pay or Not to Pay (For Training Generative AI), That Is the Question, Intellectual Property Jotwell (18 December 2023), https://ip.jotwell.com/to-pay-or-not-to-pay-for-training-generative-ai-that-is-the-question (reviewing Martin Senftleben, Generative AI and Author Remuneration, 54 Int’l Rev. Intell. Prop. Competition L. 1535 (2023)).

[15] See How Content ID Works, YouTube Help, https://support.google.com/youtube/answer/2797370?hl=en (last accessed 25 February 2025).

[16] See Shane Greenstein, Commercial Exploitation of Name, Image, and Likeness 24-30, in Identifying the Economic Implications of Artificial Intelligence for Copyright Policy (U.S. Copyright Office, February 2025), available at https://www.copyright.gov/economic-research/economic-implications-of-ai/Identifying-the-Economic-Implications-of-Artificial-Intelligence-for-Copyright-Policy-FINAL.pdf.

[17] Consultation, supra note 1, para. 72.

[18] Id. at para. 74.

[19] See id. at para. 76.

[20] See id. at para. 77.

[21] See Katherine Lee et al., Deduplicating Training Data Makes Language Models Better, arXiv (March 2022), https://arxiv.org/abs/2107.06499; see also Alex Reisner, The Flaw That Could Ruin Generative AI, The Atlantic (11 January 2024), https://www.theatlantic.com/technology/archive/2024/01/chatgpt-memorization-lawsuit/677099/.

[22] Lee, supra note 21, at 1.

[23] Lee Gesner, Copyright and the Challenge of Large Language Models (Part 1), Mass Law Blog (1 July 2024), https://www.masslawblog.com/copyright/copyright-and-the-mechanics-of-large-language-models, (offering a layman’s discussion of how, before training, AI models convert text into a numerical form through tokenization, breaking language down into small units (words or subwords) which are then represented as numbers?).

[24] Id.

[25] John Poulos, Generative AI: How It Works, Content Ownership, and Copyrights, Inside Tech Law (24 May 2024), https://www.insidetechlaw.com/blog/2024/05/generative-ai-how-it-works-content-ownership-and-copyrights.

[26] Id.

[27] See Stout, supra note 3.

[28] See Consultation, supra note 1, paras. 94-96.

[29] See Maggie Harrison Dupre, When AI Is Trained on AI-Generated Data, Strange Things Start to Happen, Futurism (2 August 2023), https://futurism.com/ai-trained-ai-generated-data-interview.

[30] See Adam Jaffe, Controlling the Use of Copyrighted Materials in Training 50, in Identifying the Economic Implications of Artificial Intelligence for Copyright Policy (U.S. Copyright Office, February 2025), available at https://www.copyright.gov/economic-research/economic-implications-of-ai/Identifying-the-Economic-Implications-of-Artificial-Intelligence-for-Copyright-Policy-FINAL.pdf.

[31] Consultation, supra note 1, para. 157.

[32] Id. at para. 161.

[33] See Greenstein, supra note 16, at 24-30.

Introduction

We thank the Canadian Radio-television and Telecommunications Commission (“CRTC” or “the commission”) for the opportunity to offer comments in response to this notice of consultation, as the commission examines the market dynamics among small, medium, and large programming, distribution, and online services, as well as the tools needed available to ensure the sustainability and growth of Canada’s broadcasting system.[1] Further, we request that you consider allowing Kristian Stout, a co-author of these comments, to appear at the public hearing for this proceeding.

This consultation raises important questions about how best to define and support Canadian content, while avoiding unintended consequences that could harm the Canadian creative sector. This requires an examination of the incentives for both production and commercialization, as well as their impact on consumer welfare. Accordingly, we address several issues below where we believe a law & economics framework that emphasizes market efficiency, competition, and regulatory proportionality supports the need for deregulation and light-touch solutions.

I. Access to the Broadcasting System (Q1-Q8)

The consultation questions whether structural, financial, or regulatory barriers disproportionately affect traditional versus online undertakings, or smaller versus larger players. Writing on the current state of video competition, Eric Fruits notes that the internet has fundamentally changed both the means and economics of content delivery.[2] In the past, content was available only via broadcast, cable, and direct-broadcast satellite (“DBS”), all of which required substantial upfront investment.[3] This created significant barriers to entry and limited competition—so much so that providers were seen (and regulated) as monopolies.

Streaming, on the other hand, has leveraged the existing internet infrastructure to drastically reduce the cost of entry for new market players. According to the Media Technology Monitor, nearly three in 10 Canadian households rely solely on online-content sources, including subscription video on-demand (“SVOD”) and free advertising-supported streaming television (“FAST”).[4] Today’s consumers face seemingly endless options for video programming. Nearly every channel that is available in a traditional cable bundle is now also available “a la carte” via streaming, with more than 200 available streaming platforms.[5]

Heavy-handed access rules (e.g., mandatory carriage or distribution quotas) can risk distorting market incentives and entrenching incumbents. For example, the 1:1 Rule requires broadcast-distribution undertakings (“BDUs”) to distribute one independent programming service for every affiliated (vertically integrated) service they carry.[6] While intended to foster diversity and competition, this regulatory mechanism would likely inflate the supply of niche programming, perhaps in hopes of fulfilling Say’s Law that “supply creates its own demand.” The rule serves as a supply-side mandate that compels BDUs to allocate distribution capacity to independent services regardless of consumer demand. Independent services gain automatic access to distribution networks, bypassing competitive pressures to prove audience appeal or cost-effectiveness.

With near-guaranteed carriage, independent services have less incentive to invest in marketing, production quality, or audience analytics—factors critical to organic growth. Furthermore, BDUs often pass the costs of mandatory carriage on to consumers through bundled pricing.[7] This results in cross-subsidization, whereby popular services indirectly fund niche offerings that might otherwise fail in a competitive market. Consumers pay for this cross-subsidization by paying higher effective prices for popular services to underwrite this distribution of less-popular services.[8] The phenomenon is so well known that the following comic (Figure 1) made its way into a 2007 CRTC report.[9]

FIGURE 1: Cross-Subsidization of Bundled Channels

Nordicity notes that the 1:1 Rule treats all independent services equally, when they are not all equal:

While certainly useful, the trouble with the rule is two-fold. It applies to all independent services regardless of genre or language—and all independents are not equal. Some specialty niche ethnic services can survive on a pay TV model of high subscriber fee and as little as 20K subscribers. That will not work for former Category A independents that have more of a public interest niche and a need for more substantial revenues.[10]

Nordicity’s key observation is that, in a competitive market, even small niche services can thrive if consumers are willing to pay for them. Geoffrey Manne made a similar point in testimony before the U.S. House of Representatives:

Generally, allowing distributors to make channel placement choices in their best interests will coincide with the interests of consumers; if it did not, the consumers would switch providers or access content in an alternative way. This is the essential point about the structural nature of today’s video market: consumers have a variety of MVPD choices and, critically, can get most of the content they want from [online video distributors], either instead of an MVPD subscription (cord-cutting) or in addition to it (cord-trimming).[11]

Current CRTC regulations are heavily reliant on supply-side policies, with little acknowledgment of demand-side constraints. While the availability of content is a necessary condition for consumption, it is no guarantee of sustainable demand for that content. In a world of unprecedented competition for video content, with nearly every genre available to nearly everyone via a multiplicity of sources, consumers are best positioned to identify and discover the content they want to consume.

The CRTC should consider replacing prescriptive access mandates with a framework that fosters market-driven negotiations, supported by ex-post antitrust scrutiny to address any alleged anticompetitive conduct. Such an approach would encourage investments in production, marketing, and audience analytics in service of generating organic growth. Light-touch regulations would reduce cross-subsidization through bundling, thereby reducing the price paid by consumers.

II. What Counts as Canadian Content (Q10-Q12)

The CRTC inquires about the discoverability of Canadian content and how best to ensure its production. Implicit in the question is a shared notion of what counts as “Canadian content,” but that concept may need further refinement. The current approach to defining Canadian content—particularly the emphasis on Canadian intellectual-property (“IP”) ownership as a necessary precondition, rather than one factor among many—risks undermining, rather than supporting, the Canadian creative sector.[12]

Under current CRTC requirements, Canadian-content qualification depends heavily on IP ownership and control at the time of production. A Canadian entity must retain primary control over the production’s financing, creative direction, and distribution rights throughout the production phase.[13] While post-production sales of IP rights to foreign entities does not affect a work’s Canadian status, foreign ownership of IP rights at a production’s outset typically disqualifies it from Canadian-content certification, regardless of its other Canadian elements.[14]

The rigid IP-ownership requirement can lead to paradoxical outcomes, whereby even productions deeply rooted in Canadian culture, and/or created predominantly with Canadian talent and resources, may nonetheless fail to qualify as Canadian content. Conversely, content with minimal connection to Canadian cultural experiences may qualify based purely on their Canadian IP-ownership structure.

This absolutist approach to IP ownership fundamentally misaligns incentives in content production and distribution. International commercialization partnerships, which often require IP sharing or transfer arrangements, play a crucial role in helping Canadian content to reach global audiences.[15] Research published by the Motion Picture Association—Canada finds that global studios and streamers are the second-largest source of financing for Canadian-owned content production.[16] The current framework effectively forces Canadian producers to choose between maintaining domestic-content qualification and accessing international distribution networks that could maximize their content’s reach and impact.

Moreover, the IP-ownership requirement creates significant barriers to investment in Canadian productions. In effect, well-capitalized international firms that could provide valuable production resources and expertise are discouraged from partnering with Canadian creative talent, as such partnerships would require complex ownership structures to maintain Canadian-content status. This artificial constraint on investment sources and partnership structures potentially reduces both the quantity and quality of Canadian content production. As The National Post reported recently:

Amazon argued that an “inflexible framework” where financial or creative control, IP ownership or specific creative positions must be held by Canadians would disincentivize foreign streamers to spend on Canadian productions, and that would in turn “deprive Canadians of the high-quality, large-scale programs made possible only by the scale and reach offered by foreign online undertakings.”[17]

The European Union’s (“EU”) experience with its Audiovisual Media Services Directive (AVMSD) offers important lessons about the unintended consequences of overly prescriptive local-content requirements.[18] While IP ownership can reasonably serve as one factor in evaluating a production’s Canadian character, making it a necessary precondition undermines the very cultural production the system aims to support. As the EU case demonstrates, such rigid requirements can lead to market distortions that ultimately reduce, rather than enhance, domestic cultural output.

III. Discoverability of Content (Q9-Q11) and Connected Devices (Q14-Q17)

The CRTC seeks information on challenges faced by broadcast undertakings in having their services and content promoted and discovered, and whether broadcasters face challenges in accessing connected-device interfaces (e.g., smart TVs). Nielsen’s Gracenote unit reports that Canadian viewers have roughly a half-million unique video titles available to them, with the vast majority provided over streaming services.[19] As a result of the growing abundance of content and content sources, the average viewer spends an average of 10.5 minutes searching for something to watch—up from 7.5 minutes in 2019.[20]

Program distributors have an incentive to reduce search times for the simple reason that time spent searching for content is time that not spent consuming content. Time spent consuming content is a key metric used by many services to determine pricing, advertising, and investments in programming and marketing. Toward that end, many services invest in developing curation algorithms customized for each user to promote the content the service thinks that individual user would want to view. Even FAST services that offer linear programming (e.g., Tubi, Pluto TV, and Roku TV) are developing approaches to personalize their content recommendations.[21]

Mandated-discoverability regulations, such as algorithmic quotas, risk creating inefficiencies by overriding consumer preferences. To the extent that Canadian consumers demand more Canadian, First Nations, or French-language content, the existing algorithms employed by providers and platforms already provide opportunities to discover that content. Heavy-handed regulation would not only reject these consumer preferences, but in many cases, may also produce redundant recommendations. If the CRTC believes any regulation of discoverability is necessary, it should be limited to transparency requirements, such as disclosure of curation practices, rather than prescriptive placement or assigning higher “weights” on the CRTC’s preferred content.

The market for connected devices is vibrant and competitive. The notice of consultation notes that more Canadians own connected devices than ever before. Numeris reports the average Canadian uses two to three different devices to consume video content, including smart TVs, set-top streaming devices, smartphones, tablets, and laptops.[22] In such a competitive environment, any sort of must-carry rules regarding interfaces or the display of services or content would be ineffective or harmful.

As with mandated-discoverability regulations, such mandates would override consumer preferences. If imposed and enforced in a heavy-handed way, they could erode distinctions among the competing platforms—effectively turning the devices into commodities with little discernible difference, thereby reducing choices available to consumers and diminishing their ability to choose those devices that best suit their own idiosyncratic preferences.

IV. Strategic Recommendations for the CRTC

The CRTC should exercise caution in considering new or expanded access mandates and should be skeptical of the need to continue existing access mandates. The history of video-market regulation suggests that static regulatory frameworks often struggle to keep pace with dynamic markets, leading to unintended consequences. Regulations that might be appropriate given current technology and market conditions can quickly become obsolete or counterproductive as markets evolve.

Moreover, video services and platforms often compete through business-model innovation (e.g., marketing, production quality, and audience analytics), rather than solely on the traditional dimensions of price and quality. Regulatory frameworks designed for traditional industries may struggle to account for these dynamic competitive effects. The risk of deterring beneficial innovation through overly restrictive regulation is particularly acute in video markets, where the next competitive threat can often arise from unexpected sources.

Thus, the CRTC’s strategic considerations should extend beyond the current focus on production-side stakeholders to encompass broader market dynamics and consumer-welfare effects. While creative talent and other industry participants have been well-represented in the consultations, the demonstrated preferences of Canadian consumers for diverse content offerings have received insufficient attention in policy deliberations. This imbalance risks creating a regulatory framework that prioritizes industry structure over consumer welfare.

The commission should also carefully consider how regulatory choices affect investment incentives in the Canadian production sector. Current evidence suggests that overly restrictive regulations can discourage, rather than encourage, international investment in Canadian production. The experience with similar regulations in the EU demonstrates how aggressive local-content requirements can create inflationary pressures that reduce production capacity and market efficiency.[23]

Furthermore, the regulatory framework must acknowledge the complex reality of content commercialization in global markets. Successful content production and distribution increasingly requires a combination of local creative talent and international commercialization expertise. Regulatory structures that artificially separate these elements or create barriers to their integration risk undermining the very cultural production they aim to support. The commission should therefore seek to craft regulations that facilitate, rather than impede, productive partnerships between Canadian creative talent and international distribution networks.

These considerations suggest that a more nuanced approach to regulation may better serve the CRTC’s objectives than rigid requirements around ownership and content quotas. Such an approach would recognize that cultural production flourishes not through isolation, but through dynamic interaction with global markets and distribution networks, while still maintaining appropriate safeguards for Canadian cultural interests.

A strong case can be made that access regulation is only appropriate in highly concentrated markets that demonstrate substantial and persistent barriers to entry. The market for video services is not such a market. Traditional access regulation assumes that market power derives primarily from control over physical infrastructure, which competitors cannot feasibly replicate. In contrast, streaming services and platforms derive their influence from network effects, superior use of data, and technological innovation. These sources of power are often transient, as market leadership in the digital economy can shift rapidly due to innovation, changes in consumer preferences, or the emergence of new competitors and modes of consumption. Regulatory approaches premised on static assessments of market power risk imposing obligations on providers that may no longer dominate their respective markets, thereby creating market distortions rather than promoting competition.

Access regulation should only be considered after clear empirical evidence shows that private market solutions have systematically failed to emerge. This requires more than theoretical market-failure arguments or isolated instances of access disputes. Regulators must demonstrate a pattern of access denials that create substantial economic harm and cannot be resolved through private negotiation or existing legal frameworks. The mere existence of pricing disputes or unsuccessful negotiations does not inherently justify regulatory intervention.

Traditional industries regulated under access obligations typically involve standardized physical products or services that can be shared with minimal disruption. Video services and platforms, however, operate via complex (often proprietary) algorithms, infrastructure (both software and hardware), and interfaces. Mandating access to these elements introduces significant technical and operational challenges. For instance, discoverability requirements may necessitate costly reengineering of systems and may generate results at-odds with consumer preferences.

These challenges are compounded by the rapid pace of technological change, which makes it difficult for regulators to craft and enforce rules that remain relevant over time. Writing about the difficulty of applying antitrust to the “new economy” (i.e., internet-based businesses, computer software, and communications services and equipment), the U.S. jurist Richard Posner concluded:

The real problem lies on the institutional side: the enforcement agencies and the courts do not have adequate technical resources, and do not move fast enough, to cope effectively with a very complex business sector that changes very rapidly.[24]

As the CRTC works toward a sustainable Canadian broadcasting system, it should take a light-touch and modest approach that acknowledges the existing dynamic and competitive video-distribution environment, and the nearly impossible task of predicting and responding to ongoing rapid technological and market advancements.

[1] The Path Forward—Working Towards a Sustainable Canadian Broadcasting System, Broadcasting Notice of Consultation CRTC 2025-2, Can. Radio-telev. Telecommun. Comm. (Jan. 9, 2025), https://crtc.gc.ca/eng/archive/2025/2025-2.htm.

[2] Eric Fruits, Video Competition in 2025: It’s Literally on Heebee, Truth Mark. (Feb. 14, 2025), https://truthonthemarket.com/2025/02/14/video-competition-in-2025-its-literally-on-heebee.

[3] Id.

[4] Press Release, Canadians Shift Streaming Habits and Embrace Short-Form Video, Media Technol. Monit. (Feb. 20, 2025), https://www.newswire.ca/news-releases/canadians-shift-streaming-habits-and-embrace-short-form-video-891821546.html.

[5] Fruits, supra note 2.

[6] CRTC, supra note 1.

[7] See Opinion and Order, FuboTV Inc. v. The Walt Disney Co., 24-CV-01363 (MMG) (S.D.N.Y. Nov. 20, 2024), available at https://nysd.uscourts.gov/sites/default/files/2024-08/Fubo%20Opinion.pdf (“[I]t is indisputable that the JV Defendants have long used the combination of bundling and minimum penetration requirements to make live pay TV distributors carry content they otherwise would reject, or would only offer based on express customer preferences, and therefore, those distributors are forced to pass those superfluous costs on to consumers who, in many cases, also do not want that content, or would not pay for the content if they had the choice.”)

[8] Further Report on the Packaging and Sale of Video Programming Services to the Public, Fed. Commun. Comm. (Feb. 9, 2006), available at https://docs.fcc.gov/public/attachments/DOC-263740A1.pdf (“the primary role of bundling… is to extract surplus to enhance profits, and… may allow MVPDs to extract so much surplus that they have an incentive to carry programming that is so costly to produce that its cost is greater than the total value to consumers of that programming.”)

[9] Laurence J. E. Dunbar & Christian Leblanc, Review of the Regulatory Framework for Broadcasting Services in Canada, Can. Radio-telev. Telecommun. Comm. (Aug. 31, 2007), available at https://publications.gc.ca/collections/collection_2008/crtc/BC92-62-2007E.pdf.

[10] Peter Miller, Canadian Television 2020: Technological and Regulatory Impacts, Nordicity (Dec. 2015), available at https://www.nordicity.com/de/cache/work/32/Canadian%20Television%202020_%20Technological%20and%20Regulatory%20Impacts%202015.pdf.

[11] Written Statement of Geoffrey A. Manne, The Satellite Television Law: Repeal, Reauthorize, or Revise? (Hearing of the House Energy Commer. Subcomm. Commun. Technol., 113th Cong. 113-52, 2013), available at https://laweconcenter.org/wp-content/uploads/2013/06/HHRG-113-IF16-Wstate-ManneG-20130612-U1.pdf.

[12] Canadian Program Certification Guide, Can. Radio-telev. Telecommun. Comm., https://crtc.gc.ca/canrec/eng/guide1.htm#2.1 (last visited Feb. 24, 2025).

[13] Id.

[14] Id.

[15] Charles H. Davis & Janice Kaye, International Film and Television Production Outsourcing and the Development of Indigenous Capabilities: The Case of Canada, in Locating Migrating Media (Greg Elmer, Charles H. Davis, Janine Marchessault & John McCullough eds., 2010).

[16] Maria De Rosa & Marilyn Burgess, Defining Canadian Content: Approaches Taken in Other Jurisdictions and Lessons Learned for Canada, Communications MDR (Feb. 23, 2022), available at https://www.mpa-canada.org/wp-content/uploads/2023/05/MDR-Report-ENG-3.pdf.

[17] Anja Karadeglija, CRTC’s CanCon Rules Could Worsen Trade Conflict, U.S. Business Groups Warn, National Post (Jan. 21, 2025), https://nationalpost.com/news/canada/crtcs-cancon-rules-could-worsen-trade-conflict-u-s-business-groups-warn.

[18] Kristian Stout & Giuseppe Colangelo, Cultural Levies and the EU Audiovisual Market, Int’l Ctr. L. Econ. (Jul. 11, 2023), https://laweconcenter.org/resources/cultural-levies-and-the-eu-audiovisual-market.

[19] State of Play, Gracenote (Aug. 2023), available at https://www.nielsen.com/wp-content/uploads/sites/2/2023/08/2023-SOP-ENG-final.pdf.

[20] Id.

[21] Id.

[22] Fall Video Overview, Numeris (Feb. 2025), available at https://numeris.ca/wp-content/uploads/2025/PDFs/VAM-Insights/EN/Fall%20Video%20Overview.pdf.

[23] Stout & Colangelo, supra note 18.

[24] Richard A. Posner, Antitrust in the New Economy, 68 Antitrust L. J. 925 (2001).

Introduction

The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan, global research and policy centre—based in Portland, Oregon, United States—founded to build the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies, and economic findings, to inform public policy. More specifically, ICLE and its affiliate scholars have written extensively about competition and merger policy and routinely engage with policymakers and academics around the globe on these issues.

The Autorité de la Concurrence (“Autorité”) has opened a consultation on the introduction of a merger-control framework for addressing below-threshold mergers likely to harm competition (“Consultation”).^[1]  This follows the Autorité’s previous consultations in 2017 and 2018, which explored how certain acquisitions of companies with low turnover—often involving nascent or potential competitors—might evade existing notification thresholds. In tandem, the Autorité also considered the possibility of relying on Article 22 of the EU Merger Regulation, which allows national competition authorities to refer transactions to the European Commission, even if they do not meet the EU thresholds. The Commission’s 2020 guidance encouraged greater use of such Article 22 referrals for below-threshold deals, and the Court of Justice of the European Union (“CJEU”), in its Illumina/Grail judgment of 3 September 2024, clarified that these referrals remain permissible, provided national authorities have the requisite legal competence.

According to the Consultation:

For several years, the Autorité has observed a steady increase in the number of mergers involving companies that play or are likely to play a key competitive role in the markets concerned but escaping control due to the low turnover generated by the target at the time of the merger.

Accordingly, the Autorité wishes to explore avenues for controlling such mergers that escape current notification thresholds but nevertheless harm competition on the French territory.  In its latest public consultation, the Autorité has put forward three options:

1. The creation of a targeted call-in power by the Autorité, based on quantitative and qualitative criteria (Option 1).
2. The introduction of a new mandatory notification criterion for certain companies holding a degree of market power—g., a dominant position or designation as a gatekeeper—based on a prior decision by the European Commission or the Autorité (Option 2).
3. Relying on ex-post enforcement (under Articles 101 and 102 TFEU) to address potentially problematic outcomes that may have escaped merger review (Option 3).

We appreciate the opportunity to comment on this Consultation but caution that, just because French policymakers can pass reforms to ensure mergers—particularly those involving startups—face more onerous review, does not mean it should.

While attempting to catch transactions that may harm consumers is commendable, it is important to understand the tradeoffs that ensue. Policing mergers is not costless, and any change in merger policy should consider both the benefits and the costs. Agencies will need to devote time and resources to assess mergers that previously were waved through without review. In turn, absent significantly more resources, this will reduce the review time devoted to the most problematic deals. Looking outside the agency, it will also increase the cost of mergers for the parties, thereby chilling all deals, even procompetitive ones.

All in all, in devising alternate solutions to potential competition problems in the market for corporate control, it is important not to fall for the so-called “nirvana fallacy”—that is, to compare an imperfect existing merger-control system against a hypothetical ideal merger regime, as if reforms would be implemented perfectly in the real world and according to their purported goals.[2] Of course, under the current merger-control system, some “Type II errors” will be made (that is, some anticompetitive mergers will not be captured). The observation that some imperfections can be identified is, however, insufficient to justify changes to the system.

The Autorité itself has recognized these concerns, having previously ruled out reforms that would create significant legal uncertainty, complexity, or unnecessary costs (e.g., thresholds based on transaction value or market shares).[3] Our comments therefore analyse these tradeoffs in greater detail, ultimately concluding that lower merger-filing thresholds and fewer safe harbours may be inappropriate when viewed through the lens of the error-cost framework.

Section I puts the current Consultation into a global context, explaining the impetus for—and weakness of—recent efforts to bolster merger enforcement worldwide. Section II outlines some of the implications of the error-cost framework for merger policy. Section III concludes by posing four questions that policymakers should consider when they amend merger-enforcement law and policy.

I. The Global Crackdown on Mergers

A growing number of policymakers and scholars around the world have been calling for tougher rules to curb corporate acquisitions. But these appeals are premature. There is currently little evidence to suggest that mergers systematically harm consumer welfare. More importantly, scholars fail to identify alternative institutional arrangements that could capture the anticompetitive mergers that evade prosecution without disproportionately large administrative costs and numbers of false positives. Their proposals thus fail to meet the requirements of the error-cost framework.

Taking a step back, there are multiple reasons for the antitrust community’s about-face. These include concerns about rising market concentration,^[4] labour-market monopsony power,^[5] and of large corporations undermining the very fabric of democracy.^[6] But of these numerous (mis)apprehensions, one has received the lion’s share of scholarly and political attention: a growing number of voices argue that existing merger rules fail to apprehend competitively significant mergers that either fall below existing merger-filing thresholds or affect innovation in ways that are, allegedly, ignored by the current rules.

These fears are particularly acute in the pharmaceutical and technology sectors, where several high-profile academic articles and reports claim to have identified important gaps in current merger-enforcement rules, particularly with respect to acquisitions involving nascent and potential competitors.^[7] Some of these gaps are purported to arise in situations that would normally appear to be procompetitive:

Established incumbents in spaces like tech, digital payments, internet, pharma and more have embarked on bids to acquire features, businesses and functionalities to shortcut the time and effort they would otherwise require for organic expansion. We have traditionally looked at these cases benignly, but it is now right to be much more cautious.^[8]

As a result of these perceived deficiencies, scholars and enforcers have called for tougher rules, including the introduction of lower merger-filing thresholds (similar to those put forward in the Consultation) and other substantive changes, such as the inversion of the burden of proof when authorities review mergers and acquisitions in the digital-platform industry.^[9]

These proposals, however, tend to overlook the important tradeoffs that would ensue from attempts to decrease the number of false positives under existing merger rules and thresholds. While merger enforcement ought to be mindful of these possible theories of harm, the theories and evidence are not nearly as robust as many proponents suggest. Most importantly, there is insufficient basis to conclude that the costs of permitting the behaviour they identify are greater than the costs that would arise from increasing enforcement to prohibit it.^[10]

In this regard, two key strands of economic literature are routinely overlooked (or summarily dismissed) by critics of the status quo.

For a start, as U.S. Judge Frank Easterbrook argued in his pioneering work on “The Limits of Antitrust”, antitrust enforcement is anything but costless.^[11] In the case of merger enforcement, not only is it expensive for agencies to detect anticompetitive deals but, more importantly, overbearing rules may deter beneficial merger activity that creates value for consumers. Indeed, not only are most mergers welfare-enhancing, but barriers to merger activity have been shown to significantly, and negatively, affect early company investment.^[12]

Second, critics are mistaking the nature of causality. Scholars routinely surmise that incumbents use mergers to shield themselves from competition. Acquisitions are thus seen as a means to eliminate competition. But this overlooks an important alternative. It is at least plausible that incumbents’ superior managerial or other capabilities (i.e., what made them successful in the first place) make them the ideal purchasers for entrepreneurs and startup investors who are looking to sell.

This dynamic is likely to be amplified where the acquirer and acquiree operate in overlapping lines of business. In other words, competitive advantage—and the ability to acquire other firms profitably—might be caused by business acumen, rather than exemplifying anticompetitive behaviour. And significant and high-profile M&A activity involving would-be competitors may thus be the procompetitive byproduct of a well-managed business, rather than evidence of anticompetitive efforts to stifle competition.

Critics systematically overlook this possibility. Indeed, Henry Manne’s seminal work on “Mergers and Market for Corporate Control”^[13]—the first to argue that mergers are a means of applying superior management practices to new assets—is almost never cited by contemporary researchers in this space. Our comments attempt to set the record straight.

With this in mind, we believe that calls to reform merger-enforcement rules and procedures should be analyzed under the error-cost framework. Accordingly, the challenge for policymakers is not merely to minimize Type II errors (i.e., false acquittals), which have been a key area of focus for recent scholarship, but also Type I errors (i.e., false convictions) and enforcement costs. This is particularly important in the field of merger enforcement, where authorities need to analyse vast numbers of transactions in extremely short periods of time.

In other words, while scholars have raised valid concerns, they have not suggested alternative institutional arrangements to address those concerns that would lead to better overall outcomes. Indeed, it could be the case that antitrust doctrine currently condones practices that harm innovation, but that there is no cost-effective way to reliably identify and deter this harmful conduct.

For instance, as we discuss below, a recent paper estimates that between 5.3% and 7.4% of pharmaceutical mergers are “killer acquisitions”.^[14] But even if that is accurate, it suggests no tractable basis on which those acquisitions can be differentiated ex ante from the 92.6% to 94.7% that are presumed to be competitively neutral or procompetitive. A reformed system that overly deters these acquisitions to capture more of the problematic ones—which is presumably the purpose (or at least, the effect) of the Autorité’s first two options—is not necessarily an improvement.

Further, while many of the arguments suggesting that the current system is imperfect are well-taken, these claims of systemic problems are not always as robust as proponents suggest. This further weakens the case for policy reform, because any potential gains from such reforms are likely far less certain than they are often claimed to be.

II. Antitrust and the Error-Cost Framework

Firms spend trillions of dollars globally every year on corporate mergers, acquisitions, and R&D investments.^[15] Most of the time, these investments are benign, often leading to cost reductions, synergies, new or improved products, and lower prices for consumers.^[16] For smaller firms, the possibility of being acquired can be vital to make a product worth developing.

There are also instances, however, when M&A activity enables firms to increase their market power and reduce output. Therein lies the fundamental challenge for antitrust authorities: among these myriad transactions, investments, and business decisions, is it possible to effectively sort the wheat from the chaff in a way that leads to net improvements in efficiency and competition, and ultimately consumer welfare? In more concrete terms, the question is: are there reasonable rules and standards that enforcers can use to filter out anticompetitive practices while allowing beneficial ones to follow their course? And if so, can this be done in a timely and cost-effective manner?^[17]

A. The Use of Filters in Antitrust

What might appear to be a herculean task has, in fact, been considerably streamlined—and vastly improved—by the emergence of the error-cost framework, itself a byproduct of pioneering advances in microeconomics and industrial organization.^[18] This is “the economists’ way out”.^[19] The error-cost framework is designed to enable authorities to focus their limited resources on that conduct most likely to have anticompetitive effects.

In practice, this is done by applying several successive filters that separate potentially anticompetitive practices from ones that are likely innocuous.^[20] Depending on this initial classification, practices are then submitted to varying levels of scrutiny, which may range from per-se prohibitions to presumptive legality.^[21]

Of the thousands of M&A transactions each year, only a few must be notified to antitrust authorities, and fewer still are subject to in-depth reviews.^[22] For instance, in both the United States and the European Union, only deals that meet certain transaction values and/or revenue thresholds require merger notifications.^[23] Accordingly, U.S. antitrust authorities receive somewhere in the vicinity of 2,000 merger filings annually, while the European Commission usually receives a few hundred.^[24] Typically, less than 5% of these mergers are ultimately subjected to in-depth reviews.^[25] These cases are selected by applying yet another set of filters that include: looking at the relationship between the merging firms (horizontal, vertical, conglomerate); calculating market shares and concentration ratios; and checking whether transactions fall within several recognized theories of harm.^[26]

Before those filters are applied, notification thresholds are the first screen to determine if a given transaction merits a review. According to the International Competition Network’s (“ICN”) “Recommended Practices for Merger Notification and Review Procedures”, mandatory-notification thresholds should be based on quantifiable criteria (like assets or sales) and based on information that is readily accessible to the parties to the proposed transaction.[27]

This ICN recommendation makes perfect sense. While a company’s sales or asset value are an imperfect proxy for its market power, or for potential impacts on free competition, at this stage of the procedure ¾when a decision must be made on whether to notify the transaction¾ the parties to a transaction should not be required to perform complicated calculations or analyses. That is something that should be done at a later stage of the analysis.

As these comments acknowledge, merger-control regimes are imperfect, and some Type II errors will be made. In those cases (a minority, to be sure) in which a merger could cause damage to competition, however, competition agencies have at their disposal ex-post competition rules related to behavioural control (e.g., prohibitions of cartelization and abuse of dominant position).

Similar filtering mechanisms apply to other forms of conduct. Incumbent firms routinely decide to enter adjacent markets, for instance, or to adopt strategies that might incidentally reduce competition in markets where they are already present. As with mergers, authorities and courts apply a series of filters/presumptions to home in on those practices most likely to cause anticompetitive harm.^[28] Firms with small market shares are deemed less likely to possess market power (and thus, less likely to harm competition); vertical agreements are widely seen as being less problematic than horizontal ones; and vertical integration is widely regarded as procompetitive, absent other accompanying factors.^[29]

This system is certainly not perfect; filtering cases in this manner inevitably lets some anticompetitive practices fall through the cracks. Indeed, the error-cost framework is premised on the recognition of this eventuality. Nevertheless, the strengths of this paradigm arguably outweigh its weaknesses. “If presumptions let some socially undesirable practices escape, the cost is bearable…. One cannot have the savings of decision by rule without accepting the costs of mistakes”.^[30]

In most jurisdictions around the world, competition agencies’ prevailing merger-control apparatus is administrable,^[31] somewhat predictable,^[32] and—in the case of merger enforcement—ensures that deals are reviewed in a relatively timely manner.^[33]

The contours of this system have profound ramifications for substantive antitrust policy. Potential reforms need to account for the tradeoffs inherent to this vision of antitrust enforcement: between false positives and false negatives, between timeliness and thoroughness, and so on. Accordingly, the relevant policy question is not whether existing provisions allow certain categories of potentially harmful conduct to go unchallenged. Instead, policymakers should ask whether there is a better set of filters and heuristics that would enable authorities and courts to prevent previously unchallenged anticompetitive conduct without overburdening the system or disproportionately increasing false positives.

In short, antitrust enforcers must avoid the so-called “nirvana fallacy” of believing that all errors can be eliminated, and existing policies should thus always be weighed against alternative institutional arrangements (as opposed to merely identifying instances where they lead to false negatives).^[34]

B. Calls for Reform of Merger-Enforcement Rules and Thresholds

Against this backdrop, a growing body of economic literature claims to have identified inadequacies in both the U.S. and EU merger-control regimes, as well as the antitrust rules that govern the business practices of digital platforms (notably, vertical integration and tying).^[35] These critiques focus on ways in which incumbents might prevent nascent or potential rivals from introducing innovative new products and services that could disrupt their existing businesses. In short, this recent economic literature purports to show how incumbents might use their dominant market positions to reduce innovation.

For instance, recent empirical research purports to show that mergers of pharmaceutical companies with overlapping R&D pipelines result in higher project-termination rates, thus reducing innovation and, ultimately, price competition. These are referred to as “killer acquisitions”.^[36] Others have argued that killer acquisitions also occur in the tech sector, although the empirical evidence offered to support this second claim is much weaker. In large part, this is because it does not differentiate between legitimate, efficient discontinuations of acquired products (such as the product being unsuccessful on the market, or the acquisition being done to hire the staff of the acquired firm) and the elimination of potential competitors.^[37] Acquisitions of nascent and potential competitors undertaken with the intention of reducing competition have also been described as “killer acquisitions”, even if they do not involve their products being discontinued.^[38]

Along similar lines, it is sometimes argued that large tech firms create so-called “kill zones” around their core businesses.^[39] Similarly, some scholars assert that incumbent digital platforms might seek to foreclose rivals in adjacent markets by “copying” their products, or by using proprietary datasets that tilt the scales in their favour.^[40]

All these practices are said to harm innovation by deterring competitors’ incentives to invest in innovations that compete with the market incumbents. The overarching theme of the above research is that existing antitrust doctrine is ill-equipped to handle these practices—or, at the very least, that antitrust law should be enforced more vigorously in such settings.

But while the above research identifies important and potentially harmful conduct that cannot be dismissed out of hand, it is important to recognize its inherent limitations when it comes to informing normative policy decisions. Indeed, there is a vast difference between identifying categories of conduct that sometimes harm consumers, on the one hand, and being able to isolate individual instances of anticompetitive behaviour, on the other.

Even then, it is important to distinguish conduct that harms consumers overall from conduct that merely harms certain parameters of competition, while improving others. In other words, antitrust law should prohibit conduct when the category to which that conduct belongs is generally harmful to consumers and/or when harmful occurrences of that conduct can readily be distinguished.^[41]

The above is merely a restatement of the error-cost framework, which highlights that the existence of false negatives is not a sufficient condition for increased intervention. The fact—if it can be proved—that there were some false negatives does not imply that enforcement has been less vigorous than is optimal.

In other words, in the digital space, the argument can be made that an optimal merger policy would, on average, lead to ex-post “underenforcement”. Moreover, even if the level of enforcement has been less than optimal, one must be careful not to swing too far in the opposite direction, especially in high-tech industries, as the chilling effect on innovation could be significant.^[42] Instead, any change to the standards of government intervention that seeks to prevent more of these false negatives, with all the accompanying tradeoffs and risks inherent to this enterprise, must ultimately increase overall social welfare.

III. Conclusion

Given the above, there are serious doubts that any of the Autorité’s three proposals—namely, a targeted call?in power based on quantitative and qualitative criteria, a new mandatory-notification criterion for firms previously designated as dominant or gatekeepers, and reliance on ex-post enforcement under Articles 101 and 102 TFEU—would serve France or Europe’s competition-policy objectives without incurring significant adverse consequences.

A targeted call?in power, while ostensibly offering flexibility, ultimately hinges on the development of subjective thresholds. In practice, the lack of clear and objective criteria risks engendering legal uncertainty and inconsistent application. This would not only divert scarce enforcement resources to the review of borderline transactions, but it would also create a chilling effect on below-threshold mergers that might otherwise yield substantial efficiency gains.

More problematically, by focusing on the cumulative turnover of merging parties, the call-in power would effectively cause merger reviews to be triggered by the competitive position of a single party. But looking at the competitive position of one merging party is not a useful proxy for assessing the competitive significance of a merger. This is why almost all existing merger systems tend to look at the market positions of all merging parties (e.g., their turnover) to decide whether their transactions should be notified. In other words, basing merger-notification requirements on the turnover of both merging parties (as is generally the case today) may not be perfect, but it remains vastly more accurate than looking at the turnover of only one.

Likewise, the introduction of a mandatory-notification criterion tied to prior determinations of market power suffers from inherent inflexibility and a lack of specificity. Relying on static assessments—whether from past decisions by the Autorité or the European Commission—fails to account for rapidly evolving market conditions. It also suffers from the critique exposed above, namely that one party being in a strong competitive position says little to nothing about the competitive significance of a merger. Reliance on such a criterion would thereby overinclusive.

Finally, the option of relying on ex-post enforcement—as underscored by our analysis of recent ex-post reviews, including the Facebook proceedings—presents its own set of challenges. Ex-post review shifts the burden of uncertainty to the period after a merger has been consummated, exposing firms to the risk of retroactive legal action.[43] This approach, by its very nature, conflates post-merger outcomes with the merger’s ex-ante competitive effects. In doing so, it not only penalizes transactions based on hindsight, but also undermines the incentives for pre?merger investment by effectively deterring deals that might otherwise promote long?term consumer welfare.

Given these concerns, we urge the Autorité to reconsider the proposals in their current form. A reformed framework should strive to minimize both false positives and false negatives, while safeguarding the benefits of merger activity. Only by calibrating enforcement measures to target genuinely anticompetitive conduct—without imposing undue burdens on procompetitive transactions—can the delicate balance between regulatory oversight and market dynamism be preserved.

^[1]Public Consultation on the Introduction of a Merger Control Framework for Addressing Below-Threshold Mergers, Autorité de la Concurrence (14 January 2025), https://www.autoritedelaconcurrence.fr/en/press-release/public-consultation-introduction-merger-control-framework-addressing-below-threshold.

[2] See Harold Demsetz, Information and Efficiency: Another Viewpoint, 12 J.L. Econ. 1, 22 (1969), (“The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing “imperfect” institutional arrangement. This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements”.).

[3] Autorité, supra note 1, at 1-2.

[4] See, e.g., Germán Gutiérrez & Thomas Philippon, Declining Competition and Investment in the U.S. (NBER Working Paper 1, 2017), (“The U.S. business sector has under-invested relative to Tobin’s Q since the early 2000’s. We argue that declining competition is partly responsible for this phenomenon”.); Contra, Esteban Rossi-Hansberg, Pierre-Daniel Sarte & Nicholas Trachter, Diverging Trends in National and Local Concentration, 35 NBER Macroecon. Annu. 1 (2021), (“Using US NETS data, we present evidence that the positive trend observed in national product-market concentration between 1990 and 2014 becomes a negative trend when we focus on measures of local concentration. We document diverging trends for several geographic definitions of local markets. SIC 8 industries with diverging trends are pervasive across sectors. In these industries, top firms have contributed to the amplification of both trends. When a top firm opens a plant, local concentration declines and remains lower for at least 7 years. Our findings, therefore, reconcile the increasing national role of large firms with falling local concentration, and a likely more competitive local environment”.).

[5] See, e.g., José Azar, Ioana Marinescu, Marshall Steinbaum, & Bledi Taska, Concentration in U.S. Labor Markets: Evidence from Online Vacancy Data, 66 Labour Econ. 101886 (2020), (“These indicators suggest that employer concentration is a meaningful measure of employer power in labor markets, that there is a high degree of employer power in labor markets, and also that it varies widely across occupations and geography”.).

[6] See, e.g., Tim Wu, The Curse of Bigness: Antitrust in the New Gilded Age (2018), at 9, (“We have managed to recreate both the economics and politics of a century ago—the first Gilded Age—and remain in grave danger of repeating more of the signature errors of the twentieth century. As that era has taught us, extreme economic concentration yields gross inequality and material suffering, feeding an appetite for nationalistic and extremist leadership. Yet, as if blind to the greatest lessons of the last century, we are going down the same path. If we learned one thing from the Gilded Age, it should have been this: The road to fascism and dictatorship is paved with failures of economic policy to serve the needs of the general public”.).

[7] See Collen Cunningham, Florian Ederer, & Song Ma, Killer Acquisitions, 129 J. Pol. Econ. 649 (2021); Sai Krishna Kamepalli, Raghuram Rajan, & Luigi Zingales, Kill Zone (Nat’l Bureau of Econ. Research Working Paper No. 27146, 2020);Digital Competition Expert Panel, Unlocking Digital Competition (2019), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/785547/unlocking_digital_competition_furman_review_web.pdf; Stigler Center for the Study of the Economy and the State, Stigler Committee on Digital Platforms (2019), available at https://www.publicknowledge.org/wp-content/uploads/2019/09/Stigler-Committee-on-Digital-Platforms-Final-Report.pdf; Australian Competition & Consumer Commission, Digital Platforms Inquiry (2019), available at https://www.accc.gov.au/system/files/Digital%20platforms%20inquiry%20-%20final%20report.pdf; see also Jacques Cre?mer, Yves-Alexandre De Montjoye, & Heike Schweitzer, Competition Policy for the Digital Era Final Report (2019), available at https://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf [hereinafter “Crémer Report”].

[8] Cristina Caffarra, Gregory S. Crawford, & Tommaso Valletti, “How Tech Rolls”: Potential Competition and “Reverse” Killer Acquisitions, 2 Antitrust Chron. 1, 1 (2020).

[9] As far as jurisdictional thresholds are concerned, see, e.g., Crémer Report, supra note 77, at 10 (“Many of these acquisitions may escape the Commission’s jurisdiction because they take place when the start-ups do not yet generate sufficient turnover to meet the thresholds set out in the EUMR. This is because many digital startups attempt first to build a successful product and attract a large user base while sacrificing short-term profits; therefore, the competitive potential of such start-ups may not be reflected in their turnover. To fill this gap, some Member States have introduced alternative thresholds based on the value of the transaction, but their practical effects still have to be verified”.). As far as inverting the burden of proof is concerned, see, e.g., Crémer Report, supra note 77, at 11 (“The test proposed here would imply a heightened degree of control of acquisitions of small start-ups by dominant platforms and/or ecosystems, to be analysed as a possible strategy against partial user defection from the ecosystem. Where an acquisition is plausibly part of such a strategy, the notifying parties should bear the burden of showing that the adverse effects on competition are offset by merger-specific efficiencies”.).

[10] See, e.g., Noah Joshua Phillips, Reasonably Capable? Applying Section 2 to Acquisitions of Nascent Competitors, Antitrust in the Technology Sector: Policy Perspectives and Insights from the Enforcers Conference (29 April 2021), available at https://www.ftc.gov/system/files/documents/public_statements/1589524/reasonably_capable_-_acquisitions_of_nascent_competitors_4-29-2021_final_for_posting.pdf (“Some would-be reformers view M&A as fundamentally predatory and wish to ‘level the playing’ field for smaller, less competitive, or more sympathetic businesses by throwing as much sand in the gears as possible. But their Harrison Bergeron vision of competition, handicapping successful businesses, will not so much level the field as tilt the scales dramatically in favor of the government, handing tremendous power to regulators, sapping American competitiveness, and hitting Americans in their pocketbooks”.).

[11] Frank H. Easterbrook, The Limits of Antitrust, 63 Tex. L. Rev. 1 (1984).

[12] For vertical mergers, the welfare-enhancing effects are well-established. See, e.g., Francine Lafontaine & Margaret Slade, Vertical Integration and Firm Boundaries: The Evidence, 45 J. Econ. Lit. 677 (2007) (“In spite of the lack of unified theory, over all a fairly clear empirical picture emerges. The data appear to be telling us that efficiency considerations overwhelm anticompetitive motives in most contexts. Furthermore, even when we limit attention to natural monopolies or tight oligopolies, the evidence of anticompetitive harm is not strong”.); see also Abbott B. Lipsky, Joshua D. Wright, Douglas H. Ginsburg, & John M. Yun, Comment Letter on Federal Trade Commission’s Hearings on Competition and Consumer Protection in the 21st Century, Vertical Mergers (Geo. Mason Law & Econ. Research Paper No. 18-27, 2018), at 8-9, https://ssrn.com/abstract=3245940 (“In sum, these papers from 2009-2018 continue to support the conclusions from Lafontaine & Slade (2007) and Cooper et al. (2005) that consumers mostly benefit from vertical integration. While vertical integration can certainly foreclose rivals in theory, there is only limited empirical evidence supporting that finding in real markets. The results continue to suggest that the modern antitrust approach to vertical mergers 9 should reflect the empirical reality that vertical relationships are generally procompetitive”.). Along similar lines, empirical research casts doubt on the notion that antitrust merger enforcement (in marginal cases) raises consumer welfare. The effects of horizontal mergers are, empirically, less well-documented. See, e.g., Robert W Crandall & Clifford Winston, Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence, 17 J. Econ. Persp. 20 (2003) (“We can only conclude that efforts by antitrust authorities to block particular mergers or affect a merger’s outcome by allowing it only if certain conditions are met under a consent decree have not been found to increase consumer welfare in any systematic way, and in some instances the intervention may even have reduced consumer welfare”.). While there is some evidence that horizontal mergers can reduce consumer welfare, at least in the short run, the long-run effects appear to be strongly positive. See, e.g., Gregory J. Werden, Andrew S. Joskow, & Richard L. Johnson, The Effects of Mergers on Price and Output: Two Case Studies from the Airline Industry, 12 Mgmt. Decis. Econ. 341 (1991); Dario Focarelli & Fabio Panetta, Are Mergers Beneficial to Consumers? Evidence from the Market for Bank Deposits, 93 Am. Econ. Rev. 1152, 1152 (2003) (“We find strong evidence that, although consolidation does generate adverse price changes, these are temporary. In the long run, efficiency gains dominate over the market power effect, leading to more favorable prices for consumers”.); see also, generally, Michael C. Jensen, Takeovers: Their Causes and Consequences, 2 J. Econ. Persp. 21 (1988). Some related literature similarly finds that horizontal merger enforcement has harmed consumers. See B. Espen Eckbo & Peggy Wier, Antimerger Policy Under the Hart-Scott-Rodino Act: A Reexamination of the Market Power Hypothesis, 28 J.L. & Econ. 119, 121 (1985) (“In sum, our results do not support the contention that enforcement of Section 7 has served the public interest. While it is possible that the government’s merger policy has deterred some anticompetitive mergers, the results indicate that it has also protected rival producers from facing increased competition due to efficient mergers”.); B. Espen Eckbo, Mergers and the Value of Antitrust Deterrence, 47 J. Finance 1005, 1027-28 (1992) (rejecting “the market concentration doctrine on samples of both U.S. and Canadian mergers. By implication, the results also reject the effective deterrence hypothesis. The evidence is, however, consistent with the alternative hypothesis that the horizontal mergers in either of the two countries were expected to generate productive efficiencies”). Regarding the effect of mergers on investment, see, e.g., Gordon M. Phillips & Alexei Zhdanov, Venture Capital Investments and Merger and Acquisition Activity Around the World (NBER Working Paper No. w24082, November 2017), available at https://ssrn.com/abstract=3082265 (“We examine the relation between venture capital (VC) investments and mergers and acquisitions (M&A) activity around the world. We find evidence of a strong positive association between VC investments and lagged M&A activity, consistent with the hypothesis that an active M&A market provides viable exit opportunities for VC companies and therefore incentivizes them to engage in more deals”.). And increased M&A activity in the pharmaceutical sector has not led to decreases in product approvals; rather, quite the opposite has happened. See, e.g., Barak Richman, Will Mitchell, Elena Vidal, & Kevin Schulman, Pharmaceutical M&A Activity: Effects on Prices, Innovation, and Competition, 48 Loyola U. Chi. L.J. 799 (2017) (“Our review of data measuring pharmaceutical innovation, however, tells a different story. First, even as merger activity in the United States increased over the past ten years, there has been a steady upward trend of FDA approvals of new molecular entities (‘NMEs’) and new biological products (‘BLAs’). Hence, the industry has been highly successful in bringing new products to the market”.).

[13] Henry G. Manne, Mergers and the Market for Corporate Control, 73 J. Pol. Econ. 110 (1965).

[14] Cunningham et al., supra note 77, at 692 (“Given these assumptions and estimates, what would the fraction ν of pure killer acquisitions among transactions with overlap have to be to result in the lower development of acquisitions with overlap (13.4%)? Specifically, we solve the equation 13.4% = ν × 0 + (1 − ν) × 17.5% for ν which yields ν = 23.4%. Therefore, we estimate that 5.3% (= ν × 22.7%) of all acquisitions, or about 46 (= 5.3% × 856) acquisitions every year, are killer acquisitions. If instead we assume the non-killer acquisitions to have the same development likelihood as non-acquired projects (19.9%), we estimate that 7.4% of acquisitions, or 63 per year, are killer acquisitions”.).

[15] See Value of Mergers and Acquisitions (M&A) Worldwide from 1985 to 2020, Statista (15 January 2021), https://www.statista.com/statistics/267369/volume-of-mergers-and-acquisitions-worldwide; see also Gross Domestic Spending on R&D, Organ. Econ. Co-oper. Dev., https://data.oecd.org/rd/gross-domestic-spending-on-r-d.htm (last visited 29 April 2021).

[16] See Werden et al., supra note 1212.

[17] Running the antitrust system is itself a cost to society.

[18] See, e.g., Olivier E. Williamson, Economies as an Antitrust Defense: The Welfare Tradeoffs, 58 Am. Econ. Rev. 18 (1968); see also, Easterbrook, supra note 1111; Henry G. Manne, supra note 1313; William M Landes & Richard A Posner, Market Power in Antitrust Cases, 94 Harv. L. Rev. 937 (1980).

[19] Easterbrook, id., at 14.

[20] See Easterbrook, id., at 17 (“The task, then, is to create simple rules that will filter the category of probably beneficial practices out of the legal system, leaving to assessment under the Rule of Reason only those with significant risks of competitive injury”.).

[21] Id. at 15 (“They should adopt some simple presumptions that structure antitrust inquiry. Strong presumptions would guide businesses in planning their affairs by making it possible for counsel to state that some things do not create risks of liability. They would reduce the costs of litigation by designating as dispositive particular topics capable of resolution”.).

[22] See Number of Merger and Acquisition Transactions Worldwide from 1985 to 2021, Statista (14 May2021), https://www.statista.com/statistics/267368/number-of-mergers-and-acquisitions-worldwide-since-2005.

[23] See 15 U.S.C. §18a (1976); see also, FTC Premerger Notification Office Staff, HSR Thresholds Adjustments and Reportability for 2020, Fed. Trade Comm. (31 January 2020), https://www.ftc.gov/news-events/blogs/competition-matters/2020/01/hsr-threshold-adjustments-reportability-2020; Council Regulation 139/2004, 2004 O.J. (L 24) 1, 22 (EC).

