Proposal for a Regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector (Digital Markets Act) - Hoofdinhoud

Document­datum	20-01-2021
Publicatie­datum	27-01-2021
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Council of the European Union

Brussels, 20 January 2021 (OR. en)

14172/20

Interinstitutional File: ADD 1 REV 1

2020/0374(COD) i

RC 20 MI 585 COMPET 647 CODEC 1376 TELECOM 273 IA 123

COVER NOTE

From: Secretary-General of the European Commission, signed by Ms Martine DEPREZ, Director

To: Mr Jeppe TRANHOLM-MIKKELSEN, Secretary-General of the Council of the European Union

Subject: Proposal for a Regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector

(Digital Markets Act)

Delegations will find attached document SEC(2020) 437/2.

Encl.: SEC(2020) 437/2

EUROPEAN COMMISSION

19.1.2021

SEC(2020) 437/2

REGULATORY SCRUTINY BOARD OPINION

Proposal for a Regulation of the European Parliament and of the Council on contestable and fair markets in the digital sector (Digital Markets Act)

{COM(2020) 842 i} {SWD(2020) 363} {SWD(2020) 364} EUROPEAN COMMISSION

Regulatory Scrutiny Board

Brussels,

RSB

 Opinion

Title: Impact assessment / Digital Markets Act

Overall 2 nd opinion: POSITIVE WITH RESERVATIONS

(A) Policy context

Many digital markets see a strong concentration trend towards a few players. Some large online platforms have emerged as gatekeepers of the digital economy sectors. They control a significant portion of transactions between consumers and businesses. This can make it difficult for existing or new market operators to compete. This can translate into higher prices for consumers or lower prices for producers, lower quality, or less choice and innovation. Existing EU competition rules do not seem to provide the most effective and efficient way to tackle some of these existing or emerging market failures.

This initiative is part of the Commission’s overall digital strategy announced in its Communication ‘Shaping Europe's digital future’. Its aim is to tackle existing and emerging market failures through regulatory measures and through a market investigation regime.

(B) Summary of findings

The Board notes that the report has been substantially redrafted. It now integrates the problem description and policy options into a single approach.

However, the report still contains significant shortcomings:

• (1) 

  The report does not fully justify the selection of the core platform services to be covered by the initiative.

• (2) 

  The report does not sufficiently define some of the measures included under the different policy options. The scoring of options is not always clear.

(C) What to improve

• (1) 

  The report should make clearer how the problem drivers may lead to the identified negative outcomes. It should consider the negative consequences of curtailing the size advantages following from network economies and economies of scale for consumers. It should better distinguish problems relating to size advantages from the monopolisation of data and the imposition of market rules like exclusive dealings. The report should better justify the identification and selection of the core platform services. It should present evidence of what determines persistent misuse of gatekeepers’ power vis-à-vis dependent business users and customers. It should more convincingly demonstrate for each of the selected core platform services that the identified weak contestability has negative effects in terms of higher mark-ups, lower quality of service, or reduced innovation. The report should better justify why other platform services, such as content streaming providers, would not meet the selection criteria.

• (3) 

  The report should better define and justify the measures covered under the options. It should demonstrate why the proposed set of cumulative quantitative thresholds (under the ‘non-dynamic’ and ‘semi-flexible’ options) can be considered as a robust and reliable trigger across all selected core platform services for the (quasi-automatic) designation of gatekeepers and the imposition of obligations. It should better explain why a market investigation is not deemed necessary or proportionate in these situations.

• (4) 

  From a future proofing perspective, the report should explain why the possibility of updating the list of core platform services following a market investigation was discarded for the ‘semi-flexible’option, while maintained as a key element for the ‘fully flexible’ option. As regards the ‘fully flexible’ option, it is not clear why certain beneficial guidance elements (including indicative quantitative thresholds), which could have provided further legal clarity, have not been considered in the design of this option.

• (5) 

  The report should clarify the distinction between the ‘semi-flexible’ and ‘fully flexible’ options in terms of the obligations that can be added following a market investigation. It should also explain, where the market investigation powers and process deviate from the envisaged model and rules under Regulation 1/2003 i.

• (6) 

  The report should improve the comparison of options in terms of effectiveness and benefits (including in summary table 5) given that the ‘fully flexible’ option seems to score best in minimising false negatives/positives and future proofing. The report should clarify the relative weight given to the different assessment criteria (e.g. legal certainty vs. flexibility vs. speed). It should better substantiate the assumption that the ‘fully flexible’ option would lead to a higher number of large platforms being covered, and why the decisions taken under this option would be ‘arbitrary’ (given that they would be based on market investigation).

