meta7 Studios | Blog | Impact of the DMA on Self-Preferencing by Digital Gatekeepers

Introduction

Digital platforms shape everyday life. At any given time, one can access a multitude of digital platforms, whether it be for purposes of research, shopping, or entertainment. But of course, any given platform also comes with competitors, competing for market share, user numbers and, ultimately, profit. The companies behind the major platforms have a great responsibility in their positions as "digital gatekeepers", as they have the ability to influence market dynamics and consumer decisions. These gatekeepers have in the past exploited this position to intervene in their own platform and pursue strategies that are related to ’self-preferencing’ practices, which has led to various discussions around fairness and competitiveness in digital markets.

Among other factors, such practices have prompted the introduction of the Digital Markets Act (DMA) by the European Union, which is intended to ensure a ’level playing field’, i.e. fair competition and innovation in the digital sector. This synopsis uses an analysis of business models to examine the self-preferential activities carried out in the past and how the DMA attempts to counteract these practices. It also analyses the measures that digital gatekeepers are taking to comply with the new regulations. Finally, it discusses the extent to which the DMA has already proven effective in regulating these practices and examines implications and future challanges.

Self-Preferencing Practices

A so-called gatekeeper is defined by the European Commission as a digital platform, which provides "an important gateway between businesses and consumers in relation to core platform services." (European Commission, 2024, p. 1). The pivotal role of these platforms not only shapes the marketplace but also sets the stage for complex competitive dynamics among platform users. Particularly, gatekeeper platforms, by virtue of their dominant positions, can manipulate market conditions in ways that may not be immediately apparent. For instance, by favoring their own services, these platforms can subtly yet effectively skew competition to their advantage - so-called ‘self-preferencing’ activities. The investigation into such practices, as described in a study by Hutchinson and Trešˇcáková (2022), reveals that a staggering 93% of dominance abuses in the EU consist of exclusionary conducts that restrict or impede fair competition. The following section will therefore provide an overview about the different types of self-preferencing practices.

Refusal to Deal-Related Self-Preferencing Practices

This kind of practice can happen if a gatekeeper platform has access to the vast amounts of data generated by its business users and their customers but restricts or refuses to share that access or access to a technology is denied, “without which it would not be possible to compete in a market” (Hutchinson & Trešˇcáková, 2022, p. 9). A possible example for a refusal to deal-related self-preferencing practice is coming from Apple, which does not open up their Near Field Communication (NFC) technology for complementors, while Apple’s own payment app makes use of it. Bostoen and Mandrescu (2020) over-classify this as a type of ‘technical self-preferencing’. Another type of self-preferencing described by Bostoen and Mandrescu (2020) is ‘contractually self-preferencing’. This can happen, for example, when a platform excludes complementors which do not agree to the terms and conditions or comply with the developer guidelines. In the past, for example, complementors have complained that Apple, after entering its own market/platform with their own apps, has started to hinder or exclude competing apps from their platform (Kaspersky Daily, 2019; Qustodio Technologies SL, 2019).

Tying-Related Self-Preferencing Practices

Product bundling is a common practice among gatekeepers to tie its users to their product and therefore harms or prevent the use of complementor applications which work with the gatekeepers’ platform. This can harm incentives for complementors to innovate and “restrict the ability of end users to install and effectively use third party software applications or software application stores on operating systems or hardware of the relevant gatekeeper and restrict the ability of end users to access these software applications or software application stores outside the core platform services of that gatekeeper.” (Council of the European Parliament, 2022, p. 13).

A popular example of tying is the Microsoft/Windows Media Player (WMP) case from 2004. In this case, Microsoft pre-installed WMP on its operating system and hindered interoperability with other media players. Since customers had no chance to buy Windows without WMP, the demand for other media players decreased significantly, leading to the European Commission to determine this as “a tying abuse in Article 82 of the EC Treaty . . . fulfilled by Microsoft’s behaviour in this aspect.” (Ferrari, 2005, p. 31).

Another good example can also be API restrictions, which are limiting interoperability and are therefore also a type of tying. For example, Google made “YouTube API restrictions [which] den[ied] full functionality to users who [had a] Windows Phone.” (Edelman, 2015, p. 392) Tying is also revelent when it comes to defaults within APIs. For example, which app is opened when you click on a link in an email. Here, the platform’s own app or service is often opened on default, which cannot be changed (Bostoen & Mandrescu, 2020).