[24] See Fed. Trade Comm. & U.S. Dep. Justice, Hart-Scott-Rodino Annual Report Fiscal Year 2019 (2020), available at https://www.ftc.gov/system/files/documents/reports/federal-trade-commission-bureau-competition-department-justice-antitrust-division-hart-scott-rodino/p110014hsrannualreportfy2019_0.pdf; see also Merger Statistics, 21 September 1990 to 31 December 2020, Eur. Comm.(2021), available at https://ec.europa.eu/competition/mergers/statistics.pdf.

[25] See FTC and European Commission, id.

[26] See U.S. Dep. Justice & Fed. Trade Comm., Horizontal Merger Guidelines (2010), U.S. Dep. Justice & Fed. Trade Comm., Vertical Merger Guidelines (2020); see also Commission Guidelines on the Assessment of Non-Horizontal Mergers Under the Council Regulation on the Control of Concentrations Between Undertakings, Eur. Comm., 2008 O.J. (C 265) 6, 25.

[27]ICN Recommended Practices for Merger Notification and Review Procedures, Int. Compet. Netw., at 6-7, available at https://www.internationalcompetitionnetwork.org/wp-content/uploads/2018/09/MWG_NPRecPractices2018.pdf (last visited 20 February 2025).

[28] See Fed. Trade Comm. & U.S. Dep. Justice, Antitrust Guidelines for the Licensing of Intellectual Property (12 January 2017), at 15 (“The existence of a horizontal relationship between a licensor and its licensees does not, in itself, indicate that the arrangement is anticompetitive. Identification of such relationships is merely an aid in determining whether there may be anticompetitive effects arising from a licensing arrangement”.); see also Communication from the Commission—Guidance on the Commission’s Enforcement Priorities in Applying Article 82 of the EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings, Eur. Comm., O.J. C. 45, 7–20 (24 February 2009).

[29] See FTC, id.; see also Commission Guidelines on Vertical Restraints, Eur. Comm., 2010 O.J. (C 130) 1, 46, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52010XC0519(04)&from=EN.

[30] Easterbrook, supra note 1111, at 15.

[31] It requires only limited government resources to function, relative to, e.g., a system that reviews every merger in detail.

[32] Companies can self-assess whether their mergers are likely to be struck down by authorities and adapt their investment decisions accordingly.

[33] Even in-depth merger investigations are typically concluded within months, rather than years.

[34] See Demsetz, supra note2, at 1.

[35] See Cunningham et al., supra note 77; Kamepalli et al., supra note 77; Kevin A Bryan & Erik Hovenkamp, Antitrust Limits on Startup Acquisitions, 56 Rev. Indus. Org. 615 (2020); Mark A. Lemley & Andrew McCreary, Exit Strategy (Stanford Law and Economics Working Paper No. 542, 2020), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3506919.

[36] See Cunningham et al., id. at 650 (“We argue that an incumbent firm may acquire an innovative target and terminate the development of the target’s innovations to preempt future competition. We call such acquisitions ‘killer acquisitions,’ as they eliminate potentially promising, yet likely competing, innovation”.).

[37] See, e.g., Axel Gautier & Joe Lamesch, Mergers in the Digital Economy, Info. Econ. & Pol’y (2000), (“There are three reasons to discontinue a product post-acquisition: the product is not as successful as expected, the acquisition was not motivated by the product itself but by the target’s assets or R&D effort, or by the elimination of a potential competitive threat. While our data does not enable us to screen between these explanations, the present analysis shows that most of the startups are killed in their infancy”.).

[38] John M. Yun, Potential Competition, Nascent Competitors, and Killer Acquisitions, in GAI Report on the Digital Economy (Ginsburg & Wright, eds. 2000).

[39] See Zingales et al., supra note 77.

[40] See, e.g., Kevin Caves & Hal Singer, When the Econometrician Shrugged: Identifying and Plugging Gaps in the Consumer-Welfare Standard, 26 Geo. Mason L. Rev. 396 (2018), (“Or imagine the platform was appropriating or “cloning” app functionality into its basic service. The only potential harm in this instance would be that independent edge providers would be encouraged to exit or discouraged from entering in future periods. In theory, edge providers might be discouraged to compete in the app space given what they perceive to be a slanted playing field”.).

[41] See, e.g., Eric Fruits, Justin (Gus) Hurwitz, Geoffrey A. Manne, Julian Morris, & Alec Stapp, Static and Dynamic Effects of Mergers: A Review of the Empirical Evidence in the Wireless Telecommunications Industry, OECD Dir. Financ. Enterp. Aff. Compet. Comm., Glob. Forum Compet., DAF/COMP/GF(2019)13 (6 December 2019) at ¶ 61, available at https://one.oecd.org/document/DAF/COMP/GF(2019)13/en/pdf (“Studies that do not consider these [non-price] effects are incomplete for purposes of evaluating the mergers’ consumer welfare effects, and [are] all-too-easily used by advocates to misleadingly predict negative consumer outcomes. This is not necessarily a criticism of the studies themselves, which generally do not make comprehensive policy conclusions. The reality is that it is exceptionally difficult to comprehensively study even price effects, such that a well-conducted study of price effects alone is a valuable contribution to the literature. Nevertheless, in the context of evaluating prospective transactions, the results of such studies must be discounted to account for their exclusion of non-price effects”.).

[42] Luís Cabral, Merger Policy in Digital Industries, (CEPR Discussion Paper No. DP14785, May 2020) at 12, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3612854.

[43] Dirk Auer, Facebook and the Pros and Cons of Ex Post Merger Reviews, Truth Mark. (11 December 2020), https://truthonthemarket.com/2020/12/11/facebook-and-the-pros-and-cons-of-ex-post-merger-reviews.

I. Introduction

We thank the California Privacy Protection Agency (“CPPA”) for the opportunity to comment on the proposed regulations for automated decisionmaking technologies (“ADMT”). These comments focus on the significant risks posed by the CPPA’s expansive approach to ADMT regulation, which would impose substantial compliance burdens, while potentially stifling innovation in artificial intelligence (“AI”). We respectfully suggest that the CPPA adopt a more targeted framework that focuses on marginal risks posed by truly consequential uses of ADMT, while allowing beneficial low-risk applications to continue to drive economic growth and technological advancement.

U.S. AI regulation is evolving at an unprecedented pace. In 2024 alone, 45 states, Puerto Rico, the U.S. Virgin Islands, and the District of Columbia all introduced AI-related bills, reflecting the fragmented and fluid nature of AI rules across U.S. jurisdictions.[1] This patchwork of state-level efforts underscores the significant variation in focus, with some laws targeting “high-risk” AI systems, others addressing algorithmic discrimination, and others still emphasizing consumer transparency and governance frameworks.

This rapid introduction of new measures has served to create substantial uncertainty for businesses in the emerging AI-services sector, particularly those that operate nationally. The CPPA’s draft regulations risk exacerbating this issue by imposing a broad and inflexible framework at a time when ADMT and other AI technologies and governance models are still taking shape. A sweeping, one-size-fits-all approach could quickly become outdated, hindering innovation and California’s leadership as a technology hub. A more agile and incremental strategy would allow California to adapt alongside the evolving landscape, rather than lock in rules that may fail to account for future developments in AI capabilities and risks.

A better approach to responsible ADMT regulation would be incremental and sector-specific.[2] Such an approach was advocated by the congressional Bipartisan Artificial Intelligence Task Force, which recommended identifying novel issues and addressing AI challenges within specific sectors by using existing regulatory frameworks where feasible.[3] By leveraging sector-specific expertise and regulatory structures, policymakers can craft targeted solutions that promote innovation while safeguarding against risks.[4]

A sectoral approach recognizes that ADMT and AI applications vary significantly across industries, with different risk profiles and operational contexts requiring tailored oversight. For instance, AI used in health-care diagnostics requires different safeguards than AI used for retail inventory management or marketing analytics. Financial services AI applications may need specific controls around fairness and transparency in lending decisions, while manufacturing AI might prioritize safety and reliability metrics. By working within existing industry-specific regulatory frameworks and expertise, a sectoral approach can more effectively address genuine risks, while preserving beneficial innovation.

This targeted approach would almost certainly be more effective than one-size-fits-all regulation. The National Telecommunications and Information Administration (NTIA) under former President Joe Biden and other key stakeholders have likewise endorsed sector-specific approaches, which can more easily avoid imposing inappropriate requirements across dissimilar use cases. By contrast, the CPPA’s approach risks creating requirements that are simultaneously too stringent for low-risk applications and insufficiently stringent for truly high-risk uses.

Adopting an incremental approach would also allow policymakers to address genuine ADMT and AI-related risks as they emerge without stifling progress. In contrast, the CPPA’s current draft regulations risk establishing a rigid framework that could place particularly undue burdens on small businesses and startups that may increasingly depend on AI tools to maintain their competitive edge and productivity. In a moment when this policy field remains fluid, California has an opportunity to lead by example, by championing innovation while addressing harms through a measured and iterative regulatory framework.

The remainder of these comments will address some specific concerns and suggest paths forward.

II. Core Concerns with the CPPA Draft

A. Overly Broad Scope and Definitions

The draft regulations introduce several problematically broad definitions that could sweep a vast range of technologies and business practices into their ambit. The definition of “AI” includes any “machine-based system that infers, from the input it receives, how to generate outputs that can influence physical or virtual environments.”[5] Even more concerning, the definition of “automated decision-making technology” includes not just those systems that make or replace human decisions, but also any technology that “substantially facilitates human decision-making.”[6]

This vague standard is expanded further to include any use of such technology’s output as a “key factor in a human’s decision-making.”[7] The regulations compound this scope with a broad definition of “behavioral advertising,” which would include any targeting based on consumer activity, both across and within a business’s own services.[8]

These overlapping and expansive definitions create significant interpretive challenges. For example, even basic spreadsheet analyses that inform business decisions could qualify as ADMT if they are deemed to “substantially facilitate” those decisions. Similarly, the broad scope of “behavioral advertising” could mean that simply remembering a customer’s preferences on a business’s own website triggers broad regulatory obligations. When combined with the regulations’ extensive compliance requirements, these definitions threaten to capture routine business operations far beyond what might be necessary to protect consumer privacy.

The CPPA’s proposed expansive definition of ADMT would also capture a broad array of routine AI applications, including customer profiling, behavioral advertising, and operational-efficiency tools.[9] While the intent to protect consumers is clear, this overly broad definition fails to account for the heterogeneity of AI systems and the nuanced ways they may function across industries. This risks imposing premature and disproportionate obligations on businesses and stifling innovation at a time when AI development remains in its infancy.

Indeed, despite the marketing hype, AI is not a single monolithic technology, but rather a diverse collection of tools deployed across different layers of an “AI stack.”[10] Treating all forms of AI—whether low-risk tools like chatbots or high-impact systems like automated credit decisions—as equivalent under a single regulatory framework would be both analytically unsound and practically counterproductive. The CPPA proposal fails to distinguish between consequential decisions with a direct impact on consumer rights and routine, low-risk AI applications that may help to improve business efficiency or customers’ experience.[11]

This overreach creates significant uncertainty for businesses, particularly small and mid-sized firms. Many of these firms are beginning to rely on AI tools for operational efficiency, marketing, and customer service, and the costs of compliance under such a sweeping definition would be prohibitive. To date, AI adoption by small businesses has proven transformative, improving profitability, reducing operational burdens, and enabling competitiveness against larger firms.[12] Subjecting these businesses to ambiguous and burdensome regulatory requirements will disproportionately harm their ability to innovate and adopt new technologies.

AI’s productivity benefits are particularly important for workers with fewer skills or resources, as it automates tasks, enhances lower-skilled workers’ output, and increases efficiency.[13] Regulations that fail to differentiate among AI systems based on their risk levels or use cases may inadvertently discourage the adoption of AI technologies across the board, ultimately hindering the productivity and growth of small businesses. This is especially concerning, given that many of these firms lack the legal and financial resources to navigate compliance with overly broad regulations.

Some models for AI governance provide a more nuanced approach by focusing on marginal risks, rather than imposing broad, preemptive restrictions. For instance, the Biden administration’s NTIA recommended evaluating the “marginal risks” introduced by specific AI systems relative to existing alternatives, focusing on empirically demonstrable harms rather than speculative risks.[14] This framework seeks to assess the incremental risks and benefits that AI technologies may pose in specific contexts, thereby ensuring that only systems with significant and observable harmful effects would face heightened scrutiny. Unlike the CPPA’s sweeping definition of ADMT, the NTIA’s approach provides a structured, evidence-based pathway to understand AI risks without stifling innovation.

Moreover, broadly defining AI and ADMT could lead to unintended consequences for competition and innovation. As noted above, the heterogeneity of AI services and markets makes any attempt to regulate “AI” as a singular entity analytically untenable.[15] The rigidity of the CPPA’s current proposal could discourage investment in AI development and adoption within the state, pushing innovation to other jurisdictions with clearer, risk-adjusted regulatory environments.[16] Indeed, we have already seen a similar flight to more flexible jurisdictions in response to the EU’s AI Act.[17]

Ultimately, the CPPA draft’s overly broad definition of ADMT is premature. Policymakers should adopt a narrower, risk-based framework focusing on truly consequential uses of ADMT (which may or may not involve AI), while allowing routine and low-risk applications to continue delivering economic and societal benefits. A more targeted approach would align California’s efforts with evolving federal and global frameworks, while preserving the state’s position as a leader in AI development and innovation.

B. Legal and Jurisdictional Concerns

The CPPA’s expansive proposed regulations raise serious questions about their alignment with the original intent of the California Consumer Privacy Act (CCPA) and the California Privacy Rights Act (CPRA).[18] These laws were designed to give consumers greater control over their personal data and to safeguard their privacy in an era of rapid technological change. The draft regulations on ADMT, however, appear to exceed this mandate by broadening the scope to include virtually any AI-driven system, irrespective of its risk profile or actual impact on consumer rights.

This approach contrasts sharply with more targeted regulatory frameworks. For example, as noted above,[19] the NTIA’s marginal-risk framework focuses on assessing AI systems’  incremental risks and benefits, ensuring that only applications with significant observable negative effects face heightened scrutiny.[20] In contrast, the CPPA draft fails to distinguish between high-stakes systems and routine, low-risk applications like customer profiling and advertising optimization.^[21]

Apart from the direct effects of the CPPA’s approach on consumers and businesses, its conflicts with emerging frameworks that favor sectoral regulation over comprehensive rules and will lead to other headaches for U.S. firms. While federal agencies and legislators are moving toward targeted, industry-specific approaches that account for differing risk profiles and use cases,[22] the CPPA’s regulations would impose broad requirements across all sectors. This creates practical compliance challenges for businesses that must navigate both federal and state requirements, and leads to potential federal preemption issues. For example, a business developing AI tools for health care might need to comply with sector-specific guidelines from the U.S. Food and Drug Administration (FDA), while simultaneously meeting California’s sweeping ADMT requirements. The potential for contradictory obligations or duplicative compliance burdens is significant.

C. Disproportionate Impact on Business Innovation

1. Impact on small businesses

Small businesses form the backbone of California’s economy, and their ability to compete increasingly depends on AI tools. AI technologies already play a critical role in helping small businesses to remain efficient and competitive in a fast-moving digital marketplace. Surveys suggest that 95% of small businesses already use at least one technology platform to streamline their operations, with nearly a quarter adopting AI to improve marketing, customer communications, and overall business performance.[23] For these businesses, AI adoption has led to measurable increases in profit margins, sales, and operational efficiency.[24]

AI tools can help to level the playing field by providing affordable and scalable solutions. AI-powered platforms can help small businesses to better understand customer behavior, optimize advertising strategies, and reach new audiences. AI-driven tools for inventory management, payroll, and customer-relationship management can enhance operational efficiency, allowing business owners to focus on growth rather than administrative burdens.[25]

The CPPA’s broad regulations, however, risk undermining these gains by subjecting routine AI tools to onerous compliance requirements. Unlike large corporations with dedicated legal teams, small businesses often lack the resources to navigate complex regulatory frameworks. The cost of compliance could become a barrier to adopting AI technologies, particularly given that AI tools provide the greatest productivity benefits to more modestly resourced workers and businesses.[26] This regulatory burden would not only stifle innovation but could also exacerbate existing challenges that small businesses already face, such as inflation and workforce shortages.[27]

2. Disruption to the digital-advertising ecosystem

The regulations particularly threaten the digital-advertising ecosystem by conflating behavioral advertising with consequential decisionmaking systems. While behavioral advertising uses AI-driven analysis, such systems do not make decisions about individuals and therefore operate in a fundamentally different way from the high-stakes systems used for credit approvals or employment decisions. Treating these tools as equivalent would impose an inappropriate framework on an industry vital to the digital economy.

Further, behavioral advertising underwrites many free online services that consumers rely on daily. The CPPA’s overly broad definition could force advertising platforms and smaller advertisers to abandon targeted advertising strategies, threatening ad-supported business models and reducing access to free digital services. Such regulatory overreach would have a chilling effect, as prescriptive and expansive rules often stifle innovation by discouraging investment in those areas where the regulatory landscape is most uncertain or unduly burdensome.[28]

Moreover, the proposed regulations fail to recognize that behavioral advertising primarily involves optimizing ad delivery based on anonymized data, rather than making binding decisions with significant effects on consumers’ lives. These are typically low-risk, reversible decisions ill-suited for a regulatory framework designed to mitigate the potential harms of high-risk AI systems. Small businesses, in particular, stand to lose the most from these regulations, as many rely on targeted advertising to reach niche markets in a cost-effective manner.

3. Broader economic consequences

The CPPA’s proposed regulations carry significant risks for innovation and U.S. technological competitiveness, with California standing to lose the most. The state is uniquely positioned as a nexus of AI innovation, hosting the world’s leading AI research institutions, most of the top AI companies, and a dense network of AI startups and talent. This ecosystem has made California the primary locus of U.S. leadership in AI. Stringent state-level AI regulations, however, could undermine this position by creating a fractured regulatory landscape that increases costs and reduces investment in the sector.[29] California-based companies would face a difficult choice: either accept higher compliance burdens than their global competitors, or relocate key operations to more business-friendly jurisdictions.

The stakes are particularly high given the intense global competition in AI development. Other regions are actively working to attract AI companies and talent.[30] While California’s existing ecosystem provides significant advantages, regulatory costs can shift the calculus for both established companies and startups alike. Development teams might relocate to states with clearer regulatory frameworks, while investors might redirect capital to jurisdictions where compliance burdens are more predictable. This regulatory arbitrage could gradually erode California’s advantage as the world’s preeminent AI hub.

The regulations could have a particularly severe adverse impact on AI research and development. California’s research institutions and companies are at the forefront of developing cutting-edge AI applications like large language models (LLMs), generative-AI tools, and advanced-automation systems. These innovations require extensive experimentation and rapid iteration to achieve technological breakthroughs. The CPPA’s broad definition of ADMT could be interpreted to cover many of these research and development activities, creating uncertainty about compliance obligations during the development process. This ambiguity could force researchers and developers to slow their progress significantly or implement burdensome compliance processes even during early experimental phases.

The implications extend beyond individual research projects to the broader AI-development ecosystem. Researchers might avoid pursuing promising lines of inquiry where the regulatory implications are unclear. Companies might relocate their R&D operations to jurisdictions with clearer frameworks for AI development. Even routine product improvements and testing could face delays and added costs as businesses navigate the new compliance requirements.

The measurable impact of such overregulation is well-documented. Excessive regulation consistently reduces innovation by increasing costs and discouraging risk taking by entrepreneurs and businesses alike.[31]

III. Conclusion

The CPPA’s draft regulations on ADMT require significant refinement to achieve a better balance of consumer protection with innovation and economic competitiveness. A targeted approach focused on “consequential decisions” would align with effective practices, while equipping the CPPA the tools to protect consumers. This narrower scope would also reduce compliance burdens for routine, low-risk AI applications while maintaining oversight where it matters most.

An incremental, evidence-based approach should guide California’s regulatory framework. Overregulation can stifle innovation and create barriers for startups, who are critical to the AI ecosystem.[32] The CPPA can ensure its rules evolve with the rapidly changing AI landscape by avoiding premature codification of broad mandates that could quickly prove obsolete.

Broader governance of AI systems should take account of the need for a holistic, nationwide framework.[33] A fragmented patchwork of state-level regulations will create compliance challenges for businesses operating across jurisdictions, thereby reducing investment and deterring innovation.[34] By harmonizing with emerging federal policies—or deferring broad regulations until the federal consensus is clearer—California can provide clarity to AI developers while maintaining appropriate consumer protections.

A sectoral approach would enable more effective and efficient oversight. The diverse industries that employ AI services face distinct challenges: financial services must prioritize algorithmic fairness, health-care applications must emphasize privacy and accuracy, and retail applications might focus on improved customer service. By working within existing regulatory frameworks, the CPPA could better calibrate requirements to actual risks and operational realities. This would allow for nuanced oversight of high-risk applications, while avoiding laying unnecessary burdens on beneficial, low-risk AI tools.

California’s unique position as the world’s leading AI-development hub means it has the most to gain from getting these regulations right. The state can maintain its leadership position while protecting consumers by adopting targeted regulations that address genuine risks, and without creating unnecessary barriers to innovation. By narrowing the focus of ADMT regulations, adopting an incremental strategy, and prioritizing harmonization with federal initiatives, California can strike the right balance between safeguarding consumer rights and fostering a thriving, competitive AI ecosystem.

[1] See Tatiana Rice et al., U.S. State AI Legislation, Future Priv. Forum (2024), at 3, available at https://fpf.org/wp-content/uploads/2024/09/FINAL-State-AI-Legislation-Report-webpage.pdf; Artificial Intelligence 2024 Legislation, Nat’l. Conf. State Legis. (Sep. 9, 2024), https://www.0.ncsl.org/technology-and-communication/artificial-intelligence-2024-legislation.

[2] See Jay Obernolte & Ted W. Lieu, Report of the Bipartisan House Task Force Report on Artificial Intelligence (Dec. 2024), vi-vii, 85, available at https://republicans-science.house.gov/_cache/files/a/a/aa2ee12f-8f0c-46a3-8ff8-8e4215d6a72b/E4AF21104CB138F3127D8FF7EA71A393.ai-task-force-report-final.pdf.

[3] Id. at 6, 30.

[4] Id. at 7, 17.

[5] Proposed Regulations § 7001 (c), Calif. Priv. Prot. Agency (2024), available at https://cppa.ca.gov/regulations/pdf/ccpa_updates_cyber_risk_admt_ins_text.pdf.

[6] Id. § 7001(f).

[7] Id.

[8] CPPA, supra note 5, § 7001(g).

[9] CPPA, supra note 5, § 7001(m) (6).

[10] See Lazar Radic & Kristian Stout, What Is the Relevant Product Market in AI?, Concurrences (Aug. 16, 2024), at 109, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4927505.

[11] Id. at 110.

[12] See Empowering Small Business: The Impact of Technology on U.S. Small Business, U.S. Chamb. Commer. Tech. Engagem. Ctr. (Sep. 14, 2023), at 3, available at https://www.uschamber.com/assets/documents/The-Impact-of-Technology-on-Small-Business-Report-2023-Edition.pdf; Open Source AI is Leading to Breakthroughs in Healthcare, Education, and Entrepreneurship, Meta (Dec. 11, 2024), https://about.fb.com/news/2024/12/open-source-ai-is-leading-to-breakthroughs-in-healthcare-education-and-entrepreneurship.

[13] See Julian Jacobs, Evidence Shows Productivity Benefits of AI, Center for Data Innovation, Cent. Data Innov. (Jun. 11, 2024), https://datainnovation.org/2024/06/evidence-shows-productivity-benefits-of-ai.

[14] See Kristian Stout et al., NIST AI 800-I, Managing Misuse Risk for Dual-Use Foundation Models, Int’l Ctr. L. & Econ. (2024), at 8-13, available at https://laweconcenter.org/wp-content/uploads/2024/09/NIST-AI-comments-final.pdf.

[15] See Radic & Stout, supra note 10, at 108, 113, 131.

[16] See Rachel Curry, How AI Regulation in California, Colorado and Beyond Could Threaten U.S. Tech Dominance, CNBC (Nov. 21, 2024), https://www.cnbc.com/2024/11/21/how-ai-laws-in-california-states-threaten-us-tech-dominance.html.

[17] Pascale Davies, Why OpenAI’s Voice Mode, Meta’s Llama and Apple’s AI Won’t be Coming to Europe Yet, Euronews (Aug. 10, 2024), https://www.euronews.com/next/2024/10/08/why-openais-voice-mode-metas-llama-and-apples-ai-wont-be-coming-to-europe-yet.

[18] See Kayla N Bushey, One Size Dose Not Fit All: How the California Privacy Rights Act Will Not Improve Employee Data Collection and Privacy Rights, 32(1) Cath. U. J.L. & Tech. (2023), https://scholarship.law.edu/jlt/vol32/iss1/8; California Consumer Privacy Act of 2018, Cal. Civ. Code § 1798.100 et seq.; Maria Korolov, California Consumer Privacy Act (CCPA): What You Need to Know to be Compliant, CSO (Jul. 7, 2020), https://www.csoonline.com/article/565923/california-consumer-privacy-act-what-you-need-to-know-to-be-compliant.html.

[19] Stout, supra note 14.

[20] Stout, supra note 14 at 9.

[21] See Sebastião Barros Vale & Gabriela Zanfir-Fortuna, Automated Decision-Making Under the GDPR: Practical Cases from Courts and Data Protection Authorities, (May 2022), at 21, https://fpf.org/wp-content/uploads/2022/05/FPF-ADM-Report-R2-singles.pdf; Draft Risk Assessment and Automated Decisionmaking Technology Regulations, Calif. Priv. Prot. Agency (2024), at 3-4, available at https://cppa.ca.gov/meetings/materials/20240308_item4_draft_risk.pdf.

[22] Kristian Stout, The AI Legislative Puzzle, Truth Mark. (Nov. 7, 2024), https://truthonthemarket.com/2024/11/07/the-ai-legislative-puzzle; Stout, supra note 14 at 8; Obernolte & Lieu, supra note 2 at 17, 21, 70.

[23] U.S. Chamber, supra note 12 at 3, 4.

[24] Id. at 2, 23.

[25] Id. at 5.

[26] Jacobs, supra note 13.

[27] U.S. Chamber, supra note 12 at 2, 15.

[28] See Michael Genest et al., Comments on August 2024 CPPA SRIA, Capitol Matrix Consult. (Nov. 1, 2024), available at https://advocacy.calchamber.com/wp-content/uploads/2024/11/CMC_comments_on_CCPA_SRIA_11-1.pdf; California Consumer Privacy Act, Interact. Advert. Bur., https://www.iab.com/topics/privacy/ccpa (last visited Dec. 27, 2024); Betsy Vereckey, Does Regulation Hurt Innovation? This Study Says Yes, MIT Sloan Sch. Manag. (Jun. 7, 2023), https://mitsloan.mit.edu/ideas-made-to-matter/does-regulation-hurt-innovation-study-says-yes.

[29] See Chris Edwards, Entrepreneurs and Regulations: Removing State and Local Barriers to New Businesses, Cato Inst. (May 5, 2021), https://www.cato.org/policy-analysis/entrepreneurs-regulations-removing-state-local-barriers-new-businesses; Curry, supra note 16; U.S. Chamber, supra note 12.

[30] See UAE Establishes Global Leadership in Artificial Intelligence, High-Tech Innovation, Emir. News Agency (Sep. 28, 2024), https://www.wam.ae/en/article/b5exntj-uae-establishes-global-leadership-artificial; The U.A.E.’s Big Bet on Artificial Intelligence, U.S.-UAE Bus. Counc. (Feb. 2024), available at https://usuaebusiness.org/wp-content/uploads/2024/02/SectorUpdate_AIReport_Web.pdf.

[31] See Philippe Aghion et al., The Impact of Regulation on Innovation (Nat’l Bureau of Econ. Rsch. Working Paper No. 28381, 2021), https://www.nber.org/papers/w28381.

[32] Id.

[33] See, e.g., Stout, supra note 14 at 3; Vale & Zanfir-Fortuna, supra note 21.

[34] See Chinmayi Sharma & Alan Z. Rozenshtein, Regulatory Approaches to AI Liability, Lawfare (Sep. 24, 2024), https://www.lawfaremedia.org/article/regulatory-approaches-to-ai-liability.

Introduction

We appreciate the opportunity to respond to the Competition and Markets Authority’s (CMA) provisional findings in its investigation of the cloud-services market.[1] We urge the CMA not to finalize these findings in their current form, or at least to revise them, for the reasons set forth below.

As our comments explain, several aspects of the market and the analysis thereof warrant reconsideration. Among these, we would highlight that market concentration alone is a poor proxy for competitive harm; the cloud sector is characterized by dynamic competition and innovation that a static analysis overlooks; high profitability does not equate to an absence of competition in a contestable market; and the provisional concerns over egress fees and technical barriers may undervalue legitimate business justifications and competitive context. Finally, we caution that the proposed remedies—particularly, the choice to designate certain firms as holding strategic market status (SMS)—appear to be disproportionate and unsupported by the evidence, and potentially to harm the very competition and innovation the CMA seeks to protect.

I. Market Concentration Is Not a Reliable Proxy for Expected Competitive Harm

The CMA’s provisional report emphasizes the high concentration in UK cloud-infrastructure services—a “two-horse race” dominated by Amazon Web Services Inc. (AWS) and Microsoft Corp. Even if these presumptive market shares were accurate, concentration metrics are not by themselves evidence of competitive harm or consumer detriment. Market share and Herfindahl-Hirschman Index (HHI) figures offer, at best, a starting point for analysis, not a conclusion. High concentration can arise for pro-competitive reasons—e.g., a firm offering a superior product or greater efficiency—and market structure is not outcome-determinative. In other words, a concentrated market can still be vigorously competitive, and conversely, a less-concentrated market could be uncompetitive due to tacit coordination or other factors.

The assumption that “too much” concentration is harmful assumes both that a market’s structure is what determines economic outcomes, and that it is possible to know what the “right” amount of concentration is. As economists have understood since at least the 1970s (and despite an extremely vigorous, but futile, effort to show otherwise), market structure does not determine economic outcomes.[2]

Once perfect knowledge of technology and price is abandoned, [competitive intensity] may increase, decrease, or remain unchanged as the number of firms in the market is increased.… [I]t is presumptuous to conclude… that markets populated by fewer firms perform less well or offer competition that is less intense.[3]

This view is well-supported and is held by scholars across the political spectrum.[4] The absence of correlation between increased concentration and either anticompetitive causes or deleterious economic effects is also demonstrated by a recent influential empirical paper from Sharat Ganapati. Ganapati finds that the increase in industry concentration in U.S. non-manufacturing sectors between 1972 and 2012 was “related to an offsetting and positive force—these oligopolies are likely due to technical innovation or scale economies. [The] data suggests that national oligopolies are strongly correlated with innovations in productivity”.[5] In the end, Ganapati found, increased concentration resulted from beneficial growth in firm size in productive industries that “expand[s] real output and hold[s] down prices, raising consumer welfare, while maintaining or reducing [these firms’] workforces”.[6] Sam Peltzman’s research on increasing concentration in manufacturing finds that it has, on average, been associated with both increased productivity growth and widening margins of price over input costs. These two effects offset each other, leading to “trivial” net price effects.

Further, the presence of harmful effects in industries with increased concentration cannot be readily extrapolated to other industries. Thus, while some studies have plausibly shown that an increase in concentration in a particular case has led to higher prices (which has been found true in only a minority of the relevant literature), assuming the same result from an increase in concentration in other industries or other contexts is simply not justified:

The most plausible competitive or efficiency theory of any particular industry’s structure and business practices is as likely to be idiosyncratic to that industry as the most plausible strategic theory with market power.[7]

As Chad Syverson aptly summarized:

Perhaps the deepest conceptual problem with concentration as a measure of market power is that it is an outcome, not an immutable core determinant of how competitive an industry or market is… As a result, concentration is worse than just a noisy barometer of market power. Instead, we cannot even generally know which way the barometer is oriented.[8]

In other words, depending on the nature and dynamics of the market in question, competition may well be protected under conditions that preserve a certain number of competitors in the relevant market. But competition may also be protected under conditions in which a single winner takes all on the merits of their business.[9] It is reductive (and bad policy) to presume that a certain number of competitors is always and everywhere conducive to better economic outcomes, or indicative of anticompetitive harm.

None of this means that concentration measures have no use in competition policy. Instead, it demonstrates that market concentration is often unrelated to competition because it may arise from factors endogenous to each industry.

This body of literature suggests that the CMA should not presume harm to competition merely from AWS and Microsoft holding large market shares. Instead, the more pertinent question is whether those shares stem from exclusionary conduct or from superior efficiency, innovation, and investment.

II. Dynamic Competition in Cloud Services (A Static View Misses the Mark)

One misconception about cloud computing is that it is a novel technology dominated by the “big three” companies of Amazon, Google, and Microsoft, or even more narrowly in the CMA’s findings, as a “two-horse race” dominated by AWS and Microsoft. In fact, cloud computing is merely one component of information-technology (IT) services, which used to be provided exclusively on-premises. Investments in cloud computing still represent a small portion of global IT spending, with one report putting the total at 7%,[10] while another suggests it might be as much as 12%.[11] Whatever the precise figure, there clearly remains a sizeable opportunity for the sector to grow.

It is also important to remember that, before the advent of cloud computing, the IT landscape was dominated by an entirely different set of players, some of which—including IBM, Hewlett-Packard, and Oracle—remain prominent today. It is therefore critical to acknowledge that cloud services have not replaced these entities but have instead expanded the market and introduced new competitors and service offerings.

If we narrow our focus from all cloud-computing services to one of its three layers—such as infrastructure as a service (IaaS), we can see that the sector is teeming with competition. Numerous competitors—including Amazon, Google, Alibaba, Microsoft, IBM, OVHcloud, Digital Ocean, Oracle, Deutsche Telekom, Huawei, and others—all vie for consumers. According to industry reports, in 2021 alone, these competitors showcased remarkable growth, with Microsoft growing by 51%, Alibaba by 42%, Google by 64%, and Huawei by 56%.[12]

Amid this robust competition, the dominance of established players like AWS has been declining. According to Gartner data for IaaS, AWS’ market share dipped from 45% in 2019[13] to 39% in 2021,[14] signalling a continuing evolution in the industry’s competitive dynamics. If we expand the market and look at IaaS, platform as a service (PaaS), and hosted private-cloud services (a subset of IaaS), Amazon’s market share has been steady, while Microsoft and Google have made huge gains in the past few years (see Figure 1 below).[15]

FIGURE 1: Cloud Provider Share of Worldwide Revenues Trend (IaaS, PaaS, Hosted Private Cloud)

SOURCE: Synergy Research Group

This is exactly the sort of dynamics we would expect from a vibrant industry: some firms succeed in one part of the market but not in another, while precise market shares shift around.

It is important to note that these “shares” are for the broad, colloquial sense of “a market”, and not for a relevant market in the antitrust sense. But even assuming, for the sake of argument, that it was a relevant market, concentration would not appear to be a concern. According to Synergy Group’s Q1 2023 numbers for IaaS: Amazon had 32% market share, with Microsoft at 23%, Google at 10%, Alibaba at 4%, and IBM at 3%.[16]

If we consider all other firms in the market to be a single entity, the highest possible HHI for this market (a proxy for all cloud computing) would be 2,462. Even though that is a large overestimate of the true market concentration, it still produces an HHI that is in the “moderately concentrated” range, according to the 2010 U.S. Merger Guidelines,[17] although the CMA’s guidance puts that as “highly concentrated”.[18] If the remaining 28% of the market were divided up among 28 firms, the HHI would drop to 1,706. But neither of these figures account for the vast swath of IT spending that occurs outside the cloud, which suggests that competition in the market is far more vigorous than the HHI would imply.

These simple calculations differ slightly from the CMA’s, which suggest higher concentration. According to the CMA’s provisional findings, AWS held a market share of 40% to 50% in the IaaS segment, while Microsoft accounted for 30% to 40% and Google for 5% to 10%.[19] The highest possible HHI for this market—assuming all “other” providers were a single entity—would exceed 3,000, classifying the market as “highly concentrated” under the CMA’s guidelines.

By contrast, it is difficult even to conceive of the software-as-a-service (SaaS) layer of cloud computing as a “market” in any meaningful sense. SaaS comprises an extremely varied set of productivity and collaboration tools, such as Microsoft Office 365, Google Workspace (formerly G Suite), and Slack; content-management systems (CMS) like WordPress, Wix, and Squarespace; video-conferencing and communication platforms, such as Zoom, Microsoft Teams, and Slack; and cloud-gaming platforms like Microsoft xCloud and PlayStation Now. Like IaaS, SaaS has experienced dramatic expansion, with more than 30,000 providers in operation. Major players include most of the already-mentioned companies, as well as industry giants like Cisco, Dell, Salesforce, Databricks, Heroku, Snowflake, Adobe, and Atlassian, among others.

Furthermore, customers are not locked into a single provider in the way the static model assumes. In practice, businesses adopt multi-cloud and hybrid-cloud strategies to optimize cost, performance, and resilience. According to industry surveys, 70% of cloud-using companies rely on multiple cloud providers simultaneously.[20] This ability to “multi-home”—to spread workloads across AWS, Azure, Google Cloud, and others—mitigates the risk of any one provider holding customers captive.

The competitive dynamics extend beyond market share to innovations in the fundamental infrastructure. Cloud providers compete vigorously through custom silicon development, with companies investing heavily in proprietary chips optimized for specific workloads. This hardware-level competition drives performance improvements and cost efficiencies that benefit customers, while continuing to allow for multi-cloud strategies that prevent lock-in.[21]

Indeed, the ease of multi-homing and switching among providers indicates that compatibility issues and switching costs, while not zero, are not insurmountable barriers in practice. Many cloud services adhere to common standards (e.g., Linux environments, containerization, open-source databases), enabling customers to migrate or balance workloads flexibly. The CMA’s static analysis underestimates how these dynamic competitive pressures discipline even the largest providers. A cloud firm that attempts to raise prices or degrade quality risks encouraging its customers to shift more workloads to rivals—a process made easier by the industry’s interoperability tools and multi-cloud management practices.

In sum, the cloud-services market is dynamically competitive, with constant entry, expansion, and technological leaps. Market shares today do not guarantee market shares tomorrow. The CMA’s provisional findings, however, seem to give more weight to static concentration measures than to the “rapidly evolving cloud market” characterized by product differentiation, innovation, and new startups entering the fray. We urge the CMA to incorporate a dynamic analysis: one that recognizes the recent dramatic fall in prices for cloud services, alongside an explosion in offerings; the exponential growth of the SaaS layer, with tens of thousands of providers; and the ongoing race among firms to provide better, more specialized services. This dynamic competition is delivering real benefits to customers and is likely to continue to do so without heavy-handed intervention.

III. Profitability Above Cost of Capital Does Not Equate to a Lack of Competition

The provisional report notes that the leading providers (AWS and Microsoft) have returns on capital employed (ROCE) consistently above their weighted average cost of capital (WACC), implying sustained “excess” profits.[22] While this observation is factually correct, we caution against interpreting it as evidence of an enduring competition problem. Profitability alone—even robust profitability—is not proof of market power in a dynamic, contestable market. There are several reasons why a high ROCE versus WACC could be observed even in a competitive environment, especially in technology markets:

1. Recovery of sunk investments: Cloud providers have invested tens of billions of dollars in data centres, network infrastructure, and R&D for new services. If they succeed in providing valued services, they must earn returns above the cost of capital to justify those risky, upfront investments. A period of returns above WACC can simply indicate that a firm is recouping its past investment and compensating for the risk undertaken, not that it faces no competition.
2. Innovation and transient advantage: In a dynamic market, a firm that innovates successfully may enjoy a transient competitive advantage—a reward for innovation—until rivals catch up. Economic theory recognizes that competitive markets eventually drive profits toward the cost of capital, but it provides little guidance on how long profits might persist in dynamic industries in which economic profits are needed to induce firms to invest in risky innovation. In cloud services, new innovations (g., AI-as-a-service, advanced databases, edge computing) can generate returns for the innovator, but these returns invite entry or imitation, eroding the advantage over time.
3. Contestable market pressures: Even if AWS and Microsoft currently earn large margins, the threat of entry or expansion can constrain their behaviour. Cloud computing has low customer lock-in (as noted, many customers multi-home) and enormous growth potential, which attracts ongoing entry by firms like Oracle, IBM, and niche players. In a contestable market, “deep-pocketed investors will finance entrants and compete away profits” if incumbents start earning monopoly rents.[23] The presence of high profits is as much a sign of a healthy, innovation-driven market as it is a cause for concern.

Crucially, there is no direct line from “ROCE > WACC” to “consumer harm”. Even the CMA’s past analyses have acknowledged that “a finding that ROCE is higher than the WACC is not in itself indicative of a competition problem” and that an innovative firm may earn higher returns for the period that it maintains a competitive edge.[24] We believe that principle applies here. The cloud market’s growth and falling prices suggest that high returns are a reward for efficiency and innovation, not the result of exploiting consumers. Notably, cloud customers (from startups to large enterprises) have seen tremendous value. In many cases, cloud services have reduced their IT costs or enabled new functionality that was not possible before. These consumer benefits are hard to square with a narrative of harm.

Finally, we note that the CMA’s reliance on a textbook ROCE vs. WACC analysis may be ill-suited for a rapidly evolving technology sector. Treating cloud firms’ profitability as one would a utility’s returns fails to reflect dynamic competition. Such an approach might be appropriate for mature industries like energy or water but is off the mark for a market driven by innovation and continual change. High accounting profits in cloud services should invite further inquiry, not presumptions about the presence of anticompetitive harms. The key question should be whether those profits are sustained by excluding competition or by delivering a superior service in a competitive race. The evidence favours the latter interpretation.

IV. Egress Fees and Technical Barriers in Context

The CMA’s provisional findings raise concerns that certain practices by the leading providers—notably, data-egress fees (charges for transferring data out of a cloud) and technical frictions—function as barriers to switching, thereby harming competition. We agree that switching costs deserve scrutiny but urge the CMA to consider the broader context and justifications for such practices, as well as the evidence that customers frequently mitigate switching costs through multi-cloud strategies.

Egress fees are often portrayed as “extraction” mechanisms to lock in customers, but they have a cost basis and a competitive function. Neither Amazon,[25] nor Google,[26] nor Microsoft[27] charge anything for data ingress (uploading data into the cloud)—even though accepting and storing incoming data is not free for them. Cloud providers instead recoup the costs of moving data through egress fees, including fees for moving within one provider or to somewhere else on the internet.

Beyond explicit egress charges for switching providers, policymakers may be concerned about other compatibility costs that could generate consumer lock-in. This is not a significant issue for pure data storage or computing power. The major cloud providers allow users to run programs on open-source Linux instances. As one moves further from the commodity-like products of storage and computing, however, the switching costs become more real, depending on which precise services customers use.

For example, for video editing, whether one is using editing software on one’s local machine or through cloud services, all the major editing software will input and output standardized files. If you are in the middle of an edit, however, that file format is often unique. Is that a switching cost? Probably not in any sense that is relevant to the CMA, but it is on par with the switching costs experienced once one enters a grocery store. The competitive pressures are to attract customers to enter the store, or to start using the software.

For less-trivial examples, one could worry about the costs to a large company of switching from one cloud SQL-database (part of the PaaS layer) provider to another—e.g., from Amazon RDS to Microsoft Azure. SQL itself is not “open source” in the way that a software application or operating system might be. There are, however, numerous database systems that utilize SQL, and many of these are open source. Examples include MySQL, PostgreSQL, and SQLite; all are open-source relational database-management systems that use SQL as their standard language. Conversely, there are also proprietary, closed-source database systems that use SQL, such as Microsoft SQL Server and Oracle Database. Again, no matter the system, changing providers is not as easy as flipping a light switch or dragging and dropping files on Google Drive.

Technical compatibility and data portability are also important considerations. The CMA’s provisional findings suggest that proprietary technologies and complex architectures can make it difficult for customers to switch between clouds, thus reinforcing incumbents’ market positions.[28] There is truth to the notion that moving a complex application from one cloud platform to another is not trivial. This must, however, be viewed within the proper context: switching core cloud functions is far easier than in the pre-cloud era, and many industry standards and open-source tools exist to minimize lock-in.

But we must always ask, compared to what? Changes to major IT operations have always been costly. Transferring substantial troves of data is costly, as noted above. That is why companies have dedicated, full-time IT staff to handle such issues. Putting something on the cloud does not magically make it free to do whatever one wants, but cloud computing does expand the number of choices for any product available to customers.

In the pre-cloud world, businesses running their own IT faced much higher switching costs—e.g., changing one’s internal IT architecture or migrating from one on-premises software vendor to another was often a multi-year project with huge costs. Cloud computing has, in many respects, lowered the barriers to switching by standardizing infrastructure and offering migration services. It is true that changing providers is not as easy as flipping a light switch, but it was never so simple in enterprise IT. The relevant question is whether today’s leading cloud firms impose unreasonable or anticompetitive barriers, beyond the inherent complexities of technology transitions.

While the above discussion frames such questions as an either/or decision, many users “multi-home” or use multiple providers. According to one survey, 70% of companies that use cloud providers use multiple providers.[29] This flexibility allows customers to cherry-pick services from various providers and assign different providers for distinct workloads. Such an approach inherently amplifies the level of competition in the cloud industry. Again, it is worth contrasting this with on-premises IT services. The apparent ease of multi-homing suggests that other compatibility issues are not a major hindrance to competitive pressures, and that there is still robust competition for consumers.

Finally, we suggest the CMA consider the business and innovation rationale behind proprietary technologies. Many of the features that differentiate cloud providers (and deliver value to customers) come from technical innovations that inherently are not carbon copies of each other’s offerings. One provider might offer an innovative AI toolkit or a unique database solution that others lack. These differences benefit customers (who can choose the service that best fits their needs), even where it means that switching those services might involve some retraining or data conversion. Over time, competing firms will tend to respond by developing similar capabilities or adopting interoperability standards once they emerge. Interventions in this area should be careful not to inadvertently stifle the incentive to develop improved cloud services. Mandating too much uniformity or zero switching costs could homogenize offerings and chill investment in differentiated features.

V. Proprietary Chips: A Dimension of Cloud Competition

The CMA’s provisional findings suggest that certain “technical barriers”, including proprietary hardware, may create switching costs that deter customers from migrating among cloud providers.[30] It also raises concerns that such features create the need for new skills in order to “plan, remap, rework and test workloads”.[31] As the CMA acknowledges elsewhere, however, “[t]his custom approach enables systems-level optimisation and hence lowering of costs”.[32] Where such differentiation occurs, it is just as likely a feature of competition, rather than an insurmountable lock-in mechanism.

Differentiated hardware, it should be noted, is not unique to cloud computing. It is, rather, a prevalent feature across a multitude of tech-driven industries. Industries ranging from consumer electronics to telecommunications routinely use proprietary chips to deliver enhanced functionality or efficiencies, rather than creating an insurmountable barrier that deters customers from switching. It is essential to recognize that, rather than invariably leading to anticompetitive outcomes, these hardware innovations spur rival firms to invest in research and development, aiming to keep pace with or surpass the latest performance benchmarks. Cloud customers, in turn, benefit from an ongoing arms race in which providers compete on metrics such as throughput, energy efficiency, and workload-optimized features. In other words, the existence of custom chips is often a manifestation of vigorous competition at the infrastructure level, rather than an indicator of insurmountable lock-in.

Moreover, multi-cloud and hybrid-cloud strategies undermine the assumption that proprietary chips create universal lock-in.[33] Enterprises often distribute workloads based on each provider’s relative strengths. For instance, a firm may run standard workloads on a general-purpose CPU platform, while allocating AI-training jobs to whichever provider currently offers the best GPU or specialized accelerator. Because these strategies are becoming the norm, proprietary chips serve as a competitive differentiator, rather than a blanket barrier. When one provider’s custom silicon proves superior or more cost-effective, businesses may place incremental workloads there, but they are not unavoidably trapped.

Finally, the dynamic, innovation-intensive nature of cloud computing further reduces the likelihood that proprietary hardware will entrench incumbents over the long run. As the CMA recognizes, cloud-service providers continually introduce new instance types and hardware generations.[34] Even if a particular chip confers a temporary advantage, competitors can respond by partnering with third-party chipmakers or creating their own designs. If any custom silicon fails to keep pace, customers can shift to a rival’s more advanced hardware. The result is a race to innovate, benefiting consumers in the form of faster compute times, lower costs, and better energy efficiency.

In short, while custom silicon may indeed make some forms of switching more complex, it is primarily a hallmark of competition, rather than an insurmountable lock-in mechanism. Restricting the use or development of proprietary chips could inadvertently stifle the very innovation that has propelled cloud computing forward. We encourage the CMA to distinguish carefully in its final report between hardware-led differentiation that intensifies rivalry and any proven, artificial barriers to customer mobility. A policy approach that conflates all proprietary hardware with anticompetitive lock-in risks undermining future innovation—potentially to the detriment of UK businesses that rely on the cloud’s evolving capabilities.

VI. Proportionality of Proposed Remedies

Most importantly, we urge the CMA to carefully evaluate whether the proposed remedies—in particular, designating certain providers as SMS under the Digital Markets, Competition and Consumers Act (DMCC) regime—are appropriate and proportionate to the issues identified. Even if one accepts that there are competition concerns in the UK cloud-services market, the remedies must be narrowly tailored and evidence-based. Imposing broad behavioural obligations or regulatory oversight via an SMS designation is a far-reaching step that could reshape the incentives in this dynamic sector.

We have two primary concerns regarding the provisional remedies:

1. Risk of overregulation: Labelling AWS and Microsoft as having “strategic market status” would trigger a set of pro-competitive conduct requirements. While ensuring fair play is important, an SMS designation would effectively treat these firms as enduring gatekeepers of a market “tipped” in their favour. We question whether that characterization is fully justified in the cloud-services context. As discussed, the cloud market is still evolving, and today’s dominance might be eroded by tomorrow’s innovation. Heavy-handed regulation of the leading firms could inadvertently slow the very innovation and price competition that has benefitted customers. The multitude of service options and strategies available to consumers mean that cloud providers are not absolute gatekeepers in the way that, say, a monopoly telecom operator might be. Treating them as such could lead to onerous rules (g., strict controls on pricing, bundling, or interoperability) that may have unintended consequences. These could include raising compliance costs, discouraging experimentation with new business models, or even prompting providers to pull back from the UK market. Any remedy should be proportionate to demonstrated harms, not speculative ones.
2. Targeted issues versus broad designation: The CMA’s own findings identify specific practices of concern—g., egress fees, certain discount structures, and potential software-licensing restrictions. If these are, indeed, problematic under a competition lens, targeted interventions might be possible without the need for an all-encompassing SMS designation. The principle of proportionality should lead the CMA to choose the least-intrusive remedy that effectively addresses the competitive concern. Given the robust competition and positive outcomes observed in cloud services (falling prices, expanding output, innovation), drastic measures like SMS designation appear difficult to justify.

It bears emphasizing that regulatory remedies are not without tradeoffs. An SMS designation and attendant rules could cement the positions of current leaders by making the market less attractive for challengers (who might prefer to compete in a lightly regulated environment). It could also constrain how the leading firms compete. For example, certain discounting practices or service integrations might be banned, even if they are beneficial to customers. We encourage the CMA to first consider less-interventionist approaches, allowing the market to self-correct or monitoring for a longer period, especially since cloud computing remains in a growth phase. Interventions into a market that is delivering a bright future of innovation and falling costs should be made only on compelling evidence of harm and with remedies likely to improve consumer welfare net of costs.

In summary, an SMS designation and similar measures under the DMCC are powerful tools intended for clear-cut cases of entrenched market power. The cloud-services market, in our view, does not present such a clear-cut case; it is competitive and evolving, not ossified. We respectfully submit that the CMA should either refrain from imposing the proposed SMS-based remedies or narrow their scope significantly. At minimum, before adopting such remedies, the CMA should ensure that the final report demonstrates, with rigorous evidence, that lighter-touch solutions would be insufficient and that the benefits of intervention outweigh the costs. As it stands, the provisional findings do not make that case convincingly.

[1] CMA Cloud Services Market Investigation Provisional Findings, Compet. Mark. Auth. (28 January 2025), [hereinafter: “CMA Provisional Findings”].

[2] See Harold Demsetz, Industry Structure, Market Rivalry, and Public Policy, 16 J.L. & Econ. 1 (1973).

[3] Harold Demsetz, The Intensity and Dimensionality of Competition, in Harold Demsetz, The Economics of The Business Firm: Seven Critical Commentaries 137, 140-41 (1995).

[4] See, e.g., Richard Schmalensee, Inter-Industry Studies of Structure and Performance, in 2 Handbook of Industrial Organization 951-1009 (Richard Schmalensee & Robert Willig, eds., 1989); William N. Evans, Luke M. Froeb, & Gregory J. Werden, Endogeneity in the Concentration-Price Relationship: Causes, Consequences, and Cures, 41 J. Indus. Econ. 431 (1993); Steven Berry, Market Structure and Competition, Redux, FTC Micro Conference (November 2017), available at https://www.ftc.gov/system/files/documents/public_events/1208143/22_-_steven_berry_keynote.pdf; Nathan Miller et al., On the Misuse of Regressions of Price on the HHI in Merger Review, 10 J. Antitrust Enforcement 248 (2022).

[5] Sharat Ganapati, Growing Oligopolies, Prices, Output, and Productivity, 13(3) Am. Econ. J. Microecon. 309-327, 324 (August 2021).

[6] Id., at 309.

[7] Timothy F. Bresnahan, Empirical Studies of Industries with Market Power, in Handbook of Industrial Organization, 1011, 1053-54 (Richard Schmalensee & Robert Willig, eds., 1989).

