As the Joe Biden digital economy team takes shape, the European
Union’s (EU) proposed Digital Markets Act (DMA) and the Digital Services Act
(DSA) loom large. The proposals — clearly aimed at reigning in American Big
Tech companies in Europe — are designed to address EU members’ desire to
produce their own regulatory approach toward the digital economy. They
challenge the ability of technology to innovate, grow, and compete in the
future by prioritizing the creation of regulatory frameworks over ensuring
consumers can reap the benefits of new digital goods and services. What happens
when the EU mandates regulations on US technology firms?

The EU proposals would impose obligations on companies with more
than 45 million users. In some instances, they would add prohibitions on
sharing or combining data with other services — even for beneficial purposes,
such as speeding logins or something like Google Maps on the Uber platform.
Violators of these new rules could be fined up to 10 percent of their annual
revenue.

These types of restrictions don’t improve services or help
consumers. Instead, they arguably add to the cost of developers’ innovation
cycles by eliminating collaboration across platforms. For example, apps that
store users’ preferred locations, merchandise, or contact information for
delivery or payment processing usually interoperate with third-party partners
whose expertise enhances the apps’ usefulness. For example, instead of running
their own payment platforms, most retail apps partner with a back-end payment
gateway.

The proposed DMA designates certain technology companies as
“gatekeepers.” The EU argues that by promoting their products or services at
the top of their websites — or ranking their services as higher in search
results — the gatekeepers are engaging in “self-preferencing” or
anticompetitive behavior. But physical retailers do self-preferencing all the
time. Think of big-box retailers that place private label items next to name-brand
competitors, showing consumers that a comparable product can be purchased for a
lower price.

Instead of ending self-preferencing, I believe more transparency
regarding the rules of engagement is necessary. Antitrust analyst Aurelien
Portuese says, “The DMA may prove to be most effective in building walls where
consumer prices may increase, consumer quality decrease[s], and entrenched
market positions’ overall contestability diminish rather than increase.” When
interacting with platforms, wouldn’t consumers rather have a transparent set of
rules that allows them to choose their level of tolerance for how much data is
shared? Many informed consumers might prefer to keep the benefits of seamless
interoperability.

The other proposal, the DSA, would require digital platforms to be
responsible for content on their websites and be transparent about their
moderation practices — including how, when, and why they take down illegal
content; counterfeit goods; disinformation (political or otherwise); and hate
speech. It would also create new rules around complaints related to deleted
content a user wishes to have reinstated. As Americans know from the fierce
debate around Section 230, it is challenging to find a balance between free
speech, enabling innovation, and consumer protection. 

Michael Slaby, a former digital strategist for President Barack Obama, thinks curbing Big Tech isn’t such a bad idea. When asked about
Twitter’s deplatforming of former President Donald Trump, he said “The first
amendment is about government suppression of speech; it doesn’t have anything
to do with your access to Facebook.” Slaby sees American platform companies
making Faustian bargains, valuing controversial content that may cause public
outrage — and accompanying increases in traffic and profits — over curbing
online disinformation. The EU is following a similar thought process, but with
the goal of breaking the technology into open components to try to bring competition
to its shores.

Do social media platforms encourage thought bubbles and extremist
views through their algorithms? The EU believes transparency on algorithms
could answer this question, but at what cost? Revealing a proprietary algorithm
is akin to revealing the recipe for a company’s secret sauce. A company’s
ability to enhance interoperability with its digital partners using its
algorithms may be the reason that consumers choose it over a competitor.
Requirements to reveal software code and algorithms are one reason the US has
trade disputes with China over the theft of American intellectual property. Now
the EU has written legislation that would force American tech companies to
reveal algorithmic information to enable “fair competition.”

Instead of finding ways to fragment the digital success story and
engaging in protectionism, the US and Europe could both benefit from increased
global coordination on issues affecting digital markets such as data rights and
data protection. The DMA and DSA proposals reveal Europe’s continued desire to
slow progress in tech while it struggles to find native companies to compete in
the global market. Establishing more regulatory barriers creates obligations,
not innovations, in digital markets. Europe would be better suited to find ways
to compete outright and work with partners on creating a healthy dynamic and
harmonization on digital access instead of creating more barriers to entry,
hindering the free flow of information, and imposing penalties on business success.

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