• (7) 

  The report should better explain the limitations of the methodology used. When presenting evidence the report should differentiate more clearly between cases which are still being investigated or pending and the established case law.

The Board notes the estimated costs and benefits of the preferred options in this initiative, as summarised in the attached quantification tables.

(D) Conclusion

The DG may proceed with the initiative.

The DG must revise the report in accordance with the Board’s findings before launching the interservice consultation.

Full title Digital Market Act

Reference number PLAN/2020/7913; PLAN/2020/7452

Submitted to RSB on 6 December 2020

Date of RSB meeting Written procedure ANNEX: Q UANTIFICATION TABLES EXTRACTED FROM THE DRAFT IMPACT

 ASSESSMENT REPORT

The following tables contain information on the costs and benefits of the initiative on which the Board has given its opinion, as presented above.

If the draft report has been revised in line with the Board’s recommendations, the content of these tables may be different from those in the final version of the impact assessment report, as published by the Commission.

O VERVIEW OF BENEFITS FOR THE PREFERRED OPTION

• I. 

  Overview of Benefits – Preferred Option 2

  Description Amount Comments

Internal market EUR 92.8 billion It is expected that here will be a substantial decrease in internal

fragmentation (see market fragmentation, as EU Member States will not need to

also Annex 5.5 on introduce national legislations. The effect of market contestability on

cost of non-Europe) the internal single market is proxied by an increase in online crossborder

 trade and the indirect/spill-over effect in terms of

employment, economic growth, innovation and consumer surplus

(see below). If we assume that by preserving the internal market in

the platform space cross-border trade projections by 2025 could be

maintained, this would lead to EUR 92.8 billion. 1

Impact on EUR 12 billion - Input-output micro-econometric modelling: Higher investment in

economic growth EUR 23 billion R&D in the ICT sector in EU27 leads to an overall increase in the

EU27 income between 0.09% to 0.17% of 2014 EU GDP, this is

between EUR 12 billion and EUR 23 billion.

Both impacts on growth and employment (below) are very

conservative estimates because they result exclusively from an

increase in R&D investment. However, market contestability and

more fair competition are expected to produce important spillover

effects that result in higher innovation, increase in market size,

increase of entrepreneurship within and beyond the platform

economy and growth in other traditional sectors. Online cross-border

trade is expected to be highly impacted by this virtuous dynamic.

Therefore, this estimation is not taking into account further rounds of

direct and indirect effects with positive loops in the long-term.

1 Cross-border e-commerce in Europe was worth EUR 143 billion in 2019, with 59% of this market being generated by online marketplaces. This is projected to increase to 65% in 2025 ( Ecommerce News Europe (2020 )).

• I. 

  Overview of Benefits – Preferred Option 2

  Description Amount Comments

Employment 600 000 jobs The preferred option would either preserve the current level of

preserved employment in the sector or lead to its increase 2 thanks to the

(conservative increase in R&D spending (input-output microeconomic modelling)

scenario) – b/n

136,387 and 294,236

jobs created

(optimistic scenario)

Innovation EUR 221 billion and Financial resources that could be invested in R&D are diverted to

EUR 323 billion mergers and acquisitions (M&A), which results in higher market

over 10 years concentration instead of improvements in the quality and quantity of

products and services for consumers. This pattern of innovation

dedicated to competing 'for the market' has a detrimental effect on

consumer choice and surplus.

In addition, the positive impact on innovation stemming from higher

market contestability is not limited only to diversion of money from

M&A to R&D. Other expected indirect effects include an increase in

entrepreneurship and creation of new products and solutions meeting

consumers' needs rather than focused on exploiting a gatekeeping

position. This may have a multiplicative effect increasing the size of

the European single market, and hence, GDP and online cross-border

trade (see other impacts in this table).

Investment in R&D EUR 12 billion– Higher investment in R&D in the ICT sector in EU27 leads to an

EUR 23 billion overall increase in the EU27 income between 0.09% to 0.17% of

2014 EU GDP, 3 i.e. between EUR 12 billion and EUR 23 billion

(input-output modelling).