[8] Chad Syverson, Macroeconomics and Market Power: Context, Implications, and Open Questions, 33(3) J. Econ. Perspect. 23-43, 26 (2019).

[9] Nicolas Petit & Lazar Radic, The Necessity of the Consumer Welfare Standard in Antitrust Analysis, ProMarket (18 December 2023), https://www.promarket.org/2023/12/18/the-necessity-of-a-consumer-welfare-standard-in-antitrust-analysis.

[10] Bill Whyman, Secrets from Cloud Computing’s First Stage: An Action Agenda for Government and Industry, Inf. Technol. Innov. Found. (1 June 2021), https://itif.org/publications/2021/06/01/secrets-cloud-computings-first-stage-action-agenda-government-and-industry.

[11] Glenn Solomon, The Cloud Is Still a Multibillion-Dollar Opportunity. Here’s Why, Forbes (4 January 2023), https://www.forbes.com/sites/glennsolomon/2023/01/04/the-cloud-is-still-a-multibillion-dollar-opportunity-heres-why.

[12] Press Release, Gartner Says Worldwide IaaS Public Cloud Services Market Grew 41.4% in 2021, Gartner (2 June 2022), https://www.gartner.com/en/newsroom/press-releases/2022-06-02-gartner-says-worldwide-iaas-public-cloud-services-market-grew-41-percent-in-2021.

[13] Id.

[14] Id.

[15] Cloud Spending Growth Rate Slows But Q4 Still Up By $10 Billion from 2021; Microsoft Gains Market Share, Synergy Res. Group (6 February 2023), https://www.srgresearch.com/articles/cloud-spending-growth-rate-slows-but-q4-still-up-by-10-billion-from-2021-microsoft-gains-market-share.

[16] Felix Richter, Big Three Dominate the Global Cloud Market, Statista (28 April 2023), https://www.statista.com/chart/18819/worldwide-market-share-of-leading-cloud-infrastructure-service-providers.

[17] Horizontal Merger Guidelines, §5.3, U.S. Dep. Justice & Fed. Trade Comm. (2010).

[18] CC3 (Revised), Guidelines for Market Investigations: Their Role, Procedures, Assessment, and Remedies (CC3, Annex A, paragraph 7).

[19] CMA Provisional Findings, supra note 1 at Table 3.1.

[20] 2023 State of the Cloud Report, Flexera, https://info.flexera.com/CM-REPORT-State-of-the-Cloud#view-report (last visited 17 February 2025).

[21] See infra Section V.

[22] CMA Provisional Findings, supra note 1 at ¶ 3.246.

[23] Laurits Christensen et al., The Challenges of Using Return on Capital as an Indicator of Monopoly Power, Anal. Group (9 December 2020), https://www.analysisgroup.com/Insights/publishing/the-challenges-of-using-return-on-capital-as-an-indicator-of-monopoly-power.

[24] Online Platforms and Digital Advertising Market Study, Appendix D10, Compet. Mark. Auth. (1 July 2020), https://www.gov.uk/cma-cases/online-platforms-and-digital-advertising-market-study.

[25] Amazon S3 pricing, Amazon, https://aws.amazon.com/s3/pricing (last visited 13 February 2025).

[26] Bandwidth Pricing, Azure, https://azure.microsoft.com/en-us/pricing/details/bandwidth (last visited 13 February 2025).

[27] All Network Pricing, Google Cloud, https://cloud.google.com/vpc/network-pricing (last visited 13 February 2025).

[28] CMA Provisional Findings, supra note 1 at ¶ 8.51.

[29] 2023 State of the Cloud Report, Flexera, https://info.flexera.com/CM-REPORT-State-of-the-Cloud#view-report (last visited 15 June 2023).

[30] CMA Provisional Findings, supra note 1 at Ch. 5 (discussing technical barriers and proprietary technology as potential impediments to competition).

[31] Id. at ¶ 5.112.

[32] Id. at ¶ 3.397.

[33] Flexera, supra note 20.

[34] CMA Provisional Findings, supra note 1 at ¶ 3.399.

PORTLAND, Ore. (Feb. 18, 2025) – The International Center for Law & Economics (ICLE) offers the following statement on Federal Trade Commission (FTC) Chairman Andrew Ferguson’s announcement that the U.S. Justice Department (DOJ) and FTC’s joint 2023 Merger Guidelines will serve as the framework for the agency’s merger-review analysis. 

This quote can be attributed to ICLE President Geoffrey A. Manne:

The 2023 Merger Guidelines represented a radical departure from established antitrust consensus, abandoning decades of pro-consumer-welfare principles, while echoing the anti-economic, anti-competitive agenda of the neo-Brandeisian movement. True continuity would mean upholding sound economic principles and protecting consumers, not embracing a document designed to dismantle them. Chairman Ferguson has rightly noted that the Biden-era FTC initiated a ‘four-year regulatory assault on American businesses’ and ‘hindered economic growth and increased costs to the American consumer.’ We respectfully urge the FTC to reconsider the use of this misguided foundation for merger review and would recommend the commission instead reinstate the 2010 horizontal-merger guidelines as the most expeditious means to ensure continuity of the antitrust principles that have guided courts and enforcement agencies for decades.

ICLE previously outlined legal concerns with the 2023 Merger Guidelines in regulatory comments to the agencies (see also this “tl;dr” explainer), which can be summarized as:

• The 2023 guidelines deviated from the established antitrust consensus and abandoned decades of pro-consumer welfare principles. They overemphasized structural presumptions and did not adequately consider the potential benefits of mergers.   
• There is a distinction between “binding” and “persuasive” authority in the context of agency guidelines. While not legally binding, the merger guidelines can still influence court decisions.   
• The guidelines fail to provide clear guidance on how to distinguish between harmful and beneficial mergers, making it difficult for businesses and practitioners to navigate the regulatory landscape.

To schedule an interview with Geoff, contact Jim Fellinger at [email protected].

I. Introduction

We appreciate the opportunity to comment on the Australian Government’s (“Government”) consultation on the implementation of a new digital competition regime.[1]

As we outline in our comments, the Government’s proposal rests on the assumption that there exists a broad global consensus on the need for ex-ante rules for digital platforms. This purported consensus is, however, largely overstated. Australia should not feel pressured to “catch up” with a trend that does not exist. Second, the Government promotes ex-ante digital competition rules as “complementary” to an expanding web of regulatory interventions. In practice, however, each new regulation compounds a broader regulatory overload that threatens to result in net social losses. Third, ex-ante digital competition rules may reflect the European Union’s (“EU”) distinct industrial policies that are not necessarily suited to Australia. The EU may also be willing, for political reasons, to accept tradeoffs that Australians are not. Fourth, the Government’s focus on ad tech is misplaced. Ad tech is not the hub of anticompetitive behaviour that the Government suggests it is. Fifth, the Government should take lessons from the international experience, particularly that of the EU. As we show, the Digital Markets Act (“DMA”) has led to unintended consequences for businesses and consumers alike—reducing functionalities and limiting visibility for smaller players, such as hotels. Finally, and relatedly, the rules and conduct requirements the Government envisions mirror the DMA’s flawed and are therefore likely to produce similar adverse outcomes.

II. No Global Consensus About the Need for Ex-ante Digital Competition Regulation

The Government and the Australian Competition and Consumers Commission (“ACCC”) both suggest that they do not want to be left behind by regulatory trends already adopted in other jurisdictions.[2] As a preliminary point, we contend that no such consensus exists.

To date, only a handful of countries have passed ex-ante competition rules for digital platforms.[3] In addition to the EU itself, Germany, Japan, and the United Kingdom have adopted regulatory regimes for digital markets that bear some resemblance to the DMA. Granted, other countries have contemplated adoption of such rules (most notably, Brazil, Turkey, South Korea, South Africa, and India), but whether these will ultimately become law remains anyone’s guess.

In short: the number of countries that have adopted ex-ante rules pales in comparison to those that have not. The United States, most notably, has rejected the path set out by the EU, as is evident from the slow death of the congressional antitrust legislative package in 2023.[4] Moreover, as Hong Dae-Sik and Daniel Sokol have pointed out:

The United States rejected such a legislative effort and its proponents have come under significant attack by academics and Congress. Likewise, most American courts have rejected this novel approach, and antitrust authorities that have brought lawsuits under such non-traditional legal theories have lost virtually every case, especially when seeking to block corporate mergers.[5]

Other countries’ commitments to follow this purported “global regulatory trend” are also teetering.[6] For example, it was recently reported that India could scrap proposed legislation to regulate digital platforms, amid fierce backlash from lawyers.[7] The South Korean government earlier backtracked on its plans to pass the Platform Competition Promotion Act (“PCPA”), which was likewise inspired by the DMA[8] The South Korean government is instead contemplating a more modest—albeit still questionable—reform of its Fair Trade Act.[9] The Philippines competition authority also recently ruled out a DMA-style bill.[10] With the United States increasingly signalling that it will not tolerate excessive foreign regulation of American technology companies, it is possible that more countries will back away from EU-style regulation on this front.[11]

Even in those jurisdictions that have taken steps to adopt “sector specific” competition rules for digital markets, there is no consensus about how such rules should be structured. To be sure, there are important thematic commonalities across so-called digital competition regulations.^[12] But on a legal and formal level, these approaches are vastly heterogeneous.

Digital competition rules exist in a “difficult epistemological situation”,^[13] caught between competition law, sector-specific regulation (despite digital markets lacking the homogeneity of a true “sector”),^[14] or something else entirely. Some have called them the “lost child of competition law”,^[15]  reflecting deeper uncertainty about their ultimate purpose—whether it should be fairness, consumer welfare, or equality. These goals are not always compatible and can, at times, be in direct conflict.[16]

For example, some digital competition rules are structured as an extension of the competition-law framework and are sometimes even formally embedded into existing competition law. In principle, where this is the case, it means that the standard goals and rationales of competition law still apply. Germany, for instance, has amended its Competition Act to enable early intervention against threats to competition by large digital firms.^[17] The new rules prohibit certain categories of conduct and impose remedies based on structural inquiries, regardless of abuse. Unlike the DMA, the Competition Act’s Article 19a permits targeted companies to justify their conduct, but shifts the burden of proof to the defendant, diverging from competition-law norms.

With its draft amendments to Law 4054 (Turkey’s Competition Act),^[18] Turkey has followed a similar path to Germany, although some of the new provisions go significantly further than even the DMA, partly due to their open-ended nature. For instance, the Turkish draft amendment would appear to prohibit all forms of tying and bundling, as well as potentially all exclusivity agreements. It also remains unclear whether the prohibitions would apply to all conduct by the designated digital platforms, or only to the “core platform services”.^[19]

As noted above, South Korea recently scrapped plans for the PCPA.^[20] The Korea Fair Trade Commission and the government of recently impeached and indicted President Yoon Suk Yeol[21] instead announced support for amendments to the existing Fair Trade Act.^[22] Under the new rules, in cases where designated digital platforms are accused of self-preferencing, tying, or imposing most-favored nation (“MFN”) clauses or restrictions on multi-homing, the amendments would raise fines, reverse the burden of proof, and allow interim orders, including cease and desists, to be issued immediately. It also appears—although it is not certain—that the new rules would give targeted companies some leeway to mount a defense, such as by showing procompetitive efficiencies.

There are other proposed and enacted digital competition rules that are at least nominally competition-based, although their approaches differ. The United Kingdom’s Digital Competition and Consumers Bill (“DMCC”) allows the Competition and Markets Authority’s (“CMA”) newly created Digital Markets Unit (“DMU”) to impose “bespoke” conduct requirements on companies with “strategic market status”. This approach contrasts with the DMA, which contains (allegedly) self-executing blanket prohibitions by which all gatekeepers must abide.^[23] By contrast, under the DMCC, the DMU determines how each designated firm must conduct itself in order to achieve the law’s stated objectives of “fair dealing”, “open choices”, and “trust and transparency”. These conduct requirements must be chosen from a list of “permitted types” (e.g., prohibiting self-preferencing, or requiring choice screens).

S. 29 of the DMCC provides for a “countervailing benefits exception” to conduct requirements. But apart from the fact that the exemption sets a high bar to clear (the behaviour must be “indispensable”), it also only applies once an investigation into breach of a conduct requirement is underway. It is questionable how useful this defense will prove to be in practice.^[24]

India is taking a middle path between the DMCC and the DMA, wherein certain firms would be designated as “systemically significant enterprises” and subject to six obligations and prohibitions, albeit with more space for customization by the enforcer. The Indian Draft Digital Competition Bill^[25] (“DDCB”) supplements the Indian Competition Act (“ICA”) but pursues different goals. The ICA’s stated goals are the protection of the interests of consumers and free trade, while the DDCB (like the DMA) pursues fairness and contestability.^[26]

Meanwhile, in the United States, several bills have been put forward in recent years that are formally separate from existing antitrust law, but cover some of the same conduct as would typically be addressed under U.S. antitrust law—albeit with seemingly different goals and standards.^[27] While the U.S. tech bills largely fail to describe their underlying goals, the bills’ titles, as well as statements made by their sponsors, suggest a set of overlapping concerns. These include preventing “material harm to competition” (which superficially sounds like an antitrust objective, but as the American Bar Association’s Antitrust Section has pointed out, isn’t);^[28] reducing “gatekeeper power in the app economy”; and “increasing choice, improving quality, and reducing costs for consumers”.^[29] But the measures also pursue other goals that are less obviously connected to competition, such as creating opportunities for small businesses and entrepreneurs, achieving a level playing field, and ensuring “fair” prices.

Brazil’s PL 2768,^[30] which has some of the lowest quantitative thresholds for a company to be considered a “gatekeeper” (roughly AU$19.21 million), pursues an expansive grab bag of social and economic goals, including freedom of initiative; free competition; consumer protection; reduced regional and social inequality; combating the abuse of economic power; widening social participation in matters of public interest; access to information, knowledge, and culture; and fostering innovation and mass access to new technologies and access models. Like the DMCC, the obligations would be tailored to each company. The provisions are broadly phrased, however, and some appear open to expansive interpretations. For example, Art.10(IV) prohibits gatekeepers from refusing access to business users—seemingly tout court (although Art.11 then requires enforcers to act with proportionality when establishing obligations).

Japan, whose Smartphone Act is part of an overarching policy shift “towards a new form of capitalism”,^[31] covers only four core platform services. By comparison, other digital competition rules typically cover around 10, replicating the DMA’s scope. Further, the Smartphone Act’s dos and don’ts would only apply when consumers access products or services on their phones (e.g., Google is only prohibited from engaging in self-preferencing on smartphones,^[32] but not on laptops or PCs). The Smartphone Act also allows greater scope for privacy and security exemptions. Whereas the DMA only allows for such exemptions in the case of interoperability and sideloading (the Smartphone Act does not mandate sideloading), it appears that privacy, safety, and user protection constitute valid justifications for most types of conduct covered by the Smartphone Act.^[33]

The South Africa Competition Commission (“SACC”) has called for remedial actions against popular intermediation platforms.^[34] These are largely the usual “GAMMA” suspects (Google, Apple, Meta, Microsoft, and Amazon); it explicitly would include Amazon, despite the company’s absence in South Africa at the time. Presumably, the SACC would impose these remedies within the framework of the South African Competition Act. Uniquely, the SACC explicitly admits that its proposed remedies aim to redistribute wealth from the targeted digital companies to South African companies, historically disadvantaged peoples (“HDPs”), and small and medium-sized enterprises (“SMEs”).[35] The SACC recommends requiring Google to add identifiers and filters to help consumers identify and support local platforms and to directly pay competing SMEs and black-owned firms ZAR150 million (roughly AU$12.84 million) to offset Google’s competitive advantage.[36]

This has at least two implications for Australia. First, the “consensus” the Government aims to replicate domestically is vastly overstated. Second, Australia’s proposal is unlikely to be “complementary and cohesive with international practices”, because those practices themselves lack cohesion. Instead, it would introduce yet another layer of regulatory complexity, further disrupting digital platforms, their users, and the businesses that rely on them.[37]

III. Ex-Ante Digital Competition Regulation Adds Fuel to Australia’s Bonfire of Overregulation

The Government’s Proposal Paper claims that ex-ante digital competition rules would “complement” existing and forthcoming regulations, including the proposed Scams Prevention Framework, the government’s response to the Privacy Act Review, Digital ID laws, the News Media and Digital Platforms Mandatory Bargaining Code, and ongoing initiatives related to artificial intelligence (“AI”). [38]

Rather than serving as complements, however, these rules are just as likely to deepen Australia’s growing problem of overregulation, thereby further hindering digital platforms’ ability to deliver value to users and businesses. In a sea of regulations, one more regulatory overreach might seem insignificant, or it could be the final straw that breaks the camel’s back.

Studies in regulatory theory often suggest that, when multiple regulatory frameworks are implemented simultaneously, their combined effect can lead to “regulatory overload”. This can cause inefficiencies and unintended consequences that are not easily anticipated by looking at each rule in isolation. In other words, regulatory overload has synergistic effects.

In this vein, researchers have shown how multiple overlapping regulations can obscure policy objectives and hinder the development of effective and clear regulation;[39] that the total regulatory burden from multiple regulations often exceeds what might be expected by merely adding individual regulatory impacts together, causing “convex deadweight costs”;[40] and how the accumulation of regulations can lead to increased costs and inefficiencies.[41] For example, one study showed that between 1949 and 2005, the accumulation of federal regulations slowed U.S. economic growth by an average of 2% annually.[42] If regulation had stayed at its 1949 level, the 2011 U.S. GDP would have been approximately $39 trillion—3.5 times higher—resulting in a loss of around $129,300 per person in the United States. Another study mentioned earlier showed that:

By distorting the investment choices that lead to innovation, regulation has created a considerable drag on the economy, amounting to an average reduction of 0.8 percent in the annual growth rate of the US GDP. This seemingly small annual reduction has large implications. The slower economic growth associated with regulatory accumulation resulted in an economy that was $4 trillion smaller in 2012 than it could have been without such regulatory accumulation.[43]

This flips the Government’s argument about “complementarity” on its head, suggesting that the cumulative impact of regulations is likely to be greater than the sum of their individual effects, potentially doing more harm to the Australian digital sector than each regulation would on its own.

Consider the News Media Bargaining Code. These regulations have already imposed significant costs and caused unintended consequences, which could easily be exacerbated by parallel ex-ante digital rules targeting the same companies. In response to the proposed code, Meta banned the sharing and viewing of news content on Facebook in Australia. This led to a significant reduction in news consumption on the platform. One study found that, while some users sought alternative news sources, others experienced a decline in news consumption, potentially increasing their exposure to misinformation.^[44] The Independent Media Alliance opined that the ban would be “terrible for not only the industry, but for Australian democracy”.^[45] While Meta eventually reversed the ban and reached a deal that allowed news sharing to resume, the situation had significant ramifications. Larger publishers negotiated deals for compensation from Meta, but smaller news outlets faced sunk revenue losses.

While Google, in comparison, has been more willing to negotiate, there is a caveat. In Australia, Google agreed to pay news companies only after intense negotiations. In the end, Google secured terms more favourable to its business model, opting for case-by-case payments rather than a fixed, uniform payment model. While large companies like Australia’s own News Corp can absorb these transaction costs, smaller outlets may struggle. Google also had the ability to choose which content to display—and pay for—on its platform. Put simply, if you turn Google into a news buyer, it will shop around.

More recently, Australia has considered shifting the News Media Bargaining Code to function as a digital-services tax, either explicitly or de facto. The de facto version would make it compulsory for companies to carry news links. As a result, the compelled companies would subject to extraction. This shift could mean that Australian companies lose whatever arrangements they have made with Google. When New Zealand proposed legislation (currently stalled) with a similar effect, Google stated it would withdraw from the country’s news market entirely if enacted.[46]

Ultimately, major media companies with significant bargaining power, like News Corp and Nine Entertainment, were the main beneficiaries of the agreements made under the News Media Bargaining Code. These large publishers offered more varied content that was valuable to Google because it attracted a larger audience and thus increased ad revenue. In addition, large publishers were able to command higher payments, making them more likely to receive favourable treatment, in terms of visibility on Google’s platform. Conversely, smaller or independent news outlets that did not strike agreements with Google risked being excluded from Google’s news services or search results or receiving much less exposure than they would have in a but-for world.^[47]

The question of how this scenario could be seen as benefiting the public—rather than large, politically powerful entities like News Corp—remains unanswered. Additionally, there is the issue of the combined impact of regulatory overload. Smaller outlets, who less able to negotiate for visibility on Google’s search engine, may face further challenges from prohibitions on self-preferencing. When self-preferencing is banned, companies like Google tend to auction off the top search spots, favoring incumbents with deep pockets.[48] As a result, smaller outlets that could previously appear at the top due to content relevance are now unlikely to secure those prime positions.

In other words, self-preferencing bans turn the currency of search rankings from relevance into actual money. While smaller companies could once compete based on relevance, they now face being crowded out by more financially robust competitors. The combined effect of the News Media Bargaining Code and a ban on self-preferencing could therefore lead to the demotion of content from smaller, yet relevant, business users—an outcome that would harm both these businesses and, most importantly, end-users.

In addition, prohibitions on the cross-use of data, or cumbersome requirements that are tilted against consent, could affect digital platforms’ ability to provide tailored, targeted ads. This would be another nail in the coffin of small businesses, which disproportionately rely on targeted advertising to break into new markets and reach customers.

IV. Australians May Not Want the Same Tradeoffs as the EU

It is hardly surprising that some countries would get “cold feet” about enacting strict ex-ante digital competition rules.[49] To the keen observer, the prospect always loomed that such rules might be little more than a quirk of EU industrial policy. As ICLE Senior Scholar Lazar Radic has noted,^[50] prior to the DMA’s adoption, many leading European politicians touted the law’s text as a protectionist industrial-policy tool that would hinder U.S. firms to the benefit of European rivals.^[51] French President Emmanuel Macron summarized it well when he said:

If we want technological sovereignty, we’ll have to adapt our competition law, which has perhaps been too much focused solely on the consumer and not enough on defending European champions.^[52]

Insofar as these goals are—or may be—unique to a particular time and place (i.e., the EU in the 2020s), it is reasonable to assume they will not necessarily be shared by everyone. Some countries may be more interested in attracting digital platforms than in regulating,^[53] “disciplining”,^[54] or punishing them.^[55] Echoing the argument that “one size does not fit all” when it comes to digital competition regulation,^[56] Dae-sik and Sokol note that among the reasons ex-ante digital competition rules are inappropriate for South Korea is the marked differences between that nation’s economic, legal and regulatory context and that of the EU:

Europe chose to regulate heavily for protectionist reasons. It lacks the tech infrastructure, innovative companies, and unicorns that are present in other vibrant economies like Korea. […] While Korea has approximately three times more unicorns than Japan, despite having a smaller gross domestic product, the adoption of a DMA-like approach may hurt Korea’s innovation advantage.^[57]

Similarly, Samir Ghandi argues that the DMA’s “one-size-fits-all” approach would not work “for a dynamic Indian market with its own vibrant tech ecosystem”.^[58]

Other, less technologically intense countries like South Africa might have a still different set of priorities, such as attracting foreign direct investment to drive growth and the development of essential infrastructure. As Radic and ICLE President Geoffrey Manne have written:

Developing countries like South Africa should be especially wary of importing untested competition rules that impose government-mandated designs on the business models and user interfaces of innovative companies. It’s not trite to say that South Africa’s market is not the same as the EU’s. The consequences of unsound competition policy here may be to stymie foreign investment and domestic innovation exactly where they are needed most. […] This is a far cry from the untested, pre-emptive constraints contemplated by the [SACC].^[59]

The point is countries’ needs are as varied as the countries themselves. This does not preclude the possibility of common rules and standards; after all, most of the world’s competition-law systems have converged around some version of the consumer welfare standard.^[60] But one explanation for this commonality can be found in how the consumer welfare standard fares when compared to the alternatives:

The objective nature of the choice and interpretation of legal antitrust standards exists on a spectrum, and the [consumer welfare standard’s] conceptual congruence, measurability, and its connection to aspects that are almost universally considered to be relevant parameters of competition (price, innovation, quality) brings it closer to objectivity and further away from subjectivity.^[61]

Conversely, once it is understood that the DMA represents an attempt to pass off a sui generis, subjective policy choice as a universal regulatory paradigm, the case for harmonization quickly withers. Clearly, not everyone is on board with trading economic performance for a set of questionable political goals.^[62] In this sense, one frequent criticism of ex-ante competition rules is that they ignore—or, at the very least, significantly downplay—the effects on consumer welfare and innovation (the traditional bastions of competition policy). Instead of focusing on protecting competition to the benefit of consumers, digital competition rules commit the cardinal antitrust sin of protecting competitors. As former Federal Trade Commission (“FTC”) Commissioner Maureen Ohlhausen has put it:

Some recent legislative and regulatory proposals appear to be in tension with this basic premise. Rather than focusing on protection of competition itself, they appear to impose requirements on some companies designed specifically to facilitate their competitors, including those competitors that may have fallen behind precisely because they had not made the same investments in technology, innovation or product offerings. For example, the Digital Markets Act (DMA) would force a ‘gatekeeper’ company to provide business users of its service, as well as those who provide complementary services, access to and interoperability with the same operating system, hardware, or software features that are available to or used by the gatekeeper. While this would restrain gatekeepers and presumably facilitate the interests of the gatekeeper’s rivals, it is not clear how this would protect consumers, as opposed to competitors.^[63]

This, of course, is only surprising if one falls for the story that digital competition rules—and the DMA, in particular—were ever intended to protect competition or consumer welfare. The readily apparent goal is instead to redistribute rents, protect competitors, and level down gatekeepers, even if it comes at the expense of consumers.^[64] There is no better example of this than the DMA, whose preamble explicitly disavows consumer welfare and economic efficiency as irrelevant under the new rules.

As commentators around the world have pointed out, this approach is likely to stymie dynamism in digital markets and harm consumers. As noted above, Dae-sik and Sokol argue against introducing ex-ante digital competition regulations in South Korea, contending that such rules would stifle innovation, decrease investment, hurt startups and consumers, and jeopardize South Korea’s status as a regional leader in tech innovation.^[65] Carmelo Cennamo and Juan Santaló further argue that the DMA could produce a host of other harmful unintended consequences.^[66] For example, undermining gatekeepers’ ability to control access to their platforms could ultimately lead to lower levels of innovation. Obligations like data-sharing could reduce gatekeepers’ incentives to accumulate and process data, thereby diluting the competitive benefits and product improvements that result from such collection.

Some consumers and policymakers may be willing to accept these tradeoffs in pursuit of equity, fairness, contestability, “reining in” tech giants, or some other goal.^[67] But others, reasonably, may not. Thus, commentators from both within and outside the EU have increasingly questioned the need for rules that mechanically apply preset default solutions to the complex tradeoffs that have typically characterized competition-law analysis. This is of particular concern in dynamic markets driven by innovation, where uncertainty is endemic and where, except in the most egregious of cases,^[68] even the wisest enforcers can’t know a priori whether or not given conduct is procompetitive.^[69] Against this backdrop, tales of a supposed consensus in support of a special set of competition rules for digital platforms are rooted more in fantasy than in reality.

There is also the question of whether the Government can make such far-reaching decisions about tradeoffs without substantial democratic discussion and debate. The Government’s proposed framework would include broad obligations to target anticompetitive conduct contained in primary legislation and service-specific obligations to clarify the broad requirements contained in subordinate legislation (e.g., regulations). Though many of the categories of conduct sound straightforward and technical, they implicate several policy-laden decisions that broad obligations cannot capture, as well as competing interests that subordinate legislation would struggle to balance.

For instance, “restrictions on interoperability that limit effective competition” implicates multiple types of interoperability (i.e., technical, syntactic, and semantic interoperability and organization) each of which poses unique and personal tradeoffs in terms of user security, privacy, and flexibility. Other categories the Government’s proposal would seek to regulate, such as digital advertising, affect broad swathes of the economy and thus implicate substantive matters of policy. Without meaningful democratic deliberation, the Government’s framework risks imposing rigid, one-size-fits-all regulations on complex and deeply consequential tradeoffs that require a nuanced and inclusive policymaking approach.

V. Focus on ‘Ad Tech’ as a Hub of Anticompetitive Conduct Is Misguided

The Proposal Paper states that advertising technology (“ad tech”) would be a priority for the new regime.[70] In a previous report, the ACCC found that:

there is a lack of transparency in the supply chain, and that Google’s vertical integration and strength in ad-tech services has allowed it to engage in a range of conduct which has lessened competition over time and entrenched its dominant position.[71]

These findings should, however, be put into context. For years, regulators and competition watchdogs have expressed concern about competition in the digital-advertising business. Like the ACCC and the Government, they have noted that digital advertising appears to be dominated by a handful of large firms, including Google, Facebook, and—to a lesser extent—Amazon. Some claim that this dominance allows these firms—and Google, in particular—to engage in anticompetitive conduct to extend their market power and to earn supercompetitive profits at the expense of advertisers, publishers, and consumers. But Manne and ICLE Senior Scholar Eric Fruits have argued that, based on the information that is publicly available, many of the most significant claims made against Google’s ad-tech business are based on a misunderstanding of U.S. antitrust law, or of the details of the ad-tech market itself.[72] While Manne and Fruits’ study focuses on the United States, the findings can, to a significant extent, be extrapolated to Australia.

As they note, digital advertising provides the economic underpinning for much of the internet. Targeted digital advertising on independent websites is often facilitated by intermediaries that match advertisers and websites automatically, displaying ads to those users for whom they are most relevant. The technology powering this intermediation has advanced enormously over the past three decades. Some now allege, however, that the digital-advertising market is monopolized by its largest participant: Google.[73]

Ultimately, however, this is a version of the “big is bad” argument, in which conduct by dominant incumbent firms that makes competition more difficult for certain competitors is viewed as inherently anticompetitive—even if the conduct confers benefits on users. Under this approach, the largest firms are seen as acting anticompetitively if they do not share their innovations or reveal their business processes to competing firms. As a result, creating new and innovative products, lowering prices, reducing costs through vertical integration, and enhancing interoperability among existing products is miscast as anticompetitive conduct.

In contrast, competition laws—including Australia’s own—are intended to foster innovation that creates benefits for consumers, including innovation by incumbents. The law does not proscribe efficiency-enhancing unilateral conduct on the grounds that it might also inconvenience competitors, or that there is some other arrangement that could be “even more” competitive. While this might benefit some competitors in the short run, over the longer term, it will tend to stifle competition by discouraging innovation and investment and promoting free riding.

Moreover, competition law generally does not second guess unilateral conduct simply because it may hinder rivals. Any such conduct must first be shown to be anticompetitive—that is, to harm consumers or competition, not merely certain competitors. In multisided markets, this means finding not simply that some firms on one side of the market are harmed, but that the combined net effect of challenged conduct across all sides of the market is harmful.

Regulators, however, often fall into what has been deemed the “nirvana fallacy”, in which real-life conduct is compared against a hypothetical “competition-maximizing” benchmark and anything that falls short is deemed worthy of intervention. That fanciful approach would pervert businesses’ incentives to innovate and compete and would make an unobtainable “perfect” that exists only in the minds of some economists and lawyers the enemy of a “good” that exists in the market.

In the case of the Proposal Paper, many of the interventions appear to be geared toward destroying or undermining Google’s vertical integration in ad tech.[74] But these heavy-handed interventions risk hampering the quality of Google’s ad-tech service. Vertical integration plays a crucial role in streamlining supply chains by reducing inefficiencies and coordination issues, ultimately lowering transaction costs, and passing the benefit onto consumers. Additionally, forcing Google to unbundle its ad-tech operations could diminish its incentive to innovate, as it would expose proprietary advancements to potential replication by rivals. Rather than fostering competition and efficiency, these interventions may disrupt a well-functioning market, leading to higher costs, reduced service quality, and slower innovation in digital advertising.

VI. The Comparative Experience with Ex-Ante Rules for Digital Platforms

The Government is adamant that ex-ante rules for digital platforms will benefit everyone in Australia, but especially businesses and consumers. The EU’s experience with the DMA, however, tells a much more nuanced and less flattering story. Two lessons emerge from the DMA’s implementation for the Government’s ex-ante proposal: there are going to be winners and losers, and there will be unintended consequences. The Government and Australians more generally should brace themselves for both. Below are concrete examples of the inherent tradeoffs and unintended consequences following the EU’s implementation of the much-vaunted DMA.

Take, for example, self-preferencing. The DMA’s self-preferencing ban has made it increasingly difficult for platforms to offer certain functionalities in Europe. For example, Google has removed features like maps, hotel bookings, and reviews from its search results. Until it can accommodate competitors who offer similar services (if this is even possible), these specialized search results will remain buried several clicks away from users’ general searches. Not only is this inconvenient for consumers, but it has important ramifications for business users.

Take hotel bookings, for example. Early estimates suggest that clicks from Google ads to hotel websites decreased by 17.6% because of the DMA. DMA implementation also caused clicks and bookings on Google Hotel Ads to sink by as much as 30%.^[75] As a result, the volume of direct bookings dropped as much as 36%, “increasing hotel dependence on intermediaries, which seriously damages their profitability”.

By prohibiting Google from placing its own vertical services (Google Maps, Google Flights, and Google Hotel Ads) first, “the presentation of hotel offers to users based in DMA markets is less organised, clear and intuitive”.^[76] Previously, Google Search provided a direct display of hotels, featuring relevant details like prices, distance from the user, and images. Now, the top search results point to intermediaries like Booking.com and eDreams (see Figure 1). The irony, of course, is that Booking.com is itself a designated “gatekeeper” under the DMA.

FIGURE 1: Post-DMA Google Search for Madrid Hotels

This sort of regulatory intervention does not make the market more “fair or contestable”. It merely robs Peter to pay Paul, while also robbing the consumer. As a study by hotel-industry consultant Mirai finds:

Prior to DMA, Google’s taxonomy of results was the result of decades of effort by the company to refine its results in order to provide an optimized search experience that would connect supply and demand in a way that was ideal for both.

This pre-DMA search experience offered hotels participating directly in the Google Hotel Ads product, the option to present their inventory (availability and room rates) in a way that was both efficient from the standpoint of distribution cost, and enriched for the user, as it integrated the experience of other services, e.g. Google Maps. This way of presenting information was clear, relevant and intuitive, and maximized purchasing decisions such as hotel bookings for those users who were so inclined.^[77]

Users therefore now face a less intuitive booking experience, with limited access to aggregated hotel offers, simplified calendar pricing, and streamlined tools like Google Travel. Consumer frustrations include being redirected to search-engine results instead of the Travel section, and additional clicks being required to complete actions that previously required just one.

So, who has Art.6(5) really benefitted? Clearly not hotels: they have been subjected “to the toll of intermediation, strangling direct sales and holding users and hotels captive to less profitable, less independent business models”.^[78]

Google has also removed other functionalities to comply with Art. 6(5). In March 2024, the company announced it had “removed some features from the search results page which help consumers find businesses, such as the Google Flights unit”.^[79] Google noted that the DMA had produced unintended consequences, including a suboptimal user experience and impact to businesses.

We’ve always been focused on improving Google Search to help people quickly and easily find what they’re looking for. … Rules that roll back some of these advances represent a fundamental shift in competition policy. We encourage other countries contemplating such rules to consider the potential adverse consequences — including those for the small businesses that don’t have a voice in the regulatory process.^[80]

For its part, Apple has highlighted another quality-degrading consequence of the DMA: the obligation to allow competing app stores onto the iOS platform and to allow apps to be downloaded directly from their websites (commonly known as “sideloading”).[81] In practice, this “openness” means allowing third-party applications to bypass controls and protections implemented to safeguard users’ security and privacy.[82] This is already happening in Europe, where Apple has been forced to allow Epic Games to launch an alternative app store on iOS.[83] While this may seem a positive development for (some) developers and consumers, it could also harm user trust in the platform and thus decrease the total number of transactions, to the detriment of all parties involved (business users, consumers, and the owner of the platform).

Indeed, “[p]hishers are using a novel technique to trick iOS and Android users into installing malicious apps that bypass safety guardrails built by both Apple and Google to prevent unauthorized apps”.[84] This sort of attack will be more effective in the absence of the protections provided by Apple’s App Store.[85] Recently, a porn app, “Hot Tub”, made its way into the iOS, further validating at least some of Apple’s concerns over safety, privacy and security (and undermining the integrity of the iOS’ “clean” brand image in the process).[86]

In addition to diminishing the quality of existing digital services, the DMA has significantly delayed the introduction of new digital products and services in the EU. A notable example is Meta’s Threads, which launched nearly six months later in the EU than in other regions–frustrating users eager for an alternative to X.com (formerly known as Twitter) following Elon Musk’s acquisition of the company.[87]

Delayed releases appear to be a trend in the EU, as Apple recently announced that it would withhold the release of its latest features from the EU market, including Apple Intelligence, due to regulatory uncertainties.[88] Apple Intelligence is now scheduled to be released in Europe in April 2025,[89] seven months later than in the United States and closer to the release of the iPhone 17 than the iPhone 16.  These events indicate that, rather than fostering a more competitive digital landscape, the DMA risks isolating EU consumers from innovative technological advancements, undermining its intended purpose.

VII. Assessing the Government’s Proposed Interventions

The Government outlines several potential interventions, ranging from default pre-installation interventions to prohibiting self-preferencing and tying. Ultimately, these interventions must be carefully evaluated against current market realities and the risk of unintended consequences.

A. Default and Preinstallation Interventions

The Government contemplates additional restrictions on default search positions and pre-installation agreements.[90] Such interventions should, however, be evaluated against existing measures and changing user behaviour. Recent empirical work suggests that choice screens’ effectiveness depends heavily on their design and implementation.[91] Furthermore, default restrictions could have unintended consequences for competition. Many smaller search engines currently compete for default positions through revenue-sharing agreements with device manufacturers and browsers. With two-sided markets, however, restricting these agreements could paradoxically harm competition by removing a key mechanism through which alternative search engines currently reach users.[92]

B. Forced Interoperability

The Government favours mandating interoperability, including of third-party app stores.[93] As noted above, sideloading and third-party app stores can lead to significant security and privacy risks. As Jane Bambauer has observed:

EU lawmakers should be aware that the DMA is dramatically increasing the risk that data will be mishandled. Nevertheless, even though a new scandal from the DMA’s data interoperability requirement is entirely predictable, I suspect EU regulators will evade public criticism and claim that the gatekeeping platforms are morally and financially responsible.[94]

Indeed, some of these privacy and security concerns have already materialized.[95] Relatedly, the decreased control over an operating system’s content would, in turn, also eliminate one of the primary competitive differences between the iOS and Android. Indeed, centralized app distribution and Apple’s “walled garden” model increase interbrand competition because they are at the core of what differentiates Apple from Android. Apple’s business model historically has focused on being user-friendly, reliable, safe, private, and secure. For Apple (and its users), the touchstone of a good platform is not its “openness”, but its carefully curated selection and security, understood broadly as encompassing the removal of objectionable content, protection of privacy, and protection from “social engineering”, and the like.

By contrast, Android has bet on the open platform model, which sacrifices some degree of security for the greater variety and customization associated with more open distribution. These are legitimate differences in product design and business philosophy. As Jonathan Barnett has explained:

Open systems may yield no net social gain over closed systems, can impose a net social loss under certain circumstances, and . . . can impose a net social gain under yet other circumstances.[96]

Because consumers and developers could reasonably prefer either ecosystem, it is not clear that loosening Apple’s control over the App Store would necessarily improve consumer welfare or lead to more app transactions market wide. Under the guise of fostering competition on Apple’s platform, the forced standardization of interoperability mandates would thus instead eliminate competition where it matters most—i.e., at the interbrand, systems level.

C. Banning Self-Preferencing

The Proposal Paper also advocates a prohibition of self-preferencing.[97] As noted above, self-preferencing prohibitions have led to some unexpected—and probably unwelcome—outcomes in the EU.[98] The notion that the ability to give preferential treatment to one’s products is inherently anticompetitive contradicts “over a century of antitrust jurisprudence, economic study, and enforcement agency practice” that have firmly established that “the competitive effects of a vertically integrated firm’s ‘discrimination’ in favor of its own products or services… generally produce significant benefits for consumers”.^[99]

It also flatly contradicts a number of empirical studies showing that even the welfare of competitors (to say nothing of consumers) may often be improved by such self-preferencing.^[100] While enforcement of such provisions may benefit certain competitors in the short run, they create perverse incentives over the long run for rivals, who may underinvest in ensuring their own viability due to such regulations inefficiently insuring them against their own business misjudgements.^[101]

D. Limiting Product Integration

The Proposal Paper also targets tying and bundling, including the bundling of in-app payment systems (“IAPs”) with app stores.[102] The latter concern likely pertains to Apple’s imposition of a 30% fee on payments made through its iOS platform, while simultaneously prohibiting third-party in-app purchases (IAPs).

But it should be asked what outcomes the Government hopes to achieve by compelling Apple to permit third-party IAPs on iOS. Even under such a scenario, Apple would still be entitled to compensation for platform access and the use of its intellectual property. Interestingly, the 30% fee appears to align with industry norms, as Steam, Nintendo eStore, PlayStation, GOG, and Xbox Game Store all apply similar charges.[103] This raises the pertinent question of why Apple is being singled out for regulatory scrutiny. Are all these companies operating as monopolies and gatekeepers? If so, why are they not encompassed within the Government’s proposed ex-ante regulatory framework?

Moreover, even if Apple is required by law to allow third-party IAPs, the company could then allow independent payment processors to compete, charge an all-in fee of 30% when Apple’s IAP is chosen, and, in order to recoup the costs of developing and running its App Store, charge app developers a reduced, mandatory per-transaction fee (on top of developers’ “competitive” payment to a third-party IAP provider) when Apple’s IAP is not used.

Indeed, where such a remedy has already been imposed, that is exactly what Apple has done. In the Netherlands, where Apple was required by the Authority for Consumers and Markets (“ACM”) to uncouple distribution and payments for dating apps, Apple adopted the following policy:

Developers of dating apps who want to continue using Apple’s in-app purchase system may do so and no further action is needed. … Consistent with the ACM’s order, dating apps that . . . use a third-party in-app payment provider will pay Apple a commission on transactions. Apple will charge a 27% commission on the price paid by the user, net of value-added taxes. This is a reduced rate that excludes value related to payment processing and related activities.[104]

It’s not hard to see the fundamental problem with this approach. If a 27% commission, plus a competitive payment-provider fee, permits more “competition” than complete exclusion of third-party providers, then surely a 26% fee would permit even more competition. And a 25% fee more still. This would entail precisely the kind of price management by regulators that has generally been considered antithetical to competition and competition law.

VIII. Conclusion and Recommendations

The Government’s proposal rests on the mistaken premise that there is a global consensus on ex-ante digital competition regulation. Australia’s push to match similar measures enacted in a handful of other jurisdictions risks exacerbating an already burdensome regulatory landscape. While the EU has embraced strict digital platform rules, Australians may not be willing to accept the same tradeoffs in terms of innovation and consumer choice.

The Government’s focus on the ad-tech sector as a hub of anticompetitive conduct overlooks that market’s complexity and existing competitive dynamics. Comparative experience with ex-ante rules for digital platforms highlight both the risks and limited successes of such interventions, raising concerns about their effectiveness in the Australian context.

Drawing on both the empirical evidence and theoretical frameworks discussed above, the Government should carefully reconsider the need for ex-ante competition regulation of digital platforms. The rapidly evolving nature of digital search markets suggests a more nuanced approach may be appropriate.

If the Government nonetheless proceeds, we recommend the following principles for any subsequent interventions:

• Adopt an “innovation first” approach to remedies that preserves incentives for both incumbents and new entrants to develop novel search technologies.
• Focus on removing barriers to competition, rather than imposing detailed conduct requirements. Light-touch interventions often prove more effective than prescriptive regulation in fast-moving technology markets.
• Establish regular review periods to assess the continued appropriateness of any interventions.

By carefully considering the dynamic nature of competition and focusing on forward-looking analysis, the Government can help ensure that Australian consumers and businesses benefit from continued innovation in the digital economy.

[1] Digital Platforms — A Proposed New Digital Competition Regime, Aust. Gov. Treas. (2 December 2024), https://treasury.gov.au/consultation/c2024-547447 (hereinafter “Proposal Paper”).

[2] Press Release, ACCC Welcomes Consultation on New Digital Competition Regulation, Aust. Compet. Consum. Comm. (3 December 2024), https://www.accc.gov.au/media-release/accc-welcomes-consultation-on-new-digital-competition-regime. (“The proposed regime is directionally similar to reforms already being implemented or proposed in many international jurisdictions including the European Union, the United Kingdom, Japan and India…This is an opportunity to build on the progress made overseas and by introducing similar changes here, it will help ensure Australian businesses and consumers aren’t left behind… We believe the proposed regime will be fit-for-purpose for Australia while being complementary to and cohesive with international approaches”).

[3] Thomas Graf, Jackie Holland, Henry Mostyn, & Patrick Todd, Digital Markets Regulation Handbook, Cleary Gottlieb, https://content.clearygottlieb.com/antitrust/digital-markets-regulation-handbook/index.html (last visited 13 February 2025).

[4] Lazar Radic & Geoffrey A. Manne, The ABA’s Antitrust Law Section Sounds the Alarm on Klobuchar-Grassley, Truth Mark. (12 May 2022), https://truthonthemarket.com/2022/05/12/the-abas-antitrust-law-section-sounds-the-alarm-on-klobuchargrassley.

[5] Hong Dae-sik & D. Daniel Sokol, Korea Should Prioritize Innovation, Not Misguided Platform Regulation, The Korea Her. (12 May 2024), https://www.koreaherald.com/view.php?ud=20240512050148.

^[6] Sangyun Lee, LinkedIn (27 September 2024, 00:35:22), https://www.linkedin.com/posts/sangyunl_indian-digital-competition-law-teeters-lawyers-activity-7245289899409448960-0rtV?utm_source=share&utm_medium=member_desktop.

^[7] Charles McConnell, Indian Digital Competition Law Teeters, Lawyers Call for Rethink, Glob. Compet. Rev. (26 September 2024) https://globalcompetitionreview.com/article/indian-digital-competition-law-teeters-lawyers-call-rethink.

^[8] Chosun Ilbo, ‘Monopoly Platform’ Regulation Law Falls Away… Fair Trade Commission Cancels Plan Due to Industry Opposition, Naver News (9 September 2024), https://n.news.naver.com/mnews/article/023/0003857596?sid=101.

^[9] Kang Shin-woo, Amendment of the Fair Trade Act to Regulate Large Platforms… ‘Google, Apple, Naver, Kakao’ to Have Jurisdiction, Naver News (9 September 2024) https://n.news.naver.com/mnews/article/018/0005832606?sid=101; see also Heo Ji-hye, Platform Law that Changes Direction… Concerns Increase over Standards for Proof of Competition Restriction, Pressman (9 September 2024), https://www.pressman.kr/news/articleView.html?idxno=84619. Under the revisions, platforms must prove directly that their actions do not harm competitors, and that they benefit consumers and have positive impacts on the market. In other words, the reforms essentially reverse the burden of proof. Critics like Hong Dae-sik warn that stringent oversight could discourage businesses to pursue new initiatives due to a lack of confidence in their ability to meet criteria. (“Ultimately, if companies are not confident in the reasons they present to the Fair Trade Commission when taking certain actions, they will not take the actions”.)

^[10] Charles McConnell, Exclusive: Philippine Competition Watchdog Rules Out DMA-Style Bill, for Now, Glob. Compet. Rev. (20 September 2024) https://globalcompetitionreview.com/article/exclusive-philippine-competition-watchdog-rules-out-dma-style-bill-now.

[11] @KTmBoyle, X.com (11 February 2025, 9:16 AM), https://x.com/KTmBoyle/status/1889317529039913301.

^[12] Lazar Radic, Geoffrey A. Manne, & Dirk Auer. Regulate for What? A Closer Look at the Rationale and Goals of Digital Competition Regulation 22 Berkeley Bus. L.J. (Forthcoming 2025).

^[13] Pierre Larouche & Alexandre De Streel, The European Digital Market: A Revolution Grounded on Traditions, 12 J.E.C.L. & Pract. 542 (2021), (arguing that the DMA’s conceptual nature is in a “difficult epistemological position”).

^[14] Lazar Radic, Gatekeeping, the DMA, and the Future of Competition Regulation, Truth Mark. (8 November 2023), https://truthonthemarket.com/2023/11/08/gatekeeping-the-dma-and-the-future-of-competition-regulation.

^[15] Belle Beems, The DMA in the Broader Regulatory Landscape of the EU: An Institutional Perspective, 19 Eur. Competition J. 1–29 (January 2023), https://www.tandfonline.com/doi/full/10.1080/17441056.2022.2129766.

[16] Giuseppe Colangelo, In Fairness We (Should Not) Trust: The Duplicity of the EU Competition Policy Mantra in Digital Markets, 68 Antitrust Bull. 618 (2023), (Arguing that the inherent vagueness of the “fairness” concept is likely to grant regulators excessive discretion for intervention).

^[17] Press Release, Amendment of the German Act Against Restraints of Competition, Bundeskartellamt (19 January 2021), https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2021/19_01_2021_GWB%20Novelle.html.

^[18] Bahadir Balki, Nabi Can Acar, Helin Yüksel, Mehmet Mikail Demir, Seda Eliri, & Erdem Aktekin, A New Age for Digital Markets in Turkey? The Draft Amendment to the Law No. 4054 on the Protection of Competition, Kluwer Compet. Law Blog (25 October 2022), https://competitionlawblog.kluwercompetitionlaw.com/2022/10/25/a-new-age-for-digital-markets-in-turkey-the-draft-amendment-to-the-law-no-4054-on-the-protection-of-competition.

^[19] Henry Mostyn, Patrick Todd, & Goksu Kalayci, Turkiye, Cleary Gottlieb (December 2023), https://content.clearygottlieb.com/antitrust/digital-markets-regulation-handbook/turkey/index.html.

^[20] Ilbo, supra note 8.

[21] Jean Mackenzie & Ruth Comerford, Impeached S Korean President Charged with Insurrection, BBC News (26 January 2025), https://www.bbc.com/news/articles/cr53r1d0jz4o.

^[22] Shin-woo, supra note 9.

^[23] Robert Wildner, The Digital Markets Act: What a Difference a Month Makes, Mob. Mark. (9 April 2024), https://mobilemarketingmagazine.com/the-digital-markets-act-what-a-difference-a-month-makes.

^[24] Dirk Auer, Matthew Lesh, & Lazar Radic, Digital Overload: How the Digital Markets, Competition and Consumers Bill’s Sweeping New Powers Threaten Britain’s Economy, Inst. Econ. Aff. (18 September 2023), https://iea.org.uk/publications/digital-overload-how-the-digital-markets-competition-and-consumers-bills-sweeping-new-powers-threaten-britains-economy.

^[25] Report of the Committee on Digital Competition Law, Gov. India Minist. Corp. Aff., (27 February 2024), https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open.

^[26] The Competition Act, No. 12 of 2003, India Code (2003), available at https://www.cci.gov.in/images/legalframeworkact/en/the-competition-act-20021652103427.pdf.

^[27] H.R. 3849, 117th Congress (24 June 2024), https://www.congress.gov/bill/117th-congress/house-bill/3849/text; S. 2992, 117th Congress (2 March 2022), https://www.congress.gov/bill/117th-congress/senate-bill/2992/text; S. 2710, 117th Congress (17 February 2022), https://www.congress.gov/bill/117th-congress/senate-bill/2710.

^[28] Radic & Manne, supra note 4.

^[29] Id.

^[30] PL n. 2768/2022, Câmara dos Deputados (Brazil), (10 November 2022), https://www.camara.leg.br/proposicoesWeb/prop_mostrarintegra?codteor=2214237&filename=PL%202768/2022.

^[31] Grand Design and Action Plan for a New Form of Capitalism: 2023 Revised Version, Jpn. Cabinet Secr. (2023), available at https://www.cas.go.jp/jp/seisaku/atarashii_sihonsyugi/pdf/ap2023en.pdf; Outline of the Act on Promotion of Competition for Specified Smartphone Software, Jpn. Fair Trade Comm. (Jun. 2024), available at https://www.jftc.go.jp/file/240612EN3.pdf; @laz_radic, X.com (14 August 2024, 6:17 a.m.), https://x.com/laz_radic/status/1823665316200899036.

^[32] Simon Vande Walle, Is the EU’s Digital Markets Act Going Global? How Japan Is Crafting Its Own Version of Digital Regulation with the Smartphone Act, EU Renew (21 August 2024), https://eu-renew.eu/is-the-eus-digital-markets-act-going-global-how-japan-is-crafting-its-own-version-of-digital-regulation-with-the-smartphone-act.

^[33] JFTC, supra note 31.

^[34] Online Intermediation Platforms Market Inquiry, Compet. Comm. S. Afr. (2000-2019), https://www.compcom.co.za/online-intermediation-platforms-market-inquiry.

[35] Id. at 1.

[36] Id. at 3.

[37] Proposal Paper, supra note 1, at 4-5.

[38] Id., at 5.

[39] J.M.M. van den Brink, M.J.M. van Rijswick, & J.M.A. van Kempen, Regulatory Overlap: A Systematic Quantitative Literature Review, 17 Reg. Gov. 1131, 1132 (2021) (finding that “Regulatory failure caused by overlapping regulations is ubiquitous, with examples in all jurisdictions across a range of disciplines”).

