Globally, ex-ante laws are becoming increasingly popular as governments strive to resolve challenges arising from the rapidly evolving digital markets. A few of these developments include India’s recent Digital Competition Bill (DCB), the European Union’s (EU) Digital Markets Act (DMA), and the United Kingdom’s Digital Markets, Competition and Consumer Act (DMCC). These regulations seek to regulate certain large digital companies having significant market power. However, there is limited track record of implementation of ex-ante laws in digital markets. For instance, the DMA came into force in May 2023 and the deadline for the designated gatekeepers ended only recently in March 2024.
Early Experience
There is insufficient experience and empirical data to accurately assess the effectiveness or unintended consequences of DMA-type ex-ante laws. However, valuable insights can be obtained from the initial experience of the DMA, which has witnessed only modest achievements.
Before the DMA, app stores mandated the exclusive use of their payment systems by applications. This ultimately led to the consumers having limited choices when making payments, as they were limited to the app store payment system without any other alternative option. However, now, Article 5 of the DMA requires gatekeepers to allow payments via third-party payment processors with the intent to increase competition and provide consumers with more choices regarding payment services.
Impact on User Convenience
Simultaneously, the legislation has also resulted in certain unforeseen repercussions. For example, the DMA enforced specific modifications that resulted in the removal of Google Maps from the search engine results pages. More precisely, the DMA mandated that Google limit the privileged inclusion of its services in search results and ensure that no exclusive connections for distinct Google services, such as Google Maps, are displayed in search result layouts. Resultantly, due to the inability of a user to access Google Maps from the Google search page, users in the EU have faced inconvenience. Furthermore, users have started opting for alternative ways to tackle this inconvenience, such as using VPNs to access Google via non-EU countries or browser extensions to restore the Maps button. This showcases the potential negative impact of DMA on user convenience in the EU.
A similar situation was seen in the aftermath of the General Data Protection Regulation (GDPR), where the introduction of cookie consent banners made browsing the internet more cumbersome for users. The law’s numerous user data collection requirements led to significant changes to the user interface, leading to increased additional friction and interruptions in user flows. For instance, due to the GDPR, the developers implemented frequent “just-in-time” consent prompts and granular opt-in preferences. However, these changes resulted in consent fatigue as users eventually became desensitised and started accepting or ignoring consent prompts without fully understanding the repercussions of their actions.
Impact on Small Businesses
Despite high expectations, the DMA hasn’t yet greatly benefited small businesses and entrepreneurs. In fact, there is reason for dissatisfaction regarding the DMA’s effect on small businesses, as evidenced by certain indicators from the hotel industry. To comply with business regulations, the widely used search engine in the industry had to remove its hotel booking service from the search results list. This service previously gave users a streamlined and cohesive experience when looking for, comparing, and booking hotels. This modification made the process of looking for hotels less user-friendly and more fragmented. Three months after the change was made, a 30% drop in traffic to hotel websites was reported.
Additionally, it has been reported that the number of direct hotel bookings has decreased by 36%, which has resulted in a greater reliance on online travel agencies (OTAs), which are now more visible in search results as a result of the DMA’s impact. These patterns have the potential to negatively affect hotels’ bottom lines and make them more dependent on OTAs. The latter outcome can result in hotels incurring substantial commissions and having inadequate control over their pricing and inventory.
Implications for Security
The DMA mandates that relevant platforms support alternative mobile app marketplaces, requiring companies to open up the mobile ecosystem and allow users to download and pay for apps via third-party app distribution. This has resulted in increased threat and security concerns because it provides additional avenues for cyberattackers to distribute malware, malicious codes, fake apps, and intrusive mobile applications via third-party app stores. The change may also increase users’ risk of downloading unsecured apps, exposing their devices and data to potential threats.
Recognising these risks, security solution providers are developing new safeguards and technologies. Possible solutions include utilising vetting systems that continuously monitor app stores and provide insights into the risk profile of certain mobile apps available on the app stores. Furthermore, platforms have announced additional malware protections and requirements for third-party app marketplaces to counter these concerns.
Conclusion
Conclusive evidence regarding the efficacy of ex-ante regulations like the DMA is not yet available. Early indications exhibit limited signs of a positive effect on choice while also bringing forth concerns related to cyber security, small businesses, and user experience. Given these preliminary findings and the high error costs associated with ex-ante regulations, India may want to proceed with caution when implementing ex-ante laws in digital competition. Before enacting a law of this nature, adequate impact assessments should be conducted, particularly regarding the law’s potential effects on users and MSMEs. Simultaneously, it may be prudent to wait until sufficient evidence of the DMA’s efficiency is available before embarking on a bold plan to reform the country’s digital competition landscape.