Margin Squeeze-Related Self-Preferencing Practices

Margin squeezing is described by Bostoen and Mandrescu (2020) as the act that “an upstream operator forces its downstream competitor—who is just as efficient—off the market by squeezing its profit margins.” (Bostoen & Mandrescu, 2020, p. 26) This practice varies across different types of platforms

Search engines, such as Google, may rank their products higher, affecting competitors negatively. An example of this is the popular Google Shopping case decision by the European Commission. Google had positioned its own shopping service on its search engine better in the ranking than those of competitors (General Court of the European Union, 2021). This had resulted in decreasing traffic volume of competing services, and that of Google’s service increasing (de Sousa & Pedro, 2020). For this abuse of dominance, Google had to pay 2,42 billion C. Self-preferencing in ranking, however, does not only have to be based on search engines. For example, studies have shown that “through their control of technological architecture, the user interface and the ranking algorithms, . . . app store operators control how/which apps are shown to users” (Bostoen & Mandrescu, 2020, p. 15). For instance, evidence was provided that Apple gives preference to its own apps in its App Store (Nicas & Collins, 2019).

In advertising, gatekeepers can exploit their position through pricingpower to squeeze out other competitors. An instance is Google’s programmatic advertising services (Google’s DFP and Google’s AdX). DFP, responsible for publisher ad servers, offered AdX, responsible for supply side platforms (SSPs), more favorable terms than SSPs competing with AdX. In addition, AdX has established preferential interoperability with DFP (Höppner, Volmar, & Westerhoff, 2021). This has led to Google being accused of “using its dominant position on the ad server technologies market and the platforms for the programmatic sale of advertising space to squeeze its competitors out of the SSP market place.” (Hutchinson & Trešˇcáková, 2022, p. 16) In 2021, Google was fined 220 million C for this abuse.

Marketplaces like Amazon, which both operates the marketplace and sells products, can exploit this dual role. The most prominent example for this practice is Amazon. Playing a dual role in which it simultaneously offers a marketplace and sells products on it itself (e.g., ‘Amazon Basic’ products), Amazon has access to sensitive data “about marketplace sellers, their products and transactions on the marketplace” (European Commission, 2019, p. 1) and is able to use this data for their own profit.

Digital Markets Act

For a long time, anti-competitive practices, including the various cases from the last section, were mainly regulated via Articles 101 and 102 TFEU. However, it was recognized that these articles does not sufficiently cover the structural problems and clearer regulations of gatekeepers are needed, which function faster and more effectively. Therefore, on July 19, 2022, the ’Digital Markets Act’ (DMA) was adopted by the EU Parliament to fill this gap. It lays down specific rules for gatekeepers, intended to establish a ’level playing field’ on the digital markets in the EU and focuses on fair competition and contestability. In addition to self-preferencing activities, it therefore also includes obligations related to interoperability and mobility, unfair terms and strategies, and transparency. The main difference between 101/102 TFEU and the DMA is that a dominant position or situation no longer needs to be examined ’ex post’, as the regulation applies ’ex ante’ and therefore acts as a kind of preventive instrument without requiring evidence of abuse first. On September 6, 2023, the European Commission designated six companies as gatekeepers - Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft - and designated a total of 22 core platform services provided by these. If these gatekeepers fail to comply with DMA regulations, they may be liable for up to 10% of the company’s total worldwide annual turnover.

In order to counteract self-preferencing activities in the DMA, Article 6 of the DMA deals specifically with requirements which gatekeepers have to comply with, which can also individually be further specified by the Commission.

It can be obtained that different obligations of Article 6 were created as a response to the different types of self-preferencing activities described in the last section. These paragraphs will be analyzed in the following.

References regarding refusal to deal practices can hereby be noticed in Article 6(7) of the DMA, which states that gatekeepers shall "provide business users . . . free of charge, with effective, highquality, continuous and real-time access and use of . . . data, that is provided for or generated in the context of the use of the relevant core platform services by those business users and the end users engaging with the products or services provided by those business users”. This oblingation tries to ensure that gatekeepers do not leverage their control over data to disadvantage business users.