[40] Economic Report of the President, Exec. Off. Pres. (March 2019), 81, available at https://www.govinfo.gov/content/pkg/ERP-2019/pdf/ERP-2019.pdf (“The deadweight cost function is convex; if the tax is increased by 10 percent, the deadweight costs of the tax increase by more than 10 percent. As we discuss in detail below, the regulatory deadweight cost function is also convex. A new regulatory action that increases regulatory costs by 10 percent increases the cumulative regulatory cost burden by more than 10 percent”).

[41] Patrick MacLaughlin, Nita Ghei, & Michael Wilt, Regulatory Accumulation and its Costs, Mercatus Policy Brief (2016).

[42] John W. Dawson & John J. Seater, The Economic Impact of Regulation: A Literature Review, 18 J. Regulatory Econ. 137 (2013).

[43] MacLaughlin, Ghei, & Wilt, supra note 41.

^[44] Ying Gu, Stephanie Lee, & Yong Tan, News in the Dark: Effects of Facebook’s Australian News Ban on News Consumption, SSRN (5 April 2024), https://ssrn.com/abstract=4790864.

^[45] Josh Taylor, Facebook’s Potential News Ban Already Affecting Smaller Australian Media Outlets, Inquiry Told, The Guardian (21 June 2024), https://www.theguardian.com/media/article/2024/jun/21/facebooks-potential-news-ban-already-affecting-smaller-australian-media-outlets-inquiry-told.

[46] Giles Dexter, Fair News Bargaining Bill in Limbo as Minister Says It Is Not Ready, Radio N.Z. (13 November 2024), https://www.rnz.co.nz/news/political/533666/fair-news-bargaining-bill-in-limbo-as-minister-says-it-is-not-ready.

^[47] Paul Karp, Amanda Meade, & Josh Butler, Meta, TikTok and Google Will Be Forced to Pay Australian News. What Does It Mean for You?, The Guardian (12 December 2024), https://www.theguardian.com/australia-news/2024/dec/12/meta-tiktok-and-google-to-be-forced-to-pay-for-australian-news.

[48] See infra, Section VI.

[49] See McConnell, supra note 7; Ilbo, supra note 8; McConnell, supra note 10.

^[50] Radic, supra note 14.

^[51] Mathieu Pollet, France to Prioritise Digital Regulation, Tech Sovereignty During EU Council Presidency, Euractiv (14 December 2021), https://www.euractiv.com/section/digital/news/france-to-prioritise-digital-regulation-tech-sovereignty-during-eu-council-presidency; Lazar Radic, Digital-Market Regulation: One Size Does Not Fit All, Truth Mark. (17 April 2023), https://truthonthemarket.com/2023/04/17/digital-market-regulation-one-size-does-not-fit-all.

^[52] Barbara Moens & Paola Tamma, Macron and Merkel Defy Brussels with Push for Industrial Champions, Politico (18 May 2020), https://www.politico.eu/article/macron-and-merkel-defy-brussels-with-push-for-industrial-champions.

^[53] Oles Andriychuk, Do DMA Obligations for Gatekeepers Create Entitlements for Business Users?, 11 J. Antitrust Enforc. 123, 123-32 (28 December 2022), https://academic.oup.com/antitrust/article/11/1/123/6964483.

^[54] Geoffrey A. Manne, Dirk Auer, & Sam Bowman, Should ASEAN Antitrust Laws Emulate European Competition Policy?, 67 Singap. Econ. Rev. 1637 (31 March 2021), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3709730.

^[55] See, e.g., Oles Andriychuk, Do DMA Obligations for Gatekeepers Create Entitlements for Business Users?, 11 J. Antitrust Enforcement 123, 127 (2022) (“The means for allowing the second-tier ersatz-Big Tech to scale up is punitive: to slow down the current gatekeepers by imposing upon them a catalogue of exceptionally demanding obligations”.) (Emphasis added); id. at 131 (“This punitive nature of the DMA also means that the obligations can be blatantly arduous and interventionist”.) (emphasis added).

^[56] Radic, supra note 51.

^[57] Dae-sik & Sokol, supra note 5.

^[58] McConnell, supra note 7.

^[59] Lazar Radic & Geoffrey A. Manne, South Africa’s Competition Proposal Takes Europe’s DMA Model to the Extreme, Truth Mark. (15 August 2023), https://truthonthemarket.com/2023/08/15/south-africas-competition-proposal-takes-europes-dma-model-to-the-extreme.

^[60] Christine S. Wilson, Welfare Standards Underlying Antitrust Enforcement: What You Measure Is What You Get, Fed. Trade Comm. (15 February 2019), available at https://www.ftc.gov/system/files/documents/public_statements/1455663/welfare_standard_speech_-_cmr-wilson.pdf; Svend Albæk, Consumer Welfare in EU Competition Policy, Eur. Comm. (2013), available at https://competition-policy.ec.europa.eu/system/files/2021-09/consumer_welfare_2013_en.pdf.

^[61] Nicolas Petit & Lazar Radic, The Necessity of a Consumer Welfare Standard in Antitrust Analysis, ProMarket (18 December 2023) https://www.promarket.org/2023/12/18/the-necessity-of-a-consumer-welfare-standard-in-antitrust-analysis.

^[62] Dirk Auer, The Broken Promises of Europe’s Digital Regulation, Truth Mark. (12 March 2024), https://truthonthemarket.com/2024/03/12/the-broken-promises-of-europes-digital-regulation.

^[63] John Taladay & Maureen Ohlhausen, Are Competition Officials Abandoning Competition Principles?, 13 J.E.C.L. & Pract. 463 (5 July 2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4042226.

^[64] Radic, Manne, & Auer, supra note 12.

^[65] Dae-sik & Sokol, supra note 5.

^[66] Carmelo Cennamo & Juan Santaló, Potential Risks and Unintended Effects of the New EU Digital Markets Act, Esade EcPol (February 2023), available at https://www.esade.edu/ecpol/wp-content/uploads/2023/02/AAFF_EcPol-OIGI_PaperSeries_04_Potentialrisks_ENG_v5.pdf.

^[67] Adam Cohen, New Competition Rules Come with Trade-Offs, Google Blog (5 April 2024), https://blog.google/around-the-globe/google-europe/new-competition-rules-come-with-trade-offs.

^[68] Mario Monti, Why and How? Why Should We Be Concerned with Cartels and Collusive Behaviour?, Eur. Comm. (11 September 2000), https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_00_295.

^[69] Geoffrey A. Manne, Error Costs in Digital Markets, GAI Report on the Digital Economy 3 (November 2020), available at https://gaidigitalreport.com/wp-content/uploads/2020/11/Manne-Error-Costs-in-Digital-Markets.pdf.

[70] Proposal Paper, supra note 1, at 6, 9-10.

[71] Digital Advertising Services Inquiry 2020-2021, Final Report, Aust. Compet. Consum. Comm (28 September 2021) https://www.accc.gov.au/about-us/publications/digital-advertising-services-inquiry-final-report.

[72] Geoffrey A. Manne & Eric Fruits, The Antitrust Assault on Ad Tech: A Law & Econ Critique, Int’l Ctr. L. Econ. (2022), available at https://laweconcenter.org/wp-content/uploads/2022/11/ICLE-White-Paper-2022-11-03-The-Antitrust-Assault-on-Ad-Tech-A-Law-Economics-Critique.pdf.

[73] United States v. Google LLC, No. 1:23-cv-00108 (D.D.C. 2023).

[74] Proposal Paper, supra note 1, at 20-21.

^[75] Javier Delgado, DMA Implementation Sinks 30% of Clicks and Bookings on Google Hotels Ads, Mirai (7 May 2024), https://www.mirai.com/blog/dma-implementation-sinks-30-of-clicks-and-bookings-on-google-hotel-ads.

^[76] Id.

^[77] Id.

^[78] Id.

^[79] Oliver Bethell, Complying with the Digital Markets Act, Google Blog (5 March 2024), https://blog.google/around-the-globe/google-europe/complying-with-the-digital-markets-act.

^[80] Cohen, supra note 67.

[81] See Jon Porter & David Pierce, Apple Is Bringing Sideloading and Alternate App Stores to the iPhone, The Verge (25 January 2024), https://www.theverge.com/2024/1/25/24050200/apple-third-party-app-storesallowed-iphone-ios-europe-digital-markets-act.

[82] See Complying with the Digital Markets Act, Apple (2024), available at https://developer.apple.com/security/complying-with-the-dma.pdf.

[83] Kim Mackrael, Apple’s Hold on the App Store Is Loosening, at Least in Europe, Wall St. J. (16 August 2024), https://www.wsj.com/tech/epic-games-apple-app-store-europe-44ceda50.

[84] Dan Goodin, Novel Technique Allows Malicious Apps to Escape iOS and Android Guardrails, ArsTechnica (21 August 2024), https://arstechnica.com/security/2024/08/novel-technique-allows-malicious-apps-toescape-ios-and-android-guardrails.

[85] See id., at 6 (“Both mobile operating systems employ mechanisms designed to help users steer clear of apps that steal their personal information, passwords, or other sensitive data. iOS bars the installation of all apps other than those available in its App Store, an approach widely known as the Walled Garden”).

[86] Jess Weatherbed, The First “Approved” iPhone Porn App is Coming to Europe, The Verge (3 February 2025) https://www.theverge.com/news/604937/iphone-ios-porn-app-hot-tub-altstore-pal-eu.

[87] Clare Duffy, Meta’s Threads is Now Available in the EU, CNN (14 December 2023), https://www.cnn.com/2023/12/14/tech/metas-threads-eu-launch/index.html.

[88] Rohan Goswami, Apple Intelligence Won’t Launch in EU in 2024 Due to Antitrust Regulation, Company Says, CNBC (21 June 2024) https://www.cnbc.com/2024/06/21/apple-ai-europe-dma-macos.html.

[89] Apple Intelligence Is Available Today on iPhone, iPad, and Mac, Apple (28 October 2024), https://www.apple.com/ie/newsroom/2024/10/apple-intelligence-is-available-today-on-iphone-ipad-and-mac (“This April, Apple Intelligence features will start to roll out to iPhone and iPad users in the EU. This will include many of the core features of Apple Intelligence, including Writing Tools, Genmoji, a redesigned Siri with richer language understanding, ChatGPT integration, and more”).

[90] Proposal Paper, supra note 1, at 21.

[91] Omar Vasquez Duque, Active Choice vs. Inertia? An Exploratory Assessment of the European Microsoft Case’s Choice Screen, 19 J. Comp. L. & Econ 60. (2023).

[92] Erik Hovenkamp, The Competitive Effects of Search Engine Defaults, SSRN (14 November 2024), at 21, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4647211 (“If a potential entrant (if successful) can obtain a default, this increases its ex ante investment and raises the probability of entry. In this case, the default may raise dynamic consumer welfare”).

[93] Proposal Paper, supra note 1, at 22.

[94] Jane Bambauer, Reinventing Cambridge Analytica One Good Intention at a Time, Lawfare (8 June 2022) https://www.lawfaremedia.org/article/reinventing-cambridge-analytica-one-good-intention-time.

[95] See infra, Section VI.

[96] Jonathan M. Barnett, The Host’s Dilemma: Strategic Forfeiture in Platform Markets for Informational Goods, 124 Harv. L. Rev. 1861, 1927 (2011).

[97] Proposal Paper, supra note 1, at 21.

[98] See infra, Section VI.

^[99] See Geoffrey A. Manne, Against the Vertical Discrimination Presumption, Concurrences No. 2-2020 (2020), at 1; see also Barnett, supra note 96; Andrei Hagiu & Kevin Boudreau, Platform Rules: Multi-Sided Platforms as Regulators, in Platforms, Markets and Innovation (Annabelle Gawer, ed. 2009).

^[100] Manne, id., at 1-2 (citing examples from the literature showing that complementors and consumers alike often benefit from platform self-preferencing); see also Sam Bowman & Geoffrey A. Manne, Platform Self Preferencing Can be Good for Consumers and Even Competitors, Truth Mark. (4 March 2021), https://laweconcenter.wpengine.com/2021/03/04/platform-self-preferencing-canbe-good-for-consumers-and-even-competitors.

^[101] On self-inflicted dependence, see Geoffrey A. Manne, The Real Reason Foundem Foundered, Int’l Ctr. L. Econ. (2018), at 6, available at https://laweconcenter.org/wp-content/uploads/2018/05/mannethe_real_reaon_foundem_foundered_2018-05-02-1.pdf (“A content provider that makes itself dependent upon another company for distribution (or vice versa, of course) takes a significant risk. Although it may benefit from greater access to users, it places itself at the mercy of the other—or at least faces great difficulty (and great cost) adapting to unanticipated, crucial changes in distribution over which it has no control. This is a species of what economists call the ‘asset specificity’ problem”).

[102] Proposal Paper, supra note 1, at 21.

[103] Tom Marks, Report: Steam’s 30% Cut is Actually the Industry Standard, IGN (7 October 2019), https://www.ign.com/articles/2019/10/07/report-steams-30-cut-is-actually-the-industry-standard.

[104] Distributing Dating Apps in the Netherlands, Apple, https://developer.apple.com/support/storekit-external-entitlement (last visited 13 February 2025).

Executive summary

The Australian Treasury’s proposed competition regime for digital platforms is flawed and should not proceed.

The policy rationale for an ex ante regime is unjustified. The Competition and Consumer Act 2010 (CCA) already provides a comprehensive framework to address concerns such as market power, unfair contract terms, and self-preferencing. The Australian Competition and Consumer Commission (ACCC) has not demonstrated any compelling reason existing competition laws are insufficient to regulate digital platforms and has not sought to enforce them against digital platforms.

The proposed regime is based on a misunderstanding of competition in the digital economy. Digital markets are characterised by dynamic competition, where innovation and technological change are the primary drivers of consumer welfare. The proposed ex ante regime, with its focus on static competition, may dampen innovation incentives and create barriers to technology diffusion, harming Australian consumers and businesses in the long run. Competition policy for digital platforms should be based on a dynamic competition approach that fosters innovation.

The proposed regulatory mechanisms are problematic. The reliance on subordinate legislation for crucial policy decisions is inappropriate, reducing parliamentary oversight. This approach lacks transparency and accountability, and may lead to unintended consequences for the digital economy.

We urge the Australian Treasury to reconsider its approach to regulating digital platforms. Instead of imposing an ex ante regime, the focus should be on enforcing existing competition laws and fostering a dynamic environment of innovation. This approach would better serve Australia’s long-term economic interests and the continued growth of the digital sector.

I. Is there need for further competition law reform?

The Proposal Paper, taking its lead from the Australian Competition and Consumer Commission (ACCC), asserts that digital platforms necessitate a new, ex ante regulatory regime in Australia.[1] This opening section of our submission will primarily focus on how the Competition and Consumer Act 2010 (CCA) already provides a comprehensive framework for addressing competition concerns in the digital economy.

The proposal for ex ante regulation is based on the premise that existing laws are insufficient to address the unique challenges posed by digital platforms. Specifically, the Proposal Paper argues that:

The characteristics and dynamic nature of digital platform markets mean that enforcement of existing economy-wide provisions of the Competition and Consumer Act 2010 (Cth) (CCA) may not on its own be sufficient to protect and promote competition, or well-suited to addressing the range and scale of competition harms identified in digital platform markets.[2]

What are these characteristics? The Proposal Paper identifies three specific issues that are already subject to regulation under the CCA.

First, market power. The existence of market power is competition agnostic. Market power typically occurs as a consequence of innovation and efficiency. A firm that innovates, whether through introducing a new product or service, improving an existing offering, implementing a novel production process, or discovering a new market, may naturally attract a larger market share.[3] However, competition law is concerned about market power in two contexts: (a) acquisitions that would result in a substantial lessening of competition; and (b) misusing market power to have the effect of substantially lessening competition in that market or another market upstream or downstream. The first context is regulated by sections 45 and 50 of the CCA – and from January 2026 the ACCC will have new administrative powers for merger control[4] following a long-running campaign. The Proposal Paper refers to the merger reforms in passing but does not consider the ACCC’s enhanced ability to regulate market power in the digital economy. The second context is regulated by section 46 of the CCA, most recently modified in 2017 following the Harper Review.[5]

Second, “Take it or Leave it” terms. Unfair contract terms are principally consumer law issues rather than competition law issues. Unfair contract terms imposed by digital platforms (or indeed any other businesses) are already addressed by the Australian Consumer Law (ACL). Part 2-3 of the ACL voids terms of unfair standard-form contracts and pecuniary penalties may be imposed for a contravention. These are general provisions and will apply to contracts with digital platforms. Given the rationale of unequal bargaining power between parties, the unfair contract provisions are appropriately limited to consumer contracts and small business contracts. Further the ACL contains other general prohibitions such as misleading or deceptive conduct[6] and unconscionable conduct[7], both of which will capture a broad range of unfair or oppressive practices against consumers and businesses.

Third, self-preferencing. Self-preferencing is a common commercial practice and an instinct for businesses – if you build something valuable, you are naturally inclined to use it to your advantage. This does not mean that self-preferencing is anti-competitive. Taking a dynamic view of competition (further discussed in section 2) incentivising innovation, driving competition on the merits, enhancing user experience and ensuring quality control (further discussed in section 4) all tend to enhance consumer welfare. However, existing provisions in the CCA are also capable of addressing concerns about digital platforms favouring their own products or services. Depending on the type of conduct, these include prohibitions on contracts, arrangements or understandings that restrict dealings or affect competition (section 45), misuse of market power (section 46), and exclusive dealing (section 47).

The “economy-wide” provisions of the Act identified above are tailored to the specific economic circumstances of each case. That is, the prohibitions on restrictive trade practices in Part IV of the CCA are with reference to competition in markets. “Market” is defined in section 4E of the CCA as a “market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services.” This definition provides a broad degree of flexibility – encompassing digital markets – while grounding legal analysis in economic reality. The ACCC might prefer to define a market narrowly, while digital platforms facing scrutiny might favour a broader market definition. The decision of how narrowly or broad to define a market is properly one for the Court to make on the basis of economic evidence presented by the parties. The ex ante proposal proposes to skip this crucial step in competition analysis.

The Proposal Paper appears to have accepted the ACCC’s reasoning that Court proceedings are lengthy, that conduct may continue despite regulatory action, and remedies may be insufficient to address sources of harm.[8] These are general criticisms of any ex post framework, not specific to digital platforms. The ACCC has a history of consumer law enforcement actions against digital platform businesses with notable successes including against Google,[9] Meta[10], and Uber[11]. These successes prompt a crucial question: If the ACCC can enforce consumer laws against digital platforms, why has it not similarly enforced competition laws? The most recent ‘root-and-branch’ review of competition law in Australia (Harper Review) did not canvas any need for an ex ante regime or raise any significant issues with enforcing competition law against digital platforms.

The reality is that the Federal government and the ACCC have prioritised a long-running digital platforms inquiry to agitate for greater regulatory power instead of enforcement action. After nine interim reports, with a tenth report to come – and a previous iteration of the inquiry that released its own issues paper, preliminary report, and final report – there appears to be insufficient evidence of actual (c.f. hypothetical) consumer harm to bring competition enforcement action.

It would be a mistake to confuse concerns relating to enforcement with market failure. If length of time and litigation cost are the key concerns impacting competition law enforcement, then there are practical things that the Federal government might do to directly address those issues. For instance, the Treasurer (through the Statement of Expectations and Statement of Intent) might direct the ACCC to prioritise personnel and resources towards enforcement. Additionally, the Treasury might work with the Attorney-General’s Department to review Federal Court resourcing and develop law reform to expedite or streamline regulatory enforcement cases.

The Proposal Paper seeks to move to a new framework without clearly articulating the reasons why existing provisions cannot be used to enforce anti-competitive conduct in digital platforms. In doing so, the Proposal Paper overlooks the inherent flexibility and adaptability of existing competition laws, which have proven effective in addressing competition concerns and protecting consumers in various sectors, including the digital economy. The next section examines why the proposed regulatory framework reflects an outdated, industrial era understanding of competition.

II. Digital competition regulation should be based on the principle of dynamic competition rather than industrial competition

Competition policy during the 20th century sought to address industrial concentration and power that harmed consumers with high prices and limited choice. However, today, that world of industrial monopoly due to scale economies is ending. While there are still powerful economic forces pushing toward bigness – and which have produced the so-called ‘big tech’ platforms – the competitive logic that both creates and destroys these new digital giants is not the same as the previous era. Digital economies are different to industrial economies and require a different approach to competition policy. Rather than focusing on industrial concentration, the Treasury should conceptualise competition based on a dynamic model.

Digital economies have lower transaction costs than industrial economies, and scale differently. They have lower communication costs, search costs, verification costs, and networking costs, all of which increases economic complexity.[12] Business models for value appropriation and capture work differently in digital economies, often relying heavily on co- specialised assets and control of ecosystem bottlenecks. We can understand ecosystems as “groups of firms that must deal with either unique or supermodular complementarities that are nongeneric, requiring the creation of a specific structure of relationships and alignment to create value”.[13] The strategic competitive need to create these complex complementary assets and complementary technologies “are more significant than ever in a world of competing and intersecting digital platforms”.[14] In consequence, digital economies bring profound new regulatory challenges.[15]

Overall, the most important difference is in the way that competition works. Specifically, a digital economy is dominated by dynamic competition. Now of course industrial economies also experienced both static and dynamic competition, as Schumpeter long ago explained. But in digital economies, dynamic competition is the dominant force, often even in the short run. This insight should be the starting point of any new digital competition regime. This section unpacks dynamic competition and its implications.

2.1. Dynamic competition explains competition in digital markets

There are two types of competition in a modern economy and, correspondingly, two paradigms of competition economics:

1. Static competition – the paradigm of neoclassical economics and modern industrial organisation theory. Static competition is price competition in a given market. It competes for existing and known rents.
2. Dynamic competition – the evolutionary paradigm of complexity economics and strategy.[16] Dynamic competition is evolutionary discovery and innovation of future markets. It competes for new rents, under high uncertainty.

The central idea of dynamic competition is that there are two mechanisms by which competition unfolds. The first is static competition which works through pricing (in existing markets, with given products and technologies). The second is dynamic competition which works through innovation (i.e. the creation of new markets through innovation of new products and technologies). Dynamic competition theory acknowledges the economic logic of static competition in given markets and the consequences for consumer welfare but argues that an even larger and more important force is often at work in shaping how competition affects consumer welfare through innovation and discovery.

Dynamic competition theory has deep roots in modern economics, building on Schumpeter’s argument that innovation is the main source of consumer welfare in the long-run, and on Hayek’s observation that consumer wishes are not given information and therefore that competition is a discovery process.[17] Innovation drives competition as much as competition drives innovation. Dynamic competition comes from

the new commodity, the new technology, the new source of supply, the new type of organization – competition which commands a decisive cost or quality advantage and which strikes not at the margins or profits and the output of existing firms but at their foundations and very lives.[18]

The idea that innovation causes competition is the foundation of dynamic competition theory. It follows that a major purpose and goal of competition policy is to support and incentivise innovation.

Dynamic competition is about new entrants and incumbents engaging in new product and process development in order to create entirely new markets and product categories. In environments characterized by innovation, firms do not just look “sideways” to rivals. They look “forward” and anticipate (and create) latent competition in order to satisfy existing and future user/customer needs, thereby unlocking potential demand and stimulating economic development and growth. Frequent new product introductions, often followed by price declines, are commonplace.[19]

The mechanism by which dynamic competition works is innovation to create future markets through the strategic development of dynamic capabilities.[20] These are capabilities to innovate, and involve organisational, technological, and managerial capabilities.

We define dynamic capabilities as the firm’s processes that use resources – specifically the processes to integrate, reconfigure, gain and release resources – to match and even create market change. Dynamic capabilities thus are the organisational and strategic routines by which firms achieve new resource configurations as markets emerge, collide, split, evolve and die.[21]

Dynamic capabilities are the sensing, seizing, transforming skills that enable a firm to identify, develop, market, and sell innovative products and are a form of evolutionary capital. The strategic management literature finds considerable evidence that strong dynamic capabilities are the leading cause of success in big tech firms.[22] The ability to build new internal and external capabilities for innovation enables firms to develop competitive advantage and thus enhances competition in advanced markets. These decisive capabilities for dynamic competition must be built through investment, including acquisition. Firms differentially develop these strategic capabilities, which can be difficult to observe, and often are only evident ex post.

Modern competition policy tends to focus on static competition. There are several reasons for this. The first reason is that the theory supporting it is both more widely known (standard industrial organisation) and operationalizable (e.g. by observation of firm concentration measures and prices). On the other hand, dynamic competition economics is less well- known (it is usually taught as advanced economic and business strategy training rather than as undergraduate introductory courses) and requires focus on more complex and difficult to measure objects (innovation inputs, entrepreneurial processes, capabilities, ecosystems).

Another reason competition policy analysis and enforcement rarely considers innovation- focused dynamic competition is because it is harder to make arguments and assemble evidence. Because dynamic competition is future oriented evidence of harms (and benefits) does not exist ex ante but must be constructed or inferred. That requires specialist capabilities that regulators generally lack. Consequently, it is easier to base policy and enforcements on static economic arguments about how competition works to infer consumer benefits from existing (rather than future) consumers.[23] The upshot is that a competition policy that focuses on dynamic competition is harder to do. Even still, it can be done and is worth doing – and especially so in the context of digital competition.

2.2. Digital competition policy should be primarily based on dynamic competition

Modern competition policy is centred on the paradigm of static competition that often struggles to capture dynamic capabilities. This can lead to a misjudgement of the very market processes needed to build these capabilities, such as mergers and acquisitions, which are essential for firms to compete effectively. While the focus of static competition may be less problematic in traditional industrial markets, it becomes a significant issue in the context of the digital economy where innovation and dynamic competition are the primary drivers of consumer welfare.

The proposed new digital competition regime risks perpetuating this oversight. A dynamic competition approach should seek to understand how to bring up the long term faster, and to safeguard and support the short term capabilities that enable dynamic competition.

The standard theory of digital economics builds on the significance of non-rivalry, the business model of platforms (and zero prices on one side of the market) and the importance of information as an economic good and as central to value appropriation.[24] The static IO model of platform competition then emphasises the monopoly power (winner-take-most effects) that large platforms have due to network effects and consumer switching costs.

There is no innovation aspect of this model.

In contrast, a dynamic competition perspective recognises that firms are not merely competing for existing rents but are striving to discover and capture future rents through investments in innovation. This requires building competencies and capabilities for innovation that may be difficult for regulators to distinguish from monopolistic behaviour ex ante. The capabilities that matter to dynamic competition are managerial, technological, and organisational. The efforts that firms go to by building capabilities to discover and capture these rents will be difficult to distinguish for competition regulators from monopolistic behaviour. It should be noted of course that high profit does not necessarily mean monopoly rents from exploitation of monopoly power. Rents may come from superior efficiency, including dynamic efficiency or innovation. This is why ex ante rules designed to mitigate static competition abuses will inadvertently harm the dynamic competition mechanisms that ultimate benefit consumers.

Fostering dynamic competition in the digital economy requires a shift in focus. It also requires a policy that rewards the search for excellence under uncertainty, and that displays higher tolerance towards positions of structural monopoly that arise from genuine innovation.

2.3. Digital markets bundle platform with product

Consider one further observation about why digital economy competition is fundamentally different – namely that digital dynamic competition involves innovation not only at the product level (i.e. of the good or service), but also in the institutional layer below on which that service is operationalised and delivered.

In other words, in digital industries ‘large tech firms’ often produce both a product plus the network on which it runs. They are not factories. They are usually platforms. This is apparent in old digital industries, such as telecommunications and social media, as well as new decentralised computational industries such as blockchain and artificial intelligence. Bitcoin, for instance, is not just a digital token (i.e. a money), but a token plus the transfer, settlement, and security layer on which it operates. The key point is that consumer benefit accrues not just to the token (and its price) but to the properties of the network.

Competition policy should therefore be just as interested in the innovation potential and capabilities of the platform or network as the good or service itself. Indeed, from the long-run consumer perspective, innovation on the network or platform is generally the precondition for innovation in the good or service. A major source of innovations that build future markets are dynamic capabilities assembled in modern business ecosystems directed at platform innovation.[25] Unfortunately, the proposed ex ante framework fails to adequately address these considerations and, as discussed in the next section, raises significant concerns.

III. Concerns with the design of the legislative framework

The proposed regulatory framework consists of broad obligations and service-specific obligations that are applied to all services (digital platforms in respect to the specific services that they provide consumers) that have been designated by the relevant minister (presumably the Treasurer or Assistant Treasurer). Broad obligations are general rules that all designated entities must follow and are proposed to be implemented in primary legislation. They are designed to prevent anti-competitive behaviour, promote transparency, and ensure fairness. Examples include prohibitions on anti-competitive self-preferencing, restrictions on tying, measures to prevent impediments to consumer switching, and rules ensuring interoperability and transparency. They are highly general and in part duplicative of existing competition law, as discussed above.

Service-specific obligations apply the broad obligations to the direct context of the service. It is proposed that these are tailored rules for different types of services (e.g., app marketplaces, ad tech). They specify how designated entities must comply with broad obligations. These obligations are implemented through subordinate legislation.

All designated entities must comply with broad obligations regardless of whether service- specific obligations exist. If service-specific obligations are established, failing to meet them constitutes a breach of the corresponding broad obligation.

The proposed framework is extremely ambitious in its design. It seeks to design an ex ante regulatory system that can regulate not just a specific set of digital platforms with known and specific business models but all digital platforms with heterogeneous business models in a rapidly shifting market environment, as well as all future digital platforms that might operate in Australia. This presents a challenge for ex ante regulation that ex post common law regulatory systems are better equipped to address. This section focuses on our concerns with the structure and design of the proposed legislative framework, moving beyond the rationale and theoretical underpinnings.

3.1. Subordinate legislation is inappropriate for substantive policy

The structure outlined in the Proposal Paper attempts to establish broad principles of conduct in digital markets above and beyond the existing competition law while recognising that digital markets are heterogeneous and what it means to be (for example) ‘transparent’ or ‘interoperable’ in any given digital market is highly contextual. We have raised concerns above with the need for new competition law along these lines. Here we consider a separate concern with the proposed framework: introducing the service specific obligations as subordinate legislation is inappropriate. If the Proposal Paper is any guide, the scale and scope of service-specific obligations are of such significance that they should be enacted through primary legislation.

Consider for example the question of interoperability. The Proposal Paper argues that “Restrictions on interoperability that limit effective competition” would be appropriate for broad obligations.[26] Interoperability might seem to be prima facie desirable. But interoperability is a highly complex, multifaceted concept that has significantly different meanings and different modes of operation. As one of us has argued in the Internet Policy Review, “the study of interoperability per se is highly domain-specific and used in many fields to describe a variety of system characteristics”.[27] Interoperability can consist of technical interoperability (the ability of different technological systems, platforms, or devices to communicate and exchange information), syntactic and semantic interoperability (how data is structured for exchange, and how data is understood), and organisational interoperability (and capable organisations are to actual share resources and align processes). Developing specific criteria on the processes by which heterogeneous services might be considered to be ‘interoperable’ is not a technical matter that can be delegated to regulators.

The Proposal Paper’s examples illustrate this point. The ACCC has argued that competition is being limited by, for example, “mobile OS providers not providing third-party providers of apps and services with reasonable and equivalent access to hardware, software, and functionality”.[28] It might be reasonable for parliament to delegate to regulators and subordinate legislation what is meant by “reasonable and equivalent” or what appropriate level of hardware access, software interface or functionality would be considered to be truly interoperable (noting, of course, that these are complex decisions with deep policy impacts and regulatory costs). But it is not reasonable to delegate the entire question of whether interoperability in this form is a minor question of implementation. There are an enormous variety of mechanisms by which the principle of ‘interoperability’ could be regulated, and these should be understood as policy rather than implementation questions.

This is true for each of the domains in the Proposal Paper. As we discuss below, rules governing self-preferencing, in-app payment restrictions, and access to APIs and system- level features for app stores have far-reaching consequences, not just for the affected platforms but for thousands of Australian businesses and millions of consumers. Similarly, ad tech services, which form the backbone of digital advertising, are governed by complex supply chains. Obligations to ensure transparency in auction processes, data access, and competition between ad networks affect not only the business models of dominant platforms but also the viability of media organisations, independent publishers, and advertisers across the economy. Given the economic weight of these sectors and their central role in digital commerce, decisions about their regulation are substantive matters of policy.

Moreover, the implications of these obligations extend well beyond market efficiency and competition law—they touch on fundamental questions of consumer rights, data governance, and national digital sovereignty. Interoperability is not just a technical specification but a policy choice that determines the degree to which different platforms and services can function together, shaping user control, market entry for new firms, and long-term technological innovation. Similarly, rules governing algorithmic transparency in search and recommendation engines influence the visibility of businesses and the diversity of content Australians engage with daily. If Australia follows suit in regulating these industries, the legal framework must reflect the scale of intervention.

3.2. Service-specific obligations should not be subject to a lower standard of public scrutiny and democratic debate through the subordinate legislation mechanism.

Each ‘service-specific’ obligation as described in the Proposal Paper represents the wholesale regulation of major and economically critical industries and will affect every Australian consumer. Subordinate legislation is however subject to a much lower bar of public debate and scrutiny. Handing off significant policy areas to subordinate legislation reduces the democratic discussion necessary to provide those policies with parliamentary legitimacy.

It is correct that subordinate legislation is subject to disallowance by the parliament. For minor areas of implementation and regulatory specifics, the disallowance process works well, sometimes surfacing controversial policy decisions that parliament disagrees with the executive on. But at the same time the disallowance mechanism is designed as an emergency democratic backstop – a handbrake on the executive to ensure parliamentary supremacy. Parliament faces an “avalanche” of subordinate legislation to which it can only draw so much attention.[29] By contrast, primary legislation undergoes a comprehensive process involving multiple readings, debates, and committee reviews in both legislative chambers, ensuring thorough scrutiny and democratic accountability. This rigorous procedure allows elected representatives to examine, amend, and vote on proposed laws, reflecting the will of the electorate. Primary legislation must be positively approved by the parliament – it is not the subject of a structural assumption that it will be implemented unless parliament objects.

The disallowance mechanism also only functions effectively as a democratic protection while the opposition and crossbench are able get a majority for disallowance. While it has been nearly two decades since a government controlled the Senate, the desirability of this legislative framework should not be predicated on the government being a minority in the upper house.

3.3. The process of subordinate legislation reduces the scrutiny of regulation from other affected government departments, particularly departments focused on cybersecurity.

The parliamentary process does not only afford parliamentarians and the public to scrutinise legislation – it also opens opportunities for other government departments to scrutinise proposals. This is particularly important in the case of digital market regulation. Below we describe some of the critical national security issues that the specific proposals suggested by the Proposal Paper might trigger. Regulations under competition policy intersect with cybersecurity concerns as the technical structure of software which has access to important or private information about users is vulnerable to bad actors, both state and non-state.

Recent controversies around the social media application TikTok and the AI application DeepSeek – both of which have been banned for use on government devices – underline the point that policy decisions to force changes to technical systems are not simply the domain of competition regulation, and not simply the provenance of Treasury or other economic ministries. Where subordinate legislation is not subject to full cabinet consideration and discussion, this means that relevant ministries and departments (particularly national security agencies) will have less visibility over critical regulations that affect the cybersecurity of Australian citizens.

3.4. It is standard practice that matters of policy significance should be in primary legislation.

That matters of policy significance should be implemented through primary legislation is a settled matter of Commonwealth parliamentary practice. The 2017 Legislation Handbook outlines the principles by which rules should be considered as primary rather than subordinate legislation (section 1.10). We draw attention to the following principles, each of which describe policies which are proposed to be ‘service-specific’ obligations:

(b) significant questions of policy including significant new policy or fundamental changes to existing policy;

(c) rules which have a significant impact on human rights and personal liberties;

(d) provisions imposing obligations on individuals or organisations to undertake certain activities (e.g. to provide information or submit documentation, noting that the detail of the information or documentation required may be included in subordinate legislation) or desist from activities (e.g. to prohibit an activity and impose penalties or sanctions for engaging in an activity);

(j) procedural matters that go to the essence of the legislative scheme;

In addition, section 5.66 of the Legislation Handbook notes that while using subordinate legislation to simplify primary legislation is desirable, this should not come at the expense of reducing parliamentary control over government policy.

This is reflected further in the Senate Scrutiny of Delegated Legislation Committee’s guidelines:

Significant elements of a program of national significance or a regulatory scheme should ordinarily be included in primary rather than delegated legislation, due to the higher level of parliamentary scrutiny associated with the legislative process for primary legislation.

3.5. The designation process leaves too much discretion to the minister.

The proposed designation process grants the minister significant discretion in determining which digital platforms are subject to the new regulatory framework. While the ACCC is tasked with conducting investigations and making recommendations, the final designation decision rests solely with the minister (and as a matter of administrative law should not merely follow the advice). This structure grants excessive ministerial authority, as it enables political influence over which platforms are regulated and under what conditions.

Furthermore, while the ACCC is responsible for gathering information and consulting stakeholders, there is no clear requirement for public disclosure of its findings before the minister makes a designation decision, reducing transparency and accountability.

Additionally, while the designation process is proposed to rely on a mix of quantitative thresholds and qualitative assessments, it is the minister who ultimately determines how these factors are weighed. The proposed approach allows the minister to direct the ACCC to conduct investigations at their discretion and make designation decisions with limited parliamentary oversight. This process risks consolidating too much regulatory power in the hands of a single government official.

The five-year designation period, while apparently intended to balance regulatory stability with regular review, also means that platforms could be subject to significant obligations that are inappropriate and harmful to both competition and innovation. The recent evolution of the market for search – which is increasingly being challenged and modified by artificial intelligent systems both within ‘traditional’ search platforms (like Google’s Gemini search function at the top of the Google search results) and outside them (like the search functions built into Anthropic’s Claude, OpenAI’s ChatGPT, and aggregators such as Perplexity) shows how rapidly digital markets can change.

3.6. All obligations both broad and service-specific should be subject to parliamentary scrutiny though primary legislation.

Australia should not adopt an ex ante competition policy framework. However, if it does then all obligations should be written into primary legislation so that they are subject to proper parliamentary scrutiny. The experience from ex ante regimes in other jurisdictions demonstrate that they are not mere technical changes – they are radical market interventions requiring substantive changes to how major digital platforms operate.[30] The current proposed two-tier framework, by relegating “service-specific” obligations to subordinate legislation, fails to acknowledge that these decisions will reshape Australian business models, innovation incentives, and cybersecurity risks. We should not rely on disallowance processes to ensure we grow Australia’s prosperity and maintain our safety.

The claim that subordinate legislation provides necessary flexibility and adaptability ignores the profound market consequences at stake. Consider the real impacts already seen overseas, such as a 17.6% drop in hotel booking clicks for one company following the introduction of ex ante competition rules.[31] In Australia, these changes would affect how local businesses advertise and how consumers compare travel options and make purchases. While technology may evolve rapidly, the fundamental reshaping of business models and market structures demands thorough legislative scrutiny, not just hopes of disallowances.

Australia needs parliamentary scrutiny and debate over obligations that grapple with:

• Trade-offs between competition and national security: Opening platforms to third-party access creates security vulnerabilities that jeopardise Australian user data. Mandatory third-party app stores significantly complicate security scanning and malware prevention, leading digital platforms to combat the impacts of these changes through imperfect safeguards.[32]
• Escalating implementation and compliance burdens: Building new API infrastructures, security monitoring systems, and support systems for third parties is not merely technical Estimates of the compliance cost burden of the DMA on US firms has been in the tens of billions of dollars.[33] Whatever the cost burden in Australia, it will ultimately fall on Australian people and businesses who rely on these critical services.
• Weaponisation by small competitors to impose costs on large competitors: Rather than investing resources into developing their own capabilities, smaller firms could use these service-specific obligations to transfer costs onto larger rivals. For instance, instead of building interoperability with existing hardware, firms might demand access under regulation. This strategic move would effectively shift R&D costs to competitors, creating perverse incentives that reward regulatory rent seeking over genuine innovation. There is evidence from the EU DMA experience that smaller “middleman” firms are continuing to push for more changes to the major digital platforms, pushing further costs onto them through regulation.[34] The EU DMA experience also shows app stores being forced into approving apps that may go against community values and expectations.[35]

The issues outlined in this section highlight the need for a more transparent legislative framework that prioritises policy scrutiny. The inappropriate reliance on subordinate legislation and ministerial discretion raises concerns about the potential for regulatory overreach and unintended consequences. In the next section, we will examine specific examples of service-specific regulations and their potential economic impacts, further illustrating the need for a more cautious and considered approach to regulating digital markets.

IV. The example service-specific regulations could have significant and harmful economic consequences

These immediate impacts point to deeper and more troubling consequences for Australia’s future. When regulation increases costs and complexity while enabling rent-seeking behaviour, it alters innovation incentives. There are two main ways that this manifests. First, major platforms’ willingness to invest in innovations that ultimately benefit Australian consumers and businesses. Second, new barriers to the adoption and diffusion of technologies into the Australian economy. Both are major challenges given that technological change is the primary driver of economic growth and prosperity. In this section we will consider both consequences in detail.

4.1. Many obligations will directly dampen incentives to invest in technology and innovation.

The Proposal Paper’s suggested requirement that a digital platform must “provide third-party providers with reasonable and equivalent access to hardware, software, and functionality”[36] will lead designated companies to factor mandatory sharing into every major R&D decision. Consider a tech company contemplating a large investment in developing new AI security features. When making the decision to make this risky investment a proposed ex ante regime would threaten that, if successful, any breakthrough might need to be immediately shared with competitors. How would they recoup R&D costs or build a competitive advantage? When combined with the security and compliance burdens outlined above, this creates a clear disincentive for investing in innovations that would benefit Australian users.

4.2. Proposed obligations also raise barriers to the diffusion of technologies – preventing innovations from reaching Australian consumers and businesses.

Technologies and products don’t only need to be invented and developed, they also need to spread. Responding to various ex ante obligations, in other markets we have seen market distortions that hurt domestic consumers and businesses by requiring major changes by digital platforms. For instance, Google has undergone a series of changes in how maps and hotel bookings interact[37] as well as the reduced visibility of the Google flights feature.[38] Meta delayed the rollout of its then-new social media platform, Threads, because of regulatory uncertainty[39] while Apple withheld the launch of frontier AI features because of potential security risks.[40]

Australia is a small economy and should expect that similar ex ante rules will also deter major firms from operating here. Not only will digital platforms likely reduce R&D investment knowing they cannot protect their innovations, but they might also delay or downgrade product releases rather than pay the costs of adapting to radical Australian requirements.

Below we outline some examples of service-specific obligations and their major economic consequences:

These are just some examples of specific conduct under just two types of digital platforms into the proposal. Even from these examples it is clear even from these examples that the artificial distinction between “broad” and “service-specific” obligations threatens to push major economic interventions into subordinate legislation. We need proper democratic oversight of changes that could affect billions in investment, reshape fundamental business models, and create significant security risks. All obligations – including those characterised as “service-specific” – should be subject to parliamentary scrutiny through primary legislation.

This is also coming at a time when these firms are being revolutionised by new AI platforms. The traditional digital platforms targeted by this regulation are themselves navigating the integration of AI capabilities throughout their products and services. Imposing rigid structural obligations now, without fully understanding how AI will reshape these markets, risks constraining innovation just as our digital economy undergoes fundamental change.

We are also yet to see how general obligations might apply to emerging platforms such as AI models themselves. How would data portability requirements apply to large language models where user interactions help refine and improve the model? Would users have a right to port their chat histories and custom instructions between AI services? Large language models increasingly serve as search interfaces, but with fundamentally different architectures than traditional search engines. How would self-preferencing obligations apply here? If an AI platform promotes its own products or services in responses, would this constitute unfair self-preferencing? The proposal’s focus on traditional digital advertising may not adequately capture these new forms of commercial influence. Even more fundamentally, many AI platforms operate as both infrastructure providers and application developers. They offer APIs for others to build on while developing their own consumer-facing products. Anti- tying and interoperability requirements could significantly impact this dual role. Would AI platforms be required to offer competitors equal access to their most advanced models?

Could they bundle their models with implementation tools and services? These questions go to the heart of competition in AI markets and further underscore the need for deep parliamentary scrutiny of all obligations.

Conclusion

The proposed ex ante competition regime for digital platforms raises significant concerns. The Australian Treasury should reconsider its approach – focusing on enforcing existing competition laws, policy based on dynamic competition, and incentivising innovation to benefit Australian consumers over the long-run.

[1] Treasury, ‘Digital platforms – a proposed new digital competition regime’ (Proposal Paper, December 2024) (Proposal Paper); Australian Competition and Consumer Commission, ‘Digital Platform Services Inquiry – Discussion Paper for Interim Report No. 5: Updating competition and consumer law for digital platform services’ (Discussion Paper, February 2022) (ACCC Digital Platforms Inquiry Interim Report 2022).

[2] Proposal Paper, p. 4.

[3] Schumpeter (1934)

[4] Treasury Laws Amendment (Mergers and Acquisitions Reform) Act 2024 (Cth).

[5] Competition and Consumer Amendment (Misuse of Market Power) Act 2017 (Cth).

[6] Section 18 ACL.

[7] Sections 20-22 ACL.

[8] See: ACCC Digital Platforms Inquiry Interim Report 2022, p. 51.

[9] ACCC v Google LLC (No. 4) [2022] FCA 942; ACCC v Google LLC (No. 2) [2021] FCA 367.

[10] ACCC v Meta Platforms Inc [2023] FCA 842.

[11] ACCC v Uber BV [2022] FCA 1466.

[12] Goldfarb and Tucker (2019)

[13] Jacobides et al (2016: 2263)

[14] Teece (2018: 1382)

[15] Jacobides et al (2024)

[16] Teece (2023)

[17] Schumpeter (1943); Hayek (1945).

[18] Schumpeter (1943: 85)

[19] Teece (2023)

[20] Teece et al (1997), Pisano and Teece (2007), Sutton (2012), Teece (2007, 2018, 2019)

[21] Eisenhardt and Martin (2000: 1107)

[22] Helfat and Peteraf (2015)

[23] Potts (2023)

[24] Goldfarb and Tucker (2019)

[25] Teece (2012), Teece (2018), Petit and Teece (2021).

[26] Proposal Paper, p. 19.

[27] Berg (2024).

[28] Proposal Paper, p. 22.

[29] Kirrily Schwarz (2020) “Who is making our laws? The separation of powers in 2020” LSJ. 11 November, https://lsj.com.au/articles/who-is-making-our-laws-the-separation-of-powers-in-2020/

[30] On some of the ways “gatekeepers” under the EU’s DMA have responded see: https://www.theverge.com/2024/3/6/24091592/eu-dma-competition-compliance-deadline-big-tech- policy-changes

[31] See: https://truthonthemarket.com/2024/03/12/the-broken-promises-of-europes-digital-regulation/.

[32] See: https://www.apple.com/newsroom/2024/01/apple-announces-changes-to-ios-safari-and-the- app-store-in-the-european-union/; and see further: https://developer.apple.com/security/complying- with-the-dma.pdf

[33] See Kati Suominen (2022) “Implications of the European Union’s Digital Regulations on U.S. and EU Economic and Strategic Interests”, Report for the Centre for Strategic Studies. available online, https://csis-website-prod.s3.amazonaws.com/s3fs-public/2023-02/221122_EU_DigitalRegulations- 3.pdf?VersionId=04r7zBzS2kHNhsISAqn4NkC6lGNgip7S

[34] See: https://medium.com/chamber-of-progress/the-digital-markets-acts-statler-waldorf-problem- 2c9b6786bb55

[35] See: https://9to5mac.com/2025/02/03/apple-forced-to-approve-porn-app-on-eu-iphones-due-to- dma/

[36] Proposal Paper, p. 22.

[37] See: https://blog.google/around-the-globe/google-europe/an-update-on-our-preparations-for-the- dma/ https://blog.google/around-the-globe/google-europe/dma-compliance-update/ https://blog.google/around-the-globe/google-europe/complying-with-the-digital-markets-act/

[38] See: https://blog.google/around-the-globe/google-europe/an-update-on-our-preparations-for-the- dma/

[39] See: https://www.theverge.com/23789754/threads-meta-twitter-eu-dma-digital-markets

[40] See: https://www.cnbc.com/2024/06/21/apple-ai-europe-dma-macos.html

I. INTRODUCTION AND SUMMARY

This submission on the discussion document Promoting competition in New Zealand – A targeted review of the Commerce Act 1986 is made by The New Zealand Initiative (the Initiative), a Wellington-based think tank supported primarily by major New Zealand businesses, and the International Center for Law & Economics [ICLE].

The Initiative undertakes research that contributes to the development of sound public policies in New Zealand, and we advocate for the creation of a competitive, open and dynamic economy and a free, prosperous, fair and cohesive society.

The Initiative’s members span the breadth of the New Zealand economy. Our business members are subject to the Commerce Act. The views expressed in this submission are those of the author rather than the New Zealand Initiative’s members.

The International Center for Law & Economics is a US-based nonprofit, nonpartisan research center working with a roster of more than fifty academic affiliates and research centers from around the globe.

In summary, we submit that the Review targets secondary, procedural matters instead of the critical first?order barriers—namely, regulatory and policy?based constraints— that are the true impediments to a dynamic and competitive market in New Zealand.

Within the context of the matters addressed by the document, our comments can be summarised as follows:

1. Regulatory or policy?based barriers to entry often create or exacerbate the very substantial lessening of competition (SLC) that the Act seeks to In such cases, rather than imposing extensive regulatory regimes that police market conduct or structure, easing entry barriers is likely to be a more effective solution. Accordingly, when the Commerce Commission identifies that an SLC is driven by a regulatory regime, it should be empowered to test whether those entry barriers can be relaxed before resorting to more intrusive interventions. There needs to be a regularised mechanism for the Commerce Commission to report to the responsible Agency or Ministry, or to the Ministry for Regulation, when it encounters an area where a perceived SLC is created or exacerbated by a regulatory regime. There is, to the best of our knowledge, no regular review process for these regulatory regimes testing whether the potential detrimental effects on competition are outweighed by the public benefit sought by the regime, or whether the restraint on competition remains the most cost-effective way of providing the desired benefit. When the Commerce Commission identifies regulatory regimes that might result in an SLC, either as part of a market study or as part of another review process, it should be able to request that the Ministry for Regulation review the relevant regime. Easing the regulatory barrier may be the best way of ensuring workably competitive markets. Ben Hamlin’s proposed modernisation of the Crown Exception would help.
2. New Zealand is a small market and, in many cases, is a ‘regulation-taker’ – meaning that large international companies that also trade in New Zealand face many other regulators, who may or may not have already provided clearance for various mergers or arrangements. But aligning New Zealand’s regime with Australia’s is not the only way of achieving congruence and reducing transactions cost. If a merger is likely to trigger an ACCC test, and approval by both ACCC and the Commerce Commission would be necessary, New Zealand could defer to ACCC’s But for mergers between New Zealand companies with no Australian entanglements, there seems no obvious need for New Zealand’s framework to align with Australia’s. Instead, New Zealand should tailor its framework to local market conditions. This local tailoring ensures that mergers beneficial to NZ consumers are not blocked simply due to incongruency with foreign standards.
3. A consumer?welfare focus is critical given that market structure is only an imperfect proxy for competitive harm. Merger control should focus on safeguarding competition and consumer welfare rather than achieving particular market And where the Commission may not have resource to pursue all potential SLCs, it should focus first on those that do most harm to consumer welfare.
4. Without vigilant, ongoing review, industry codes or rules risk evolving into de facto coordination mechanisms that can further entrench existing market This is a particular worry for industries facing a common regulator that can serve as additional enforcement mechanism for anticompetitive conduct by blocking new entry.

II. THE UNADDRESSED FIRST-ORDER BARRIERS

Commerce Commission market studies have pointed to land use planning as an underlying barrier to competition.

In building material supply, covenants on the few sites zoned for large footprint retail hinder the entry of new competitors. This reinforces market concentration, as builders tend to favour the convenience of bundled deliveries—even if such convenience outweighs the potential cost savings of sourcing materials from alternative, lower cost suppliers. In effect, a new entrant with a competitive model may be blocked simply because zoned scarcity limits access to essential retail sites.

In retail grocery, zoning, consenting processes, and Overseas Investment Office processes make large-scale large-footprint entry impracticable.

While trade competitors are meant to avoid interfering in each other’s resource consenting processes, other anticompetitive uses of land-use planning processes remain available.

In November 2024, the Christchurch Press reported that Three Parks developer Willowridge had sought McDonald’s as a tenant while objecting to McDonald’s application to open at another location.[1] The Panel declined the consent in February 2025 on points relating to landscape and views. However, it also considered that “there is no issue of trade competition that applies such that Willowridge are precluded from having their submission received and considered”,[2] despite Willowridge materially benefitting if the consent were declined and McDonald’s took up tenancy at Three Parks instead.

A review of the Commerce Act could consider making anticompetitive uses of regulatory processes, including land use planning and consenting processes, a specifically forbidden restrictive trade practice under Part 2.

Other regulatory systems work to anticompetitive effect. Consider pharmacies. Restrictions on pharmacy ownership act as a barrier to entry. If that barrier has been hurdled, the pharmacy must acquire a licence to dispense funded prescriptions. In response to calls from the Community Pharmacists to block new pharmacies being opened within set distances of existing pharmacies, Medsafe and Te Whatu Ora pointed to existing rules that prioritise licences in places with few pharmacies.[3] In effect, Medsafe and Te Whatu Ora seemed to be telling community pharmacists not to worry too much, because existing regulatory practice already works as a substantial barrier to entry.

The Crown Exception to the Commerce Act (Section 43) might be read as broadly permitting activities authorised by legislation or might otherwise discourage prosecution of restrictive trade practice offences that are arguably authorised by a regulatory regime.