2 The data used in the input-output modelling come from three sources: (a) The 2014 world input-output table

(WIOT) publicly available from the World Input-Output Database (WIOD, www.wiod.org ), (b) Employment (number of persons engaged) and compensation of employees obtained from the Socio Economic Accounts (SEAs) of WIOD, and (c) private R&D investments in information and communication (and its subitems represented by NACE Rev.2’s Section J’s divisions and/or groups), which were downloaded from Eurostat (rd_e_fundgerd).www.wiod.org), (b) Employment (number of persons engaged) and compensation of employees obtained from the Socio-Economic Accounts (SEAs) of WIOD, and (c) private R&D investments in information and communication (and its subitems represented by NACE Rev.2’s Section J’s divisions and/or groups), which were downloaded from Eurostat (rd_e_fundgerd).www.wiod.org), (b) Employment (number of persons engaged) and compensation of employees obtained from the Socio-Economic Accounts (SEAs) of WIOD, and (c) private R&D investments in information and communication (and its subitems represented by NACE Rev.2’s Section J’s divisions and/or groups), which were downloaded from Eurostat (rd_e_fundgerd).www.wiod.org), (b) Employment (number of persons engaged) and compensation of employees obtained from the Socio-Economic Accounts (SEAs) of WIOD, and (c) private R&D investments in information and communication (and its subitems represented by NACE Rev.2’s Section J’s divisions and/or groups), which were downloaded from Eurostat (rd_e_fundgerd).

3 The most recent available input-output matrix is for 2014, yet the matrix does not change significantly across time.

• I. 

  Overview of Benefits – Preferred Option 2

Description Amount Comments

Competition Fall in HHI index It is expected that competition will improve substantially due among

0.25 (user shares) other to a substantial decrease in barriers to entry. Conservative

and 0.11 (revenue estimate is no increase in the HHI Index, while upper bound means a

shares) fall in HHI index on for the user shares by 0.25 points and 0.11 for

the revenue shares.

Online cross-border EUR 450 billion to Assuming the internal market fragmentation is fully addressed, the

trade EUR 1.76 trillion online cross-border trade would increase between EUR 450 billion to

after 10 years EUR 1.76 trillion after 10 years.

Although it is hard to forecast with precision the increase in online

cross-border trade, the impacts have been proxied by similar trends

in offline cross-border trade resulting from market integration.

The opportunity costs estimated here are very conservative as the

assumed trends were linear and conservative growth rates. The fast

change in the platform economy and interlinks with the rest of the

economy suggests that online cross-border trade could see an

important exponential growth if enhanced by market contestability,

fair competition and virtuous patterns of innovation.

Consumer surplus EUR 13 billion The higher level of competition may result in lower prices as

companies could decrease spending on advertising and lower costs;

such savings could be passed onto consumers (especially where

(price) competition increases). Consumer surplus of EUR 13 billion

is based on the assumption that competitive asymmetry between

gatekeepers and alternative platforms would be addressed (see

Annex 4).

C OST COMPARISON FOR THE DIFFERENT OPTIONS

• 2. 

  Cost comparison

  Option 1 Option 2 Option 3

Carrier Cost Cost Cost qualification quantification Cost qualification quantification Cost qualification Cost quantification

European Regulatory costs of Annual costs: In addition to costs Annual costs: In addition to costs Annual costs:

Commission implementation, between €6.4m identified under Option €16.7m. identified under Option €18.2m supervision, (sub-option A) 1, further data requests, 2, further costs would

information and €10.5m implementation, This is based on 80 be incurred in similar This is based on 90

gathering. (sub-option B). assessment and FTEs under both tasks in relation to other FTEs (€11.7m).

enforcement/supervision sub-options digital services,

Associated burden This is based on costs are to be foreseen. (€10.3m). including Additional costs

is estimated based 30 FTEs in case implementation, (i.e. around €6.5m)

on experience from of sub-option A Further implementation Additional costs assessment, are necessary in

other sectors where (with a cost of costs would stem from (i.e. around €6.4m) enforcement/supervision relation to the

regulation requires €3.9m) and 50 the regulator specifying are necessary in costs, and assessments support of experts,

the preparation of FTEs in case of the obligations imposed relation to the of fairness. provision of

guidelines, sub-option B to a given gatekeeper. support of experts, training,

designation of (with a cost of provision of development of

actors with market €6.5m). Further assessment costs training, required IT

power and would stem from the development of systems,

enforcement of Additional costs need to conduct market required IT expenditure with

conditions aimed at (between €2.5m investigations to systems, missions and

supporting and €4m) are designate gatekeepers expenditure with organisation of

contestability and necessary in and assess new missions and meetings.

avoiding relation to the practices. organisation of

foreclosure, i.e. support of meetings.

telecoms regulation experts,

and competition provision of

law. training,

development of

It is assumed that required IT

This opinion concerns a draft impact assessment which may differ from the final version.

Commission européenne, B-1049 Bruxelles - Belgium. Office: BERL 08/010. E-mail: regulatory-scrutiny-board@ec.europa.eu

• 2. 

