EUROPEAN COMMISSION Brussels, 15.12.2020 SWD(2020) 363 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT REPORT

Accompanying the document 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 final} - {SEC(2020) 437 final} - {SWD(2020) 364 final}



GLOSSARY Term or acronym Meaning or definition ACCC Australian Competition and Consumer Commission (Australia competition authority) B2B Business-to-business B2C Business-to-consumers BEUC European Consumer Organisation CPC Consumer protection cooperation CMA Competition and Markets Authority (United Kingdom competition authority) DESI Digital Economy and Society Index DMU Digital Markets Taskforce DSA Digital Services Act ECA European Court of Auditors EEA European Economic Area ECD e-Commerce Directive ECHR European Convention on Human Rights ECN European Competition Network, consisting of NCAs FTE Full-time equivalent GDP Gross Domestic Product GDPR Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (‘General Data Protection Regulation’) ICN International Competition Network ICT Information and Communication Technologies IMCO Internal Market and Consumer Protection JURI Legal Affairs Committee LIBE Committee on Civil Liberties, Justice and Home Affairs MCAD Misleading and Comparative Advertising Directive MFN Most Favoured Nation NCA National Competition Authority of the EEA NCT New Competition Tool NFC Near-Field-Communication NGO Non-Governmental Organisation OECD Organisation for Economic Co-operation and Development OPC Open Public Consultation P2B Regulation Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services SME Small and Medium Enterprise TFEU or Treaty Treaty on the Functioning of the European Union UCPD Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’) UCTD Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (‘Unfair Contract Terms Directive’) UNCTAD United Nations Conference on Trade and Development



CONTENTS 1. INTRODUCTION: POLITICAL AND LEGAL CONTEXT 1.1. Political context 1.2. Field of intervention 1.3. Relationship of the initiative with other ongoing initiatives 2. PROBLEM DEFINITION 2.1. What are the problems? 2.1.1. Weak contestability of, and competition in, platform markets, or risk thereof 2.1.2. Unfair gatekeeper practices vis-à-vis business users 2.1.3. Legal uncertainty for market players 2.2. What is the size of the problem? 2.3. Problem drivers 2.3.1. Market failures 2.3.2. Fragmented regulation and oversight

2.3.3. Conclusion: problem drivers’ effects 2.4. How will the problem evolve? 3. WHY SHOULD THE EU ACT? 3.1. Legal basis 3.2. Subsidiarity: necessity and added value of EU action 4. OBJECTIVES: WHAT SHOULD BE ACHIEVED? 4.1. General objective 4.2. Specific objectives 4.2.1. Address market failures to ensure contestable and competitive digital markets for increased innovation and consumer choice 4.2.2. Address gatekeepers’ unfair conduct 4.2.3. Enhance coherence and legal certainty to preserve the internal market 4.3. How do the objectives link to the problems identified? 5. WHAT ARE THE AVAILABLE POLICY OPTIONS? 5.1. What is the baseline from which policy options are assessed? 5.2. What are the main parameters that determine the range of available policy options? 5.2.1. Scope: core platform services, gatekeepers, thresholds 5.2.2. Unfair practices 5.2.3. Speed and Flexibility 5.2.4. Enforcement framework 5.2.5. Summary and main trade-offs

5.3. Policy options 5.3.1. Option 1 – Pre-defined list of gatekeepers and immediately applicable obligations 5.3.2. Option 2 – Partially flexible framework of designation and updating of obligations, including regulatory dialogue for implementation of some 5.3.3. Option 3 - Flexible option based exclusively on qualitative scoping thresholds 5.4. Policy options discarded at an earlier stage 5.4.1. A broad scope across platforms 5.4.2. Information obligations without addressing unfair conduct 5.4.3. A broad scope across markets 6. WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? 6.1. Internal market 6.2. Growth and productivity 6.3. Competition and Innovation 6.4. International trade 6.5. Employment 6.6. Businesses 6.6.1. Gatekeepers 6.6.2. SMEs 6.7. Consumers 6.8. Regulatory Authorities 7. HOW DO THE OPTIONS COMPARE?