Ben Hamlin has suggested useful modernisations of the Crown Exception.[4] Under his proposed amendment, all regimes falling within the exception must be listed. Exceptions should be no wider than reasonably necessary to achieve the exception’s purpose. Ministers would be required to receive regular reports on whether each exception should be retained, repealed, or amended. And the Minister would be able to seek Commerce Commission input for those reports.

Alternatively, or additionally, Part 2 could provide a mechanism for the Commerce Commission to determine whether a regulatory regime creates an SLC that harms consumer welfare. Such an assessment—whether self-initiated by the Commission, triggered by an identified SLC, or incorporated into a broader market study—should, once completed, prompt a review by the Ministry for Regulation to assess whether the public benefit of the regulatory regime justifies its competitive restraint.

We are encouraged that the Commission has begun to turn its eye back to regulatory regimes. The Commission’s compliance advice to the Ophthalmologists College was welcome. However, more regular and ongoing attention to the anticompetitive effects of occupational licensing and other regulatory regimes is necessary in a small market.

We consequently urge that the review of the Commerce Act consider modernisation of the Crown Exception, designating anticompetitive use of regulatory regimes to be a restrictive trade practice, and setting provision for the Commission to assess whether a regulatory regime results in a substantial lessening of competition.

III. BECAUSE YOU ASKED…

We now turn to some of the questions posed in the discussion document.

Q1. What are your views on the effectiveness of the current merger regime in the Commerce Act? Please provide reasons.

The current regime shows strengths in its flexibility and voluntary clearance process; however, it suffers from significant shortcomings. In practice, overly rigid thresholds and an SLC (substantial lessening of competition) test that sometimes captures low value or efficiency–driven transactions—such as the blocked sale of a small DJ software company—can stifle innovation and discourage venture capital investment. This is particularly damaging in a small economy like New Zealand, where viable exit strategies- are crucial for startup growth.

Q2. What is the likely impact of the Commission blocking a merger (either historically or if the test is strengthened) on consumers in New Zealand? Please provide examples or reasons.

Blocking mergers that deliver efficiencies or cause no plausible consumer harm can lead to higher costs, reduced innovation, and uncertainty for investors. For instance, if a merger involving a small local tech firm is blocked solely because of formalistic criteria (despite negligible local turnover and a lack of competitive harm), it may deter venture capital funding and limit the exit opportunities that drive innovation and consumer benefits.

Q4. Should the ‘substantial lessening of competition’ test be amended or clarified, including for creeping acquisitions or entrenchment of market power? If so, how? Please provide reasons.

Yes. We recommend that the SLC test be amended to:

• Explicitly incorporate a consumer?welfare analysis: The test should require an assessment of whether the merger causes plausible harm (or, conversely, provides benefits) to consumers.
• Tailor aggregation for creeping acquisitions and consider regulatory alternatives: In sectors where zoning, consenting rules, or other regulatory constraints create de facto local monopolies, serial acquisitions may have a more significant competitive impact because the larger entity may have less fear of However, in such cases, the Commission’s first response should be to warn the relevant regulatory authority that the regulatory regime risks creating an SLC and should be reviewed.
• Clarify “entrenchment” of market power: Amendments should require objective evidence that the merger would strengthen or entrench market power in a manner that harms consumer welfare. It is also not clear what “entrenchment of market power” would mean in this If it means leveraging a firm’s current position to enter new markets, merger control should not, as a matter of principle, seek to prevent incumbents from entering adjacent markets.

These changes would help ensure that only mergers with a genuine risk of harming competition are subject to intervention, and that intervention is appropriately targeted.

Large firms moving into the core business of competitors from adjacent markets often represents the biggest source of competition for incumbents, as it is often precisely these firms who have the capacity to contest competitors’ dominance in their core businesses effectively. This scenario is prevalent in digital markets, where incumbents must enter multiple adjacent markets, most often by supplying highly differentiated products, complements, or “new combinations” of existing offerings.[5] Without concrete evidence of harm to consumers, improvements to a company’s position in a market — or in adjacent markets — should not in itself be enough to block a merger.

On the question of “serial acquisitions,” we understand that multiple small acquisitions can, under some circumstances, create a cumulative risk to competition, especially in highly concentrated markets. There remains the question of when this is likely to occur, however. While serial acquisitions and roll-up strategies merit further study, there is no apparent basis, in either the economic literature or enforcement experience, for any general changes to the procedures or substantive standards by which serial acquisitions are scrutinized.

For example, the Australian Treasury considered modifying notification so that “all mergers within the previous three years by the acquirer or the target will be aggregated for the purposes of assessing whether a merger meets the notification thresholds, irrespective of whether those mergers were themselves individually notifiable.”[6]

However, this will impose costs on both merging firms and the enforcers called on to scrutinize noticed acquisitions.[7] Moreover, bundling all mergers “by the acquirer or the target” across any moving three-year window will, in effect, greatly lower the threshold for those firms engaged in multiple acquisitions over time. Thus, while any single three- year period may be clear enough, a moving window may create unnecessary uncertainty for consummated transactions well after operations or assets have been knit together, such that there is no efficient way to “unscramble the eggs.”

More broadly, many of the activities described as “serial acquisitions” are indistinguishable from normal patterns of business growth and consolidation that occur in maturing industries. As a general matter, it is not clear why a company growing through multiple small acquisitions should be viewed differently than one growing “organically” or through fewer, larger acquisitions. This raises important questions about the underlying theory of harm. If the concern is market concentration, this can occur through various means, not just serial acquisitions. If the concern is about the specific process of multiple small acquisitions, it is unclear why this would be inherently more problematic than other forms of growth.

Recent research by Cohn, Hotchkiss, and Towery sheds light on the motivations behind roll-up strategies in private-equity buyouts of private firms.[8] Their study suggests that these strategies are often driven by two primary motives: unlocking growth potential in capital-constrained firms and improving operational performance in underperforming firms. They find that acquired firms often experience significant increases in sales growth and moderate improvements in profitability post-acquisition. Such findings support the view that these strategies can create value through both growth and operational improvements. They also suggest that properly executed roll-up strategies can serve legitimate business purposes beyond mere market consolidation.

Given the legitimate business reasons for acquisitions (serial or not), we are aware of no theoretical or empirical grounds on which to suppose that multiple acquisitions are typically anticompetitive. The competitive effects of growth—whether through acquisition or internal expansion—depend on various factors, including market structure, barriers to entry, and the specific capabilities and assets being acquired or developed. For example, in some cases, serial acquisitions might allow a firm to quickly assemble complementary assets and capabilities, leading to increased innovation and more robust competition. In other instances, organic growth might allow a firm to build market power in ways that are difficult for competitors to challenge.

To be clear, we do not suggest that there are no circumstances under which serial acquisitions raise competitive concerns. Rather, we believe that considerable work remains to be done if competition enforcers seek to tailor notice requirements in a manner that is efficient for both commercial development and enforcement alike.

Q5. How important is it for the ‘substantial lessening of competition’ test to be aligned with the merger test in Australian competition law? Please provide reasons and examples.

New Zealand’s regime need not mirror Australia exactly. However, avoiding regulatory incongruency is important for business certainty:

• Local Context Matters: If two purely New Zealand companies can merge without harming NZ consumers—even if the deal would be blocked in Australia—the merger should be allowed.
• Cross?Border Efficiency: Where one or both companies have significant Australian entanglements, ACCC clearance should serve as a strong indicator of competitive acceptability, thereby reducing duplicative regulatory costs.

It should also be noted that Australia is considering changes to its SLC test that are not without their downsides. New Zealand should not seek to replicate these flaws at home. More specifically, proposed merger reform in Australia would amplify the meaning of “substantially lessening competition” to include the creation, strengthening, or entrenching of market power. According to the original consultation: “(u)nder the current substantial lessening of competition test, it may be difficult to stop acquisitions that lead to a dominant firm extending their market power into related or adjacent markets.”

However, as pointed out in our response to Q5, merger control should not, as a matter of principle, seek to prevent incumbents from entering adjacent markets. Moreover, it is unclear why the SLC test in its current state is insufficient to curb the misuse of market power. The SLC test is a standard used by regulatory authorities to assess the legality of proposed mergers and acquisitions. Simply put, it examines whether a prospective merger is likely to substantially lessen competition in a given market, with the purpose of preventing mergers that increase prices, reduce output, limit consumer choice, or stifle innovation as a result of a decrease in competition.

The SLC test examines likely coordinated and non-coordinated effects in all three types of mergers: horizontal, vertical, and conglomerate. Horizontal mergers may substantially lessen competition by eliminating a significant competitive constraint on one or more firms, or by changing the nature of competition such that firms that had not previously coordinated their behaviour will be more likely to do so. Vertical and conglomerate mergers tend to pose less of a risk to competition.[9]

Still, there are facts and circumstances under which they can substantially lessen competition by, for example, foreclosing rivals from necessary inputs, supplies, or markets. These outcomes will often be associated with an increase in market power. As the OECD has written:

• The focus of the SLC test lies predominantly on the impact of the merger on existing competitive constraints and on measuring market power post-merger.[10]
• In other words, the SLC test already accounts for increases in market power that are capable and likely of harming competition.

The problem with the Australian proposed amendments to the SLC test is that they could be interpreted so broadly that any incremental increase in the market share of a company that already holds some degree of market power would “substantially lessen competition.” This is misguided, and could capture swathes of procompetitive conduct. Indeed, there are many mergers that would—if permitted—benefit consumers, either immediately or in the longer term, but that may have some effect on enhancing market share or market power. Improving a firm’s products and thereby increasing its sales will often lead to increased market share and market power. This is not a competition problem per se; the problem, rather, is when market power is misused, or is likely to be misused. Whether or not this is effectively the case is what competition authorities strive to ascertain. The modified SLC test in Australia could substitute that judicious approach for a blunt, de facto prohibition of mergers and acquisitions by firms with market power. New Zealand should thus not seek to replicate it.

Another Australian reform which New Zealand should not follow is the modification of notification thresholds based on concentration. Concentration-based notification thresholds is that they unduly emphasize market structure. Our concern is that, by instituting market concentration as a notification criterion, merger-review process in New Zealand will remain committed to the analysis of market structure as the prime indicator of whether a merger should be allowed. This would be a mistake. Market structure is, at best, an imperfect proxy for competitive effects and, at worst, a misleading one.

The absence of correlation between increased concentration and both anticompetitive causes and deleterious economic effects is demonstrated by a recent, influential empirical paper by Shanat Ganapati. Ganapati finds that the increase in industry concentration in U.S. non-manufacturing sectors between 1972 and 2012 was “related to an offsetting and positive force—these oligopolies are likely due to technical innovation or scale economies. [The] data suggests that national oligopolies are strongly correlated with innovations in productivity.”[11] In the end, Ganapati found, increased concentration resulted from beneficial growth in firm size in productive industries that “expand[s] real output and hold[s] down prices, raising consumer welfare, while maintaining or reducing [these firms’] workforces.”[12] Sam Peltzman’s research on increasing concentration in manufacturing finds that it has, on average, been associated with both increased productivity growth and widening margins of price over input costs. These two effects offset each other, leading to “trivial” net price effects.[13]

This does not mean that concentration measures have no use in merger enforcement. Instead, it demonstrates that market concentration is often unrelated to antitrust enforcement, because it is driven by factors endogenous to each industry. In revamping its merger-control rules, New Zealand should be careful not to rely too heavily on structural presumptions based on concentration measures, as these may be poor indicators of those cases where antitrust enforcement would be most beneficial to consumers.

In sum, market structure should remain only a proxy for determining whether a transaction significantly lessens competition. It should not be at the forefront of merger review. And it should certainly not be the determining factor in deciding whether to block a merger. Similarly, it is not an appropriate notification threshold in merger control.

Our view is that there is no need to reinvent the wheel. Turnover has typically been used as a proxy for a merger’s competitive impact because it offers a first indicator of the parties’ relative position on the market. Where the parties (and especially the target company) have either no or only negligible turnover in the relevant country, it is highly unlikely that the merger will significantly lessen competition. Again, as recommended by the ICN:

• Examples of objectively quantifiable criteria are assets and sales (or turnover). Examples of criteria that are not objectively quantifiable are market share and potential transaction-related Market share-based tests and other criteria that are inherently subjective and fact-intensive may be appropriate for later stages of the merger control process (e.g., determining the scope of information requests or the ultimate legality of the transaction), but such tests are not appropriate for use in making the initial determination as to whether a transaction requires notification.

Q6. How effective do you consider the current merger regime in balancing the risk of not enough versus too much intervention in markets?

The regime struggles with this balance. The Commission has limited resources. Pursuing very minor mergers with trivial effects on the New Zealand market, while failing to pursue enforcement action in occupational licensing cases that appear very obviously anticompetitive and harmful, does not provide the strongest improvement to consumer welfare.

A more explicit consumer?welfare focus not just in assessing merger effects but also in allocating scarce enforcement resources across areas could help achieve a more balanced approach.

Q8. Should the Commerce Act be amended to provide relevant criteria or further clarify how to assess a substantial degree of influence? If so, how should it be amended? Please provide reasons.

Yes. The Act should be amended to include clearer, more detailed criteria for assessing influence—considering factors such as board control, veto rights over key strategic decisions, and historical patterns of influence. This approach would reduce reliance on simple numerical thresholds (such as a 20% shareholding presumption) and better reflect the real-world dynamics of control.

Q14. Should the Commission be able to accept behavioural undertakings under the Commerce Act to address concerns with mergers? If so, in what circumstances?

This is a difficult area. Behavioural undertakings could allow efficient mergers to proceed that would otherwise be blocked by the Commission. However, there is risk that innocuous mergers that would have been approved regardless could be made subject to behavioural undertakings that do not work to the long-run benefit of consumer welfare.

Q17. What are your views on the merits of possible regulatory options outlined in this paper to mitigate this issue?

The range of options (including binding guidance, safe?harbour notification regimes, and class exemptions) are promising. Our preference is for a flexible framework that shifts the burden to the Commission to demonstrate competitive harm when needed, rather than requiring pre?clearance for every collaboration. Such flexibility is especially valuable for smaller businesses.

Q18. If relevant, what do you consider should be the key design features of your preferred option to facilitate beneficial collaboration?

Key design features could include:

• Clear definitions that distinguish beneficial collaboration from coordinated anticompetitive
• Built?in safeguards such as sunset clauses and periodic reviews to prevent regulatory
• Transparent oversight and stakeholder consultation to ensure that any implicit regulatory pressure does not distort competitive behaviour.

Q19. What are your views on whether the Commerce Act adequately deters forms of ‘tacit collusion’ between firms that is designed to lessen competition?

While the Act addresses overt collusion, tacit collusion (especially in concentrated markets with high entry barriers) may not be sufficiently deterred. In some cases, implicit regulatory preferences or pressures can inadvertently serve as a coordination mechanism among incumbents, thus reducing independent competitive behaviour.

For example, if the banking regulator were viewed by the banks as having strong preferences about the greenhouse gas footprint of a bank’s lending portfolio, banks could coordinate around that signal to increase margins when lending to sectors viewed as disfavoured by the banks’ regulator. Enhanced measures may be needed to address these subtle forms of collusion. But those measures would be best focused on the behaviour of the regulator, to break the potential coordination point.

Q20. Should ‘concerted practices’ (e.g., when firms coordinate with each other with the purpose or effect of harming competition) be explicitly prohibited? What would be the best way to do this?

We again point to the importance of a consumer welfare standard when weighing the effects of any potential substantial lessening of competition. Any tightening of restrictions should preserve legitimate collaborative behaviour through clear exceptions and safeguards.

Q21. Do you consider that industry codes or rules could either: a. fill a gap in the competition regulation regime or b. provide a more efficient and appropriate response to addressing sector?specific competition issues rather than developing primary legislation?

We here only caution that industry codes can risk becoming instruments for anticompetitive coordination. If the review fixes on codes as potential instrument, it should ensure that any implemented codes are subject to ongoing review and sunset clauses to ensure that they have not themselves resulted in a lessening of competition to consumers’ detriment.

Q30. Are there any other issues that you would like to raise?

Yes. In addition to the detailed responses above, we urge the Review to adopt a broader perspective on competition in New Zealand.

• Broader Structural Barriers: Many significant anticompetitive effects in NZ stem from regulatory regimes beyond the Commerce Act—such as land use planning, occupational licensing, and permitting processes—that effectively create cartels.
• Role of the Crown Exception: We urge the adoption of Ben Hamlin’s proposed modernisation of the Commerce Act to ensure that any SLC caused by regulatory regimes provided that exception are able to meet an ongoing public benefit
• Legislative Reform Beyond Mergers: We recommend that the Review consider whether the Commerce Act should be broadened (or complemented by other legislative measures) to empower the Commerce Commission to assess and, if necessary, challenge statutory regimes that restrict competition. For example, issues in land use planning (as seen in recent zoning decisions) and licensing arrangements (e.g., for community pharmacies and universities) have substantial competitive impacts that deserve attention.

In short, while the Review’s focus on merger control and minor regulatory tweaks is welcome, we strongly advocate that it also address these larger, structural issues that currently impose significant anticompetitive constraints on New Zealand’s markets.

We also urge that, when considering alignment to Australia’s merger regime, the submission of Manne et al (2024) on Australia’s reforms be weighed carefully. It has raised serious concerns with Australia’s approach.[14]

[1] Jamieson, Debbie. 2024. “Moral and health-related objections dismissed: Wanaka McDonald’s hearing.” The Christchurch Press. 25 November. Available at https://www.stu?.co.nz/nz-news/360496928/moral-and-health- related-objections-dismissed-wanaka-mcdonalds-hearing

[2] Atkins, Helen, Lisa Mein and Robert Scott. 2025. “Decision of the Queenstown Lakes District Council, RM230874.” 12 February.

[3] Ternouth, Louise. 2024. “Community pharmacists afraid for future of business and patient care.” Radio New Zealand. 31 July. https://www.rnz.co.nz/news/national/523520/community-pharmacists-afraid-for-future-of- business-and-patient-care

[4] Hamlin, B. 2024. “Commerce (Modernised Exceptions) Amendment Bill 2024”. A draft Member’s Bill produced for the Competition Policy Institute of New Zealand’s 2024 workshop.

[5] NICOLAS PETIT, BIG TECH AND THE DIGITAL ECONOMY: THE MOLIGOPOLY SCENARIO (2020); see also Walid Chaiehoudj, On “Big Tech and the Digital Economy”: Interview with Professor Nicolas Petit, COMPETITION FORUM (11 Jan. 2021), https://competition-forum.com/on-big-tech-and-the-digital-economy-interview-with- professor-nicolas-petit.

[6] Merger Reform: A Faster, Stronger, and Simpler System for a More Competitive Economy, AUSTRALIAN GOVERNMENT, THE TREASURY 5 (10 Apr. 2024), https://treasury.gov.au/sites/default/?les/2024-05/p2024- 518262-merger-reforms-paper.pdf (“Merger Reform Paper”).

[7] See, generally, Brian Albrecht, Dirk Auer, Daniel J. Gilman, Gus Hurwitz, & Geo?rey A. Manne, Comments of the International Center for Law & Economics on Proposed Changes to the Premerger Noti?cation Rules, INT’L CTR LAW ECON. (27 Sept. 2023), https://laweconcenter.org/resources/comments-of-the-international-center- for-law-economics-on-proposed-changes-to-thepremerger-noti?cation-rules.

[8] See Jonathan B. Cohn, Edith Hotchkiss, & Erin Towery, Sources of Value Creation in Private Equity Buyouts of Private Firms, 26 REV. OF FIN. 257 (2022).

[9] See, e.g., Guidelines on the Assessment of Non-Horizontal Mergers Under the Council Regulation on the Control of Concentrations Between Undertakings, (2008/C 265/07), paras 11-13 (EU).

[10] Standard for Merger Review, OECD 6 at 16 (11 May 2010), https://www.oecd.org/daf/competition/45247537.pdf.

[11] Shanat Ganapati, Growing Oligopolies, Prices, Output, and Productivity, 13(3) AM. ECON. J. MICROECON. 309-327, 324 (Aug. 2021).

[12] Id, at 309.

[13] Sam Peltzman, Productivity, Prices and Productivity in Manufacturing: a Demsetzian Perspective, Coase- Sandor Working Paper Series in Law and Economics 917, (19 Jul. 2021).

[14] Manne, Geo?rey et al. 2024. “Comments of the International Center for Law & Economics: Reforming Mergers and Acquisitions – Exposure Draft”. 13 August. Available at https://laweconcenter.org/wp- content/uploads/2024/08/Comments-of-the-ICLE-Merger-Consultarion-AUS.pdf.

I. Introduction

The International Center for Law & Economics (ICLE) appreciates the opportunity to provide comments on the Competition and Markets Authority’s (CMA) investigations into Apple and Google’s mobile ecosystems.

While the CMA’s goal of promoting online competition is laudable, any interventions taken under the Digital Markets, Competition and Consumers Act (DMCC) should be grounded in robust empirical evidence and should consider the dynamic, rapidly evolving nature of the smartphone industry and its underlying markets. There is still a long way to go before the CMA concludes its investigation, but early signs suggest that these prominent features of the mobile industry are currently underappreciated. Indeed, the CMA’s invitation to comment explains that:

Apple and Google hold an effective duopoly in mobile ecosystems. Their control over these increasingly crucial ecosystems means both firms hold powerful positions and can unilaterally determine the ‘rules of the game’, making it difficult for rival businesses such as browsers or alternative app stores to compete.[1]

As our comments explain, however, competition in the mobile industry is far more intense than the CMA’s study recognizes. There are also growing reasons to believe that the costs of intervention are far more significant than is typically acknowledged. Given this, a fundamental change of course is required to ensure that any intervention delivers on the pro-growth agenda that has become a key priority of the UK government.^[2]

Against this backdrop, our comments aim to highlight key competitive dynamics in mobile ecosystems, the importance of preserving incentives for innovation, and the need for clear policy objectives.

A. Competition in Mobile Ecosystems

Contrary to the CMA’s conclusion that Apple and Google operate as an entrenched duopoly, the mobile ecosystem is, in fact, characterized by vigorous competition. iOS and Android continuously innovate to differentiate themselves, with Apple prioritizing seamless integration and security, while Android offers openness and customization. This rivalry has resulted in significant advancements in user experience, security, and app-ecosystem development.

Additionally, robust competition is evident in the substantial user churn between iOS and Android. Studies show that up to 20% of users switch platforms within a given period, demonstrating a dynamic and contested market, rather than one suffering from “lock-in”. Data-portability measures, such as Apple’s “Move to iOS” and Google’s “Data Transfer Tool”, further reduce switching costs and enhance consumer choice.

B. The Unintended Consequences of Regulating Mobile Ecosystems

The CMA’s proposed interventions risk causing significant unintended consequences. Similar regulatory efforts in other jurisdictions—such as the European Union’s Digital Markets Act (DMA)—have demonstrated that well-meaning interventions can inadvertently reduce competition and degrade the consumer experience.

Mandated interoperability, for instance, can weaken platform security, exposing users to heightened risks of fraud and data breaches. Furthermore, enforced changes in platform operations, such as choice screens or restrictions on pre-installed applications, have often failed to meaningfully alter market dynamics, while imposing high compliance costs on businesses. Similarly, regulatory constraints on app-distribution models and monetization strategies could disrupt the delicate balance that sustains investment in mobile ecosystems.

In short, rather than imposing sweeping structural interventions, the CMA should adopt a cautious and evidence-based approach that recognizes the competitive and innovative nature of the mobile ecosystem. Overregulation risks distorting market incentives, reducing innovation, and harming consumers. Regulatory measures should be tailored to address demonstrable harms, without undermining the fundamental drivers of competition and technological progress in mobile ecosystems.

II. Strong Competition in Mobile Ecosystems

In its invitation to comment, the CMA explains there is “limited effective competition between iOS and Android”. According to the CMA, this is because there is differentiation between these two ecosystems and, partly as a result, users rarely switch from one operating system to the other. In the CMA’s own words:

The CMA has previously found that once people choose a mobile device, they rarely switch between operating systems.^[3]

…The study found that there was limited effective competition between iOS and Android, given the segmentation of the supply of mobile devices and operating systems and that users rarely switch between iOS and Android devices.^[4]

But this conclusion overlooks certain important aspects of competition in this space. To be more precise, the fact that few users move from one operating system to the other is not synonymous with a lack of competition. Indeed, as we explain below, modest churn rates—about 15-20%—can be consistent with large contestable market shares and intense competition. This is particularly true when the entry of new users is considered. In simple terms, intense competition is possible without the entire market being contestable, particularly if firms cannot discriminate between contestable and non-contestable users based on price.

Along similar lines, antitrust law & economics scholarship consistently finds that user switching (or the lack thereof) is not, in and of itself, indicative of intense competition (or its absence).^[5] Given this, there is insufficient evidence that competition is absent in the smartphone industry, and that iOS and Android should be designated under the DMCC.

A. High Levels of User Churn

One of the most compelling indicators of competition between iOS and Android is the high rate of user churn between the platforms. Contrary to widely held belief, consumers frequently switch between iOS and Android, undermining the notion of ecosystem lock-in.

The CMA’s assertion that there is limited effective competition between iOS and Android rests on an assumption that brand loyalty prevents meaningful switching. The numbers, however, tell a different story. According to the latest data, only 35% of iOS users cite brand as the most important factor in their smartphone choice, compared to 16% for Android users.[6] While this suggests a higher brand attachment for iOS users, it does not imply the absence of competition. Instead, it highlights how consumer preferences are shaped by perceived quality and features. These are factors that both Apple and Android manufacturers actively refine in an effort to attract users.

Another critical aspect of competition is the ability to transfer data and apps across platforms. The CMA acknowledges that modern switching tools mitigate many of these concerns, with only 8% of switchers reporting dissatisfaction with the process.[7] While some barriers to switching may still exist, this is not the only factor that consumers consider.

The CMA’s data indicates that 31% of iOS users and 35% of Android users see no significant benefits in switching operating systems.[8] This does not, however, reflect direct unwillingness to switch, but rather user satisfaction with their current device. In fact, 11% of iOS users and 12% of Android users considered switching when purchasing a new smartphone but ultimately did not[9], demonstrating that competition remains a significant factor in consumer decision-making.

The CMA’s figures also show that iOS primarily targets the premium segment, accounting for 77% of smartphones sold for more than £300 in 2021, while Android holds 100% of the lower-end market (devices sold for £300 or less).[10] While the CMA suggests that iOS and Android largely operate in separate market segments, evidence suggests that competition extends beyond direct price comparisons.

Looking beyond the CMA’s market study, some of the best available data stems from the European Commission’s Google Android decision.[11] This data is now several years old and must therefore be taken with a pinch of salt, but it nonetheless paints a compelling picture of smartphone competition (that runs counter to the Commission’s ultimate conclusions).

According to the Commission’s own numbers, roughly 39% of all smartphone sales are contestable. This comprises both new users without prior brand loyalty (roughly 25% of purchases at the time, although this number is likely lower today), and roughly 20% of existing users who switch brands when they purchase new devices.[12] For context, these churn rates are in the same ballpark as other industries that cannot remotely be called anticompetitive, such as general retail, travel, and financial/credit services.[13]

This churn is facilitated by the constant evolution of features and pricing strategies. For instance, Apple’s introduction of more affordable iPhone models, such as the iPhone SE, has attracted price-sensitive Android users. Conversely, the proliferation of high-end Android devices with cutting-edge technology, like Samsung’s Galaxy series and Google’s Pixel phones, has drawn iOS users seeking alternative experiences. This fluidity underscores a vibrant competitive environment in which neither platform can afford complacency.[14] This contradicts any assumption that the operating system is irrelevant to consumer choices. Instead, it reflects an environment where firms aggressively compete to enhance user experience and retain customers.

In short, it is important to remember that there is some degree of brand loyalty in nearly all markets, and that this rarely constitutes an obstacle to inter-brand competition. The CMA’s study provides no benchmark against which to assess its claims. In other words, its market study merely shows that smartphone users exhibit some brand loyalty, not that they exhibit too much of it for competition to thrive.

B. Ease of Data Portability

The CMA’s Mobile Ecosystems study cites several factors that might prevent users from switching to new platforms. As the CMA puts it:

3.89 Evidence from market participants (including survey evidence) and our survey suggested that users face four categories of potential barriers to switching between mobile devices with different operating systems:

• learning costs associated with switching mobile ecosystem;

• transferring data and apps across devices;

• managing subscriptions across devices; and

• the availability and characteristics of Apple’s and Google’s first-party (ie developed and operated by Apple and Google) apps, services, and other devices.^[15]

What this study does not reveal, however, is whether these minor inconveniences have a significant impact on user switching, or whether they merely represent a minor (and competitively irrelevant) departure from perfect competition. In other words, all markets present some minor frictions that may marginally reduce the intensity of competition—switching from one supermarket to another, for instance, implies learning costs to absorb the layout of the new store—but this does not mean these markets aren’t intensely competitive.

In that respect, there are important reasons to believe that competition between the two platforms is stronger than is typically recognized in competition policy circles. Ever since the first iPhone was introduced in 2007, each iteration of both companies’ operating systems has included features that could be found in previous version of the other:

Features like picture-in-picture, live voicemail, lock screen customization and live translation were all found on the Android operating system before eventually making their way to iOS. And though the use of widgets to customize your home screen was long held as a differentiator for Android, that feature too eventually found its way to iOS.

On the other hand, Android’s Nearby Share feature is remarkably similar to Apple’s AirDrop, and Android phones didn’t get features like “do not disturb” or the ability to take screenshots until some time after the iPhone had them.

Apple removed the 3.5mm headphone jack from the iPhone in September 2016, and I distinctly remember that at Google’s launch event for the Pixel the following month, chuckles went round the room when the exec on stage proclaimed, “Yes, it has a headphone jack.” Google itself went on to also ditch the headphone jack, with the Pixel 2.

…Rumors that Apple would remove the physical home button on the iPhone X were circling long before the phone was officially unveiled in September 2017. Are they the same rumors Samsung responded to when it “beat Apple to the punch” and removed the home button from its Galaxy S8 earlier that same year? Or did both sides simply arrive at such a big design decision independently?[16]

Another critical factor enhancing competition in mobile ecosystems is the ease of data portability. Both Apple and Google have made substantial efforts to simplify the process of transferring data between their platforms, thereby lowering switching costs for consumers. Apple’s “Move to iOS” app allows Android users to seamlessly transfer contacts, message history, photos, and even app data to their new iPhone.[17] Similarly, Google’s “Data Transfer Tool” facilitates the migration of data from iOS devices to Android smartphones with minimal friction.[18] Moreover, both Apple and Google have webpages that help users to switch from one platform to the other (see Figure 1).

FIGURE 1: Apple’s ‘Move from Android to iPhone’ Tutorial

SOURCE: Apple

This isn’t the only evidence that Apple and Google are engaged in fierce competition for potential users. Online comparisons of Android and iPhone abound.[19] Likewise, the business press often describes the fierce rivalry between Apple and Google.[20] And numerous academic studies have reached similar conclusions about the nature of their competition. Nicolas Petit refers to Apple and Google as “moligopolists”,[21] while David Evans has described their rivalry as “dynamic competition”.[22] Marshall Van Alstyne and his coauthors have analyzed the strategies that both Google and Apple have deployed to outcompete one another.[23]

Finally, both Apple and Google regularly file reports with securities regulators that cite the other firm as an important competitor (if not by name). For example, Apple has noted in its 10-K filing that:

The Company believes the availability of third-party software applications and services for its products depends in part on the developers’ perception and analysis of the relative benefits of developing, maintaining and upgrading such software and services for the Company’s products compared to competitors’ platforms, such as Android for smartphones and tablets and Windows for personal computers.[24]

While Google has noted in its 10-K:

We face competition from: Companies that design, manufacture, and market consumer electronics products, including businesses that have developed proprietary platforms.[25]

The upshot is that the competitive battle in which iOS and Android are engaged is marked by continuous advancements across multiple dimensions, including user-interface design, hardware integration, app-ecosystem quality, and security features. Apple’s iOS is known for its seamless integration with hardware, delivering a tightly controlled and optimized user experience. Conversely, Google’s Android offers a more open ecosystem, allowing for greater customization and a wider variety of device choices from multiple manufacturers.

These differing approaches and business models do not mean that Apple and Google fail to compete. To the contrary, those difference are a function of competition. As Randal Picker has explained in the context of the case initiated by the European Commission against Google Android:

Google undoubtedly wanted to support Android through its advertising business as that was its great competitive advantage. Embedding Google Search in Android is the natural way to do that. It meant that Android would come with a third-party payment mechanism built in and it meant that the price of Android handsets would presumably be lower given that the Android software itself would be free.

This is really the point of business model competition. Apple was being Apple: vertically integrated hardware and software. Did that with the Macintosh, did that with the iPhone. Microsoft was being Microsoft: it had dominated the OS market for the open IBM PC architecture and it hoped to do exactly that for mobile phones. There would be lots of handset makers, just as there were PC makers and Microsoft would make money off of phone OSs. Google was offering a different business model: lots of handset makers and advertising-supported software. The competition between Microsoft and Google was precisely over which way of paying for phone OS software would win.[26] [Emphasis added.]

These tools reflect the companies’ acknowledgment of consumer demand for flexibility and choice. By reducing barriers to switching, Apple and Google have created an environment where users can make platform decisions based on current preferences and needs, rather than be locked into a single ecosystem. This ease of mobility is a testament to the competitive pressures both platforms face, driving them to continuously enhance user experience and value propositions.

This combination of vigorous platform rivalry, significant user churn, and robust data-portability mechanisms paints a clear picture of a highly competitive mobile ecosystem. This competition not only fuels innovation but also ensures that consumers retain the ultimate power to choose the platform that best meets their evolving needs. Not only does this cut against arguments for designating both iOS and Android as strategic market status (SMS) players, but perhaps more importantly, it significantly tilts the cost-benefit analysis of regulatory intervention (which we discuss in the following section) toward a lighter-touch approach, as competition can be expected to discipline market players’ behaviour.

III. The Unintended Consequences of Regulating Mobile Ecosystems

The regulation of mobile ecosystems presents a complex set of tradeoffs. While regulatory interventions, such as enforcement of the DMCC, aim to promote competition and consumer choice, they also risk unintended consequences that could hinder innovation, reduce incentives to invest, and alter the fundamental dynamics of platform competition. Given this, it is important for the CMA to ensure that conduct requirements do not inadvertently and unnecessarily penalize consumers.

As we explain below, there are at least three important ways in which heavy-handed enforcement of the DMCC may do more harm than good. For a start, some of the conduct requirements contemplated by the CMA have been tried in other jurisdictions, and have failed to deliver benefits; second, enforcement may delay or prevent the deployment and integration of artificial-intelligence (AI) technologies into existing platforms; finally, it may nullify valuable product differentiation that currently enables consumers with diverse preferences to choose the type of platform they prefer, rather than having to settle for a one-size-fits-all design.

In recognizing these tradeoffs, regulators like the CMA can adopt a more nuanced approach that preserves the benefits of competition while addressing legitimate concerns in the digital marketplace. This is particularly true given the important competition between Android and iOS. Indeed, even if the CMA decides to designate these activities as SMS, the fierce competition between both platforms means any anticompetitive harms to consumers are likely to be small, and the benefits of regulatory intervention are thus less likely to outweigh the costs discussed below. In short, the risk of regulatory errors is great in markets where there is significant competition.

A. Interoperability, Choice Screens, and App-Store Fees

Regulatory interventions, even when well-intentioned, can lead to unintended consequences that may harm consumers and the broader market. The CMA should be vigilant in identifying and mitigating such risks. For example, regulations aimed at increasing competition by mandating interoperability or data-sharing requirements could inadvertently compromise user privacy and security. Similarly, policies designed to curb perceived anti-competitive behaviours might reduce the incentives for platforms to invest in innovative technologies and features.

Lessons from international jurisdictions, particularly the European Union’s Digital Markets Act (DMA), offer valuable insights into the potential pitfalls of overregulation. The DMA’s stringent requirements have led to significant compliance costs for companies and have sometimes resulted in reduced functionality and user experience. For instance, mandated changes in platform operations to ensure fairness have, in some cases, led to decreased efficiency and increased complexity for both developers and users.

As explained above, at least three of the potential interventions contemplated by the CMA appear to raise significant risks of unintended consequences. For a start, the CMA’s invitation to comment suggest that the authority is considering mandated interoperability to increase mobile competition, as well as the use of choice screens:

Potential measures could include: i. Requirements for Apple and Google not to restrict interoperability as required by third-party products and services (such as rival browsers, digital wallets and connected devices) to function effectively and compete with Apple’s and Google’s own products and services…

iii. Requirements for Apple and Google to make changes to choice architecture in factory settings or subsequent device settings; in order to enable users of mobile devices to make active and informed choices about the product or services they use and/or set as a ‘default’ service.[27]

As ICLE scholars have discussed in more detail elsewhere, such interventions are unlikely to deliver net benefits to UK consumers.[28] In comments submitted to the European Commission, we conclude that:

The forced interoperability proposed under Article 6(7) introduces significant risks to user security. Many of the features targeted for interoperability—such as devices’ NFC capabilities and wireless-file transfer functionalities like AirDrop—are integral to the iOS ecosystem’s security infrastructure. These features were designed with stringent safeguards to prevent unauthorized access and to ensure that users’ sensitive information remains protected. By mandating that third-party developers gain access to these APIs and functionalities, the Commission’s approach would create opportunities for exploitation by malicious actors.[29]

This is not just theoretical speculation. The Microsoft/CrowdStrike outage that kept airlines, hospitals, banks, and other businesses down for hours in July 2024, generating great disruption for thousands, appears to have been—at least in part—generated by an interoperability mandate.[30] Likewise, mandated interoperability may have a detrimental impact on device reliability and performance:

For example, allowing third-party applications to run in the background without adequate controls can significantly reduce battery life, as has been observed on competing platforms like Android. As one journalist put it: “Got the case of a quickly dying phone? It might be your background apps!” The issue arises because background activity consumes system resources, often without users’ awareness. And because users may be unable to attribute battery degradation to a specific application, developers may have weak incentives to minimize the energy their apps consume.[31]

The upshot is that mandated interoperability threatens to degrade aspects of the iOS and Android experiences that consumers value deeply.

Along similar lines, the choice screens contemplated by the CMA have been tried and tested in other jurisdictions, where they have systematically failed to deliver the outcomes desired by regulators. For example, the implementation of browser and search-engine choice screens for Android in Europe does not appear to have meaningfully affected competition or market shares for those services.

More fundamentally, there are serious doubts that default placement has the competitive significance that is typically ascribed to it. As Geoffrey Manne writes, commenting on the U.S. Google Search case and the European Commission’s Google Search proceedings:

With respect to the conclusion that the cost to users of choosing the non-default option is higher, that is inherently true, of course. But it is arguably trivially so…

Among other things (more of which are discussed below), it must be noted that, even when users are presented with a neutral option (e.g., a “choice screen”), they appear to make essentially the same choices as when presented with a default. In Europe, where Google has since 2020 implemented a search engine choice screen on Android following the EU’s 2018 antitrust decision against it, Google’s share of the search engine market has barely budged.

By the same token (at least when Google is the non-default) users are apparently quick to switch from a less-preferred default in order to get access to Google Search:

In a 2016 experiment, Mozilla switched the default GSE on both new and existing users from Google to Bing. By the twelfth day, Bing had kept only 42% of the search volume. After some additional time, those numbers dropped to 20– 35%….

It is exceedingly difficult to square these facts with the court’s conclusions on the functional irrelevance of non-default options.[32]

Finally, the CMA also contemplates interventions to boost app-store competition, either by forcing Apple to allow third-party app stores or by preventing Google from deploying revenue-sharing agreements that prevent fragmentation of the Android ecosystem:

Potential measures that may be appropriate to promote competition in relation to native app distribution could include:

1. A requirement for Apple to allow alternative app stores to operate on iOS.

2. A requirement that prevents Google from making revenue share payments in return for certain additional requirements in relation to the Play Store, e.g. setting the Play Store as the default app store and not preloading alternative app stores on devices.[33]

Beyond the security and reliability worries discussed above, these measures have the added harm that they target the monetization of today’s most successful mobile platforms, with two major consequences. The first is that these platforms can be expected to respond by resorting to inferior monetization strategies that penalize consumers and small developers. The second is that, even with these changes, weaker monetization will have a knock-on effect on the platforms’ incentives to innovate, leading to a worse mobile experience for users in the long term.

B. Integration of AI Services

A further concern is that the CMA should avoid policies that could hinder the integration of AI technologies. Indeed, overregulation could stifle the development and deployment of AI innovations, depriving consumers of the benefits of more intelligent, responsive, and personalized mobile experiences. Encouraging a regulatory environment that supports AI integration is essential to foster continued growth and innovation in the mobile ecosystem.

The CMA’s invitation to comment, however, suggests the authority may pursue policies that prevent incumbent tech firms from competing in this space, thereby preventing the product integrations discussed above and reducing competition in this highly dynamic space:

Overall, mobile operating systems, app stores, and browsers each act as a gateway between consumers and the businesses that want to reach them online. Apple and Google are both key gatekeepers to online content on mobile devices, because:

… Further, Apple and Google are in a position to control how new artificial intelligence (AI) services such as chatbots and personal assistants are integrated into their mobile operating systems.[34]

AI is being integrated into various aspects of mobile ecosystems, from predictive text and photo categorization to health monitoring and augmented-reality applications. Google’s AI-driven features, such as real-time language translation and adaptive battery management, highlight AI’s potential to improve usability and efficiency. Apple’s focus on on-device AI processing ensures user privacy, while delivering powerful features like facial recognition and intelligent photo sorting. Heavy-handed intervention threatens these valuable product integrations.

Another important fear is that, paradoxically, efforts to prevent incumbent platforms from competing freely in generative-AI markets may backfire and lead to less, not more, competition. Indeed, upstarts like OpenAI are currently acquiring a sizeable lead in generative AI.[35] While competition authorities might like to think that other startups will emerge and thrive in this space, it is important not to confuse those desires with reality. While there currently exists a vibrant AI-startup ecosystem, there is at least a case to be made that significant competition for today’s AI leaders will come from incumbent Web 2.0 platforms—although nothing is certain at this stage.

Policymakers, including the CMA, should beware not to stifle that competition on the misguided assumption that competitive pressure from large incumbents is somehow less valuable to consumers than that which originates from smaller firms. This is particularly relevant in the context of merger control.

C. The Importance of Differentiation

Differentiation between iOS and Android is a cornerstone of healthy competition in the mobile ecosystem. Each platform offers a distinct user experience, catering to diverse consumer preferences and fostering innovation through unique approaches to design and functionality. Apple’s iOS is renowned for its seamless integration with hardware, stringent privacy controls, and a curated app ecosystem that prioritizes quality and security. In contrast, Android’s open-source nature allows for extensive customization, a wide variety of device options, and greater flexibility for developers.

The CMA’s invitation to comment recognizes this much, acknowledging both that user satisfaction is high and that there is important differentiation between Android and iOS:

Mobile devices play a valuable role in people’s lives. Reported consumer satisfaction levels are high and this is in part due to substantial investment by Apple and Google and other device manufacturers, software developers and content providers over the years in bringing forward new features and updates to their products and services…[36]

The study found that the supply of mobile devices and operating systems was segmented into broadly two groups – higher-priced devices supplied with Apple’s iOS system and lower-priced devices sold with Google’s Android operating system.[37]

This differentiation not only enhances consumer choice but also drives each platform to innovate continuously. For example, Apple’s emphasis on privacy has pushed Android to introduce more robust privacy features, while Android’s customization capabilities have influenced iOS to offer more flexible user-interface options in recent updates. The unique strengths of each platform contribute to a dynamic competitive landscape that benefits consumers.

Regulatory interventions that aim to homogenize these platforms could undermine the very competition they seek to promote. The CMA’s policies should respect the distinct characteristics of both iOS and Android, ensuring that regulatory measures do not inadvertently force one platform to emulate the other. Preserving the diversity of approaches within the mobile ecosystem is essential to foster innovation and meet the varied needs of consumers. Indeed, as ICLE scholars put it in an amicus brief submitted to the U.S. Supreme Court in the Epic v Apple proceedings:

Centralized app distribution and Apple’s “walled garden” model (including IAP) increase interbrand competition because they are at the core of what differentiates Apple from Android, the other major competing platform. They play into Apple’s historical business model, which focuses on being user-friendly, reliable, safe, private, and secure. Even Epic recognized that Apple would lose its competitive advantage if it were to compromise its safety and security features. For Apple and its users, the touchstone of a good platform is not “openness,” but carefully curated selection and security, understood broadly as encompassing the removal of objectionable content, protection of privacy, and protection from “social engineering,” and the like. By contrast, Android’s bet is on the open platform model, which sacrifices some degree of security for the greater variety and customization associated with more open distribution. These are legitimate differences in product design and business philosophy.[38]

IV. Conclusion

The CMA’s investigation into Apple and Google’s mobile ecosystems raises important questions about competition and innovation in the digital economy. As our comments explain, however, the assumption that these ecosystems function as entrenched duopolies with limited competition is misguided. The mobile industry is characterized by dynamic competition, with continuous innovation, significant user choice, and considerable investment in platform development.

Rather than pursuing heavy-handed regulatory interventions that could distort incentives and hinder innovation, the CMA should adopt a cautious and evidence-based approach. Apple and Google compete vigorously, not just with each other but also with a broader landscape of technology firms, including manufacturers, service providers, and developers that operate across various segments of the mobile ecosystem. User-churn rates and the contestability of key market segments indicate that competition remains robust.

Interventions that force interoperability, restrict pre-installed applications, or mandate alternative app stores carry significant risks. Lessons from similar regulatory actions—such as the European Union’s Digital Markets Act—suggest that such measures often lead to unintended consequences, including degraded user experience, increased security risks, and reduced incentives for investment and innovation. In contrast, market-driven differentiation, where consumers can choose between Apple’s integrated approach and Google’s open ecosystem, provides a natural check on anticompetitive behaviour, while maximizing consumer choice.

Given the rapid pace of technological change and the evolving nature of digital markets, a prescriptive regulatory approach could stifle innovation and reduce the competitive benefits that users currently enjoy. Instead, the CMA should focus on clear and proportionate policy measures that address demonstrable harms without undermining the fundamental drivers of competition. The objective should not be to re-engineer these ecosystems, but to ensure that competition remains vibrant and that consumers continue to benefit from technological advancements and product differentiation.

In this context, we urge the CMA to approach its investigation with a view toward fostering innovation, preserving incentives for investment, and avoiding unnecessary regulatory burdens that could harm consumers, developers, and the broader digital economy. A well-calibrated approach—grounded in empirical evidence and mindful of the risks of intervention—will ensure that the UK’s digital markets remain competitive and dynamic in the years to come.

^[1] Strategic Market Status Investigations into Apple’s and Google’s Mobile Ecosystems – Invitation to Comment, Compet. Mark. Auth. (23 January 23, 2025), at 11, available at https://assets.publishing.service.gov.uk/media/67911997cf977e4bf9a2f1aa/Invitation_to_comment.pdf (hereinafter ‘Invitation to Comment’).

^[2] Keir Starmer, Prime Minister, United Kingdom, Speech at the International Investment Summit (14 October 2024), https://www.gov.uk/government/speeches/pm-international-investment-summit-speech-14-october-2024; Joe Pike, Starmer Asks UK Regulators for Ideas to Boost Growth, BBC (28 December 2024), https://www.bbc.com/news/articles/cy0n14ywzqpo.

^[3] Invitation to Comment, supra note 1, at 10.

^[4] Invitation to Comment, supra note 1, at 12.

^[5] This is a corollary of the “cellophane” and “reverse cellophane” fallacies. See Luke Froeb & Gregory J. Werden, The Reverse Cellophane Fallacy in Market Delineation, 7 Rev. Ind. Org., 241-247 (1992).

[6] Mobile Ecosystems: Market Study Final Report, Compet. Mark. Auth. (10 June 2022), at 48 (hereinafter ‘Final Report’).

[7] Id. at 64

[8] Id. at 57

[9] Id. at 57

[10] Id. at 28

[11] See Commission Decision AT.40099 (Google Android), slip op., (18 July 2018).

[12] Dirk Auer, Making Sense of the Google Android Decision, Int’l Ctr. L. Econ. (25 February 2020), at 20, available at https://laweconcenter.org/wp-content/uploads/2020/02/Auer-Making-Sense-of-the-Google-Android-Decision-White-Paper.pdf.

[13] See, e.g., Raphael Bohne, Customer Churn Rate in the United States, by Industry, Statista (9 November 2024), https://www.statista.com/statistics/816735/customer-churn-rate-by-industry-us.

[14] Id.

^[15] Final Report, supra note 6 at 57.

[16] Andrew Lanxon, Android vs. iPhone: 15 Years of Innovation Through Rivalry, CNET (24 April 2024),  https://www.cnet.com/tech/mobile/smartphone-showdown-15-years-of-android-vs-iphone.

[17] Move from Android to iPhone or iPad, Apple, https://support.apple.com/en-au/118670 (last visited 7 February 2025).

[18] Switch Is Easier than Ever, Android, https://www.android.com/switch-to-android (last visited 7 February 2025).

[19] See, e.g., Michael Muchmore & Gabriel Zamora, Android vs. iOS: Which Phone OS Really Is the Best?, PCMag (13 November 2024), https://www.pcmag.com/comparisons/android-vs-ios-which-mobile-os-is-best; Prakhar Khanna, iPhone Vs. Android – Which One Should You Get?, Forbes (16 February 2024), https://www.forbes.com/sites/technology/article/iphone-vs-android; Bartosz Szczygie?, iPhone vs Android Users: Key Differences in 2024, NetGuru (8 January 2025),  https://www.netguru.com/blog/iphone-vs-android-users-differences.

[20] See, e.g., Rhiannon Williams, Why Competition Between Apple and Google Is More Brutal than Ever, The Telegraph (29 September 2014), https://www.telegraph.co.uk/technology/google/11127694/Why-competition-betweenApple-and-Google-is-more-brutal-than-ever.html; Bianca DiSanto, Google vs. Apple: Why Their Competition Is Good for You, The Hoya (21 October 2016), https://thehoya.com/google-vs-apple-why-their-competition-is-good-for-you; Can Google or Huawei Stymie Apple’s March Towards $4trn?, The Economist (24 October 2024), https://www.economist.com/business/2024/10/24/can-google-or-huawei-stymie-apples-march-towards-4trn.

[21] Nicolas Petit, Big Tech & the Digital Economy. The Moligopoly Scenario (2020).

[22] David S. Evans, Why the Dynamics of Competition for Online Platforms Leads to Sleepless Nights But Not Sleepy Monopolies, SSRN (25 July 2017), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3009438.

[23] Marshall W. Van Alstyne et al., Pipelines, Platforms, and the New Rules of Strategy, Harv. Bus. Rev. (April 2016), at 1-9.

[24] Apple Inc., Annual Report (Form 10-K), at 1 (29 September 2018).

[25] Alphabet Inc., Annual Report (Form 10-K), at 5 (31 December 2017).

[26] Randal Picker, The European Commission Picks a Fight with Google Android over Business Models, ProMarket (23 July 2018), https://www.promarket.org/2018/07/23/european-commission-picks-fight-google-android-business-models.

[27] Invitation to Comment, supra note 1 at 27.

[28] Geoffrey A. Manne, Dirk Auer, & Mario A. Zúñiga, Comments of ICLE to Commission Consultation on Proposed Measures for Interoperability Between Apple’s iOS Operating System and Connected Devices, Int’l Ctr. L. Econ. (8 January 2025), https://laweconcenter.org/resources/comments-of-icle-to-commission-consultation-on-proposed-measures-for-interoperability-between-apples-ios-operating-system-and-connected-devices-dma-100203.

[29] Id. at 7

[30] Id. at 8

[31] Id. at 9

[32] Geoffrey A. Manne, A Critical Analysis of the Google Search Antitrust Decision, Int’l Ctr. L. Econ. (14 August 2014), at 16-17, available at https://laweconcenter.org/wp-content/uploads/2024/08/Manne-Google-Search-Decision-Analysis-2024-08-14.pdf.

[33] Invitation to Comment, supra note 1 at 24.

[34] Id. at 9

[35] See, e.g., Paul Baier, Estimated Market Share of Closed-Source LLM Models in 2024, GenAI Inisights (24 August 2024), https://gaiinsights.substack.com/p/estimated-market-share-of-closed.

[36] Invitation to Comment, supra note 1 at 10.

[37] Id. at 12

[38] Geoffrey A. Manne & Daniel G. Gilman, ICLE Amicus to US Supreme Court in Apple v Epic, Int’l Ctr. L. Econ. (27 October 2023), at 15-16, available at https://laweconcenter.org/wp-content/uploads/2023/11/ICLE-Amicus-Apple-v-Epic-SCt-10.27.23-FINAL.pdf.

I. Introduction

We are thankful for this opportunity to submit written comments to the Conselho Administrativo de Defesa Econômica’s (“CADE”) public hearing on “Competition in Digital Ecosystems of Mobile Devices (iOS and Android).”[1] The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan global research center founded with the goal of building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies to inform public-policy debates and has longstanding expertise in the evaluation of competition law and policy. ICLE’s interest is to ensure that competition law remains grounded in clear rules, established precedent, a record of evidence, and sound economic analysis.

According to the hearing’s notice, CADE is conducting at least three investigations of “digital ecosystems”[2] in the wake of a “growing number of reports of violations of [Brazil’s] economic order related to digital ecosystems for mobile devices” that, together, warrant “allowing, through a hearing, society, economic agents, experts, academics, civil society organizations and other interested parties to present comments that they consider relevant for the ongoing informed decision-making by this competition authority.”[3]

Against this backdrop, our comments respectfully suggest careful consideration before enacting either sectoral regulation of digital “ecosystems”; specific reforms to competition law in Brazil that aim to deal with these ecosystems; or broad remedies that could affect the quality or affordability of such ecosystems.