  Cost comparison

  Option 1 Option 2 Option 3

Carrier Cost Cost Cost qualification quantification Cost qualification Cost quantification Cost qualification quantification

the Commission systems, would engage in expenditure with preparing and missions and processing organisation of information meetings. requests as well as the preparation of guidelines, designation of gatekeepers and enforcement of the obligations

National Responses to Annual costs: In addition to costs Annual costs: €6m In addition to Option 2, Annual costs: authorities consultations held €4.3m based on under Option 1, Option based on 3.5 FTE Option 3 would not €6m based on 3.5

by the EU regulator 2.5 FTE for 27 2 would imply costs for for 27 Member imply any additional FTE for 27 to integrate national Member States national regulators to States costs for national Member States expertise before study Commission’s regulators. taking a decision proposed draft decisions (e.g. on guidelines on further tailoring of non-compliance, obligations. fines).

Gatekeepers Compliance costs Annual costs: Similar compliance Annual costs: Similar compliance Annual costs: incurred in order between €9.87m costs per platform as per between €21.15m costs per platform as per around €35.25m to prepare for and €21.15m for Option 1. and €28.2m for a Option 1. based on 25

compliance with a total number of total number of gatekeepers. rules, set gatekeepers in On the one hand, the gatekeepers in On the one hand, the compliance scope between 7 possibility of a dialogue scope between 15 possibility of a dialogue officers, and (under subwould reduce the (under sub-option would reduce the respond to requests option A) and 15 compliance costs. On A) and 20 (under compliance costs. On for information. (under subthe other hand, the need sub-option B) the other hand, the need option B) to reply to request for to reply to request for Number of information in the information in the information context of market context of market

• 2. 

  Cost comparison

  Option 1 Option 2 Option 3

Carrier Cost Cost Cost qualification quantification Cost qualification quantification Cost qualification Cost quantification

requests would investigations would investigations would depend on the imply some extra costs. imply some extra costs. complexity of the case. Estimate assumes that 20 FTEs are involved in data gathering, monitoring and enforcement activities per gatekeeper platform.

This scenario does not consider possible synergies with already existing internal organisation/service for complying with other legislation, e.g. service ensuring COMP law compliance.

Competitors, Monitoring of Net additional Monitoring new forms Net additional Monitoring new digital Net additional start-ups, unfair conduct as resource of unfair practices resource markets would create resource business well as new rules’ requirements would create additional requirements likely additional costs for requirements users implementation and likely to be very costs for market players to be very limited market players as likely to be very

supervision of limited as compared with compared with Option 1. limited compliance would Option 1. However, in However, in order to imply some burden order to ensure ensure proportionality in the form of e.g. proportionality information requests responses to information requests would take into

• 2. 

  Cost comparison

  Option 1 Option 2 Option 3

Carrier Cost Cost qualification quantification Cost qualification Cost quantification Cost qualification Cost quantification

information would take into consideration the size of requests. consideration the size of the enterprise to which However, in order the enterprise to which they are sent. to ensure they are sent. proportionality The resources devoted to information The resources devoted these requests might be requests would take to these requests might counteracted by into consideration be counteracted by reductions in legal the size of the reductions in legal resource required to enterprise to which resource required to address unfair contractual they are sent. address unfair conditions, with a contractual conditions, substantial portion of the The resources with a substantial burden previously taken devoted to these portion of the burden by small firms in this area requests might be previously taken by now addressed through counteracted by small firms in this area tailored action at EU reductions in legal now addressed through level. resource required to tailored action at EU address unfair level. contractual conditions, with a substantial portion of the burden previously taken by small firms in this area now addressed through tailored action at EU level.

Consumers Responses to public Additional information Additional information consultations - gathering from gathering from

questions targeting consumers may be consumers may be consumers would needed to inform needed to inform about be less complex and specification/tailoring of other digital services.

• 2. 

  Cost comparison

  Option 1 Option 2 Option 3

Carrier Cost Cost Cost qualification quantification Cost qualification Cost quantification Cost qualification quantification

shorter. Possibly remedies. Higher search costs higher search costs Higher search costs

Total costs: EUR 20.57m – EUR 43.85m – EUR 59.45m

35.95m 50.9m

Electronically signed on 10/12/2020 13:36 (UTC+01) in accordance with article 11 of Commission Decision C(2020) 4482

EUROPEAN COMMISSION

Regulatory Scrutiny Board

Brussels,

RSB

 Opinion

Title: Impact assessment /Digital Markets Act

Overall opinion: NEGATIVE

(A) Policy context

In many digital markets, there is a trend towards concentration of a few players. Some large online platforms have emerged as gatekeepers of the digital economy. They control a significant portion of transactions between consumers and businesses. This can make it difficult for existing or new market operators to compete. This can translate into higher prices for consumers or lower revenues for producers, lower quality, or less choice and innovation. The existing EU competition rules seem not the most effective and efficient way to tackle some of these existing or emerging market failures.