7.1. Effectiveness 7.2. Efficiency 7.3. Coherence 7.3.1. Coherence with the Digital Strategy 7.3.2. Coherence with the DSA 7.3.3. Coherence with other instruments 7.4. Proportionality 7.5. Subsidiarity 7.6. Conclusion 8. PREFERRED OPTION 8.1. The main building blocks of the preferred option 8.2. The scope of application 8.2.1. Identification of core platform services 8.2.2. Designation of gatekeepers 8.2.3. Obligations applicable to gatekeepers’ core platform services 8.3. Enforcement framework and governance 9. HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? 1.INTRODUCTION: POLITICAL AND LEGAL CONTEXT 1.The digital transformation has profoundly changed the functioning of the global economy and society. The Covid-19 crisis and the increased importance and use of digital services has only further evidenced the importance of ensuring a borderless, fair, and contestable Single Market for digital services where companies can thrive and where citizens have genuine choices and control.

2.This Impact Assessment examines the possible policy options to ensure a competitive Single Market for digital services and in particular fair and contestable platform markets. It combines the assessment of two initiatives previously presented in separate Inception Impact Assessments: (i) the Digital Services Act (‘DSA’) package: ex ante regulatory instrument of very large online platforms acting as gatekeepers; and (ii) the New Competition Tool. These two initiatives have been subject to two parallel public consultations. 3.Given the breadth of the topics covered, both Inception Impact Assessments – including their respective consultations – were initially published separately. However, since the outset, both consultations were aimed at complementary solutions by “ensur[ing] a joint analysis of the results”, “with a view to exploring synergies and ensuring consistency on the policy options pursued, in particular as regards possible remedies and enforcement”. The holistic approach presented in this impact assessment is the result of such exercise. Political context 4.Over the last years, a wide range of studies at international level as well as by National Competition Authorities (‘NCAs’) have brought to the fore the acute problems afflicting digital markets in terms of contestability as well as of the fact that a number of large platforms are taking advantage of their position to restrict competition including by means of the imposition of unfair conditions on their trading partners and on consumers. 5.In this respect, the Commission has initiated a reflection process about the role of competition policy in a fast-changing world, which included commissioning a report from a group of independent Special Advisers to Commissioner Vestager published in April 2019. Among other aspects, the report concluded that “the specificities of competition in the digital world […] make market power “sticky”, and there is legitimate fear that the market power [large platforms] have acquired will be hard to challenge. Furthermore, they have been able to build, on top of their core competencies, entire ecosystems which make it hard for new entrants to compete on the merit and which, many observers feel, face little competitive pressure”. 6.A subset of issues pertaining to all digital platforms had previously been addressed through regulation in the so-called ‘Platform-to-Business Regulation’ (‘P2B Regulation’), aiming to increase transparency and fairness in platforms that can easily hold asymmetric bargaining power. To analyse further emerging issues addressed in the independent Special Adviser Report, the Commission also established the ‘EU Observatory on the Online Platform Economy’bservatory on the Online Platform Economy supported by an expert group , to support the Commission in monitoring and analysing the developments in the online platform economy. Evidence gathered by this expert group further confirmed the findings of the previous reports. 7.Similar reflections are taking place in some of the EU’s major trading partners, including the United States of America (‘US’), Japan, the United Kingdom (the ‘UK’), Australia and China. These reflections include calls for a new regulatory framework for platforms with “significant and durable market power” (US House of Representatives Majority Staff report), “substantial market power” (ACCC report ), “strategic market status” (Furman report) and “bottleneck power” (Stigler Center report ). The US report notably concludes that each investigated platform now serves as main gateway to consumers and other businesses that each platform uses this role as major gateway to maintain its market power; and that the firms have abused their role as intermediaries to further entrench and expand their dominance. 8.The need to address these concerns in digital markets was expressed in Commission President von der Leyen’s mission letter for Executive Vice-President Vestager, where she stated that in “striving for digital leadership, we must focus on making markets work better for consumers, business and society”. The letter tasked Executive Vice-President Vestager with ensuring “that competition policy and rules are fit for the modern economy”. 9.This objective was reiterated in the Commission’s Communication Shaping Europe's digital future, as “it is important that the competition rules remain fit for a world that is changing fast, is increasingly digital and must become greener”. In the same Communication, the Commission further stated that “competition policy alone cannot address all the systemic problems that may arise in the platform economy”. Against this background, the Commission also announced that it “will further explore, in the context of the DSA package, ex ante rules to ensure that markets characterised by large platforms with significant network effects acting as gatekeepers, remain fair and contestable for innovators, businesses, and new market entrants”. 