We posit that competition among mobile-device operating systems is generally dynamic, competitive, and beneficial to consumers. The mobile ecosystem—where Apple’s iOS and Google’s Android are the dominant players—has experienced intense competition that has spurred innovation and benefited consumers. Contrary to claims of duopoly-induced stagnation, both platforms have continuously introduced groundbreaking features and improvements to their services.

Operating systems allow consumers to access digital services, which in turn help them to increase their productivity and enjoy relatively cheap access to information. While there are always potential competition issues and anticompetitive behavior in any market, the experience to-date in the operating-system market suggests that such issues are neither pervasive nor sufficiently unique to justify strict sui generis preemptive rules. Instead, existing antitrust law (Act No. 12,529/2011) is sufficient to address potential anticompetitive practices in digital markets. Furthermore, as demonstrated by recent cases and investigations, CADE has the necessary expertise and resources to manage these cases.

Of course, challenges do arise in applying antitrust laws to digital markets and to operating systems. For example, amid the fast-changing digital landscape, it can be difficult to define relevant markets and dominant positions in multisided-platform cases. The contours of the relevant market are not always clear, and the boundaries between the digital and nondigital world are sometimes overstated. Those challenges can, however, be properly addressed through the existing legal framework and with appropriate institutional reforms, such as equipping CADE with more resources to incorporate advanced, state-of-the-art technical expertise.

In devising alternate solutions to potential competition problems, it is important not to fall for the so-called “nirvana fallacy”—that is, comparing imperfect antitrust-enforcement systems against ideal regulations, as if they would be implemented in the real world perfectly and according to their purported goals.[4] All legal-enforcement systems are imperfect; that some imperfections can be identified is not sufficient to justify changes to the system.

In any case, any state intervention—whether it be regulation, antitrust enforcement, or the in-between “quasi-regulatory” approach—should operate under limiting principles, such as prioritizing consumer welfare,[5] and assessing the consumer impact of such interventions using clear metrics like price, output, and innovation. Interventions should also respect platform autonomy, ensuring that firms remain the primary designers of their own business models. Interventions should not stifle innovation, but rather encourage it across the digital ecosystem.[6] Blanket or per-se prohibitions on business practices like so-called “self-preferencing,” or mandated “interoperability” and/or access to platforms, will be likely to harm consumers, as these practices benefit consumers most of the time.[7]

II. Competition in Operating Systems

When competition authorities identify competition problems in the market for mobile-device operating systems, they typically assume that the entities that control these systems possess significant market power. This market power (“dominance” or “monopoly power”), they argue, enables these companies to exploit consumers or business users, leading to anticompetitive harms. For example, the UK’s Competition and Markets Authority (“CMA”) highlighted this concern in its request for comments on digital ecosystems:

Apple and Google hold an effective duopoly in mobile ecosystems. Their control over these increasingly crucial ecosystems means both firms hold powerful positions and can unilaterally determine the ‘rules of the game’, making it difficult for rival businesses such as browsers or alternative app stores to compete.[8]

Similarly, in the case initiated against Apple by Mercado Livre Brasil, CADE ruled in a preliminary-injunction decision that the relevant market is:

…composed solely and exclusively of the iOS operating system, a non-licensable operating system for mobile devices that presents itself as the central market for the entire iOS ecosystem. Accordingly, this SG defines the market of origin of the conduct as the market for the non-licensable mobile operating system iOS.[9]

Given that market definition, the only possible conclusion is that Apple has a monopoly over its own operating system. The problem with such conclusion, however, is that Apple (iOS) clearly competes with Google (Android) in the operating-system market for mobile devices. Even if these firms hold a duopoly in this market,[10] it is undeniable that the rivalry between them has been beneficial to consumers in terms of both quality and innovation. Since the first iPhone was introduced in 2007, each iteration of both companies’ operating systems has included features that could be found in previous versions of the other:

Features like picture-in-picture, live voicemail, lock screen customization and live translation were all found on the Android operating system before eventually making their way to iOS. And though the use of widgets to customize your home screen was long held as a differentiator for Android, that feature too eventually found its way to iOS.

On the other hand, Android’s Nearby Share feature is remarkably similar to Apple’s AirDrop, and Android phones didn’t get features like “do not disturb” or the ability to take screenshots until some time after the iPhone had them.

Apple removed the 3.5mm headphone jack from the iPhone in September 2016, and I distinctly remember that at Google’s launch event for the Pixel the following month, chuckles went round the room when the exec on stage proclaimed, “Yes, it has a headphone jack.” Google itself went on to also ditch the headphone jack, with the Pixel 2.

(…)

Rumors that Apple would remove the physical home button on the iPhone X were circling long before the phone was officially unveiled in September 2017. Are they the same rumors Samsung responded to when it “beat Apple to the punch” and removed the home button from its Galaxy S8 earlier that same year? Or did both sides simply arrive at such a big design decision independently?[11]

Consumers can readily find myriad comparisons of Android and iPhone devices online.[12] Moreover, both Apple and Google maintain webpages that offer to help users switch from one platform to the other (see Figure 1).[13] The business press has extensively covered the fierce rivalry between the two companies.[14] And numerous academic studies have reached similar conclusions about the nature of their competition. Nicolas Petit refers to Apple and Google as “moligopolists,”[15] while David Evans has described their rivalry as “dynamic competition.”[16] Marshall Van Alstyne and his coauthors have analyzed the strategies that both Google and Apple have deployed to outcompete one another.[17]

FIGURE 1: Apple’s ‘Move from Android to iPhone’ Tutorial

SOURCE: Apple

Finally, both Apple and Google regularly file reports with securities regulators that cite the other firm as an important competitor (if not by name). For example, Apple has noted in its 10-K filing that:

The Company believes the availability of third-party software applications and services for its products depends in part on the developers’ perception and analysis of the relative benefits of developing, maintaining and upgrading such software and services for the Company’s products compared to competitors’ platforms, such as Android for smartphones and tablets and Windows for personal computers.[18]

While Google has noted in its 10-K:

We face competition from: Companies that design, manufacture, and market consumer electronics products, including businesses that have developed proprietary platforms.[19]

The competitive landscape in which iOS and Android both seek to gain and retain market share has been marked by continuous advancements across multiple dimensions, including user-interface design, hardware integration, app-ecosystem quality, and security features. Apple’s iOS is known for its seamless integration with hardware, delivering a tightly controlled and optimized user experience. Conversely, Google’s Android offers a more open ecosystem, allowing for greater customization and a wider variety of device choices from multiple manufacturers. The fact that the companies have taken these differing approaches do not mean that Apple and Google are not direct competitors. Rather, these different business models decisions are themselves a function of competition. As Randal Picker has explained in the context of the case initiated by the European Commission against Google Android:

Google undoubtedly wanted to support Android through its advertising business as that was its great competitive advantage. Embedding Google Search in Android is the natural way to do that. It meant that Android would come with a third-party payment mechanism built in and it meant that the price of Android handsets would presumably be lower given that the Android software itself would be free.

This is really the point of business model competition. Apple was being Apple: vertically integrated hardware and software. Did that with the Macintosh, did that with the iPhone. Microsoft was being Microsoft: it had dominated the OS market for the open IBM PC architecture and it hoped to do exactly that for mobile phones. There would be lots of handset makers, just as there were PC makers and Microsoft would make money off of phone OSs. Google was offering a different business model: lots of handset makers and advertising-supported software. The competition between Microsoft and Google was precisely over which way of paying for phone OS software would win.[20] [Emphasis added.]

As we will address in Section III, state interventions (either in the form of regulation or competition-law remedies) that do not respect firms’ autonomy to remain the primary designers of their platforms and business models risk eroding this form of competition.

Arguments that both Apple and Google maintain “monopolies” over their own operating systems often focus on the role played by brand loyalty. But as Dirk Auer noted in a critique of the European Commission’s Google Android decision,[21] the data that the Commission used to support its findings can be read differently:

Take the claim that 82% of Android users stick with Android when they change phones (compared to 78% for Apple), and that 75% of new smartphones are sold to existing users. The Commission asserted, without further evidence, that these numbers prove there is little competition between Android and iOS.

But is this really so? In almost all markets consumers likely exhibit at least some loyalty to their preferred brand. At what point does this become an obstacle to interbrand competition? The Commission offered no benchmark mark against which to assess its claims.

And although inter-industry comparisons of churn rates should be taken with a pinch of salt, it is worth noting that the Commission’s implied 18% churn rate for Android is nothing out of the ordinary, including for industries that could not remotely be called anticompetitive.

To make matters worse, the Commission’s own claimed figures suggest that a large share of sales remained contestable (roughly 39%). Imagine that, every year, 100 devices are sold in Europe (75 to existing users and 25 to new users, according to the Commission’s figures). Imagine further that the installed base of users is split 76–24 in favor of Android. Under the figures cited by the Commission, it follows that at least 39% of these sales are contestable.[22] [Emphasis added.]

The purpose of defining relevant markets and measuring product substitutability is to gauge the potential for competitive discipline. Substitutability does not require that every Android user, or even most users, see Apple as a viable alternative, or vice versa. Rather, effective competitive pressure exists so long as a non-negligible segment of consumers would switch products due to price increases or diminished quality. An 18% potential switching rate is not negligible.

At this point, it is important to consider that operating systems are “two-sided platforms” that connect consumers and developers of applications and that create an important part of the value obtained from devices. This “two-sidedness” entails that one cannot consider prices or other impacts on one side of the market in isolation.[23] Even if consumers are “locked-in,” if developers can find substitutes for the platform, it is harder to conclude that that platform has monopoly power. The U.S. District Court for the Northern District of California acknowledged this in its Epic v. Apple ruling, noting that the availability of alternative distribution channels for Epic’s games indicated that iOS may not constitute a distinct relevant market:

Thus, at this stage of the litigation, and with the record before the Court, Apple’s relevant market definition is also plausible. As Apple correctly points out, alternative means exist to distribute Fortnite. Indeed, Epic Games expressly advertised the multiplatform nature of its product following its breach of the Apple terms and service. (“[The] party continues on PlayStation 4, Xbox One, Nintendo Switch, PC, Mac, GeForce Now, and through both the Epic Games app at epicgames.com and the Samsung Galaxy Store.”).) The multiplatform nature of Fortnite suggests that these other platforms and their digital distributions may be economic substitutes that should be considered in any “relevant market” definition because they are “reasonably interchangeable” when used “for the same purposes.” (dismissing antitrust claim when alleged relevant market ignored multiple ways of reaching consumers). “If competitors can reach the ultimate consumers of the product by employing existing or potential alternative channels of distribution, it is unclear whether such restrictions foreclose from competition any part of the relevant market.” [24] [Citations omitted.]

Finally, it is important to consider that consumers buy smartphones, not operating systems. In that vein, Apple and Android face competition from smartphone manufacturers like Samsung, Xiaomi, Huawei, or Oppo. Indeed, it has been widely reported that Chinese smartphone producers like Huawei, who have been working on their own operating systems.[25] These manufacturers often push the boundaries of hardware design with features that consumers care about—e.g., better cameras or foldable phones.[26] These companies constitute at least potential competition that could discipline Apple and Google, should they begin to rest on their laurels and reduce their quality or try to exploit their market power.

In sum, while the debate over competition in mobile operating systems often assumes that Apple and Google either constitute separate “monopolies” in different relevant markets or a single stagnant duopoly, market reality indicates something else. Both companies not only compete intensively with one another, but also face significant pressure for smartphone manufacturers.

III. ‘Solutions’ in Search of a Problem

Even well-intentioned regulatory interventions can lead to unintended consequences that may harm consumers and the broader market. CADE should be vigilant in identifying and mitigating such risks. For example, regulations intended to boost competition by mandating interoperability or data-sharing requirements could inadvertently compromise user privacy and security. Similarly, policies designed to curb perceived anticompetitive behaviors might dampen platforms’ incentives to invest in new features and technologies.

Lessons from international jurisdictions, particularly the European Union’s Digital Markets Act (“DMA”), offer valuable insights into the potential pitfalls of overregulation. The DMA’s stringent requirements have led to significant compliance costs for companies and have sometimes resulted in reduced functionality and a worse user experience. For instance, mandated changes to platform operations to ensure “fairness” have, in some cases, led to decreased efficiency and increased complexity for both developers and users.[27]

To avoid such outcomes, CADE should intervene in markets only after clear evidence of harm to consumers, and with appropriate and proportional remedies. CADE already has the proper legal and institutional tools to do that within the current legal regime.

To be sure, as in any market, competition problems may arise in digital markets (i.e., there may be incentives to behave anticompetitively or to engage in conduct that could have an anticompetitive effect). But any potential anticompetitive conduct can and should be addressed via the application of antitrust law, such as Law No. 12,529/2011. As Giuseppe Colangelo and Oscar Borgogno have argued:

… recent and ongoing antitrust investigations demonstrate that standard competition law still provides a flexible framework to scrutinize several practices sometimes described as new and peculiar to app stores.

This is particularly true in Europe, where the antitrust framework grants significant leeway to antitrust enforcers relative to the U.S. scenario, as illustrated by the recent Google Shopping decision.[28]

Indeed, the European Commission has initiated traditional competition-law complaints against Google that have included imposed fines,[29] while the UK CMA has settled cases with Amazon with negotiated remedies.[30] In the United States, both the Federal Trade Commission (“FTC”) and the U.S. Justice Department (“DOJ”), along with several states, have initiated cases against Google,[31] Facebook,[32] and Amazon.[33]

We believe that CADE should be able to address any potential competition issues in much the same way. CADE has already initiated investigations and cases related to alleged refusals to deal, self-preferencing, and discrimination against platforms like Google, Apple, Meta, Uber, Booking.com, Decolar.com, and Expedia—precisely the sorts of firms that would presumably be covered by any new digital markets regulation. A 2019 OECD peer review of Brazilian competition law found that “(w)hile competition law regimes in many emerging economies may still struggle to achieve enforcement goals, the Brazilian regime has largely been considered a success,”[34] adding that:

CADE is well-regarded within the competition practitioner community both nationally and internationally, the business community, and within the Government administration due to its technical capabilities. It is considered one of the most efficient public agencies in Brazil and its international standing as a leading competition authority both regionally and globally reinforces this domestic view that it is a model public agency.[35]

That should lay to rest any doubts that CADE has the institutional tools and technical expertise to deal digital-markets cases properly.

Moreover, based on the EU experience, there is a significant risk of double jeopardy when the boundaries of traditional competition law and ex-ante digital regulation become fuzzy. As Giuseppe Colangelo has observed, the DMA is based explicitly on the notion that competition law alone is insufficient to effectively address the challenges and systemic problems posed by the digital-platform economy.[36]

Indeed, the scope of antitrust law is limited to certain instances of market power (e.g., dominance on specific markets) and anticompetitive behavior more generally. Further, its enforcement occurs ex post and requires extensive investigation on a case-by-case basis of what are often complex fact sets. Therefore, proponents of ex-ante digital markets-regulation argue, traditional competition law may not effectively address the challenges to well-functioning markets posed by the conduct of gatekeepers, who are not necessarily “dominant” in competition-law terms. Regulatory regimes like the DMA thus forward a set of ex-ante obligations for online platforms designated as gatekeepers in order to serve as a complement to traditional antitrust rules. This also allows enforcers to dispense with the laborious process of defining relevant markets, proving dominance, and measuring market effects.

But despite claims that the DMA is not an instrument of competition law, and should therefore not affect how antitrust rules apply in digital markets, such regulatory regimes do appear to blur the lines between regulation and antitrust by mixing their respective features and goals. Indeed, the DMA shares the same aims and protects the same legal interests as competition law.

Further, the DMA’s list of prohibitions is effectively a synopsis of past and ongoing antitrust cases, such as Google Shopping (Case T-612/17), Apple (AT.40437) and Amazon (Cases AT.40462 and AT.40703). Acknowledging the continuum between competition law and the DMA, the European Competition Network (“ECN”) and some EU member states (self-anointed “friends of an effective DMA”) initially proposed empowering national competition authorities (“NCAs”) to enforce DMA obligations directly.[37]

Similarly, the prohibitions and obligations often contemplated by digital markets regulations could, in theory, all be imposed by CADE. In fact, CADE has investigated—and is still investigating—several large companies that would likely fall within the purview of any digital markets regulation, including Google, Apple, Meta, Uber, Booking.com, Decolar.com, Expedia and iFood. CADE’s past and current investigations of these companies covered various conduct that is also targeted by the DMA, such as refusals to deal, self-preferencing, and discrimination.[38] Existing competition law under Act 12.529/11 therefore clearly already captures such conduct.

The difference between the two regimes is that, while general antitrust law requires a showing of harm and exempts conduct that benefits consumers, sector-specific regulation—in principle—would not. But such shortcuts have a cost. Certain types of behavior often targeted by ex-ante digital market regulations are nevertheless capable of—or even central to—delivering significant procompetitive benefits. It would be unjustified and harmful to subject such conduct to per se prohibitions, or to reverse the burden of proof. Instead, this type of conduct should be approached neutrally, and examined on a case-by-case basis.[39]

In the months since the publication of the Ministry of Finance’s report on competition in digital markets,[40] the discussion in Brazil has shifted focus from ex-ante regulation to a “more flexible approach,” similar to past reforms in Japan or Germany, as well as the UK’s more recent Digital Markets, Competition and Consumers Act (“DMCC”). This “more flexible approach” is, in theory, better than ex-ante regulation, given that it would presumably require evidence of specific harms to competition and consumers before any intervention. It could therefore entail more tailored and narrow remedies.

There is, however, also the strong possibility that competition agencies—or, depending on the details of the final regulation, potentially other less-experienced authorities—may be granted extensive discretion to impose broad behavioral and structural remedies. Such broad remedies could inadvertently foreclose various kinds of pro-competitive or pro-consumer behavior.

For example, following its own market inquiry into “online intermediation platforms,” the South African Competition Commission in 2023 recommended that e-commerce firms segregate their retail divisions from any marketplace operations—a structural remedy more reasonable for markets prone to natural monopolies (such as water or electricity distribution) than for the highly competitive e-commerce market.[41]

Similarly, a market investigation unit at Mexico’s Comisión Federal de Competencia Económica (COFECE) has recommended that Amazon and Mercado Libre unbundle their streaming services and make their platforms “interoperable” with third-party logistics providers. These remedies will tend to harm rather than benefit consumers, as they would ban vertical integration that generally results in lower prices and better distribution. Moreover, such remedies may soon prove obsolete in the face of rapidly changing market dynamics.[42]

The UK CMA’s recent investigation of the internet-search market also reinforces our concern about this kind of “quasi-regulatory” approach. The CMA’s preliminary proposal (based solely on Google’s strategic market status—i.e., no specific harms had been proven) contemplates broad remedies that are, in fact, quite similar to those prescribed by the DMA. These include prohibiting self-preferencing, preventing cross-silo data transfers, and restricting the way Google uses the information it accesses from public websites to develop artificial-intelligence (AI) services.[43]

This degree of regulatory discretion is not simply a minor bug, particularly in countries without an outstanding record of upholding the rule of law. Brazil currently ranks 80th of 142 countries worldwide on that score, and 17th out of 32 countries in Latin America and the Caribbean.[44]

The Ministry of Finance’s report outlines the contours of the abovementioned regulatory regimes. Alas, it proceeds directly to its proposals without assessing their potential impact. The absence of such analysis should give CADE pause. The goal of making antitrust law more expeditious and effective can be achieved by providing agencies and courts with needed resources, as well as by streamlining procedures to address cases before market dynamics shift and render potential remedies ineffective.

Moreover, there is merit in the complexity of abuse-of-dominance cases. Because agencies need to allocate resources efficiently and intervene only in cases where challenged conduct genuinely poses a risk to competition, the slow and steady complexity of proving competition-law complaints essentially serves as a filter. The cost-benefit analysis involved in determining whether a particular business practice is anticompetitive allows agencies to better distinguish harmful conduct from potentially beneficial practices. In the end, traditional competition law is, in fact, both more flexible and more precise than the proposed “more flexible” approach.

IV. Conclusion

CADE’s investigation into Apple’s and Google’s mobile ecosystems raises important questions about competition and innovation in the digital economy. As our comments explain, however, the assumption that these ecosystems function as two monopolies, or an entrenched duopoly with limited competition, is misguided. The mobile industry is characterized by dynamic competition, with continuous innovation, significant user choice, and considerable investment in platform development.

Rather than pursuing heavy-handed regulatory interventions that could distort incentives and hinder innovation, CADE should adopt an evidence-based and cautious approach. Apple and Google compete vigorously, not just with each other but also with a broader landscape of technology firms—including manufacturers, service providers, and developers operating across various segments of the mobile ecosystem. User churn rates and the contestability of key market segments indicate that competition remains robust.

Interventions that force interoperability, restrict pre-installed applications, or mandate alternative app stores carry significant risks. Lessons from similar regulatory actions (particularly the DMA) suggest that such measures often lead to unintended consequences, including degraded user experience, increased security risks, and reduced incentives for investment and innovation. In contrast, market-driven differentiation, where consumers can choose between Apple’s integrated approach and Google’s open ecosystem, provides a natural check on anticompetitive behavior, while maximizing consumer choice.

Given the rapid pace of technological change and the evolving nature of digital markets, a prescriptive regulatory approach could stifle innovation and reduce the competitive benefits that users currently enjoy. Instead, policymakers and competition agencies should focus on clear and proportionate policy measures that address demonstrable harms without undermining the fundamental drivers of competition. The objective should not be to reengineer these ecosystems, but to ensure that competition remains vibrant and that consumers continue to benefit from technological advancements and product differentiation.

In this context, it is advisable to approach these markets with a view toward fostering innovation, preserving incentives for investment, and avoiding unnecessary regulatory burdens that could harm consumers, developers, and the broader digital economy. A well-calibrated approach—grounded in empirical evidence and mindful of the risks of intervention—will ensure that Brazil’s digital markets remain competitive and dynamic in the years to come.

[1] Audiência Pública – Concorrência em Ecossistemas Digitais de Dispositivos Móveis (iOS e Android), Conselho Administrativo de Defesa Econômica (Feb. 3, 2024), https://sei.cade.gov.br/sei/controlador_externo.php?acao=documento_conferir&codigo_verificador=1509889&codigo_crc=17F0A23B&hash_download=9ab49f9625968c225f8ebf22e5f1174d1f799be4d0585a22367aaa98e84dd9a43355a45b4ee109c31df834cfba0f8ea7f7eeb4ce360a25d3128a1ae751be3b25&visualizacao=1&id_orgao_acesso_externo=0.

[2] Administrative Inquiries No. 08700.002940/2019-76 (“Google Android case”) and 8700.009916/2024-25 (“Google Play Store case”), and Administrative Proceeding No. 08700.009531/2022-04 (“Apple App Store” case).

[3] CADE, supra note 1.

[4] See Harold Demsetz, Information and Efficiency: Another Viewpoint, 12 J.L. Econ. 1, 22 (1969), (“The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing “imperfect” institutional arrangement. This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements.”).

[5] Brazilian Competition Law, Act 12.529/2011 considers the protection of free competition and consumers to be among its primary goals.

[6] For more detail on these operating principles, see Geoffrey A. Manne, Dirk Auer, Lazar Radic, & Mario A. Zúñiga, ICLE Comments on the CMA’s Draft Guidance for the UK’s Digital Markets Competition Regime, Int’l Ctr. L. Econ. (Jul. 12, 2024), https://laweconcenter.org/resources/icle-comments-on-the-cmas-draft-guidance-for-the-uks-digital-markets-competition-regime.

[7] Lazar Radic, Digital-Market Regulation: One Size Does Not Fit All, Truth Mark. (Apr. 17, 2023), https://truthonthemarket.com/2023/04/17/digital-market-regulation-one-size-does-not-fit-all.

[8] Invitation to Comment on Strategic Market Status Investigation into Apple and Google’s Mobile Ecosystem, Compet. Mark. Auth. (Jan. 23, 2025), at 11, https://connect.cma.gov.uk/invitation-to-comment-sms-investigations-into-apple-and-google-s-mobile-ecosystems.

[9] CADE Nota Técnica Nro. 63/2024/CGAA11/SGA1/SG/CADE (Dec. 12, 2024), https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_documento_consulta_externa.php?HJ7F4wnIPj2Y8B7Bj80h1lskjh7ohC8yMfhLoDBLddZGjmDYkx3_EXIVLLLrA_C3ojklC750gYvLk4Wjzp2CQAzNjE5yiDgT6lb0_1xdyihsVVs3J1xFcXVJMWUJOcf9.

[10] It is important to note that a duopoly (or other highly concentrated market structure) is not inherently anticompetitive. Economic models and empirical research suggest that duopolies can reach a highly competitive equilibrium. See Erwin A. Blackstone, Larry F. Darby, & Joseph P. Fuhr Jr., The Case of Duopoly, 34 Regulation 3 (Winter 2011-2012), at 12, available at https://www.cato.org/sites/cato.org/files/serials/files/regulation/2012/6/v34n4-3.pdf. Frequently cited examples of competitive duopolies include Coca-Cola and Pepsi, or Airbus and Boeing.

[11] Andrew Lanxon, Android vs. iPhone: 15 Years of Innovation Through Rivalry, CNET (Apr. 24, 2024),  https://www.cnet.com/tech/mobile/smartphone-showdown-15-years-of-android-vs-iphone;

[12] See, e.g., Michael Muchmore & Gabriel Zamora, Android vs. iOS: Which Phone OS Really Is the Best?, PCMag (Nov. 13, 2024), https://www.pcmag.com/comparisons/android-vs-ios-which-mobile-os-is-best; Prakhar Khanna, iPhone Vs. Android – Which One Should You Get?, Forbes (Feb. 16, 2024), https://www.forbes.com/sites/technology/article/iphone-vs-android; Bartosz Szczygie?, iPhone vs Android Users: Key Differences in 2024, NetGuru (Jan. 8, 2025),  https://www.netguru.com/blog/iphone-vs-android-users-differences.

[13] Move from Android to iPhone or iPad, Apple, https://support.apple.com/en-au/118670 (last visited Feb. 7, 2025); Switch Is Easier than Ever, Android, https://www.android.com/switch-to-android (last visited Feb. 7, 2025).

[14] See, e.g., Rhiannon Williams, Why Competition Between Apple and Google Is More Brutal than Ever, The Telegraph (Sep. 29, 2014), https://www.telegraph.co.uk/technology/google/11127694/Why-competition-betweenApple-and-Google-is-more-brutal-than-ever.html; Bianca DiSanto, Google vs. Apple: Why Their Competition Is Good for You, The Hoya (Oct. 21, 2016), https://thehoya.com/google-vs-apple-why-their-competition-is-good-for-you; Can Google or Huawei Stymie Apple’s March Towards $4trn?, The Economist (Oct. 24, 2024), https://www.economist.com/business/2024/10/24/can-google-or-huawei-stymie-apples-march-towards-4trn.

[15] Nicolas Petit, Big Tech & the Digital Economy. The Moligopoly Scenario (2020).

[16] David S. Evans, Why the Dynamics of Competition for Online Platforms Leads to Sleepless Nights But Not Sleepy Monopolies, SSRN (Jul. 25, 2017), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3009438.

[17] Marshall W. Van Alstyne et al., Pipelines, Platforms, and the New Rules of Strategy, Harv. Bus. Rev. (Apr. 2016), at 1-9.

[18] Apple Inc., Annual Report (Form 10-K), at 1 (Sep. 29, 2018).

[19] Alphabet Inc., Annual Report (Form 10-K), at 5 (Dec. 31, 2017).

[20] Randal Picker, The European Commission Picks a Fight with Google Android over Business Models, ProMarket (Jul. 23, 2018), https://www.promarket.org/2018/07/23/european-commission-picks-fight-google-android-business-models.

[21] Dirk Auer, Making Sense of the Google Android Decision, Int’l Ctr. L. Econ. (Feb. 25, 2020), available at https://laweconcenter.org/wp-content/uploads/2020/02/Auer-Making-Sense-of-the-Google-Android-Decision-White-Paper.pdf.

[22] Id., at 20-21.

[23] David S. Evans & Michael Noel, Defining Antitrust Markets When Firms Operate Two-Sided Platforms, 3 Colum. Bus. L. Rev., 667 (2005).

[24] Epic Games v. Apple Inc., 493 F. Supp. 3d 817 (N.D. Cal. 2020).

[25] “Huawei Technologies Co.’s ambition in consumer devices over the past year has been to decouple from Alphabet Inc.’s Android software entirely, culminating with the December 2024 launch of its made-in-China HarmonyOS Next as part of the Mate 70 smartphone. It is the most substantial attempt at building a third mobile ecosystem outside of Apple Inc.’s iPhone empire and the Google-led Android confederation. It also builds on the company’s considerable reach, resources, and nearly a billion existing users in China. See, e.g., Huawei’s Google-Free Phones Are Making Real Progress, Bloomberg (Jan. 28, 2025), https://www.bloomberg.com/news/features/2025-01-28/huawei-harmonyos-next-review-new-phone-seeks-to-break-apple-google-dominance.

[26] Siladitya Ray, Apple Is No Longer The World’s Biggest Smartphone Maker By Volume—As Samsung Ships More Handsets In Q1, Forbes (Apr. 15, 2024), https://www.forbes.com/sites/siladityaray/2024/04/15/apple-is-no-longer-the-worlds-biggest-smartphone-maker-by-volume-as-samsung-ships-more-handsets-in-q1; William Langley & Gloria Li, China’s Smartphone Makers Head Upmarket in European Push, Financ. Times (Nov. 17, 2024), https://www.ft.com/content/a982abf2-9564-4a8c-b8df-9e614ecd2151.

[27] See Lazar Radic & Mario Zúñiga, ICLE Comments to the Brazilian Ministry of Finance on Competition in Digital Markets, Int’l Ctr. L. Econ. (May 2, 2024), https://laweconcenter.org/resources/icle-comments-to-the-brazilian-ministry-of-finance-on-competition-in-digital-markets.

[28] Giuseppe Colangelo & Oscar Borgogno, App Stores as Public Utilities?, Truth Mark. (Jan. 19, 2022), https://truthonthemarket.com/2022/01/19/app-stores-as-public-utilities.

[29] See, e.g., Antitrust Cases Against Google by the European Union, Wikipedia, https://en.wikipedia.org/wiki/Antitrust_cases_against_Google_by_the_European_Union (last visited Feb. 11, 2025).

[30] Amazon Online Retailer: Investigation into Anti-Competitive Practices, Compet. Mark. Auth. (Oct. 1, 2013), https://www.gov.uk/cma-cases/amazon-online-retailer-investigation-into-anti-competitive-practices.

[31] Press Release, Justice Department Sues Google for Monopolizing Digital Advertising Technologies, U.S. Dep’t Justice (Jan. 24, 2023), https://www.justice.gov/opa/pr/justice-department-sues-google-monopolizing-digital-advertising-technologies.

[32] See Amended Complaint, FTC v. Facebook, Inc., Case No.: 1:20-cv-03590-JEB (D.D.C. Sep. 8, 2021), https://www.ftc.gov/legal-library/browse/cases-proceedings/191-0134-facebook-inc-ftc-v.

[33] Press Release, FTC Sues Amazon for Illegally Maintaining Monopoly Power, Fed. Trade Comm. (Sep. 26, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-sues-amazon-illegally-maintaining-monopoly-power.

[34] OECD Peer Reviews of Competition Law and Policy: Brazil (2019), at 18, www.oecd.org/daf/competition/oecd-peer-reviews-of-competition-law-and-policy-brazil-2019.htm.

[35] Id. at 24.

[36] Giuseppe Colangelo, The Digital Markets Act and EU Antitrust Enforcement: Double & Triple Jeopardy, Int’l Ctr. L. Econ. (Mar. 23, 2022), https://laweconcenter.org/resources/the-digital-markets-act-and-eu-antitrust-enforcement-double-triple-jeopardy.

[37] How National Competition Agencies Can Strengthen the DMA, Eur. Compet. Netw. (Jun. 22, 2021), available at https://ec.europa.eu/competition/ecn/DMA_joint_EU_NCAs_paper_21.06.2021.pdf.

[38] For a detailed overview of CADE’s decisions in digital platforms and payments services, see Mercados de Plataformas Digitais, Cadernos de Cade (Aug. 2023), available at https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/Caderno_Plataformas-Digitais_Atualizado_29.08.pdf.

[39] See Geoffrey A. Manne, Against the Vertical Discrimination Presumption, Concurrences (May 2020), https://www.concurrences.com/en/review/numeros/no-2-2020/editorial/foreword; see also Dirk Auer, Matthew Lesh, & Lazar Radic, Digital Overload: How the Digital Markets, Competition and Consumers Bill’s Sweeping New Powers Threaten Britain’s Economy, 4 IEA Perspectives 16-21 (2023), available at https://iea.org.uk/wp-content/uploads/2023/09/Perspectives_4_Digital-overload_web.pdf.

[40] Ministério da Fazenda Apresenta Propostas para Aprimorar a Defesa da Concorrência No Ambiente de Plataformas Digitais, Ministério da Fazenda (Oct. 10, 2024), https://www.gov.br/fazenda/pt-br/assuntos/noticias/2024/outubro/ministerio-da-fazenda-apresenta-propostas-para-aprimorar-a-defesa-da-concorrencia-no-ambiente-de-plataformas-digitais.

[41] Online Intermediation Platforms Market Inquiry. Summary of Final Report and Remedial Actions, S. Afr. Compet. Comm. (Jul. 2023), available at https://www.compcom.co.za/wp-content/uploads/2023/07/CC_OIPMI-Summary-of-Findings-and-Remedial-action.pdf.

[42] See Geoffrey A. Manne & Mario A. Zúñiga, ICLE Comments on the COFECE Report on Marketplace Competition in Mexico, Int’l Ctr. L. Econ. (Apr. 23, 2024), https://laweconcenter.org/resources/icle-comments-on-the-cofece-report-on-marketplace-competition-in-mexico.

[43] Strategic Market Status Investigation into Google’s General Search and Search Advertising Services. Invitation to Comment, (Jan. 14, 2025), available at https://assets.publishing.service.gov.uk/media/678524823ef063b15dca0f04/Invitation_to_Comment.pdf; see also Geoffrey A. Manne, Brian Albrecht, Dirk Auer, Lazar Radic, & Mario A. Zúñiga, ICLE Comments to CMA’s SMS Investigation into Google’s General Search and Search-Advertising Services, Int’l Ctr. L. Econ. (Feb. 3, 2025), https://laweconcenter.org/resources/icle-comments-to-cmas-sms-investigation-into-googles-general-search-and-search-advertising-services.

[44] WJP Rule of Law Index. Brazil 2024 Overall Index Score, World Justice Proj., https://worldjusticeproject.org/rule-of-law-index/country/2024/Brazil (last visited Feb. 10, 2025).

I. Introduction

We are thankful for this opportunity to submit written comments to the Conselho Administrativo de Defesa Econômica’s (“CADE”) public hearing on “Competition in Digital Ecosystems of Mobile Devices (iOS and Android).”[1] The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan global research center founded with the goal of building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies to inform public-policy debates and has longstanding expertise in the evaluation of competition law and policy. ICLE’s interest is to ensure that competition law remains grounded in clear rules, established precedent, a record of evidence, and sound economic analysis.

According to the hearing’s notice, CADE is conducting at least three investigations of “digital ecosystems”[2] in the wake of a “growing number of reports of violations of [Brazil’s] economic order related to digital ecosystems for mobile devices” that, together, warrant “allowing, through a hearing, society, economic agents, experts, academics, civil society organizations and other interested parties to present comments that they consider relevant for the ongoing informed decision-making by this competition authority.”[3]

Against this backdrop, our comments respectfully suggest careful consideration before enacting either sectoral regulation of digital “ecosystems”; specific reforms to competition law in Brazil that aim to deal with these ecosystems; or broad remedies that could affect the quality or affordability of such ecosystems.

We posit that competition among mobile-device operating systems is generally dynamic, competitive, and beneficial to consumers. The mobile ecosystem—where Apple’s iOS and Google’s Android are the dominant players—has experienced intense competition that has spurred innovation and benefited consumers. Contrary to claims of duopoly-induced stagnation, both platforms have continuously introduced groundbreaking features and improvements to their services.

Operating systems allow consumers to access digital services, which in turn help them to increase their productivity and enjoy relatively cheap access to information. While there are always potential competition issues and anticompetitive behavior in any market, the experience to-date in the operating-system market suggests that such issues are neither pervasive nor sufficiently unique to justify strict sui generis preemptive rules. Instead, existing antitrust law (Act No. 12,529/2011) is sufficient to address potential anticompetitive practices in digital markets. Furthermore, as demonstrated by recent cases and investigations, CADE has the necessary expertise and resources to manage these cases.

Of course, challenges do arise in applying antitrust laws to digital markets and to operating systems. For example, amid the fast-changing digital landscape, it can be difficult to define relevant markets and dominant positions in multisided-platform cases. The contours of the relevant market are not always clear, and the boundaries between the digital and nondigital world are sometimes overstated. Those challenges can, however, be properly addressed through the existing legal framework and with appropriate institutional reforms, such as equipping CADE with more resources to incorporate advanced, state-of-the-art technical expertise.

In devising alternate solutions to potential competition problems, it is important not to fall for the so-called “nirvana fallacy”—that is, comparing imperfect antitrust-enforcement systems against ideal regulations, as if they would be implemented in the real world perfectly and according to their purported goals.[4] All legal-enforcement systems are imperfect; that some imperfections can be identified is not sufficient to justify changes to the system.

In any case, any state intervention—whether it be regulation, antitrust enforcement, or the in-between “quasi-regulatory” approach—should operate under limiting principles, such as prioritizing consumer welfare,[5] and assessing the consumer impact of such interventions using clear metrics like price, output, and innovation. Interventions should also respect platform autonomy, ensuring that firms remain the primary designers of their own business models. Interventions should not stifle innovation, but rather encourage it across the digital ecosystem.[6] Blanket or per-se prohibitions on business practices like so-called “self-preferencing,” or mandated “interoperability” and/or access to platforms, will be likely to harm consumers, as these practices benefit consumers most of the time.[7]

II. Competition in Operating Systems

When competition authorities identify competition problems in the market for mobile-device operating systems, they typically assume that the entities that control these systems possess significant market power. This market power (“dominance” or “monopoly power”), they argue, enables these companies to exploit consumers or business users, leading to anticompetitive harms. For example, the UK’s Competition and Markets Authority (“CMA”) highlighted this concern in its request for comments on digital ecosystems:

Apple and Google hold an effective duopoly in mobile ecosystems. Their control over these increasingly crucial ecosystems means both firms hold powerful positions and can unilaterally determine the ‘rules of the game’, making it difficult for rival businesses such as browsers or alternative app stores to compete.[8]

Similarly, in the case initiated against Apple by Mercado Livre Brasil, CADE ruled in a preliminary-injunction decision that the relevant market is:

…composed solely and exclusively of the iOS operating system, a non-licensable operating system for mobile devices that presents itself as the central market for the entire iOS ecosystem. Accordingly, this SG defines the market of origin of the conduct as the market for the non-licensable mobile operating system iOS.[9]

Given that market definition, the only possible conclusion is that Apple has a monopoly over its own operating system. The problem with such conclusion, however, is that Apple (iOS) clearly competes with Google (Android) in the operating-system market for mobile devices. Even if these firms hold a duopoly in this market,[10] it is undeniable that the rivalry between them has been beneficial to consumers in terms of both quality and innovation. Since the first iPhone was introduced in 2007, each iteration of both companies’ operating systems has included features that could be found in previous versions of the other:

Features like picture-in-picture, live voicemail, lock screen customization and live translation were all found on the Android operating system before eventually making their way to iOS. And though the use of widgets to customize your home screen was long held as a differentiator for Android, that feature too eventually found its way to iOS.

On the other hand, Android’s Nearby Share feature is remarkably similar to Apple’s AirDrop, and Android phones didn’t get features like “do not disturb” or the ability to take screenshots until some time after the iPhone had them.

Apple removed the 3.5mm headphone jack from the iPhone in September 2016, and I distinctly remember that at Google’s launch event for the Pixel the following month, chuckles went round the room when the exec on stage proclaimed, “Yes, it has a headphone jack.” Google itself went on to also ditch the headphone jack, with the Pixel 2.

(…)

Rumors that Apple would remove the physical home button on the iPhone X were circling long before the phone was officially unveiled in September 2017. Are they the same rumors Samsung responded to when it “beat Apple to the punch” and removed the home button from its Galaxy S8 earlier that same year? Or did both sides simply arrive at such a big design decision independently?[11]

Consumers can readily find myriad comparisons of Android and iPhone devices online.[12] Moreover, both Apple and Google maintain webpages that offer to help users switch from one platform to the other (see Figure 1).[13] The business press has extensively covered the fierce rivalry between the two companies.[14] And numerous academic studies have reached similar conclusions about the nature of their competition. Nicolas Petit refers to Apple and Google as “moligopolists,”[15] while David Evans has described their rivalry as “dynamic competition.”[16] Marshall Van Alstyne and his coauthors have analyzed the strategies that both Google and Apple have deployed to outcompete one another.[17]

FIGURE 1: Apple’s ‘Move from Android to iPhone’ Tutorial

SOURCE: Apple

Finally, both Apple and Google regularly file reports with securities regulators that cite the other firm as an important competitor (if not by name). For example, Apple has noted in its 10-K filing that:

The Company believes the availability of third-party software applications and services for its products depends in part on the developers’ perception and analysis of the relative benefits of developing, maintaining and upgrading such software and services for the Company’s products compared to competitors’ platforms, such as Android for smartphones and tablets and Windows for personal computers.[18]

While Google has noted in its 10-K:

We face competition from: Companies that design, manufacture, and market consumer electronics products, including businesses that have developed proprietary platforms.[19]

The competitive landscape in which iOS and Android both seek to gain and retain market share has been marked by continuous advancements across multiple dimensions, including user-interface design, hardware integration, app-ecosystem quality, and security features. Apple’s iOS is known for its seamless integration with hardware, delivering a tightly controlled and optimized user experience. Conversely, Google’s Android offers a more open ecosystem, allowing for greater customization and a wider variety of device choices from multiple manufacturers. The fact that the companies have taken these differing approaches do not mean that Apple and Google are not direct competitors. Rather, these different business models decisions are themselves a function of competition. As Randal Picker has explained in the context of the case initiated by the European Commission against Google Android:

Google undoubtedly wanted to support Android through its advertising business as that was its great competitive advantage. Embedding Google Search in Android is the natural way to do that. It meant that Android would come with a third-party payment mechanism built in and it meant that the price of Android handsets would presumably be lower given that the Android software itself would be free.

This is really the point of business model competition. Apple was being Apple: vertically integrated hardware and software. Did that with the Macintosh, did that with the iPhone. Microsoft was being Microsoft: it had dominated the OS market for the open IBM PC architecture and it hoped to do exactly that for mobile phones. There would be lots of handset makers, just as there were PC makers and Microsoft would make money off of phone OSs. Google was offering a different business model: lots of handset makers and advertising-supported software. The competition between Microsoft and Google was precisely over which way of paying for phone OS software would win.[20] [Emphasis added.]

As we will address in Section III, state interventions (either in the form of regulation or competition-law remedies) that do not respect firms’ autonomy to remain the primary designers of their platforms and business models risk eroding this form of competition.

Arguments that both Apple and Google maintain “monopolies” over their own operating systems often focus on the role played by brand loyalty. But as Dirk Auer noted in a critique of the European Commission’s Google Android decision,[21] the data that the Commission used to support its findings can be read differently:

Take the claim that 82% of Android users stick with Android when they change phones (compared to 78% for Apple), and that 75% of new smartphones are sold to existing users. The Commission asserted, without further evidence, that these numbers prove there is little competition between Android and iOS.

But is this really so? In almost all markets consumers likely exhibit at least some loyalty to their preferred brand. At what point does this become an obstacle to interbrand competition? The Commission offered no benchmark mark against which to assess its claims.

And although inter-industry comparisons of churn rates should be taken with a pinch of salt, it is worth noting that the Commission’s implied 18% churn rate for Android is nothing out of the ordinary, including for industries that could not remotely be called anticompetitive.

To make matters worse, the Commission’s own claimed figures suggest that a large share of sales remained contestable (roughly 39%). Imagine that, every year, 100 devices are sold in Europe (75 to existing users and 25 to new users, according to the Commission’s figures). Imagine further that the installed base of users is split 76–24 in favor of Android. Under the figures cited by the Commission, it follows that at least 39% of these sales are contestable.[22] [Emphasis added.]

The purpose of defining relevant markets and measuring product substitutability is to gauge the potential for competitive discipline. Substitutability does not require that every Android user, or even most users, see Apple as a viable alternative, or vice versa. Rather, effective competitive pressure exists so long as a non-negligible segment of consumers would switch products due to price increases or diminished quality. An 18% potential switching rate is not negligible.

At this point, it is important to consider that operating systems are “two-sided platforms” that connect consumers and developers of applications and that create an important part of the value obtained from devices. This “two-sidedness” entails that one cannot consider prices or other impacts on one side of the market in isolation.[23] Even if consumers are “locked-in,” if developers can find substitutes for the platform, it is harder to conclude that that platform has monopoly power. The U.S. District Court for the Northern District of California acknowledged this in its Epic v. Apple ruling, noting that the availability of alternative distribution channels for Epic’s games indicated that iOS may not constitute a distinct relevant market:

Thus, at this stage of the litigation, and with the record before the Court, Apple’s relevant market definition is also plausible. As Apple correctly points out, alternative means exist to distribute Fortnite. Indeed, Epic Games expressly advertised the multiplatform nature of its product following its breach of the Apple terms and service. (“[The] party continues on PlayStation 4, Xbox One, Nintendo Switch, PC, Mac, GeForce Now, and through both the Epic Games app at epicgames.com and the Samsung Galaxy Store.”).) The multiplatform nature of Fortnite suggests that these other platforms and their digital distributions may be economic substitutes that should be considered in any “relevant market” definition because they are “reasonably interchangeable” when used “for the same purposes.” (dismissing antitrust claim when alleged relevant market ignored multiple ways of reaching consumers). “If competitors can reach the ultimate consumers of the product by employing existing or potential alternative channels of distribution, it is unclear whether such restrictions foreclose from competition any part of the relevant market.” [24] [Citations omitted.]

Finally, it is important to consider that consumers buy smartphones, not operating systems. In that vein, Apple and Android face competition from smartphone manufacturers like Samsung, Xiaomi, Huawei, or Oppo. Indeed, it has been widely reported that Chinese smartphone producers like Huawei, who have been working on their own operating systems.[25] These manufacturers often push the boundaries of hardware design with features that consumers care about—e.g., better cameras or foldable phones.[26] These companies constitute at least potential competition that could discipline Apple and Google, should they begin to rest on their laurels and reduce their quality or try to exploit their market power.

In sum, while the debate over competition in mobile operating systems often assumes that Apple and Google either constitute separate “monopolies” in different relevant markets or a single stagnant duopoly, market reality indicates something else. Both companies not only compete intensively with one another, but also face significant pressure for smartphone manufacturers.

III. ‘Solutions’ in Search of a Problem

Even well-intentioned regulatory interventions can lead to unintended consequences that may harm consumers and the broader market. CADE should be vigilant in identifying and mitigating such risks. For example, regulations intended to boost competition by mandating interoperability or data-sharing requirements could inadvertently compromise user privacy and security. Similarly, policies designed to curb perceived anticompetitive behaviors might dampen platforms’ incentives to invest in new features and technologies.

Lessons from international jurisdictions, particularly the European Union’s Digital Markets Act (“DMA”), offer valuable insights into the potential pitfalls of overregulation. The DMA’s stringent requirements have led to significant compliance costs for companies and have sometimes resulted in reduced functionality and a worse user experience. For instance, mandated changes to platform operations to ensure “fairness” have, in some cases, led to decreased efficiency and increased complexity for both developers and users.[27]

To avoid such outcomes, CADE should intervene in markets only after clear evidence of harm to consumers, and with appropriate and proportional remedies. CADE already has the proper legal and institutional tools to do that within the current legal regime.

To be sure, as in any market, competition problems may arise in digital markets (i.e., there may be incentives to behave anticompetitively or to engage in conduct that could have an anticompetitive effect). But any potential anticompetitive conduct can and should be addressed via the application of antitrust law, such as Law No. 12,529/2011. As Giuseppe Colangelo and Oscar Borgogno have argued:

… recent and ongoing antitrust investigations demonstrate that standard competition law still provides a flexible framework to scrutinize several practices sometimes described as new and peculiar to app stores.

This is particularly true in Europe, where the antitrust framework grants significant leeway to antitrust enforcers relative to the U.S. scenario, as illustrated by the recent Google Shopping decision.[28]

Indeed, the European Commission has initiated traditional competition-law complaints against Google that have included imposed fines,[29] while the UK CMA has settled cases with Amazon with negotiated remedies.[30] In the United States, both the Federal Trade Commission (“FTC”) and the U.S. Justice Department (“DOJ”), along with several states, have initiated cases against Google,[31] Facebook,[32] and Amazon.[33]

We believe that CADE should be able to address any potential competition issues in much the same way. CADE has already initiated investigations and cases related to alleged refusals to deal, self-preferencing, and discrimination against platforms like Google, Apple, Meta, Uber, Booking.com, Decolar.com, and Expedia—precisely the sorts of firms that would presumably be covered by any new digital markets regulation. A 2019 OECD peer review of Brazilian competition law found that “(w)hile competition law regimes in many emerging economies may still struggle to achieve enforcement goals, the Brazilian regime has largely been considered a success,”[34] adding that:

CADE is well-regarded within the competition practitioner community both nationally and internationally, the business community, and within the Government administration due to its technical capabilities. It is considered one of the most efficient public agencies in Brazil and its international standing as a leading competition authority both regionally and globally reinforces this domestic view that it is a model public agency.[35]

That should lay to rest any doubts that CADE has the institutional tools and technical expertise to deal digital-markets cases properly.

Moreover, based on the EU experience, there is a significant risk of double jeopardy when the boundaries of traditional competition law and ex-ante digital regulation become fuzzy. As Giuseppe Colangelo has observed, the DMA is based explicitly on the notion that competition law alone is insufficient to effectively address the challenges and systemic problems posed by the digital-platform economy.[36]

Indeed, the scope of antitrust law is limited to certain instances of market power (e.g., dominance on specific markets) and anticompetitive behavior more generally. Further, its enforcement occurs ex post and requires extensive investigation on a case-by-case basis of what are often complex fact sets. Therefore, proponents of ex-ante digital markets-regulation argue, traditional competition law may not effectively address the challenges to well-functioning markets posed by the conduct of gatekeepers, who are not necessarily “dominant” in competition-law terms. Regulatory regimes like the DMA thus forward a set of ex-ante obligations for online platforms designated as gatekeepers in order to serve as a complement to traditional antitrust rules. This also allows enforcers to dispense with the laborious process of defining relevant markets, proving dominance, and measuring market effects.

But despite claims that the DMA is not an instrument of competition law, and should therefore not affect how antitrust rules apply in digital markets, such regulatory regimes do appear to blur the lines between regulation and antitrust by mixing their respective features and goals. Indeed, the DMA shares the same aims and protects the same legal interests as competition law.

Further, the DMA’s list of prohibitions is effectively a synopsis of past and ongoing antitrust cases, such as Google Shopping (Case T-612/17), Apple (AT.40437) and Amazon (Cases AT.40462 and AT.40703). Acknowledging the continuum between competition law and the DMA, the European Competition Network (“ECN”) and some EU member states (self-anointed “friends of an effective DMA”) initially proposed empowering national competition authorities (“NCAs”) to enforce DMA obligations directly.[37]

Similarly, the prohibitions and obligations often contemplated by digital markets regulations could, in theory, all be imposed by CADE. In fact, CADE has investigated—and is still investigating—several large companies that would likely fall within the purview of any digital markets regulation, including Google, Apple, Meta, Uber, Booking.com, Decolar.com, Expedia and iFood. CADE’s past and current investigations of these companies covered various conduct that is also targeted by the DMA, such as refusals to deal, self-preferencing, and discrimination.[38] Existing competition law under Act 12.529/11 therefore clearly already captures such conduct.

The difference between the two regimes is that, while general antitrust law requires a showing of harm and exempts conduct that benefits consumers, sector-specific regulation—in principle—would not. But such shortcuts have a cost. Certain types of behavior often targeted by ex-ante digital market regulations are nevertheless capable of—or even central to—delivering significant procompetitive benefits. It would be unjustified and harmful to subject such conduct to per se prohibitions, or to reverse the burden of proof. Instead, this type of conduct should be approached neutrally, and examined on a case-by-case basis.[39]

In the months since the publication of the Ministry of Finance’s report on competition in digital markets,[40] the discussion in Brazil has shifted focus from ex-ante regulation to a “more flexible approach,” similar to past reforms in Japan or Germany, as well as the UK’s more recent Digital Markets, Competition and Consumers Act (“DMCC”). This “more flexible approach” is, in theory, better than ex-ante regulation, given that it would presumably require evidence of specific harms to competition and consumers before any intervention. It could therefore entail more tailored and narrow remedies.

There is, however, also the strong possibility that competition agencies—or, depending on the details of the final regulation, potentially other less-experienced authorities—may be granted extensive discretion to impose broad behavioral and structural remedies. Such broad remedies could inadvertently foreclose various kinds of pro-competitive or pro-consumer behavior.