This initiative is part of the Commission’s overall digital strategy announced in its Communication ‘Shaping Europe's digital future’. Its aim is to tackle existing and emerging market failures through two pillars: regulatory measures and a market investigation regime.

(B) Summary of findings

The Board notes the useful additional information provided in advance of the meeting and the commitments provided on continuing to work on the finalisation of the report.

However, the Board gives a negative opinion, because the report contains the following significant shortcomings:

• (1) 

  The impact assessment is unfinished. Work on integrating the two pillars of the initiative is incomplete.

• (2) 

  The report does not sufficiently justify the restriction of its scope to digital markets. It does not justify the selection of platform services within the digital sector nor does it clarify the concept of gatekeeper platforms.

• (3) 

  The report does not provide an integrated problem definition for the initiative. It does not appropriately describe the shortcomings the initiative intends to address and does not provide a proper evidence base for them.

• (4) 

  The report does not provide policymakers with real choices on the different policy options. It does not provide a full range of options and it does not develop these in sufficient detail. It therefore cannot assess their impacts on different stakeholders.

Commission européenne, B-1049 Bruxelles - Belgium. Office: BERL 08/010. E-mail: regulatory-scrutiny-board@ec.europa.eu

• (5) 

  The report fails to assess all risks and trade-offs of the policy options. It does not clarify the extent to which the preferred option, and in particular the interaction between the regulatory measures and the market investigation regime, is coherent and futureproof.

(C) What to improve

• (1) 

  The report should provide convincing analytical arguments and evidence for limiting the scope of the market investigation instrument to digital markets, given the support from stakeholders and academic experts for a wider scope.

• (2) 

  The report should set out clear, evidence-based arguments for determining why selected core platform services within the digital sector are considered problematic and should therefore be regulated. It should also clarify and justify how it defines ‘gatekeepers’. If any of these issues require a policy decision (e.g. quantitative thresholds, qualitative parameters), the report should present and discuss the relevant options, including which platforms they would cover.

• (3) 

  The problem description should provide a common and integrated analysis of the problems the initiative aims to tackle. It should better explain the distinction between existing and emerging market failures. The report should strengthen the evidence base for the problems it identifies, including by referring to concrete (enforcement) cases and examples of sudden and radical decreases in competition. It should also assess to what extent market power can limit competition in the existing core platform markets, in addition to adjacent or related markets. It should include an analysis of how weak competition affects consumer and supplier benefits.

• (4) 

  The report should further justify and specify the measures included in the different policy options. It should include alternative options where policy choices need to be made. For the regulatory pillar, the report should explain and substantiate which practices would be included in the black, white and the grey lists. For the market investigation regime, it should clarify what the ‘clear legal test’ would consist of. It should describe how the criteria of contestability and fairness can be made operational and inform such a legal test. It should explain how in practice market-wide remedies would work. The options section should also assess to what extent ‘future proof’ ex-ante rules or a market investigation regime could provide self-standing and mutually exclusive solutions to solve the identified problems.

• (5) 

  The report should include a more complete analysis of the impacts of the options. It should provide a more granular assessment of the impacts of the different practices regulated under the ex-ante rules on the different stakeholders. The report should further specify main trade-offs and how the risks presented by anti-competitive practices balance against the possible benefits for sellers on platforms and for consumers. The report should also better analyse to what extent the market investigation regime would be more effective and coherent than future regulatory intervention.

• (6) 

  The report should explain how the market investigation regime would work in relation to the regulatory regime. It should analyse how the governance of these regimes would best be organised to avoid a fragmentation of supervisory capacity and of oversight results. In addition, the report should identify and analyse possibilities for synergies with other existing and planned authorities supervising digital markets. The envisaged corrective

2

measures under both regimes should be explained.

• (7) 

  The report should present the views of key stakeholder groups on the problems, options and analysis. It should explain to what extent and how the initiative takes into account possible objections of key stakeholder groups.

(D) Conclusion

The lead DGs must revise the report in accordance with the Board’s findings and resubmit it for a final RSB opinion.

Full title Digital Markets Act

Reference number PLAN/2020/7913; PLAN/2020/7452

Submitted to RSB on 8 October 2020

Date of RSB meeting 4 November 2020

3 Electronically signed on 06/11/2020 14:42 (UTC+01) in accordance with article 11 of Commission Decision C(2020) 4482