Obligations which are related to self-preferencing tying practices can be found in multiple paragraphs; Article 6(4) states that gatekeepers "shall allow and technically enable the installation and effective use of third-party software applications or software application" and "not prevent the downloaded third-party software applications or software application stores from prompting end users to decide whether they want to set that downloaded software application or software application store as their default", Article 6(6) states that “gatekeeper[s] shall not restrict technically or otherwise the ability of end users to switch between, and subscribe to, different software applications and services that are accessed using the core platform services of gatekeeper[s], including as regards the choice of Internet access services for end users” and Article 6(7) states that gatekeepers "shall allow providers [...], free of charge, effective interoperability with, and access for the purposes of interoperability to, the same hardware and software features accessed or controlled via the operating system or virtual assistant listed in the designation decision pursuant to Article 3(9) as are available to services or hardware provided by the gatekeeper."

Margin squeeze related self-preferencing practices are also addressed. Regarding ranking algorithms, Article 6(5) states that gatekeepers shall "not treat more favourably, in ranking and related indexing and crawling, services and products offered by the gatekeeper itself than similar services or products of a third party".

In relation to advertising, gatekeepers "shall provide advertisers and publishers, as well as third parties authorised by advertisers and publishers, upon their request and free of charge, with access to the performance measuring tools of the gatekeeper and the data necessary for advertisers and publishers to carry out their own independent verification of the advertisements inventory, including aggregated and non-aggregated data."

Especially relevant for marketplaces, Article 6(2) stipulates that gatekeepers, if they are in competition with business users, “shall not use . . . any data that is not publicly available” for their business practices.

Applications

Since March 7, 2024, gateepers must comply with all obligations provided in Articles 5, 6 and 7 of the DMA. Within the same date, they had to provide the Commission with a report describing in a detailed and transparent manner the measures they have implemented to ensure compliance with these obligations, and to publish a non-confidential summary of such reports. Both the report and the nonconfidential summary must be updated at least annually. In the following, the non-confidential summaries of each gatekeeper will be analyzed to investigate the actions taken by it to comply with DMA regulations.

Apple

With the rollout of iOS 17.4, Apple has released a mobile operation system version for only for EU-residents, which allows to obtain apps from an ‘alternative distribution’. This rollout opens up the App Store to alternative app marketplaces and payment systems that allow developers to operate outside of Apple’s own ecosystem. This constitutes primarily a response to Articles 6(6) and 6(7), which requires interoperability measures. In addition, Apple allowed alternative browser engines to be used, and users now have the option to choose their own default browser and default contactless payment app. A form was also created for developers to request interoperability features, leading Apple to design an effective interoperability solution if it falls under Article 6(7) and can be supported (Apple, 2024, p. 6).

Amazon

With regard to violations, referenced to in the previous section, Amazon’s measures in response to Article 6(5) are particularly interesting to analyse. In their report, they state: "Ranking processes following a search query are applied in the product search results page and in the Featured Offer, Second Offer, and All Offer Display Link on the product detail page. These processes operate in an unbiased manner, using objective inputs and weighing them neutrally to facilitate the best possible customer choice irrespective of whether a product is offered by Amazon Retail or Sellers, and therefore are in compliance with Article 6(5) of the DMA." (Amazon, 2024, p. 17). With regard to the evaluation of data, which is relevant for Article 6(2), they write that "Amazon has implemented a range of mechanisms designed to maintain continued compliance with the requirements of Article 6(2) of the DMA” (Amazon, 2024, p. 29), , whithout mentioning any other specifc actions.

Alphabet

Alphabet has "adopted a series of changes, including to avoidany conceivable doubts about Google’s compliance with Art. 6(5) [...]" with regard to self-preferential ranking, which is addressed in Art. 6(5). (Alphabet, 2024, p. 176). These changes are, for example, that you are no longer forwarded directly to specific Google services when clicking on certain links or that various Google services are no longer displayed as entry points in the search bar” (Alphabet, 2024, p. 177 ff).