For example, following its own market inquiry into “online intermediation platforms,” the South African Competition Commission in 2023 recommended that e-commerce firms segregate their retail divisions from any marketplace operations—a structural remedy more reasonable for markets prone to natural monopolies (such as water or electricity distribution) than for the highly competitive e-commerce market.[41]

Similarly, a market investigation unit at Mexico’s Comisión Federal de Competencia Económica (COFECE) has recommended that Amazon and Mercado Libre unbundle their streaming services and make their platforms “interoperable” with third-party logistics providers. These remedies will tend to harm rather than benefit consumers, as they would ban vertical integration that generally results in lower prices and better distribution. Moreover, such remedies may soon prove obsolete in the face of rapidly changing market dynamics.[42]

The UK CMA’s recent investigation of the internet-search market also reinforces our concern about this kind of “quasi-regulatory” approach. The CMA’s preliminary proposal (based solely on Google’s strategic market status—i.e., no specific harms had been proven) contemplates broad remedies that are, in fact, quite similar to those prescribed by the DMA. These include prohibiting self-preferencing, preventing cross-silo data transfers, and restricting the way Google uses the information it accesses from public websites to develop artificial-intelligence (AI) services.[43]

This degree of regulatory discretion is not simply a minor bug, particularly in countries without an outstanding record of upholding the rule of law. Brazil currently ranks 80th of 142 countries worldwide on that score, and 17th out of 32 countries in Latin America and the Caribbean.[44]

The Ministry of Finance’s report outlines the contours of the abovementioned regulatory regimes. Alas, it proceeds directly to its proposals without assessing their potential impact. The absence of such analysis should give CADE pause. The goal of making antitrust law more expeditious and effective can be achieved by providing agencies and courts with needed resources, as well as by streamlining procedures to address cases before market dynamics shift and render potential remedies ineffective.

Moreover, there is merit in the complexity of abuse-of-dominance cases. Because agencies need to allocate resources efficiently and intervene only in cases where challenged conduct genuinely poses a risk to competition, the slow and steady complexity of proving competition-law complaints essentially serves as a filter. The cost-benefit analysis involved in determining whether a particular business practice is anticompetitive allows agencies to better distinguish harmful conduct from potentially beneficial practices. In the end, traditional competition law is, in fact, both more flexible and more precise than the proposed “more flexible” approach.

IV. Conclusion

CADE’s investigation into Apple’s and Google’s mobile ecosystems raises important questions about competition and innovation in the digital economy. As our comments explain, however, the assumption that these ecosystems function as two monopolies, or an entrenched duopoly with limited competition, is misguided. The mobile industry is characterized by dynamic competition, with continuous innovation, significant user choice, and considerable investment in platform development.

Rather than pursuing heavy-handed regulatory interventions that could distort incentives and hinder innovation, CADE should adopt an evidence-based and cautious approach. Apple and Google compete vigorously, not just with each other but also with a broader landscape of technology firms—including manufacturers, service providers, and developers operating across various segments of the mobile ecosystem. User churn rates and the contestability of key market segments indicate that competition remains robust.

Interventions that force interoperability, restrict pre-installed applications, or mandate alternative app stores carry significant risks. Lessons from similar regulatory actions (particularly the DMA) suggest that such measures often lead to unintended consequences, including degraded user experience, increased security risks, and reduced incentives for investment and innovation. In contrast, market-driven differentiation, where consumers can choose between Apple’s integrated approach and Google’s open ecosystem, provides a natural check on anticompetitive behavior, while maximizing consumer choice.

Given the rapid pace of technological change and the evolving nature of digital markets, a prescriptive regulatory approach could stifle innovation and reduce the competitive benefits that users currently enjoy. Instead, policymakers and competition agencies should focus on clear and proportionate policy measures that address demonstrable harms without undermining the fundamental drivers of competition. The objective should not be to reengineer these ecosystems, but to ensure that competition remains vibrant and that consumers continue to benefit from technological advancements and product differentiation.

In this context, it is advisable to approach these markets with a view toward fostering innovation, preserving incentives for investment, and avoiding unnecessary regulatory burdens that could harm consumers, developers, and the broader digital economy. A well-calibrated approach—grounded in empirical evidence and mindful of the risks of intervention—will ensure that Brazil’s digital markets remain competitive and dynamic in the years to come.

[1] Audiência Pública – Concorrência em Ecossistemas Digitais de Dispositivos Móveis (iOS e Android), Conselho Administrativo de Defesa Econômica (Feb. 3, 2024), https://sei.cade.gov.br/sei/controlador_externo.php?acao=documento_conferir&codigo_verificador=1509889&codigo_crc=17F0A23B&hash_download=9ab49f9625968c225f8ebf22e5f1174d1f799be4d0585a22367aaa98e84dd9a43355a45b4ee109c31df834cfba0f8ea7f7eeb4ce360a25d3128a1ae751be3b25&visualizacao=1&id_orgao_acesso_externo=0.

[2] Administrative Inquiries No. 08700.002940/2019-76 (“Google Android case”) and 8700.009916/2024-25 (“Google Play Store case”), and Administrative Proceeding No. 08700.009531/2022-04 (“Apple App Store” case).

[3] CADE, supra note 1.

[4] See Harold Demsetz, Information and Efficiency: Another Viewpoint, 12 J.L. Econ. 1, 22 (1969), (“The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing “imperfect” institutional arrangement. This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements.”).

[5] Brazilian Competition Law, Act 12.529/2011 considers the protection of free competition and consumers to be among its primary goals.

[6] For more detail on these operating principles, see Geoffrey A. Manne, Dirk Auer, Lazar Radic, & Mario A. Zúñiga, ICLE Comments on the CMA’s Draft Guidance for the UK’s Digital Markets Competition Regime, Int’l Ctr. L. Econ. (Jul. 12, 2024), https://laweconcenter.org/resources/icle-comments-on-the-cmas-draft-guidance-for-the-uks-digital-markets-competition-regime.

[7] Lazar Radic, Digital-Market Regulation: One Size Does Not Fit All, Truth Mark. (Apr. 17, 2023), https://truthonthemarket.com/2023/04/17/digital-market-regulation-one-size-does-not-fit-all.

[8] Invitation to Comment on Strategic Market Status Investigation into Apple and Google’s Mobile Ecosystem, Compet. Mark. Auth. (Jan. 23, 2025), at 11, https://connect.cma.gov.uk/invitation-to-comment-sms-investigations-into-apple-and-google-s-mobile-ecosystems.

[9] CADE Nota Técnica Nro. 63/2024/CGAA11/SGA1/SG/CADE (Dec. 12, 2024), https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_documento_consulta_externa.php?HJ7F4wnIPj2Y8B7Bj80h1lskjh7ohC8yMfhLoDBLddZGjmDYkx3_EXIVLLLrA_C3ojklC750gYvLk4Wjzp2CQAzNjE5yiDgT6lb0_1xdyihsVVs3J1xFcXVJMWUJOcf9.

[10] It is important to note that a duopoly (or other highly concentrated market structure) is not inherently anticompetitive. Economic models and empirical research suggest that duopolies can reach a highly competitive equilibrium. See Erwin A. Blackstone, Larry F. Darby, & Joseph P. Fuhr Jr., The Case of Duopoly, 34 Regulation 3 (Winter 2011-2012), at 12, available at https://www.cato.org/sites/cato.org/files/serials/files/regulation/2012/6/v34n4-3.pdf. Frequently cited examples of competitive duopolies include Coca-Cola and Pepsi, or Airbus and Boeing.

[11] Andrew Lanxon, Android vs. iPhone: 15 Years of Innovation Through Rivalry, CNET (Apr. 24, 2024),  https://www.cnet.com/tech/mobile/smartphone-showdown-15-years-of-android-vs-iphone;

[12] See, e.g., Michael Muchmore & Gabriel Zamora, Android vs. iOS: Which Phone OS Really Is the Best?, PCMag (Nov. 13, 2024), https://www.pcmag.com/comparisons/android-vs-ios-which-mobile-os-is-best; Prakhar Khanna, iPhone Vs. Android – Which One Should You Get?, Forbes (Feb. 16, 2024), https://www.forbes.com/sites/technology/article/iphone-vs-android; Bartosz Szczygie?, iPhone vs Android Users: Key Differences in 2024, NetGuru (Jan. 8, 2025),  https://www.netguru.com/blog/iphone-vs-android-users-differences.

[13] Move from Android to iPhone or iPad, Apple, https://support.apple.com/en-au/118670 (last visited Feb. 7, 2025); Switch Is Easier than Ever, Android, https://www.android.com/switch-to-android (last visited Feb. 7, 2025).

[14] See, e.g., Rhiannon Williams, Why Competition Between Apple and Google Is More Brutal than Ever, The Telegraph (Sep. 29, 2014), https://www.telegraph.co.uk/technology/google/11127694/Why-competition-betweenApple-and-Google-is-more-brutal-than-ever.html; Bianca DiSanto, Google vs. Apple: Why Their Competition Is Good for You, The Hoya (Oct. 21, 2016), https://thehoya.com/google-vs-apple-why-their-competition-is-good-for-you; Can Google or Huawei Stymie Apple’s March Towards $4trn?, The Economist (Oct. 24, 2024), https://www.economist.com/business/2024/10/24/can-google-or-huawei-stymie-apples-march-towards-4trn.

[15] Nicolas Petit, Big Tech & the Digital Economy. The Moligopoly Scenario (2020).

[16] David S. Evans, Why the Dynamics of Competition for Online Platforms Leads to Sleepless Nights But Not Sleepy Monopolies, SSRN (Jul. 25, 2017), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3009438.

[17] Marshall W. Van Alstyne et al., Pipelines, Platforms, and the New Rules of Strategy, Harv. Bus. Rev. (Apr. 2016), at 1-9.

[18] Apple Inc., Annual Report (Form 10-K), at 1 (Sep. 29, 2018).

[19] Alphabet Inc., Annual Report (Form 10-K), at 5 (Dec. 31, 2017).

[20] Randal Picker, The European Commission Picks a Fight with Google Android over Business Models, ProMarket (Jul. 23, 2018), https://www.promarket.org/2018/07/23/european-commission-picks-fight-google-android-business-models.

[21] Dirk Auer, Making Sense of the Google Android Decision, Int’l Ctr. L. Econ. (Feb. 25, 2020), available at https://laweconcenter.org/wp-content/uploads/2020/02/Auer-Making-Sense-of-the-Google-Android-Decision-White-Paper.pdf.

[22] Id., at 20-21.

[23] David S. Evans & Michael Noel, Defining Antitrust Markets When Firms Operate Two-Sided Platforms, 3 Colum. Bus. L. Rev., 667 (2005).

[24] Epic Games v. Apple Inc., 493 F. Supp. 3d 817 (N.D. Cal. 2020).

[25] “Huawei Technologies Co.’s ambition in consumer devices over the past year has been to decouple from Alphabet Inc.’s Android software entirely, culminating with the December 2024 launch of its made-in-China HarmonyOS Next as part of the Mate 70 smartphone. It is the most substantial attempt at building a third mobile ecosystem outside of Apple Inc.’s iPhone empire and the Google-led Android confederation. It also builds on the company’s considerable reach, resources, and nearly a billion existing users in China. See, e.g., Huawei’s Google-Free Phones Are Making Real Progress, Bloomberg (Jan. 28, 2025), https://www.bloomberg.com/news/features/2025-01-28/huawei-harmonyos-next-review-new-phone-seeks-to-break-apple-google-dominance.

[26] Siladitya Ray, Apple Is No Longer The World’s Biggest Smartphone Maker By Volume—As Samsung Ships More Handsets In Q1, Forbes (Apr. 15, 2024), https://www.forbes.com/sites/siladityaray/2024/04/15/apple-is-no-longer-the-worlds-biggest-smartphone-maker-by-volume-as-samsung-ships-more-handsets-in-q1; William Langley & Gloria Li, China’s Smartphone Makers Head Upmarket in European Push, Financ. Times (Nov. 17, 2024), https://www.ft.com/content/a982abf2-9564-4a8c-b8df-9e614ecd2151.

[27] See Lazar Radic & Mario Zúñiga, ICLE Comments to the Brazilian Ministry of Finance on Competition in Digital Markets, Int’l Ctr. L. Econ. (May 2, 2024), https://laweconcenter.org/resources/icle-comments-to-the-brazilian-ministry-of-finance-on-competition-in-digital-markets.

[28] Giuseppe Colangelo & Oscar Borgogno, App Stores as Public Utilities?, Truth Mark. (Jan. 19, 2022), https://truthonthemarket.com/2022/01/19/app-stores-as-public-utilities.

[29] See, e.g., Antitrust Cases Against Google by the European Union, Wikipedia, https://en.wikipedia.org/wiki/Antitrust_cases_against_Google_by_the_European_Union (last visited Feb. 11, 2025).

[30] Amazon Online Retailer: Investigation into Anti-Competitive Practices, Compet. Mark. Auth. (Oct. 1, 2013), https://www.gov.uk/cma-cases/amazon-online-retailer-investigation-into-anti-competitive-practices.

[31] Press Release, Justice Department Sues Google for Monopolizing Digital Advertising Technologies, U.S. Dep’t Justice (Jan. 24, 2023), https://www.justice.gov/opa/pr/justice-department-sues-google-monopolizing-digital-advertising-technologies.

[32] See Amended Complaint, FTC v. Facebook, Inc., Case No.: 1:20-cv-03590-JEB (D.D.C. Sep. 8, 2021), https://www.ftc.gov/legal-library/browse/cases-proceedings/191-0134-facebook-inc-ftc-v.

[33] Press Release, FTC Sues Amazon for Illegally Maintaining Monopoly Power, Fed. Trade Comm. (Sep. 26, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-sues-amazon-illegally-maintaining-monopoly-power.

[34] OECD Peer Reviews of Competition Law and Policy: Brazil (2019), at 18, www.oecd.org/daf/competition/oecd-peer-reviews-of-competition-law-and-policy-brazil-2019.htm.

[35] Id. at 24.

[36] Giuseppe Colangelo, The Digital Markets Act and EU Antitrust Enforcement: Double & Triple Jeopardy, Int’l Ctr. L. Econ. (Mar. 23, 2022), https://laweconcenter.org/resources/the-digital-markets-act-and-eu-antitrust-enforcement-double-triple-jeopardy.

[37] How National Competition Agencies Can Strengthen the DMA, Eur. Compet. Netw. (Jun. 22, 2021), available at https://ec.europa.eu/competition/ecn/DMA_joint_EU_NCAs_paper_21.06.2021.pdf.

[38] For a detailed overview of CADE’s decisions in digital platforms and payments services, see Mercados de Plataformas Digitais, Cadernos de Cade (Aug. 2023), available at https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/Caderno_Plataformas-Digitais_Atualizado_29.08.pdf.

[39] See Geoffrey A. Manne, Against the Vertical Discrimination Presumption, Concurrences (May 2020), https://www.concurrences.com/en/review/numeros/no-2-2020/editorial/foreword; see also Dirk Auer, Matthew Lesh, & Lazar Radic, Digital Overload: How the Digital Markets, Competition and Consumers Bill’s Sweeping New Powers Threaten Britain’s Economy, 4 IEA Perspectives 16-21 (2023), available at https://iea.org.uk/wp-content/uploads/2023/09/Perspectives_4_Digital-overload_web.pdf.

[40] Ministério da Fazenda Apresenta Propostas para Aprimorar a Defesa da Concorrência No Ambiente de Plataformas Digitais, Ministério da Fazenda (Oct. 10, 2024), https://www.gov.br/fazenda/pt-br/assuntos/noticias/2024/outubro/ministerio-da-fazenda-apresenta-propostas-para-aprimorar-a-defesa-da-concorrencia-no-ambiente-de-plataformas-digitais.

[41] Online Intermediation Platforms Market Inquiry. Summary of Final Report and Remedial Actions, S. Afr. Compet. Comm. (Jul. 2023), available at https://www.compcom.co.za/wp-content/uploads/2023/07/CC_OIPMI-Summary-of-Findings-and-Remedial-action.pdf.

[42] See Geoffrey A. Manne & Mario A. Zúñiga, ICLE Comments on the COFECE Report on Marketplace Competition in Mexico, Int’l Ctr. L. Econ. (Apr. 23, 2024), https://laweconcenter.org/resources/icle-comments-on-the-cofece-report-on-marketplace-competition-in-mexico.

[43] Strategic Market Status Investigation into Google’s General Search and Search Advertising Services. Invitation to Comment, (Jan. 14, 2025), available at https://assets.publishing.service.gov.uk/media/678524823ef063b15dca0f04/Invitation_to_Comment.pdf; see also Geoffrey A. Manne, Brian Albrecht, Dirk Auer, Lazar Radic, & Mario A. Zúñiga, ICLE Comments to CMA’s SMS Investigation into Google’s General Search and Search-Advertising Services, Int’l Ctr. L. Econ. (Feb. 3, 2025), https://laweconcenter.org/resources/icle-comments-to-cmas-sms-investigation-into-googles-general-search-and-search-advertising-services.

[44] WJP Rule of Law Index. Brazil 2024 Overall Index Score, World Justice Proj., https://worldjusticeproject.org/rule-of-law-index/country/2024/Brazil (last visited Feb. 10, 2025).

Abstract

The Digital Markets Act (DMA) is a rare bird in competition policy. Indeed, it is a hybrid framework incorporating the institutional setting of a regulatory tool as well as the conduct already targeted by antitrust authorities in proceedings against digital platforms. From a policy perspective, the DMA seeks to prevent some anticompetitive practices. To this end, the EU legislator has construed an intricate set of provisions pursuing different policy goals. After setting out these goals in relation to the proclaimed legal interests protected by the DMA (i.e., contestability and fairness), the paper gauges them against the benchmark of the European Commission’s capabilities in its enforcement. Relying on the first round of compliance reports issued by gatekeepers in March 2024, the analysis aims to provide adequate pathways to measure the DMA’s success. Accordingly, the paper maps out market scenarios where policymakers can assert that the DMA’s enforcement has been effective.

I. Introduction

The adoption of the Digital Markets Act (DMA or Regulation) follows a clear premise.[1] EU competition law is deemed ineffective to police anticompetitive conduct in digital markets.[2] The alleged failure derived from slow-paced antitrust sanctioning proceedings as well as the complex construction of theories of harm revolving around novel types of digital conduct.[3] According to such a narrative, competition authorities took too long to set forth their cases and, even when they managed to do so, intense litigation further slowed the enforcement of antitrust provisions. Furthermore, even when litigation resulted in a victory for enforcers, remedies came short of working as the antiseptic means to restore the competitive process to its original undistorted state.[4] In summary, by this view, EU competition law failed to deliver effective enforcement with respect to the fast-paced, complex, and intricate nature of digital players and ecosystems.[5]

Against this backdrop, the DMA is expected to address such an enforcement failure. Therefore, effective enforcement shall be the norm as a result of its application. To this aim, the path chosen by the EU legislator to turn this desire into reality is not entirely consistent with the acquis construed around competition law.[6] Indeed, the DMA reverses the burden of intervention against the targets of its regulation (i.e., the gatekeepers) to demonstrate they comply with the substantive provisions enshrined under Articles 5, 6, and 7 in the fashion of per se obligations. Pursuant to Article 11 DMA, in March 2024, the first designated gatekeepers submitted their compliance reports, setting forth the technical implementations and changes to their business models they believed to satisfy the threshold of the DMA’s effective enforcement.[7]

Stemming from the gatekeepers’ reaction to the Regulation, the European Commission (EC), as the sole enforcer of the DMA, faces a challenging task. Indeed, although the regulatory intervention was advertised as self-executing to sidestep the protracted litigation associated with competition law enforcement, the opening of non-compliance investigations by the EC suggests legal disputes are poised to become commonplace.[8] From this perspective, these initial results question the call to discard the purportedly ineffective principles-based antitrust approach and advocate for a rules-based model in order to facilitate enforcement, thus ensuring the quick and effective implementation of the new rules. [9] If the adoption of bright-line rules does not seem to be able to lower the number of legal disputes, it may also expose the Regulation to significant risks of circumvention strategies, which would further undermine its effective implementation requiring additional time-delaying procedures.[10] Moreover, as these investigations are apparently extensions of previous (and sometimes ongoing) competition cases, the DMA is being used to reexamine and relitigate antitrust investigations. After all, while its role is not to endorse the compliance solutions presented by gatekeepers, at the same time the EC is not vested with the powers to assert what compliance should look like.

Against this background, one can easily determine that the DMA is a hybrid instrument in more than one aspect.

From its institutional design and setting, the regulatory framework adapts the tradition of regulation over essential facilities to the functioning of digital competition.[11] By this token, the enforcement strategies the EC may apply to the different solutions presented by the gatekeepers are diverse in nature.[12] The EC’s recent enforcement actions are good proof of that. First, the EC continues to pursue punitive proceedings against gatekeepers under the DMA, without the burden of the procedural safeguards of traditional antitrust proceedings.[13] Second, the EC holds investigatory powers to verify the accuracy and truthfulness of gatekeepers’ statements in their compliance reports, without the need to trigger non-compliance procedures.[14] Third, the DMA provides sufficient scope for the EC to suspend the enforceability of some of its provisions.[15] Finally, Article 8 DMA enshrines the gatekeeper’s and the EC’s capacity to engage in a non-adversarial dialogue where they can iterate their opinions on how compliance should look like.

From the substantive perspective, the DMA’s obligations do not correspond with a single idea of enforcement. The EC has constantly repeated that the DMA is not output-oriented.[16] Instead, the Regulation is set to pave the way for business users to grasp the business opportunities the regulatory instrument seeks to restore. As a result, it is quite complex to determine where effective enforcement lies since impacts on consumers are not directly secured nor ensured via the DMA’s application. Further, one cannot simply assert that effective enforcement is achieved, and no further regulatory intervention is needed, when a certain number of competitors populate the gatekeeper’s core platform services. This metric is inadequate for assessing the restoration of competitive conditions because, although many companies may be present in the market, the structural challenges may still persist. Therefore, one must turn to the few yardsticks the letter of the law provides for to define this threshold of effective enforcement.

In this scenario, this paper aims to investigate the true measure of the Regulation’s success. Therefore, it will examine whether the DMA includes specific metrics to evaluate its success and assess the challenges and risks the European Commission may face in meeting these criteria. Further, the paper cautions against the assumption that, if the DMA meets its own benchmarks, it will automatically be successful for consumers. The DMA’s success metrics do not necessarily align with those that measure consumer success. Even though the Regulation is intended to benefit end users, it is possible that, even if the DMA achieves its own objectives, its implementation may not deliver positive outcomes for consumers.

Both the EC and the gatekeepers have shied away from providing any indication of how success for the DMA should be defined. In fact, the EC directly transferred the whole responsibility of this task onto the gatekeepers by compelling them to detail within their compliance reports how each one of their technical implementations complied with the broader objectives of contestability and fairness and with each provision’s goal.[17] To this call, gatekeepers evaded any type of definite response. The reaction is just a logical consequence of the configuration of the EC’s stick-and-carrot enforcement of the DMA. If the gatekeepers are to set out the indicators for the DMA’s compliance, then the EC could easily hold them accountable for deviating from that conduct in the coming years.

The paper disentangles this conundrum by unveiling the underlying principles of the regulatory instrument. In the absence of clear guidance, it is challenging to determine the appropriate steps to take. Therefore, the paper clarifies the DMA’s main secret, i.e., its policy direction. Notably, the paper uncovers the following five main policy goals enshrined by the DMA: i) market modelling; ii) consumer choice; iii) eliminating restrictions that favor the platform’s openness; iv) neutralizing competitive advantages; and v) enhancing transparency.

To this end, the paper integrates various aspects of the Regulation’s nature and substantive provisions. First, it sets out the policy outcomes that the DMA seeks to achieve by considering the main benchmarks the Regulation puts forth in terms of its objectives, the indicators for compliance per provision, and the long-term goals of each one of these provisions. Therefore, the paper engages with the objectives of contestability and fairness, the results expected via the application of each of the provisions under Articles 5, 6, and 7, and the overall policy goal pursued by the EU legislator. Their conjunct application results in the categorization of the provisions into three main groups. On the one side, those provisions aimed at addressing conflicts of interest originated from gatekeeper presence in the market, which correspond with the concept of fairness and intra-platform competition under the DMA.[18] On the other side, those mandates are designed to trigger potential competition in the form of new entrants or the restoring of the conditions for effective competition of gatekeepers’ existing competitors, which conform to the idea of contestability and inter-platform competition enshrined under the DMA.[19] Both legal interests, however, are not necessarily contradictory. They can complement each other, as they address different aspects of the competitive dynamics within digital ecosystems. In fact, the paper identifies a third category of provisions seeking to maximize both legal interests simultaneously through hybrid mandates.

Second, the paper provides a comprehensive overview of the EC’s capacity to monitor gatekeeper behavior, considering its multi-dimensional toolbox of remedies and powers. In relation to the DMA’s legal interests and long-term policy goals, the paper reveals the EC’s enforcement capabilities, translating them into potential challenges that the public authority must overcome to ensure effective enforcement.

Finally, the paper captures the unintended consequences that DMA’s provisions may entail in practice. This last step of the analysis details the side effects that business and end users may have already suffered because of the gatekeepers’ compliance solutions starting in March 2024, as well as through the impacts that compliance with one DMA’s provision may entail with respect to another one. In this context, the paper examines the inherent contradiction in the foundational roots of the DMA. While the latter aims to deliver results for consumers by ensuring contestability and fairness, it is not output-oriented. Therefore, the DMA’s immediate effects might contradict its primary goal of securing better outcomes for consumers. In other words, even if the DMA satisfies its own metrics for promoting fairness and contestability, this does not necessarily mean that its enforcement will provide benefits to consumers.

The paper is structured as follows. Section 2 explores the meaning of the legal interests protected by the DMA and provides a classification of the provisions accordingly. Section 3 outlines the DMA’s long-term policy goals by examining its provisions in relation to the EC’s enforcement capabilities. Section 4 analyzes Alphabet’s compliance with Article 5(4) DMA as a case study to demonstrate the correlation and challenges in the DMA’s effective enforcement. Section 5 concludes.

II. Metrics for defining the Commission’s effective enforcement

Article 1(1) DMA sets out the main objectives of the Regulation, i.e., to ensure contestable and fair digital markets. These goals come within the wider purpose according to which the DMA aims at levelling the playing field of digital markets.^[20] In light of the economic characteristics commonly associated with most of digital platforms (e.g., extreme scale economies, very strong network effects or a significant degree of dependence on both business users and end users)^[21], the DMA reverses the antitrust error-cost framework by establishing per se obligations upon the designated targets.^[22] Once a gatekeeper is designated under the Regulation, it must comply with the mandates set forth in Articles 5, 6, and 7 in a period of six months.^[23]

The shift to the regulatory approach is substantial from the compliance viewpoint. Instead of the burden of initial intervention and proof lying with the antitrust enforcer, the target must demonstrate how it integrates compliance solutions into its business model in line with the DMA’s objectives of contestability and fairness.^[24] In this context, one would expect the DMA’s obligations and aims to be eminently easy to apply and pursue in practice. In fact, EC officials have constantly remarked on the fact that the DMA sets out clear rules, hence gatekeepers know exactly what compliance should look like.^[25]

However, such a legal certainty is not a given. Indeed, as opposed to the obligations under Article 5, termed self-executing obligations^[26], Articles 6 and 7 establish a set of obligations open to further specification, through the venue of regulatory dialogue illustrated in Article 8. Therefore, there is an implicit recognition that at least Articles 6 and 7 DMA are not so clearcut regarding the technical transformations they require.^[27]

From the substantive perspective, the provisions apply irrespective of the underlying premises of the gatekeeper’s business model. That is to say, the DMA does not directly address the formula by which gatekeepers claim to create and capture value in digital markets. Hence, the same bar of compliance applies to all core platform services (CPSs) catered by gatekeepers, regardless of the extent to which they feed on strong network effects, data advantages, or the mechanics of market tipping and whether those economic characteristics evolve over time.^[28]

Based on this premise, the DMA supports, thus, the application of a vast array of obligations following a clear pattern of ensuring contestable and fair markets for all businesses. The concepts of fairness and contestability act as touchstones to the enforcement in more than one way.^[29] First, being the main objectives of the Regulation, they influence all the EC’s actions in interpreting the DMA’s provisions. Accordingly, each one of the solutions presented by the gatekeepers must correspond to these objectives. Second, contestability and fairness permeate the regulatory mandates contained under Articles 5, 6, and 7 DMA. Therefore, they also play a role in fleshing out the policy outcomes that each of the twenty-three mandates outlined in the aforementioned articles seek to achieve.

A. Contestability as potential competition

As set out under Article 1(1) and Recital 32 DMA, contestability is a means to an end. It is a means to eliminate barriers to entry and expansion undermining the ability of undertakings to contest, based on competition on the merits, the gatekeeper’s position in the markets as well as to impact the innovation potential of the wider platform economy. This objective is clearly linked to the economic features of CPSs that imbalance competition and innovation.^[30]

Recital 32 states that the lack of contestability is not a matter of the number of competitors which populate the market. Instead, in order to promote inter-platform competition, the locus of attention is focused on the presence of barriers to entry or expansion hindering the exercise of competition at the platform level.^[31] By this token, the DMA builds on the traditional economic definitions set out by Bain in the 1950s, following the structuralist approach.^[32] Accordingly, entry to a market is assumed unprofitable until information asymmetries and market imperfections can be compensated.

Stemming from these findings, inter-platform competition can be easily translated into the elimination of barriers to entry and expansion. However, such a task is not easy to perform in practice. Indeed, similarly to its institutional design, the Regulation does not define what economic characteristics of the digital platforms are to be understood as those barriers to entry and expansion undermining inter-platform competition. In fact, the DMA sets out in the abstract the economic features that have led digital markets to tip the scales in favor of gatekeepers. But it does not indicate whether all of them are barriers to entry and expansion or even whether they may be reversed via the imposition of antitrust-like remedies. Such a determination is not trivial insofar as economists have been discussing for decades now whether a particular economic characteristic is a barrier to entry and expansion.^[33]

In a similar vein, the DMA presumes that all these economic features apply equally to all CPSs and gatekeepers across the board. Nonetheless, economic reality trumps this one-size-fits-all approach. Some CPSs are not as contestable as others. For instance, switching costs are not as intense on web browsers as they are on online social networking services. In a similar vein, within the same category of CPSs, it may well be the case that contesting a gatekeeper’s position may be easier than disputing another incumbent’s situation in the market. One such example is that of a number-independent interpersonal communications services (NIICS). The EC has only designated two NIICS belonging to the same gatekeeper (i.e., Meta’s WhatsApp and Messenger). However, the same economic characteristics (and, thus, the barriers to entry and expansion hindering the competitors’ capacity to contest the market position) do not apply to them with the same intensity and degree.[34] Even though both build on strong network effects, Meta’s WhatsApp service is much more prominent in its position as the by-default messaging service end users access in the EU. Albeit the same network effects apply to some extent to Messenger, they only influence market outcomes in proportion to their link with the CPSs integrated into Facebook.

Finally, contestability under the DMA is primarily adversarial. In other words, it can only be enhanced when one or several business users compete with the gatekeeper’s position, regardless of the value proposition each offers to end users. Therefore, it may be the case that the DMA may only facilitate the replacement of gatekeepers without addressing diversification, meaning increased contestability could simply replicate the gatekeeper’s operations across the board.^[35]

Against this backdrop, the paper translates the wider contestability objective into an identifiable metric to perform its analysis. To this end, the paper identifies those provisions and scenarios that would promote potential competition, understood as the springboard for existing and new sources of competition to become successful.^[36] Indeed, by eliminating barriers to entry and expansion, the DMA strives to trigger the emergence of competitors in two fundamental manners. First, by enhancing the competitive situation of existing rivals, which have populated the market alongside gatekeepers. Second, by creating favourable market conditions to foster market entries at the inter-platform level with the capacity to successfully compete against gatekeepers. Under Section 3, the paper sets out those DMA’s provisions that (individually or in conjunction with the goal of fairness) pursue one of these manifestations of potential competition.[37]

B. Fairness as conflicts of interest: value appropriation and conditions of access and competition

The DMA’s depiction of fairness addresses intra-platform competition with reference to imbalances between the rights and obligations of business users where the gatekeepers obtain a disproportionate advantage.[38] Accordingly, the unfairness of terms and conditions for the use of their CPSs has led gatekeepers to hinder business users from fully capturing the benefits of their own contribution to the markets. Thus, the fairness objective under the DMA is redistributive in nature.^[39] It is claimed gatekeepers have unfairly appropriated monopoly rents from the value that business users create on their platforms. The regulatory tool aims to correct this by redistributing these rents to business users.^[40]

Notwithstanding, the Regulation does not point out what type of redistribution applies, namely whether surplus must be allocated depending on each business user’s value brought to the market or whether the appropriation of value should take place unrelated to their economic profits. By this token, the value of fairness under the DMA cannot be categorized into a single manifestation that will narrow the gap between an unfair and a fair outcome.^[41] More than a tractable metric for identifying effective enforcement, fairness is a value bearing an amorphous nature, depending on the individual consideration of the configuration of the market and the CPS’s economic characteristics.

Following upon the DMA’s silence, the paper translates the fairness value into a single scenario that applies across the board to identify unfair conduct in the eyes of the regulation, i.e., the presence of conflicts of interest. The DMA’s scope of application predetermines this finding. Indeed, for an undertaking to qualify as a gatekeeper, it must provide a CPS which is an important gateway for business users to reach end users, aside from bearing a significant impact on the internal market and enjoying an entrenched and durable position in doing so.^[42] Therefore, the presence of a potential conflict of interest is implied in the designation of the gatekeeper.

A clear comparison can be made with reference to those cases where the Court of Justice (CJEU) has recognized that the dominant undertaking’s conflict of interest predetermines market outcomes.^[43] Following this same line of reasoning, the DMA embeds fairness in its foundational rationale, subtly implementing this principle through its per se mandates. In this regard, the DMA seeks to eliminate conflicts of interest concerning both the access conditions and competitive landscape of CPSs. On the one hand, the DMA removes all discriminatory conditions of access so that potential competition may crystallize. This is the reason behind the fact the Regulation highlights that contestability and fairness are intertwined, thus stating that a single provision may address both goals.^[44] On the other hand, the DMA revamps previously unfair distribution channels within ecosystems by compelling gatekeepers to adjust to digital business models that lack market dominance.[45]

In other words, the DMA weaponizes the goal of fairness to redistribute both value and control throughout gatekeeper ecosystems.

The redistribution of control across ecosystems entails co-responsibility on the part of business users. As opposed to the confrontational nature of contestability, fairness as outlined in the DMA is rooted in the Socratic paradigm, wherein each economic operator should be rewarded according to their efforts. Consequently, fairness is implied to apply to both the activities of gatekeepers (who may be rewarded for their role in shaping digital ecosystems) and business users.

C. The classification of the provisions according to their metrics

Stemming from the intertwinement of both metrics, each of the DMA’s provisions can be categorized into one of three categories illustrated in Table 1.

Table 1. DMA’s provisions depending on their metrics

Several provisions aim at narrowing down the conflicts of interest embroidered into the conditions of access and/or competition to the gatekeeper’s business models in isolation. This is only logical, given that the Regulation is mainly based on the presence of a gatekeeping power and on the related risks created by the leveraging of their advantages from one area of their activity to another. Therefore, such provisions pursue the disintermediation of the designated gatekeepers from their prominent positions within the markets they operate in. For instance, the DMA discontinues the gatekeeper’s capacity to leverage data generated by its business users when it competes with them, under Article 6(2) ordering a data siloing obligation.

A few obligations seek to restore potential competition as a standalone metric to their success. These provisions report a quasi-automatic increase in the number of competitors entering the market as a result of their implementation. As means of example, Article 6(4) DMA cements potential entries at the downstream and upstream level regarding app distribution by compelling gatekeepers to allow and technically enable third-party app stores and apps to interoperate with their operating systems.

Finally, most provisions have a hybrid nature as a single metric cannot be clearly defined for them because of their expected impact on both existing and potential competition whilst eliminating conflicts of interest.

After all, the Regulation has not been designed as a closed system of protection reporting clear legal interests per each provision. Although one could identify certain provisions to confer the power to business users to narrow the gatekeeper’s conflicts of interest to a minimum, the absence of these conflicts of interest will also entail, in the medium-to-long-term, a higher propensity and incentive for entrants to compete on the merits with the gatekeeper, thus fostering inter-platform (rather than just intra-platform) competition.

III. The matrix in practice

The DMA compels the EC to effectively enforce its provisions. From the first round of compliance reports issued by the six gatekeepers designated in September 2023, the task looks moving-target-like and complex.

As a first step, it is worth noting that there are three types of DMA’s mandates depending on the scope of their application. The twenty-three provisions do not necessarily apply to all CPS categories. Notably, as illustrated in Table 2, most provisions only apply to specific CPSs, while several provisions are even wider in scope than the CPS categories. Therefore, the DMA’s locus of attention is not necessarily ascribed to the designation exercise performed by the EC.

Table 2. Scope of DMA’s provisions

Further, irrespective of their scope, the provisions do not apply in a vacuum. That is to say, the solutions put forward by gatekeepers in their compliance reports do not exclusively impact the services falling under designation. Indeed, in most cases, the provisions target secondary or complementary services belonging to business users. Therefore, the gatekeepers’ adjustments to their business models have a clear external vocation, rather than representing a mere internal restructuring.

When descended into reality, under each provision one can derive the desirable policy goal the EU legislator wishes to achieve. The legal interests of the DMA are, thus, translated into a myriad of policy outcomes with two different origins.

On the one hand, the DMA seeks to restore the competitive conditions that the antitrust framework allegedly failed to achieve in digital markets. By doing that, the DMA aims at achieving solutions competition law is deemed unable to ensure. This is particularly salient if one looks at the self-preferencing prohibition under Article 6(5) DMA. Inspired by the EC’s investigation in Google Shopping, the DMA imposes an outright ban deriving from a novel theory of harm the CJEU has not backed yet.[46] A similar example can be drawn out from Article 5(2) DMA, which has been inspired by the German Facebook case.[47] Even though the national competition authority enforced the siloing obligation as the primary solution to Facebook’s data processing, the practical effects of the remedy were limited.[48]

On the other hand, the DMA pursues independent and complementary policy goals of its own. To the extent the regulatory instrument remains distinct from competition law, considerations of public policy can be integrated without the need to address how they intersect and overlap with the need to increase consumer welfare. Consequently, the DMA eliminates the concept of consumer harm, while also incorporating consumer protection-focused policy decisions into the regulatory framework. For instance, the gatekeepers reporting duties under the DMA encompass the submission of compliance reports as outlined in Article 11. Additionally, these obligations extend to the gatekeepers’ requirements to submit audited reports detailing the consumer profiling techniques they employ within their CPSs under Article 15. The primary aim of this second obligation is to promote transparency and understanding regarding how consumers perceive gatekeepers’ profiling activities. The rationale is that end users might be encouraged to stop using the gatekeeper’s CPSs once they become aware of the significant consequences of their personal data being processed.

In the next Sections, the paper will untangle the outcomes of both policy strands pursued by the DMA breaking down each provision to understand the EC’s enforcement capabilities against gatekeepers’ compliance reports and their potential unintended consequences when observed from the practical viewpoint. As the principles of proportionality and necessity lie at the core of the DMA’s effective enforcement, compliance should take place in the least burdensome way for gatekeepers in those cases where more than one alternative and equally effective solutions may be introduced. Further, the application of the principle of proportionality requires such measures to be benchmarked against the yardstick of the DMA’s legal interests, i.e., contestability and fairness.

A two-step process must, therefore, necessarily apply to the DMA, since all its provisions do not necessarily target the same policy goal, nor do they protect the same legal interests. When confronted with the question of whether the gatekeepers’ compliance solutions demonstrate effective enforcement, the first step requires the enforcer to establish what legal interest is pursued (i.e., the triggering of potential competition or the narrowing down of the gatekeeper’s conflicts of interest). Section 2.C already conducted this exercise, as shown in Table 1.

The second phase of the analysis translates these legal interests into long-term expectations. In other words, the declared contestability and fairness take various forms when actualized. Therefore, the paper distinguishes between legal interests and policy goals. The former are evident when reading the DMA’s letter of the law, whereas the latter are obscured by the myriad policy choices embedded in the Regulation. Section 3.A aims to uncover the policy goals behind each provision and Section 3.B outlines the enforcement capabilities the EC will need to address in relation to these goals.

A. The DMA’s policy goals

The DMA’s legal interests outlined under Section 2 co-exist with additional policy goals pursued by each of its provisions. Therefore, from the perspective of regulatory theory, the DMA brings together aspects of both a goals-based and a rules-based regulation.^[49] While it shifts the responsibility of intervention onto the subjects of the Regulation, compelling them to evaluate the most effective way to adhere to its goals of contestability and fairness, at the same time, the obligations under Articles 5, 6, and 7 DMA provide for specific prescriptions and proscriptions of conduct. Thus, rather than investigating whether the gatekeeper’s compliance is consistent with the goals set out by the Regulation, the EC analyses whether they comply with the substantive provisions.

As depicted in Table 3, on one side of the spectrum the DMA functions as a market modelling tool. Indeed, some provisions are designed with an additional motive in mind, i.e., to carve out a particular view of the architecture and design of digital ecosystems. As the outcome is apparently predetermined, the regulatory intervention prevents gatekeepers from selecting one option from a variety of potential solutions that could meet the compliance standard. For example, Article 5(2) prohibits data combinations across core platform services. Thus, business models based on behavioral advertising are seen as presumptively undesirable.[50] EC representatives have even highlighted that the DMA requires gatekeepers to offer users a less personalized alternative to its services, which may consist of contextual advertising.^[51]

Moving along the spectrum to more alleviated forms of intervention, a wide range of provisions build upon the DMA’s preference towards the openness of digital ecosystems.^[52] Accordingly, on the one hand, some of the mandates of the provisions aspire to open markets to trigger more consumer choice. For instance, Article 6(4) allows alternative operators to distribute their app stores and apps on the gatekeeper’s ecosystems without relying on proprietary technologies. On the other hand, the paradigm of openness entails business users should not be hindered from competing in gatekeeping environments. Due to this reason, several provisions unfasten the restrictions gatekeepers may impose upon the entry of certain functionality on their CPSs. As means of an example, Article 5(4) prohibits the gatekeeper’s anti-steering restrictions.

Moreover, some of the provisions pursue the detachment of those competitive advantages which, in principle, the gatekeeper enjoys due to its condition as a prominent player in digital markets. Such advantages are not identified as choke points to be eliminated by the least restrictive measures imposed by the Regulation. On the contrary, these provisions aim at neutralizing the gatekeeper’s CPSs in an all-encompassing fashion. The clearest example is enshrined in Article 6(2) DMA, which neutralizes the gatekeeper’s capacity to leverage business user data generated on its CPSs to compete with them. All the gatekeeper’s CPSs are comprised under the obligation as a matter of scope and every type of competition between the gatekeeper and the business user remains captured. In parallel, Article 6(5) introduces the self-preferencing prohibition hindering the gatekeeper’s capacity to treat more favorably, in ranking, related indexing and crawling, its own services and products vis-à-vis those of its business users. Under the assumption the provision is not sufficiently wide, Article 6(5) adds on that the gatekeeper shall apply fair, transparent, and non-discriminatory conditions to such ranking.

Finally, the least intense form of regulatory intervention is that of enhancing transparency, especially in online advertising services. As acknowledged in Recital 45, the choice is based on the failure of EU data protection regulation.[53] The conditions under which gatekeepers provide online advertising services to business users are considered opaque and non-transparent because of the gatekeeper’s practices and the complexity of modern-day programmatic advertising. Thus, the legislator imprints the need to restore transparency in favor of business users in online advertising services via Articles 5(9) and 5(10) to resolve a failure which is not necessarily indicative of the presence of gatekeeping power. Alternatively, the transparency policy goal permeates consumer-protection objectives into the competition policy-based regulation by different means by, for instance, approximating the DMA’s content to the spirit of the P2B Regulation.^[54] Article 5(6) is a good proxy for illustrating this point. Indeed, Article 5(6) does not shape gatekeeper decision-making into any given direction. It recognizes a right to business and end users so they can exercise it before public authorities without any type of impediment deriving from the target’s gatekeeping power.

Table 3. DMA’s provisions according to their metrics and policy goals

From a quantitative perspective, such an analysis demonstrates that the DMA’s policy goals are not embodied in the least intrusive means of the neutralization of competitive advantages nor of the enhancement of transparency. On the contrary, most of the DMA’s provisions target a particular view of how digital markets should look like from a policy perspective. Therefore, the Regulation cannot be said to be agnostic regarding the business model transformation it imposes upon the gatekeepers. It points towards the clear preference for choosing market outcomes via the market modelling provisions under Articles 5(2), 5(3), 6(11), and 7 DMA. In parallel, it mandates ecosystem openness, irrespective of the gatekeeper’s configuration of its business model and decision-making processes, prior to the full application of the obligations.

Alternatively, from a qualitative viewpoint, Table 3 confirms a finding already pointed out in Table 1. Most obligations are not directly fine-tuned to strengthen potential competition in the market. In fact, there is a clear preponderance of hybrid mandates alongside those provisions aimed at narrowing down the gatekeeper’s conflicts of interest in different forms.

 B. Enforcement capabilities

Stemming from the theoretical background of the DMA’s legal interests and policy goals, the EC’s effective enforcement can only be measured if confronted with practical reality. The initial six designated gatekeepers already applied the Regulation’s obligations across their business models and submitted their compliance reports in March 2024. EC officials have already termed some of the solutions presented by the gatekeepers as blatant infringements of the spirit and letter of the Regulation.^[55]

Two main cornerstones to the DMA’s enforcement loom over the EC’s capabilities in transforming the Regulation’s mandates into reality, namely, information asymmetries and the provisions’ interplay with other pieces of the EU law and ongoing antitrust proceedings.

With regard to the former, the DMA addresses the problems of the lack of information at the EC’s disposal to engage with the dynamics of digital platforms by shifting the responsibility onto gatekeepers. Therefore, they are required to submit compliance reports (Article 11) and the auditing of their consumer profiling techniques (Article 15).^[56] However, reviewing the various compliance reports submitted, such a solution does not necessarily appear decisive.

For instance, the prohibition under Article 5(2) is supposed to be self-executing and, therefore, applied by default. From the technical perspective, this shift entails the CPSs’ data infrastructures transformation into siloed datasets which cannot interact with each other, absent the end user’s consent. In practice, Alphabet applied this approach by restricting data flows of personal data across its eight core platform services vis-à-vis the siloing of its non-CPS designated services.^[57] The same enforcement strategy has not been followed by other gatekeepers, such as ByteDance, which refused to put forward substantial technical solutions. Indeed, according to ByteDance, TikTok’s advertising services are an integral part of the TikTok entertainment platform, no combinations of personal data apply from different services when it creates user profiles for personalized advertising. Therefore, it asserted that the current configuration of its data infrastructure already complies with the obligation under Article 5(2).^[58]

If the EC may gain some knowledge of the gatekeeper’s data processing activities via the obligation under Article 15 DMA, without the target’s active engagement in unveiling its own data infrastructure, a profound interpretation of the compliance report cannot be performed.^[59] Therefore, at first glance, when monitoring the provision’s enforcement, the EC can only trust the gatekeeper’s assessment. It is not completely unsurprising that those provisions directed at modelling the market in a particular direction are the most impacted by this motion. Bearing in mind they devise an idea of the expected market outcome, those results may conflict and oppose the policy goals set out by other pieces of EU regulation, providing sufficient grounds for an impending tension in the EC’s enforcement capabilities, especially in light of its obligations deriving from the principle of sincere cooperation under Article 4(3) TEU.

Furthermore, as the DMA is a piece of legislation within the wider corpus of EU law, the EC’s enforcement capabilities cannot be measured in a vacuum. Despite the Regulation’s assertion that its application takes place without prejudice to any other piece of EU regulations and to the application of competition law, the distinction of where the EC’s enforcement starts and ends is not straightforward.[60] The EC may have to look outwards to enforce the DMA’s mandates. For instance, when sharing search data generated on online search engines under Article 6(11), the gatekeeper’s anonymization task cannot be interpreted without reference to the understanding of anonymization under EU data protection regulation. Due to this reason, the DMA provides for several fora of discussion with data protection supervisory authorities to substantively engage on these points of law.^[61] In parallel, notwithstanding the DMA applies without prejudice to the application of competition rules, some of the gatekeepers’ compliance solutions mimic the remedies already offered within antitrust proceedings, in advance of the DMA’s adoption. This is the case of both Meta and Amazon with regard to the technical implementations of the obligations under Articles 6(2) and 6(5). Their solutions did not go any further in scope or substance than what they had already convened with the European Commission in their Facebook Marketplace and Amazon Buy Box and Marketplace proceedings.^[62]

Aside from both characteristics, the provisions following distinct policy goals bear different challenges regarding the EC’s enforcement capabilities to the exclusion of any other category of provisions.

Circling back to those provisions pursuing the neutralization of competitive advantages, for instance, the EC is at a clear crossroads. Information asymmetries persist with the gatekeepers, creating issues not only with their overall incentive for disclosing data but also with specific challenges arising from the implementation of the DMA’s provisions. If gatekeepers were to disclose their compliance strategies to reduce information imbalances when submitting their reports, assessing compliance with such provisions would still be entirely unclear. Because the obligations are mainly negative in nature and require an abstract demonstration of neutrality, gatekeepers can effectively obscure the decision-making process, making it more difficult for the EC to monitor enforcement.

As a matter of example, Amazon’s compliance with the data siloing obligation under Article 6(2) DMA demonstrates this point. In the illustration of its compliance solution, the gatekeeper did not substantially engage with the process of decision-making underlying its operations. Instead, it referenced, in the abstract, its efforts to silo data through the different technical systems it has in place. By this token, Amazon remarked the presence of various automated systems, algorithms, models, and tools that feed into the decisions where it may be perceived to act in competition with third-party sellers via selection, inventory, and pricing decisions. In summary, Amazon declared that, upon a review of the data inputs drawn from each of its automated systems, it could confirm that none of them ingest or use non-public third-party seller data. No further reference or explanation was provided by the gatekeeper. Despite the reversal of the burden of intervention, the gatekeeper does not present any evidence to the effect of demonstrating compliance with the negative obligation. The EC is, thus, expected to trust the gatekeeper’s word and explanations at face value.

Moving to those provisions targeting the openness of platforms and digital ecosystems, the compliance reports show the gatekeepers’ clear predilection to avoid relaying power out of their hands. Indeed, they shift the gatekeeper’s ability to make rules away from being the sole decision-maker towards the next most viable option for exerting their gatekeeping power, namely enabling business users to conduct their activities within their platforms. In other words, gatekeepers can no longer completely block access to their platforms as they could before the DMA came into effect. However, they have found ways to delay business users’ requests for access by implementing entitlement procedures.

Apple’s enforcement strategy is quite salient in this respect, as it was arguably the digital ecosystem with the smallest degree of openness prior to the DMA’s application. Pursuant to Article 6(4) DMA, the gatekeeper is required to allow alternative operators of app stores and apps to distribute these services via different means to its proprietary App Store. However, Apple has not relinquished  all its decision-making capacity when it comes to app distribution on iOS.^[63] Alternative app store operators must go through an entitlement process, managed and designed by the gatekeeper, to receive authorization to operate on iOS. Apple has not included the entitlement requirements into its first compliance report, but it updated and uploaded information on its developer’s webpage the conditions these alternative operators will have to comply to exert the opportunities for openness provided by the DMA.^[64] Such rules include the need to follow the notarization process, enabling Apple to filter through requests for access focusing on reasons of security, privacy, and the maintenance of device integrity. Without a positive answer from Apple on notarization, the business user will not be able to benefit from Article 6(4).[65] On top of this process, Apple establishes additional requirements to authorise the business user’s operations as an alternative app store, such as submitting a new binary for the app store’s sole distribution on iOS in the EU or providing Apple with a standby letter of credit from an A-rated financial institution in the amount of EUR 1.000.000.

Similar challenges involve the evaluation of the effective application of provisions pursuing market modelling and openness. While the DMA aims at introducing opportunities business users must grasp to thrive in the CPSs’ markets, some compliance reports show that the venues for the enhancement of inter and intra-platform competition are a matter of the business users’ discretion. Notably, some gatekeepers present their business users with a binary option. They may either stick with the choices and conditions they had before the DMA came into effect or choose to adopt the compliance solutions proposed under the entitlement conditions set by the gatekeeper. This is precisely the model Apple presented to its business users. However, in this context, compliance with the regulation does not apply by default.[66]

Considering the array of challenges the EC will encounter while monitoring DMA’s enforcement, it is clear that a complex network of obstacles lies ahead. These hurdles are not straightforward in theory and vary in practice, depending on the gatekeepers and their enforcement strategies outlined in compliance reports.

C. The impact on consumers

The concept of consumer welfare or consumer harm does not influence the EC’s analysis of the mandates within the Regulation. At least, this is the DMA’s legal stance on its impacts on consumers. For instance, Recital 23 eliminates the possibility for gatekeepers to present efficiencies or justifications on economic grounds to the EC.[67] Similarly, non-compliance procedures initiated by the Commission due to violations of Articles 5, 6, and 7 DMA do not require proof that consumer harm is directly caused by the gatekeeper’s conduct.[68] In turn, however, the interventions of EC officials reiterate that the changes introduced by the DMA must also please customers.[69]

The EC’s stance is based on a policy choice. Specifically, if gatekeepers cannot delay proceedings by presenting extensive economic reports and evidence that the competition authority must disprove, then the Regulation has a better chance of being effectively implemented and remaining responsive to digital dynamics. However, this choice does not necessarily align with the functioning of digital markets. In fact, the DMA’s focus on fostering opportunities for business users, rather than producing direct outcomes for consumers, highlights the disconnect between the Regulation’s goals and its eventual impacts on the different markets corresponding to the CPSs.

