The Economics and Regulation of Digital Markets: Volume 31

The European Union’s Digital Markets Act (DMA) calls for far-reaching changes to the way economic activity will occur in EU digital markets. Before its remedies are imposed, it is critical to assess their impacts on individual markets, the digital sector, and the overall European economy. The European Commission (EC) released an Impact Assessment in support of the DMA that purports to evaluate it using cost/benefit analysis.

An economic evaluation of the DMA should consider its full impacts on dynamic competition. The Impact Assessment neither assesses the DMA's impact on dynamic competition in the digital economy nor evaluates the impacts of specific DMA prohibitions and obligations. Instead, it considers benefits in general and largely ignores costs. We study its benefit assessments and find they are based on highly inappropriate methodologies and assumptions. A cost/benefit study using inappropriate methodologies and largely ignoring costs cannot provide a sound policy assessment.

Instead of promoting dynamic competition between platforms, the DMA will likely reinforce existing market structures, ossify market boundaries, and stunt European innovation. The DMA is likely to chill R&D by encouraging free riding on the investments of others, which discourages making those investments. Avoiding harm to innovation is critical because innovation delivers large, positive spillover benefits, driving increases in productivity, employment, wages, and prosperity.

The DMA prioritizes static over dynamic competition, with the potential to harm the European economy. Given this, the Impact Assessment does not demonstrate that the DMA will be beneficial overall, and its implementation must be carefully tailored to alleviate or lessen its potential to harm Europe’s economic performance.

The attempt to establish a common European framework for core platforms' duties and responsibilities toward other actors in the digital environment is at the core of the recent scholarly debate surrounding the Digital Markets Act (DMA) proposal. In particular, the everlasting juxtaposition between the “data power” – as emerging from recent cases (Section 2) – that dominant tech companies enjoy and the concept of consumer sovereignty (Section 3) lies at the core of the proposal's attempt to identify digital core platforms as market gatekeepers. Accordingly, this chapter critically investigates the divide between power imbalance and consumer sovereignty in light of the architecture designed by the DMA, with a specific focus on its effectiveness in identifying gatekeepers' power drivers (Section 4). After highlighting the main critical aspects of the pertinent rules, opportunities for fruitful developments are then identified through the reframing of some of the notions considered in the proposal, and namely the role of “lock-in” effects and “data accumulation” (Section 5). Lastly, this chapter suggests that the DMA advancements – while desirable – are bound to be fragmentary in the absence of a wider appraisal of the nature of data power imbalance dynamics in the modern digital markets (Section 6).

Social media networks make their services freely available to all users. Users pay for the service received with the time and attention taken by the advertisements. This chapter argues that social media platforms are a unique form of monopoly driven by “the more the merrier” effect (i.e., network effects) in users' consumption. These monopolies exercise market power, not by charging higher prices to users but by “tying” larger amounts of advertising to their content. Traditional antitrust instruments designed to address excessive pricing and reduced output by monopolies need to be reframed to tame the attention economy problems in the social media industry. This chapter discusses five antitrust instruments grouped in three categories: structural, behavioral, and market-based remedies. Market-based solutions are the least explored in the literature, despite being the most promising instruments to lower the attention costs imposed on users, while preserving the economies of scope in production and the network effects in consumption, and possibly maintaining free access to social media, as we know it today.

Recent academic studies, as well as media reporting, have devoted substantial attention to the ongoing “crisis of democracy.” Democratic “backsliding” of Central and Eastern Europe – sometimes referred to as an effort to establish a new system of “illiberal democracy” – is one of the most visible symptoms of this crisis. This narrative is supported by the quantitative metrics of democratic quality, reflecting professional community views on the appropriate criteria to define and assess democracy. However, once general public views expressed in the survey item of “satisfaction with democracy” are taken into account, the picture changes markedly. This chapter analyzes quantitative metrics reflecting expert community consensus and the general public assessment of the quality of democracy in the 27 EU members over the period 2010–2019. It documents substantial divergence between the perspectives of the experts and the general public – while expert-based indexes portray Central and Eastern European backsliding as the most significant trend in the EU democratic landscape, public opinion identifies a very different set of democracy's successes and failures. As experts and the general public fail to arrive at mutually accepted criteria of democratic performance evaluation, public debate has become futile. Meaningful discussion and systemic corrections have become unlikely, creating conditions easily exploitable by the populists, eager to frame it as an example of “elite” detachment from the “ordinary people”.

We investigate how firing notification procedures influence wage growth. Using a sample of 33 countries over the period 2006–2015, we show that administrative requirements in cases of dismissal have a positive and significant effect on wage growth. The result is robust even after controlling for the endogeneity of the firing notification restrictions, the involvement of third parties in the wage bargaining process, the minimum wage, the firms' training policy, and the composition of employment. These findings suggest that firing notification procedures foster the growth of wages by increasing the bargaining power of incumbent workers.