Microsoft

Microsoft has also made changes to their OS, altough they where relatively small in comparison. In reponse to Article 6(4) Mirocosft states, that now "dialogs promoting Microsoft products have been eliminated from the experience described in the previous section. For example, dialogs promoting Microsoft Edge have been removed from this experience when users want to switch browsers." (Microsoft, 2024, p. 96). Furthermore, there were other small API openings to ensure interoperability referencing to Article 6(7) and more neutrality in the presentation and recommendation of products or services (Microsoft, 2024, p. 12).

ByteDance

For the last gatekeeper, ByteDance, there where no action taken by ByteDance regarding to comply with the DMA regulations.

Discussion

The following section discusses the effectiveness of the DMA in practice, as well as long-term implications and challenges.

Effectiveness in Practice

The analysis of the gatekeepers’ compliance reports in the last section has shown that gatekeepers are making changes to their business models, which indicates a positive change in direction and effectiveness of the regulations. Specific results in figures are not yet available due to the recency of the topic, but Reuters was able to determine that independent browsers on Apple’s iOS had seen a high spike in users in the first month after the regulations were implemented (Mukherjee, Chee, Mukherjee, & Chee, 2024). Whether and how further influences can be determined remains to be seen.

Long-Term Implications

By implementing the DMA, the EU is setting a standard that other countries may adapt, which could promote global cooperation in the digital economy in the long term. There are already similar initiatives in other countries, however, they are not as progressive as those in the EU. One example is the ’American Innovation and Choice Online Act’ (AICO), which is also often described as the ’self-preferencing’ bill, which "would make it illegal for companies to self-prefer their businesses." (Ghaffary, 2021)

Challenges and Adaptability

The rapid evolution of technology markets could pose a future problem, since gatekeepers are often able to change their business models and technologies faster than regulatory adjustments can be implemented. Attempts have been made to counteract this with ’ex-ante’ regulation. However, this is not yet well tested in practice: "In telecommunications law, ex ante rules are applied in two markets only and by national authorities. The DMA model requires the Commission’s involvement. The Commission’s team would slowly be put together and is likely to be understaffed and suffer from lack of experience for a considerable period. All this means that the ex ante method, especially in its present broad and farreaching form, is an untested territory." (Savin, 2022, p. 8) In addition, another concern could be the fact that gatekeepers rely on self-reporting for compliance, which raises concerns about the transparency and completeness of provided information.

Inference

The final effectiveness of the DMA remains to be seen. Some short-term positive changes have been achieved, but now it depends on how well the DMA can really contribute to the rapidly developing ecosystem of the digital economy without having undesirable side effects. It is important to offer the platforms freedom for innovation, not to restrict them too much and burden them with rules, but at the same time to ensure responsible behavior.

Conclusion

This synopsis paper has examined the impact of the Digital Markets Act on self-preferential practices by digital gatekeepers. It was shown how large platform owners have exploited their dominant market position to conduct anti-competitive practices. In addition, various practices of self-preferencing were analyzed with examples from the past that have shown the need for stricter regulation. For example, how Amazon has used internal data from sellers to improve its own products and Google has improved the ranking of its own services (Margin Squeeze-Related Self-Preferencing Practices), Apple has tied users to its platform through a lack of interoperability (Tying-Related Self-Preferencing Practices) or how Apple has given complementors poor conditions (Refusal to Deal-Related Self-Preferencing Practices).

In response to these practices, the DMA was introduced, replacing 101/102 TFEU and imposing various obligations to proactively prevent anti-competitive practices instead of reactively correcting them. In the result, six companies were named as gatekeepers: Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft.

In particular, Article 6(2), Article 6(4), Article 6(5), Article 6(6) and Article 6(4) of the DMA attempt to counteract self-preferencing practices. In the event of non-compliance with these regulations, the so-called gatekeepers may face high penalties, and may be liable for up to 10% of the company’s total worldwide annual turnover.

By analyzing the gatekeepers’ compliance reports, which must be created once a year by the gatekeepers since the effective date of the DMA, it was shown that gatekeepers have already taken various measures to adapt their platforms. For example, with the release of iOS 17.4 in the EU, Apple has approved alternative app marketplaces and payment systems or Google has taken measures to enable fairer competition by revising ranking algorithms and changing displays. Nevertheless, in the discussion, it was noted that despite these successes on the part of the EU, the goal and a future challenge will be to translate these types of changes into sustainable practices that improve the competitive landscape.

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