In this context, the DMA may result in both intended and unintended consequences for consumers. The Regulation’s opportunities-oriented approach presents the DMA’s chances of success in two different lights. On one hand, the DMA may achieve its intended outcomes by creating more opportunities for business users, which will, in most cases, provide more consumer choice. However, diversification does not necessarily follow from the enhancement of consumer choice. For instance, new entrants or existing business users in those markets may replicate the quality and business models of gatekeepers. Therefore, expanding consumer choice is not simply about increasing supply to enhance consumer satisfaction.

On the other hand, the DMA may also lead to some unintended consequences for consumers, particularly due to changes introduced by gatekeepers in user journeys across their services. In other words, consumers might perceive a decrease in the quality of services provided by gatekeepers if the usual distribution of these services is disrupted to implement DMA-driven solutions.

A paradigmatic example of user experience degradation that may result from the DMA’s implementation is provided by Google Maps. Under the DMA, gatekeepers are required to treat rival downstream services as favorably as their own to ensure platform neutrality. As a result, to avoid the risk of being accused of self-preferencing by offering preferential placement to its specialized Maps unit, Google decided not to allow users to go directly from Google Search to Maps in one click. Consequently, users can no longer click on the location image to access Maps directly. However, is has been reported that removing Google’s one-click advantage led to higher search costs for users without significantly boosting the discovery or adoption of alternative mapping services in the short run.[70] As a consequence, it may be questioned whether a provision that increases search costs for consumers but has a negligible effect on product substitution can be considered a success.

In some cases, relying on the DMA’s anti-circumvention clause, the EC has already raised concerns about the impacts on user experience proposed by gatekeepers in their compliance reports.[71] The provision ensures that gatekeepers cannot degrade the quality of their services due to DMA compliance or worsen the conditions under which consumers provide informed consent throughout their user experience. Therefore, this aspect of the Regulation does not necessarily address the concept of consumer harm and welfare, but rather its effect on consumer protection.

IV. Putting theory into practice: a case study of Alphabet’s proposed compliance with the anti-steering prohibition

Evaluating effective enforcement is a significant challenge. As illustrated in the previous Sections, given the DMA’s broad spectrum relating to its legal interests and policy goals, enforcement is anticipated to be multi-faceted, nuanced, and essentially unpredictable in terms of the outcomes expected from the Regulation’s mandates.

Therefore, the paper proposes a practical method to assess whether a specific compliance solution aligns with the concept of effective enforcement or necessitates further scrutiny under the measures outlined in the DMA. It fundamentally reveals the obscured aspects of the DMA’s enforcement strategy, aiming to balance its recognized legal interests with the often-overlooked long-term policy goals its provisions express and aim to achieve. In doing so, the paper illustrates a dual-layered enforcement approach that must not only uphold the DMA’s broader objectives but also align with the policy direction embedded by the EU legislator. This dichotomy within the DMA’s framework is crucial for anticipating the EC’s enforcement capabilities and determining how to address them effectively.

To examine the necessity of considering the secretive nature of long-term policy goals, the paper employs a case study of the non-compliance procedure initiated by the EC against Alphabet. The procedure addresses potential infringement of Article 5(4) DMA related to the Google Play intermediation service.

According to Alphabet’s compliance report, it now provides additional means for developers to communicate and promote offers to end users as well as by providing them with the capacity to directly conclude contracts via these means. Alphabet has opened this possibility for app developers via its new External Offers program. Developers must agree with the terms and conditions of that program to enjoy the possibility of steering their users to promotional offers. Aside from that, participation in the program by the app developer is subject to Google’s approval. For instance, some of the eligibility criteria fleshed out by Alphabet include the fact that developers must only direct end users to their own digital features or that they are directly responsible for providing support to users in their external transactions. In this respect, the most salient aspect of the compliance solution relates to the fee structure Alphabet imposes upon developers when they redirect their end users to promotional offers. Under the assumption the app developer acquired those end users due to its presence on Alphabet’s Google Play, the gatekeeper charges a 5% initial acquisition fee on the offers catered through the in-app digital features and services during the two years following the initial external transaction on top of an ongoing services fee of up to 7% for those same offers. Only after these two years stemming from the end user’s initial acquisition, the developer may opt out from receiving Play services and paying the ongoing services fee.

The first step of the analysis necessarily stems from its categorization in line with the legal interest it purports. Article 5(4) DMA seeks to promote intra-platform competition by narrowing down gatekeeping power in setting rules driving downstream competitors away from the digital ecosystem. The rationale underlying the anti-steering provision relates to the fact that a gatekeeper will not earn revenues from those services its downstream competitors realize outside its digital ecosystem.

Against this background, Article 5(4) pursues the legal interest of reducing conflicts of interest as a standalone metric. Upstream competition among platforms is not directly concerned and, as such, the provision does not fall within the definition of a hybrid obligation as depicted under Section 2.C. Establishing the provision’s legal interest sets the path for the anticipated results that one can intuitively expect the provision to achieve. In the case at stake, the legislator may intend to boost traffic from downstream services offered through digital ecosystems to their own websites by separating the completion of a transaction from the operator’s presence in a specific digital ecosystem. Therefore, an increase in the number of app developers offering such functionalities and the prevalence of more promotional offers providing those links would serve as initial indicators of effective compliance with the provision.^[72]

Once the legal interest has been identified, one must set out the provision’s scope in relation to the CPSs included to compare it with the scope of the compliance solutions proposed by the gatekeeper. According to the terms of Article 5(4), the provision is wider in scope to the CPS categories. It compels the gatekeeper to allow business users to communicate and promote offers to end users acquired via its core platform service or through other channels, and to conclude contracts with those end users. Looking at Alphabet’s proposed solution, the initial acquisition and ongoing services fees imposed on developers as a take-it-or-leave-it choice does not seem to align with the provision’s scope. Indeed, on the one hand, the anti-steering provision spans through all types of communications and channels. Thus, the absence of a compliance solution for the rest of Alphabet’s CPSs and channels is not coherent with the obligation. On the other hand, Article 5(4) does not solely focus on end users benefiting from a CPS, but on all categories of end users who depend on the gatekeeper’s ecosystem. In this context, it becomes possible to analyses the terms introduced by Alphabet regarding its fee structure when end users are directed to promotional offers from in-app services provided by app developers.

Continuing with the analysis, it is critical to determine the provision’s nature in the context of the broader policy goals pursued by the EU legislator. Article 5(4) aims at enhancing the openness of the ecosystem at the downstream level by removing previous restrictions on directing end users towards promotional offers. To this end, Article 5(4) includes a clear and active mandate to eliminate anti-steering restrictions from the terms and conditions imposed by gatekeepers on their counterparts. This enables transactions to take place outside of the gatekeepers’ ecosystems. Both the legal interest and policy goal remain, therefore, closely correlated in terms of their identification, even though one does not necessarily automatically follow from the other.

Given this context, the EC’s enforcement capabilities closely align with both the legal interest and policy goal of the provision. As the provision aims to promote openness in downstream markets, the primary enforcement challenges arise from Alphabet’s entitlement processes. Indeed, Alphabet’s proposed compliance solution does not prescribe openness by default. Instead, the steering of users will only occur with Alphabet’s prior authorization of developers’ entitlement to provide link-outs within its services.

Finally, the potential side effects stemming from the provision’s compliance must be taken in mind. In the case of Article 5(4), there is an undeniable interplay with the separate obligation imposed by Article 6(12), according to which the gatekeeper must apply fair, reasonable, and non-discriminatory conditions of access for business users to its software application stores, online search engines, and online social networking services listed as CPSs. Therefore, within the context of Article 5(4), the EC must assess how fair conditions are set through developers’ entitlements, which should be included in the broader analysis of compliance with Article 6(12) DMA. However, what is deemed fair under Article 5(4), aimed at reducing conflicts of interest, might not be regarded similarly under a distinct provision.

In summary, the case study of Alphabet’s compliance with Article 5(4) DMA yields mixed results but reveals several clear findings. At first glance, it is relatively easy to discern whether the provision serves one legal interest over another. If the provision addresses issues within the downstream market concerning the CPS it operates in, then conflicts of interest are at play. Therefore, Alphabet’s solution should aim to rectify any imbalances in bargaining power imposed on business users in comparison to Alphabet’s own position. However, the new fee structure and the requirement for app developers to pay an ongoing service fee for Google Play for two years contradict this spirit.

Since the provision aims to foster intra-platform competition by mandating active conduct, it becomes apparent that Alphabet’s technical implementation does not meet the requirement of neutralizing competitive advantages. In fact, Alphabet’s compliance report states that developers were already allowed to communicate and promote offers to Google Play’s end users and conclude contracts with them prior to the DMA. According to the gatekeeper, developers always had the ability to communicate and promote offers to Google Play users through channels outside the app store, such as emails and text messages. Therefore, neutralizing competitive advantages would be irrelevant. However, the provision hints at a clear direction towards openness. Consequently, Alphabet’s compliance solution introduces new policies that enable in-app link outs as an additional means for developers to communicate and promote offers to end users.

In this context, understanding the provision’s policy goal is not crucial for assessing compliance with it at face value, but it is pivotal for two fundamental aspects of the analysis. First, it defines the long-term objective the provision aims to achieve. If compliance solutions meet the legal interest (i.e., fairness) but fall short of achieving the desired degree of openness, there will still be room for the enforcer to encourage the gatekeeper to implement a modified version of its compliance solution.

Secondly, elucidating a provision’s policy goal is crucial for highlighting potential challenges the EC may face in its enforcement efforts. Regarding Article 5(4) DMA, which aims to instill openness, the most significant challenge associated with fulfilling this hidden promise is intermediation. In other words, the DMA is unlikely to completely eliminate gatekeeping power when a dominant player still benefits from operating within an ecosystem. This correlation becomes apparent when considering Alphabet’s entitlement process to offer its in-app link outs to business users. Without first establishing the long-term policy goal, it would be difficult to determine whether the entitlement process should be evaluated based on fairness or if enforcement challenges arise from elsewhere.

Indeed, this is precisely what the paper has untangled for each provision, paving the way for the EC’s effective enforcement. It is not entirely clear what legal foundations will influence the EC’s enforcement strategy, apart from the broader concepts of contestability and fairness. The paper has shown that an additional layer, substantiating the DMA’s direction into specific policy goals, is crucial for understanding where the Regulation’s success lies. This also guides gatekeepers and enforcers in narrowing down their choices in terms of ecosystem design, architecture, and enforcement approach. To hold both gatekeepers and the EC to account, the paper illustrates the common ground they can reach by acknowledging the DMA’s policy goals. As a consequence, the EC’s enforcement actions should be constrained to these specific goals.

V. Concluding remarks

The adoption of the DMA has been accompanied by significant doubts and criticism, particularly due to its controversial relationship with competition law. Inspired by antitrust investigations, the new Regulation finds its roots and essential rationale in an alleged antitrust enforcement failure. Therefore, once adopted and applied, the main question is how to determine the DMA’s success. Namely, how to identify the conditions under which the implementation of the new rules has been effective for each obligation by achieving results that competition law would not be able to ensure.

This paper addresses this question by providing metrics to measure the DMA’s success. Notably, it shows that such a process requires unveiling the DMA’s hidden policy goals. Indeed, although contestability and fairness are the proclaimed protected legal interests, they do not represent the outcomes the EU legislator aimed to embed in the Regulation. Despite the EC’s desire to keep these aims somewhat hidden, four main policy goals influence the DMA’s provisions: market modelling, openness, neutralizing competitive advantages, and enhancing transparency. In this context, the EC’s enforcement capabilities are directly correlated with the long-term policy goals pursued by each provision.

Translating fairness and contestability into clear policy goals and thus unveiling the secret of the DMA provides two significant benefits. It guides and constrains gatekeepers in developing solutions to comply with the new rules. At the same time, it holds the EC accountable for its enforcement strategy, ensuring its actions are directed toward achieving specific market outcomes.

[1] Regulation (EU) 2022/1925 of the European Parliament and of the Council of 14 September 2022 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act) [2022] OJ L 265/1.

[2] Ibid., Recital 5.

[3] See Margrethe Vestager, Remarks on the opening of non-compliance investigations under the Digital Markets Act, (2024) https://ec.europa.eu/commission/presscorner/detail/en/speech_24_1702 (all the links were last visited on 15 May 2024), stating that the DMA was born out of a reflection process “very much influenced by our antitrust enforcement experience where we have seen the temptation to flout the law. We have brought several antitrust cases in the tech sector which ultimately led to the DMA. These include cases against Google (Shopping, Android, AdSense and the on-going AdTech investigation), Apple (the AppStore and Apple Pay cases), or Amazon (Buy Box/Prime/Data).” See also Friso Bostoen, Understanding the Digital Markets Act, (2023) 68 The Antitrust Bulletin 264; Marco Cappai and Giuseppe Colangelo, Taming digital gatekeepers: the more regulatory approach to antitrust law, (2021) 41 Computer Law & Security Review 105559; Filomena Chirico, Digital Markets Act: A Regulatory Perspective, (2021) 12 Journal of European Competition Law & Practice 493.

[4] The paradigmatical case used as an example of the ineffective enforcement of EU competition law is the European Commission’s decision in Google Shopping (Case AT.39740, [2017] C(2017) 4444 final).

[5] Commission Staff Working Document, Impact Assessment Report accompanying the Proposal for a Regulation of the European Parliament and of the Council on contestability and fair markets in the digital sector (Digital Markets Act), [2020] SWD/2020/363 final, paras. 2-4 and 9-14.

[6] On the shift from the EU competition law acquis to the regulatory-like instrument and its impact on judicial review, see Pablo Ibáñez Colomo, The Draft Digital Markets Act: A Legal and Institutional Analysis, (2021) 12 Journal of Competition Law & Practice 573.

[7] Gatekeepers’ compliance reports are available at https://digital-markets-act-cases.ec.europa.eu/reports/compliance-reports. On the relevance of compliance reports, see Jacques Cremer, David Dinielli, Paul Heidhues, Gene Kimmelman, Giorgio Monti, Rupprecht Podszun, Monika Schnitzer, Fiona Scott Morton, and Alexandre de Streel, Enforcing the Digital Markets Act: Institutional Choices, Compliance, and Antitrust, (2023) 11 Journal of Antitrust Enforcement 315. For a brief overview of the compliance reports, see Alba Ribera Martínez, Full (Regulatory) Steam Ahead: Gatekeepers Issue the First Wave of DMA Compliance Reports, (2024) https://competitionlawblog.kluwercompetitionlaw.com/2024/03/11/full-regulatory-steam-ahead-gatekeepers-issue-the-first-wave-of-dma-compliance-reports/. In May 2024, Booking was added to the list of gatekeepers for its online intermediation service: see European Commission, Commission designates Booking as a gatekeeper and opens a market investigation into X, (2024) https://ec.europa.eu/commission/presscorner/detail/en/IP_24_2561.

[8] See European Commission, Commission opens non-compliance investigations against Alphabet, Apple and Meta under the Digital Markets Act, (2024) https://digital-markets-act.ec.europa.eu/commission-opens-non-compliance-investigations-against-alphabet-apple-and-meta-under-digital-markets-2024-03-25_en, opening five non-compliance procedures against Google with regards to Articles 5(4) and 6(5), Apple with regards to Articles 5(4) and 6(3) as well as against Meta regarding Article 5(2) DMA. More recently, see also European Commission, Commission sends preliminary findings to Apple and opens additional non-compliance investigation against Apple, (2024) opening an additional non-compliance procedure against Apple with regards to Article 6(4), https://digital-markets-act.ec.europa.eu/commission-sends-preliminary-findings-apple-and-opens-additional-non-compliance-investigation-2024-06-24_en.

[9] The discussion also encompasses the decision-making process within antitrust enforcement, debating between the rule of reason and bright-line rules: see, e.g., Daniel A. Hanley, In Praise of Rules-Based Antitrust, (2024) 2 CPI Antitrust Chronicle 20.

[10] For a proposal on how to operationalize the general anti-circumvention provision under Article 13 DMA, see Jens-Uwe Franck and Martin Peitz, The Digital Markets Act and the Whack-A-Mole Challenge, (2024) 61 Common Market Law Review 299.

[11] Pierre Larouche and Alexandre de Streel, The European Digital Markets Act: A Revolution Grounded on Traditions, (2021) 12 Journal of European Competition Law & Practice 542.

[12] On the idea of the DMA’s hybrid nature from an institutional perspective, see also Anna Tzanaki and Julian Nowag, The Institutional Framework of the DMA: From Hybrid to Mature?, (2024) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4574518.

[13] DMA, supra note 1, Article 30. In principle, as noted by Anna Tzanaki and Julian Nowag, The DMA’s Cooperative Compliance Setup: Punishment as Ultima Ration, (2024) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4692533, the sanctioning of the gatekeepers should come as a last resource solution. See also Alba Ribera Martínez, Rocking the Contestability and Fairness Foundations: Multi-Level Governance and Trust Relations for Futureproofing the DMA’s Effectiveness, (2023) 104 European Yearbook of International Economic Law 1, noting that the EC must preserve, to some degree, trust relationships with each of the gatekeepers.

[14] The EC can direct requests for information (Article 21 DMA), carry out interviews, and take statements from any natural or legal person (Article 22 DMA), conduct inspections (Article 23 DMA) as well as retain documents deemed to be relevant to assess the implementation of, and compliance, with the obligations under Articles 5, 6, and 7 (Article 26 DMA). See European Commission, supra note 9, confirming that it would take investigatory steps regarding Amazon’s compliance with the self-preferencing prohibition under Article 6(5) and regarding Apple’s new fee structure and terms and conditions applied for the alternative distribution of apps on its ecosystem under Article 6(4). Moreover, the EC also set out that it had issued retention orders on the documents in Alphabet’s, Amazon’s, Apple’s, Meta’s, and Microsoft’s possession to secure future enforcement.

[15] See DMA, supra note 1, Articles 9 and 10.

[16] See Richard Feasey and Alexandre de Streel, DMA Output Indicators, (2023) CERRE Draft Issue Paper, https://cerre.eu/wp-content/uploads/2023/07/CERRE-Draft-Issue-Paper-DMA-Output-Indicators.pdf. EC officials have repeatedly highlighted that the transformation of the DMA of the structures of digital markets will be dependent on how business users grasp new opportunities and benefits open to them because of its application, but outcomes are not directly expected as a result: see Olivier Guersent, Keynote Speech at the Annual CRA Brussels Conference, (2023) https://competition-policy.ec.europa.eu/system/files/2023-12/20231206_CRA_conference_Olivier-Guersent_speech.pdf.

[17] The shift was made clear via the European Commission’s regulatory template on Article 11 DMA: see European Commission, Template Form for Reporting Pursuant to Article 11 of Regulation (EU) 2022/1925 (Digital Markets Act) (Compliance Report), (2023) https://digital-markets-act.ec.europa.eu/document/download/904debdf-2eb3-469a-8bbc-e62e5e356fb1_en?filename=Article%2011%20DMA%20-%20Compliance%20Report%20Template%20Form.pdf.

[18] Nicolas Petit, The Proposed Digital Markets Act (DMA): A Legal and Policy Review, (2021) 12 Journal of European Competition Law & Practice 536. On the concept of fairness, see Giuseppe Colangelo, In Fairness We (Should Not) Trust: The Duplicity of the EU Competition Policy Mantra in Digital Markets, (2023) 68 The Antitrust Bulletin 618.

[19] On the concept of contestability in the context of the DMA, see Alba Ribera Martínez, The DMA’s Ithaca: Contestable and Fair Markets, (2023) 46 World Competition 429.

^[20] See DMA, supra note 1, Recital 54, and European Commission, Inception Impact Assessment, (2020) https://ec.europa.eu/info/law/better-regulation/.

^[21] See DMA, supra note 1, Recital 2, remarking on all these economic features as reasons justifying its proportionality.

^[22] For an analysis of the reversal of the error-cost framework, see Elias Deutscher, Reshaping Digital Competition: The New Platform Regulations and the Future of Modern Antitrust, (2022) 67 The Antitrust Bulletin 302. Regarding the nature of the DMA’s provisions as per se rules, see Petit supra note 21, 529.

^[23] DMA, supra note 1, Article 3(10).

^[24] Colomo, supra note 6, 562.

^[25] For instance, see Nicholas Hirst, Tech gatekeepers face enforcement action if not compliant with DMA by March, Koenig says, (2024) https://mlexmarketinsight.com/news/insight/tech-gatekeepers-face-enforcement-action-if-not-compliant-with-dma-by-march-koenig-says.

^[26] Chirico, supra note 3, 495. The categorization of those provisions as self-executing is not completely straightforward, insofar as it is not particularly clear how gatekeepers should comply with some of the mandates contained under Article 5, most notably the prohibition on processing, cross-using and combining personal data across core platform services.

^[27] This differentiation has clear repercussions on the DMA’s public enforcement regarding the terms of engagement between the EC and the gatekeeper, but it also has a clear impact on private enforcement, see Assimakis P. Komninos, The Digital Markets Act and Private Enforcement: Proposals for an Optimal System of Enforcement, (2021) N. Charbit and S. Gachot (eds.), Eleanor M. Fox: Antitrust Ambassador to the World, Concurrences, 425.

^[28] On this same point, see David J. Teece and Henry J. Kahwaty, Is the Proposed Digital Markets Act the Cure for Europe’s Platform Ills? Evidence from the European Commission’s Impact Assessment, (2021) 5, https://www.thinkbrg.com/insights/publications/digital-markets-act-eu-impact-assessment/.

^[29] On the multi-dimensional nature of the notions of contestability and fairness, see Ribera Martínez, supra note 13, 14.

^[30] DMA, supra note 1, Recital 32. See also Oliver Budzinski, Sophia Gaenssle, and Annika Stöhr, Outstanding relevance across markets: A new concept of market power? (2020) 3 Concurrences 38.

^[31] Bostoen, supra note 3, 266. In a similar vein, arguing that digital regulation promoting contestability is aimed at diminishing the benefits from network effects and data advantages, see Lazar Radic, Geoffrey A. Manne, and Dirk Auer, Regulate for What? A Closer Look at the Rationale and Goals of Digital Competition Regulations, (2024) ICLE White Paper, https://laweconcenter.org/resources/regulate-for-what-a-closer-look-at-the-rationale-and-goals-of-digital-competition-regulations/.

^[32]  Joe S. Bain, Barriers to New Competition: Their Character and Consequences in Manufacturing Industries, (1956) Cambridge: Harvard University Press. The recognition of this structuralist approach under the DMA, from an economic perspective, derives from Amelia Fletcher, Jacques Crémer, Paul Heidhues, Gene Kimmelman, Giorgio Monti, Rupprecht Podszun, Monika Schnitzer, Fiona Scott Morton, and Alexandre de Streel, The Effective Use of Economics in the EU Digital Markets Act, (2024) 20 Journal of Competition Law & Economics 1.

^[33] The discussion is illustrated in Preston R. Fee, Hugo M. Mialon, and Michael A. Williams, What Is a Barrier to Entry? (2004) 94 American Economic Review 465, building on Bain’s work but also on George J. Stigler, The organization of industry, (1968) Homewood: Irwin, and Franklin M. Fisher, Diagnosing Monopoly, (1979) 19 Quarterly Review of Economics and Business 23.

[34] See General Court, Case T-1077/23, ByteDance v Commission, EU:T:2024:478, para. 183, recognizing that different CPSs may be characterized by different degrees of intensity in terms of multi-homing.

^[35] This impact is also noted in John Davies, Valérie Meunier, Gianmarco Calanchi, and Angelos Stenimachitis, A Missed Opportunity: The European Union’s New Powers over Digital Platforms, (2022) 67 The Antitrust Bulletin 505.

^[36] On the concept of potential competition, see Herbert Hovenkamp, Potential Competition, (forthcoming) Antitrust Law Journal.

[37] See also Petit, supra note 18, 540.

[38] DMA, supra note 1, Recital 33.

^[39] Pablo Ibáñez Colomo, The New EU Competition Law, (2024) Oxford: Blommsbury, 133.

^[40] For an in-depth analysis of the rents that digital platforms may appropriate, see Nicolas Petit and David J. Teece, Innovating Big Tech firms and competition policy: favoring dynamic over static competition, (2021) 30 Industrial and Corporate Change 1168.

^[41] On this same complexity, see Torsten Körber, Lessons from the hare and the tortoise: Legally imposed self-regulation, proportionality and the right to defence under the DMA, (2021) Neue Zeitschrift für Kartellrecht 4.

^[42] DMA, supra note 1, Article 3(1). On the contrary, the EC has not designated two NIICS surpassing the thresholds under Article 3(2) due to their lack of control over the operations of their business users (i.e., Gmail and Outlook.com): see Decision, 5 September 2023, [2023] C(2023)6101 final, paras. 136, 144, and 145; and Decision, 5 September 2023, [2023] C(2023)6106 final, paras. 104 and 109. Further analysis of these criteria can be found in Alba Ribera Martínez, The Requisite Legal Standard of the Digital Markets Act’s Designation Process, (2024) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4681963.

^[43] For the digital sphere, see General Court, 10 November 2021, Case T-612/17, Google v. European Commission (Google Shopping), ECLI:EU:T:2021:763, and further analysis in Giuseppe Colangelo, Antitrust Unchained: The EU’s Case Against Self-Preferencing, (2023) 72 GRUR International 538. For non-platformed markets, see CJEU, 21 December 2023, Case C-333/21, European Superleague Company, ECLI:EU:C:2023:1011, para. 133; on its potential nexus to digital markets, see Jean-Christophe Roda, What if the Super League Case Was About the Digital Market? (forthcoming) Journal of European Competition Law & Practice.

^[44] DMA, supra note 1, Recital 34.

[45] See Petit, supra note 18, 531, arguing that DMA’s provisions do not always require entry to the platform.

[46] Supra notes 4 and 43.

[47] Bundeskartellamt, 7 February 2019, Case B6-22/16. For an analysis of the different episodes of the Facebook saga, including the judgement delivered by CJEU, 4 July 2023, Case C-252/21, Meta Platforms v. Bundeskartellamt, EU:C:2023:537, see, e.g., Giuseppe Colangelo, The privacy/antitrust curse: insights from GDPR application in competition law proceedings, (2023) ICLE Working Paper, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4599974.

[48] The German competition authority only secured commitments from Meta ensuring that Facebook and Instagram accounts would not be prima facie linked: see Bundeskartellamt, (2023) Meta (Facebook) introduces new accounts center – an important step in the implementation of the Bundeskartellamt’s decision, https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2023/07_06_2023_Meta_Daten.html?nn=295782.

^[49] The interplay between both is nothing new to regulatory theory, as established by Lawrence A. Cunningham, A Prescription to Retire the Rethoric of “Principles-Based Systems” in Corporate Law, Securities Regulation, and Accounting, (2007) 60 Vanderbilt Law Review 1413.

[50] This approach is derived from the European Data Protection Board’s opinion on Meta’s pay or consent model: see European Data Protection Board, Opinion 08/2024 on Valid Consent in the Context of Consent or Pay Models Implemented by Large Online Platforms, (2024) https://www.edpb.europa.eu/system/files/2024-04/edpb_opinion_202408_consentorpay_en.pdf.

^[51] See Thierry Breton, Answer given on behalf of the European Commission, (2024) E-003434/2023(ASW), https://www.europarl.europa.eu/doceo/document/E-9-2023-000479-ASW_EN.pdf. In a similar vein, the European Commission stated that, for end users to make informed choices about Meta’s pay-or-consent model, there must be a third option offering free services without relying on behavioral advertising: see European Commission, Directorate-General for Competition and Directorate-General for Communications Networks, Content and Technology, Commission sends preliminary findings to Meta over its “Pay or Consent” model for breach of the Digital Markets Act (2024), https://digital-markets-act.ec.europa.eu/commission-sends-preliminary-findings-meta-over-its-pay-or-consent-model-breach-digital-markets-act-2024-07-01_en.

^[52] See Vestager, supra note 3.

[53] Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC [2016] OJ L 119/1.

^[54] Regulation (EU) 2019/1150 on promoting fairness and transparency for business users of online intermediation services [2019] OJ L 186/57.

^[55] See Margrethe Vestager’s opinion before the Committee on Internal Market and Consumer Protection, (2024) https://multimedia.europarl.europa.eu/en/webstreaming/committees_20240403-0900-COMMITTEE-IMCO. The six non-compliance procedures triggered by the European Commission in the span of four months since the application of the substantive provisions enshrine this same idea.

^[56] Regarding the interplay of information asymmetries between competition authorities and firms, see Luís Cabral, Justus Haucap, Geoffrey Parker, Georgios Petropoulos, Tommaso Valletti, and Marshall Van Alstyne, The EU Digital Markets Act: A Report from a Panel of Economic Experts, (2021) Joint Research Centre of the European Commission, https://publications.jrc.ec.europa.eu/repository/handle/JRC122910.

^[57] Despite the gatekeeper included these technical transformations in its compliance report, it presented those same solutions in the compliance workshop organized by the European Commission in late March 2024: for the recording of the event see Compliance with the DMA: Google, (2024) https://webcast.ec.europa.eu/compliance-with-the-dma-google-2024-03-21.

^[58] See ByteDance, Compliance Report (Non-confidential Version) under Article 11 of Regulation (EU) 2022/1925 of the European Parliament and of the Council (Digital Markets Act), (2024) para. 10, https://sf16-va.tiktokcdn.com/obj/eden-va2/uhkklyeh7othpu/Bytedance%20DMA%20Compliance%20Report%20Public%20Overview.pdf.

^[59] For instance, in its report pursuant to Article 15, ByteDance did not provide much information in this regard.

[60] DMA, supra note 1, Recital 12 and Article 1(6).

^[61] Such a case is that of the High-Level Group set out pursuant Article 40 DMA: see Commission Decision 23 March 2023, C(2023) 1833 final. Within the High-Level Group, a sub-group has been constituted to interpret the concept of consent in the sense of Articles 4(11) and 7 GDPR: see Directorate-General for Communications Networks, Content and Technology and Directorate-General for Competition, Kick-off Meeting of the Article 5(2) Digital Markets Act sub-group of the High-Level Group for the Digital Markets Act, (2024) https://ec.europa.eu/transparency/expert-groups-register/core/api/front/document/104022/download.

^[62] In fact, they both recognized such replication in the interventions of their representatives in the compliance workshops organized by the European Commission. For the recordings, see Amazon, Compliance with the DMA, (2024) https://webcast.ec.europa.eu/compliance-with-the-dma-amazon-2024-03-20, and Meta, Compliance with the DMA, (2024) https://webcast.ec.europa.eu/compliance-with-the-dma-meta-2024-03-19.

^[63] A substantive analysis of the changes proposed by Apple is addressed in Alba Ribera Martínez, Ecosystem Orchestrator, No More? Apple’s Proposed Changes to its Distribution of Apps and Overall Architecture, (2024) https://competitionlawblog.kluwercompetitionlaw.com/2024/01/29/ecosystem-orchestrator-no-more-apples-proposed-changes-to-its-distribution-of-apps-and-overall-architecture/.

^[64] The requirements may be found in Apple, Apple announces changes to iOS, Safari and the App Store in the European Union, (2024), https://www.apple.com/newsroom/2024/01/apple-announces-changes-to-ios-safari-and-the-app-store-in-the-european-union/, and Apple, Update on apps distributed in the European Union, (2024) https://developer.apple.com/support/dma-and-apps-in-the-eu/.

[65] Even though consumers may access the first alternative app stores on iOS, the notarization process raised concerns for Epic when it attempted to submit its own binary for launching the Epic Games Store on iOS: see Christopher Dring, Apple calls Epic ‘verifiably untrustworthy’ and blocks Fortnite and App Store on iOS, (2024), https://www.gamesindustry.biz/apple-calls-epic-verifiably-untrustworthy-and-blocks-bid-to-launch-fortnite-and-mobile-store-on-ios#:~:text=The%20move%20followed%20the%20introduction,true%20competition%20on%20iOS%20devices.%22. On alternative app marketplaces, see Callum Booth, We tested Aptoide, the first free iPhone app store alternative, (2024), https://www.theverge.com/24172642/aptoide-ios-game-marketplace-hands-on-europe.

[66] The European Commission has already raised concerns that Apple’s new terms and conditions do not apply to all developers: see Commission decision opening a proceeding pursuant to Article 20(1) of Regulation (EU) 2022/1925 of the European Parliament and of the Council on contestable and fair markets in the digital sector, Case DMA.100109 – Apple – Online Intermediation Services – app stores – App Store – Article 5(4), C(2024) 2056 final, paras 7-9.

[67] See also General Court, supra note 34.

[68] In fact, most of the non-compliance procedures initiated by the European Commission due to gatekeepers’ implementation of their compliance solutions focus on their breach of legal requirements rather than on the concept of consumer harm itself: see, e.g., Commission decision opening a proceeding pursuant to Article 20(1) of Regulation (EU) 2022/1925 of the European Parliament and of the Council on contestable and fair markets in the digital sector, Case DMA.100193 – Alphabet – Online Search Engine – Google Search – Article 6(5), C(2024) 2053 final.

[69] Lewis Crofts, DMA gatekeepers must please customers, not just regulator, EU’s Vestager says, (2024) https://mlexmarketinsight.com/news/insight/dma-gatekeepers-must-please-customers-not-just-regulator-eu-s-vestager-says.

[70] See Louis-Daniel Pape and Michelangelo Rossi, Is Competition Only One Click Away? The Digital Markets Act Impact on Google Maps, (2024) CESifo Working Paper No. 11226,  https://www.cesifo.org/en/publications/2024/working-paper/competition-only-one-click-away-digital-markets-act-impact-google, reporting that, despite a significant increase in Google’s search volume for the query terms maps and google maps, traffic data shows a non-significant decrease in visits to Google Maps, suggesting minimal migration to alternative services.

[71] See European Commission, Commission sends preliminary findings to Apple and opens additional non-compliance investigation against Apple under the Digital Markets Act, supra note 8, taking issue with “Apple’s multi-step user journey to download and install alternative app stores or apps on iPhones.”

^[72] Stakeholders have already begun expressing concerns regarding Apple’s compliance with the same obligation. This concern arises from the fact that only 38 applications have been received by app developers out of the 65,000 registered developers who cater for in-app purchases: see Rachel Graf and Leah Nylen, Apple Says No Major App Developers Accept New Outside Payments, (2024), https://www.bloomberg.com/news/articles/2024-05-10/apple-says-no-major-app-developers-accept-new-outside-payments?embedded-checkout=true.

ICLE Senior Scholar Miko?aj Barczentewicz was a guest on the Mobile Dev Memo podcast to discuss the EU’s AI Act and the state of AI regulation in the EU more generally, as well as the European Data Protection Board’s updated guidance on the ePrivacy Directive. Audio of the full episode is embedded below.

ICLE Senior Scholar Lazar Radic moderated a recent panel at the Dynamic Competition Initiative’s second annual conference on recent developments in the market for generative artificial intelligence. Video of the full panel is embedded below.

ICLE Chief Economist Brian Albrecht was a guest on the Cato Daily Podcast to discuss the current tariff threats and how they may impact business decisions. Audio of the full episode is embedded below.

ICLE Senior Scholar Eric Fruits was a guest on KGW-8’s Straight Talk program discussing recent waves of labor activism in Portland, Oregon. Video of the full episode is embedded below.

ICLE Chief Economist Brian Albrecht was a guest on the Macro Musings podcast to discuss the data behind business dynamism, the notion of greedflation, recent developments in antitrust, and the update Econ 101 needs to make in regard to tariffs.

ICLE’s comments to the UK Copyright Consultation on AI and copyright laws were covered in this story in IP Watchdog. Click here to read the full article.

ICLE’s comment to the UK government’s official consultation on copyright and AI acknowledges that there are tradeoffs policymakers must make to protect the rights of copyright owners. However, ICLE argues that the consultation is too focused on reserving the rights of copyright owners before their works become inputs, missing the nascent yet broader market served by AI outputs that could go far in supporting the long-term interests of the protesting creators.

There is a fundamental tension underpinning copyright law between the commercial interests of creators and the societal interests in enabling widespread distribution and creative reuse, ICLE notes. This tension gives copyright law a hydraulic nature by which stronger creators’ rights often limit the market-creating impacts of new technologies like AI.

ICLE Director of Innovation Policy Kristian Stout was quoted in the Communications Daily story about FCC employees coping with the latest Elon Musk directive on accountability. Read full story here.

FCC staff on Saturday received the same email that most federal employees did from the Office of Personnel Management, asking them to justify their work, but it was unclear Monday how or if FCC staff would respond. The FCC didn’t comment Monday. The leaders of unions that represent federal employees slammed the email. President Donald Trump said Monday he supports the effort.

The email instructed federal employees to submit five bullet points detailing what they had accomplished in the last week to both OPM and their manager by 11:59 p.m. ET Monday. 

Kristian Stout, director-innovation policy at the International Center for Law & Economics, said FCC Chairman Brendan Carr may welcome FCC employees having to justify themselves. If regulated companies are required to serve the public interest, “the FCC, responsible for stewarding taxpayer dollars, should also serve the public interest by ensuring that every dollar spent internally is also used efficiently,” Stout said. Carr has been “actively trying to streamline FCC operations,” even establishing a dedicated Department of Government Efficiency group within the agency, he said.

ICLE Chief Economist Brian Albrecht was quoted in this Benzinga IndiaBstory on skyrocketing food and egg prices. Read full story here.

The price surge stems from a devastating two-year bird flu outbreak that killed approximately 17.2 million egg-laying hens in November and December alone. The U.S. Department of Agriculture projects another 20.3% price increase throughout 2025, compounding concerns about food inflation.

Brian Albrecht, Chief Economist at the International Center for Law & Economics, attributed the rising egg prices primarily to a supply shock. “Lots seem to think monopoly power exacerbated the shock. It’s taken for granted that’s how it works,” he wrote on Tuesday.

ICLE’s work on California’s Prop 103 was mentioned in this San Francisco Chronicle piece. Read full story here.

Research from the International Center for Law & Economics found that California is the worst in the nation for both home and auto insurance rate suppression. Even though California is an expensive and disaster-prone state the average cost of homeowners insurance, $1,250 per year, is well below the national average of $1,915. While this sounds like a boon to consumers, in practice, insurance companies operating in California are overexposed to risk. They respond by charging homeowners who undertake fire-risk mitigation efforts more than they should to make up the difference. So-called “premium revenue” from armored homes is precious to insurers in California.

ICLE Senior Scholar in Competition Policy Dan Gilman offers his perspective on the new FTC’s flawed merger guidelines on this recent story in Reason Magazine. See full story here.

Daniel Gilman, senior scholar of competition policy at the International Center for Law and Economics (ICLE), explains that merger guidelines are not federal regulations; they do not carry the force of law. Still, these guidelines can exert “some influence on the courts,” which can cite them as persuasive authority, similar to law-review articles, noted treatises, and other expert opinions, per Gilman.

ICLE Senior Scholar in Competition Policy, Lazar Radic, was cited in a piece by Mark H. Goldberg discussing how DeepSeek shows why regulators may be getting it wrong. Read full story here.

Last July, I wrote about Canada taking pride in being among the first countries to develop AI regulations with its Artificial Intelligence and Data Act (AIDA). I commented that being first isn’t necessarily the best, especially when Canadians might lose out on access to innovative technologies. If the choice is between getting AI regulation right, or getting regulation right now, was there really a need for AI regulations right now, at the expense of regulating AI right?

The July post included a reference to where I argued against technology specific legislation.

I noticed that last week, Canada signed the Council of Europe Framework Convention on Artificial Intelligence and Human Rights, Democracy and the Rule of Law.

Recently, Lazar Radic of the International Center for Law & Economics had an interesting piece, writing that “DeepSeek Shows Why Regulators May be Getting AI Wrong”.

He argues that AI is evolving faster than regulation. In December, a number of international competition agencies issued a joint statement warning “that firms with existing market power in digital markets could entrench or extend that power in adjacent AI markets or across ecosystems”. The agencies, representing the US, the EU and the UK, said: “Given the speed and dynamism of AI developments, and learning from our experience with digital markets, we are committed to using our available powers to address any such risks before they become entrenched or irreversible harms.”

ICLE Director of Innovation Policy Kristian Stout offers his perspective on how the Ross Vs. Reuters decision could impact generative AI copyright lawsuits in Capitol Forum. Read full story here.

The recent summary judgment ruling in the first-ever AI training data copyright lawsuit may give  courts some guidance on how to consider generative AI copyright cases. If so, that’s good news for  copyright holders. 

Kristian Stout, director of innovation policy at the International Center for Law & Economics, said  this also indicates that courts may not buy the argument that AI models are solely training on  uncopyrightable aspects, rather than the expressive content of works that copyright is meant to  protect. 

“The way the court is reading Warhol is very similar to how I read the Texaco case—that is, the  large language models are using the content for the expressive content itself,” Stout said. Reuters “is not binding precedent, but it will be influential for other cases looking at the training data  issues.” 

Geoffrey Manne, ICLE President and Founder, was recently quoted in a Bloomberg Law story on the new leadership at the DOJ and FTC. Read full story here.

The Trump administration is engaged in a wholesale unwinding of President Joe Biden’s policy agenda — except when it comes to competition enforcement — disappointing dealmakers who had been anticipating an easier time with regulators.

Trump’s antitrust chiefs at the US Justice Department and the Federal Trade Commission said Tuesday that they will follow tougher merger review rules adopted under Biden in 2023, surprising critics who had hoped for a rollback of those requirements.

DOJ and FTC leadership sent memos to staff saying they will be keeping the rules, signaling some continuity with Biden’s stepped-up competition agenda — which drew the ire of business groups and billionaires alike.

ICLE President and Founder Geoffrey Manne was quoted in this Reason story on whether Google constitutes a monopoly. Read full story here.

In United States v. Grinnell Corporation (1966), the Supreme Court distinguished between “the willful acquisition or maintenance” of monopoly power (which is illegal), and monopoly power that results “from growth or development as a consequence of a superior product [or] business acumen” (which is not illegal). Under this view, Google has dominated the search market as “the consequence of a superior product.” Its search engine is simply so much better than Bing that “there’s no price that Microsoft could ever offer” to replace it as an iPhone default.

“The fact that Google search has an 80% market share even on Windows devices, where Edge is the default browser and Bing is the default search engine, demonstrates that consumers go out of their way to use Google because they believe it is the best option,” argues?? Geoffrey Manne, an antitrust expert and president of the International Center for Law & Economics. That’s the Field view.

 

ICLE Chief Economist, Brian Albrecht, is quoted in a Dispatch piece by Scott Lincicome regarding the Investment Reduction Act’s failure to make a dent in climate change. Read full story here.

Given my schedule and intense desire to avoid writing about tariffs again, now’s as good a time as any to check in on the Inflation Reduction Act, which has been in the news lately because Republicans are considering whether to trim the law’s subsidies as part of their big tax/spending package. As readers of Capitolism surely know, I am and remain skeptical of the IRA as an industrial policy bill designed to boost American manufacturing and make the United States a clean energy powerhouse (or whatever), and we’ll surely revisit where those efforts stand later this year when more data are in about the factories and jobs at issue. For now, however, it’s worth examining the IRA in terms of simply its budgetary cost and primary objective of reducing carbon emissions to fight climate change. As an excellent new report from the Breakthrough Institute documents, this is not going well. And none of it should be surprising.

The IRA So Far: Higher Costs and Missed Emissions Targets

As the Breakthrough report documents, the IRA’s subsidies have already become way more expensive than the already-high $383 billion price tag the Congressional Budget Office originally calculated (which itself was billions more than what Senate Democrats first claimed). “More recent estimates,” the report notes, “project the total cost of these programs to run closer to a trillion dollars, with the cost of wind and solar subsidies alone substantially exceeding the cost of the original estimates not only for the clean energy subsidies but for the entire cost of the package, inclusive of non-climate related spending.”

Kristian Stout, director of innovation policy at ICLE, offered perspective in this Observador story on Musk’s bid to buy OpenAI. Read the full article here.

After a lawsuit and a barrage of attack tweets, Elon Musk has taken another swipe at Sam Altman. The Wall Street Journal reported Monday that Musk is leading a consortium that has made a $97.4 billion (€94 billion) bid to buy the nonprofit parent company OpenAI, the startup that developed ChatGPT and of which Altman is CEO.

Ray Lehmann, editor in chief at ICLE, was quoted in this E&E News story about FEMA’s insurance program running out of funds. Read full article here.

The federal program that provides most of the nation’s flood insurance has run out of money to pay claims, forcing it to borrow $2 billion from taxpayers.

The Federal Emergency Management Agency, which runs the program, said Monday that claims worth billions of dollars due to catastrophic hurricanes in 2024 “have depleted” the program’s reserves.

The borrowing will enable FEMA to pay insurance claims from flooding caused by hurricanes Helene and Milton and other events last year. Interest payments on the $2 billion will reduce the program’s capacity to pay insurance claims but will not affect insurance premiums, FEMA said.

Kristian Stout, director of innovation policy at ICLE, offered perspective in this Communications Daily story on the OMB federal funding freeze. Read the full article here.

The U.S. District Court for the District of Columbia granted an administrative stay late Tuesday afternoon that temporarily blocked a White House OMB memo, which called for a freeze on most federal grants and loans, from going into effect. The Trump administration memo already faced an array of legal challenges, including a planned lawsuit from a coalition of Democratic attorneys general from New York, California, Illinois, Massachusetts, New Jersey and Rhode Island. Broadband officials and industry advocates raised questions about the memo’s constitutionality and the future of certain FCC programs, such as Lifeline. Others warned the freeze could have serious implications for NTIA’s BEAD program.

Ben Sperry, senior scholar at ICLE, offered perspective in this Austin American-Statesman story about the Trump administration executive order on TikTok. Read the full article here.

Ben Sperry, senior scholar at the International Center for Law & Economics, said the executive order falls into a “gray area.” Under federal law, it remains illegal for U.S. companies, like internet hosting services and app stores, to maintain, distribute and update TikTok, as the platform remains owned by Chinese company ByteDance. However, Trump’s order invites companies to “break” this law, under the impression they will not face repercussions, Sperry said.

Julian Morris, senior scholar at ICLE, was quoted in this Fortune article about what customers can expect from the Capital One and Discover merger. Read the full article here.

For now, analysts suggest that Capital One might take a more cautious approach toward moving all cards to Discover right away.

“While there could be certain advantages to Cap One of such a shift, there would be very significant short-term costs that militate against moving existing Cap One cardholders over to Discover,” says Julian Morris, Senior Scholar at the International Center for Law & Economics.

Morris specified that costs would include renegotiating terms with reward and co-brand partners and issuing new physical cards with a new customer agreement (which can cost more than $5 for each card).

Geoffrey A. Manne, founder and president of ICLE, was quoted in this story from The Globe and Mail on Trump’s  tariffs and Canada. Read the full article here.

In the U.S., meanwhile, the free hand enjoyed by Mr. Trump is largely a function of decisions made by federal legislators. There are good reasons for that, said Geoffrey Manne, founder of the International Center for Law and Economics, a non-partisan research group.“There’s certainly a valid argument that says, in the case of the kind of real emergency that was contemplated by IEEPA, you want to give that power to the president. You want to have an entity that can act decisively and quickly.”But it also amounts to ”a kind of fecklessness on the part of Congress,” he said. “It likes not have to be responsible for things.”

Threads from ICLE scholars on trending issues for the month of February 2025.

The Chair is right. The FTC should make "sure that unfair competition or deception or unfairness do not suppress Americans wages."

Unfortunately, assessing competition in labor markets is trickier than output markets.

?on a forthcoming paper with @geoffmanne and @AuerDirk: pic.twitter.com/m9Q1XqfcdD

— Brian Albrecht (@BrianCAlbrecht) February 25, 2025

NEW PAPER: an updated version of my @LawEconCenter paper on “The politicization of IP protection: the case of standard essential patents” has been just published in the European Intellectual Property Review (EIPR). pic.twitter.com/GUTSol8AR5

— Giuseppe Colangelo (@GiuColangelo) February 25, 2025

As I wrote last week, this was bound to happen. This US administration was always going to stand up for its firms, and Trump likes tariffs… a lot.

If the European Commission does the smart thing, this could be great news for EU consumers & startups. https://t.co/QehqKpLFE6 pic.twitter.com/Y6vZUjCzwg

— Dirk Auer (@AuerDirk) February 22, 2025

Tariffs seem to be getting all the attention these days, but non-tariff barriers are probably a much bigger drain on economic activity. pic.twitter.com/bilsitnCuZ

— Eric Fruits, Ph.D. (@ericfruits) February 21, 2025

The EU is missing out on the digital revolution.

The lack of tech giants, slow innovation, and regulatory overreach are holding us back.

If this doesn’t change, Europe will remain stuck in the 20th century.

What concrete steps can we take to turn this around?

1/ pic.twitter.com/TgnDmRdPaF

— EPICENTER – European Policy Information Center (@epicenterEU) February 20, 2025

Looking at Trump v. CBS, @WSJopinion asks the most important question: Why should the feds regulate broadcast TV? pic.twitter.com/8woACDI092

— Eric Fruits, Ph.D. (@ericfruits) February 19, 2025

"Moreover, KOSMA would make social media noticeably worse for teen users by limiting platforms’ ability to curate content for them effectively. The end result would be increased incentive for teens to lie about their age as well." More from @RBenSperry, link in the comments ? https://t.co/hHW2ZVtu0l

— Int'l Ctr Law & Econ (@LawEconCenter) February 18, 2025

Let's put aside the intra-FTC tensions here.

Commissioner Bedoya argues the FTC should study the egg supply chain. That's fair.

But the market dynamics look more consistent with competitive supply and demand than market manipulation. https://t.co/YBws4KEbdm

— Brian Albrecht (@BrianCAlbrecht) February 18, 2025

I am so stoked that I finally found a way to use this meme in a @TOTMblog piece. pic.twitter.com/j6IAwjCJ84

— Eric Fruits, Ph.D. (@ericfruits) February 14, 2025

Don't know how many competition policy nerds are out there.
But our submission on the Review of the Commerce Act, joint with @laz_radic at ICLE, is up now.
Biggest picture: the review does not address current first order issues.
And a greater focus on consumer welfare is needed pic.twitter.com/VAixOeGNyQ

— Eric Crampton (@EricCrampton) February 13, 2025

More on ?? and competition and digital markets:

The @LawEconCenter has submitted comments to contribute to @CadeGovBr's public hearing “Competition in Digital Ecosystems of Mobile Devices (iOS and Android)?. A ? pic.twitter.com/l0H1uu5XB7

— Mario Zúñiga (@MZunigaP) February 12, 2025

1/9 The ??UK's first major tech investigation under its new digital markets law could reshape how brits search online. But before rushing to regulate Google Search, here are crucial lessons from abroad. A ? pic.twitter.com/clWjERSy9X

— Lazar Radic (@laz_radic) February 11, 2025

?? Competition in Digital Markets:

The discussion in Brazil has shifted from focusing on ex-ante regulation to a “more flexible approach”. That's good, isn't it? A ?: pic.twitter.com/jCpCbYKKVh

— Mario Zúñiga (@MZunigaP) February 10, 2025

@benthompson’s latest post argues that with AI tools like Deep Research, public data may lose much of its value. These tools can swiftly synthesize vast amounts of publicly available info, making it more accessible and less unique. ? 1/5
https://t.co/HbDycfgXp3

— Lazar Radic (@laz_radic) February 10, 2025

1/ To nobody's surprise, regulators may be getting AI wrong. The rise of DeepSeek, an open-weight LLM from China, challenges key assumptions about AI competition and market power. ?? https://t.co/NVdrEjv8oe pic.twitter.com/i9DAzyxXxG

— Lazar Radic (@laz_radic) February 10, 2025

Regulators pushing to flood the iPhone with third-party content miss the point: Apple’s magic is in curation. From the unboxing to case colors, every choice is intentional. It’s not about limiting options—it’s about refining them to deliver the best, purest experience. 1/7 pic.twitter.com/ziklsIkfGJ

— Lazar Radic (@laz_radic) February 9, 2025

ICYMI: @LawEconCenter founder/president @geoffmanne joined a @FedSoc panel to examine the Google remedies trial and its implications for other large companies, particularly in tech. Link in the comments ?. @AsheeshKAgarwal, @anantitrust, and Thomas DeMatteo. pic.twitter.com/qLmXKx5ctd

— Int'l Ctr Law & Econ (@LawEconCenter) February 6, 2025

The DOJ won their case against Google Search. Now what?

This important RCT on Google Search users gives some clue into the possible outcomes. My reading is that it's not good for feasible remedies.

Let me explain. https://t.co/8WxZHL7U4G

— Brian Albrecht (@BrianCAlbrecht) February 5, 2025

This oped from Lina Khan is completely wrong on competition in general.

Somehow, its even worse on the unique AI aspects.

The story isn't about lack of competition – it's about how competition in tech markets actually works. pic.twitter.com/PA9OJn4Gez

— Brian Albrecht (@BrianCAlbrecht) February 4, 2025

In its first move, Trump's DOJ is suing to block HPE's $14B acquisition of Juniper Networks, claiming it would reduce competition in enterprise-grade wireless LAN. Some preliminary thoughts. ? 1/15 pic.twitter.com/tbmyzeIjqa

— Lazar Radic (@laz_radic) February 1, 2025

IMO Microsoft’s move to put Xbox games on PlayStation and Switch isn’t random. It’s a strategic shift driven by three key factors: regulation, revenue decline, and the future of gaming economics. A thread ? 1/8 https://t.co/2sh0nxkDWV

— Lazar Radic (@laz_radic) February 1, 2025