10.In the European Parliament, the Committee on the Internal Market and Consumer Protection (‘IMCO’), the Committee on Civil Liberties, Justice and Home Affairs (‘LIBE’) and the Legal Affairs Committee (‘JURI’) published draft reports in April and in May 2020, as legislative own-initiative reports. The final IMCO and LIBE Committees reports were adopted in September 2020 and the draft JURI report in October 2020. In parallel to these reports, the European Parliament also adopted a resolution on competition policy on 18 June 2020, where it “calls on the Commission to assess the possibility of imposing ex ante regulatory obligations where competition law is not enough to ensure contestability in these markets”. The Digital Markets Act (‘DMA’), by proposing ex ante rules for certain large platforms and aiming at ensuring fair and contestable digital markets, responds to these calls for action. 11.The European Council confirmed the need to act in its New Strategic Agenda 2019-2024, by stating that “[w]e will continue to update our European competition framework to new technological and global market developments”. The Council of the European Union (‘Council’) also “supports the Commission’s intention to collect evidence of the issue and further explore ex ante rules to ensure that markets characterised by large platforms with significant network effects, acting as gate-keepers, remain fair and contestable for innovators, businesses and new market entrants”. 12.Furthermore, the Council welcomed the public consultation on a ‘New Competition Tool to address structural competition problems across markets’ and expressed its willingness to discuss the Commission’s proposal for a DSA Package. The Council underlined “that new policy approaches for the Single Market have to be fit for the digital age [and] able to cope with new and agile business models, especially in the digital economy”. Finally, the Council reiterated the importance of swift action on the DSA package in its most recent conclusions, in which it “looks forward to the Commission’s proposal for a Digital Services Act by the end of this year”. Field of intervention 13.The feedback and evidence collected pointed to an urgent need to act in the digital sector, due to the particular features of digital markets. On that basis, the present impact assessment focuses on intervention options with regard to digital markets, with a focus on those markets characterised by the presence of large digital platforms where problems are most prominent, and action appeared most pressingly needed. 14.In the digital sector, there is a small number of online platforms – often embedded in their own ecosystems – which have come to play a crucial role in the lives of millions – if not, billions – of individuals and companies. They intermediate a significant portion of transactions between consumers and businesses, and have emerged as a key structuring element of today’s digital economy. As such, these platforms have a major impact on, control the access to, and are entrenched in digital markets, leading to extreme dependencies of many businesses on these important platforms. The evidence points to negative effects on effective competition and on the contestability of the markets concerned. Member States in the EU observing these tendencies have begun to take regulatory initiatives to address these effects, potentially fragmenting the Internal Market. Online platforms cover presently a wide-ranging set of activities including online advertising platforms, marketplaces, search engines, social media and creative content outlets, application distribution platforms, communications services, payment systems, and platforms for the collaborative economy. They share some important and specific characteristics, in particular: ·they have the ability to create and shape new markets, to challenge traditional ones, and to organise new forms of participation or conducting business based on collecting, processing, and editing large amounts of data; ·they operate in multi-sided markets but with varying degrees of control over direct interactions between groups of users; ·they benefit from network effects; ·they rely on information and communications technologies to reach their users, instantly and effortlessly, benefitting from economies of scale and scope; and ·they play a key role in digital value creation, notably by capturing significant value (including through data accumulation), facilitating new business ventures, and creating new strategic dependencies. 15.The scope of this initiative is limited to the digital sector. In fact, the market concentration tendencies and the underlying market dynamics in the digital sector, as well as other characteristics of digital markets, have contributed to several market failures in this area, which are likely to lead to inefficient market outcomes in terms of higher prices, lower quality, less choice and innovation to the detriment of European consumers (see Section 2.2). 16.Even though some of relevant market features are also observed to some extent in other markets, they are most prevalent in digital markets. They include market features such as extreme scale economies, often resulting from nearly zero marginal costs to add customers and business users –- in contrast to off-line business models where such upscaling would involve major investments – and strong network effects associated to the multi-sidedness of online platforms, as well as data driven-advantages that often fundamentally change the competitive process, leading to sudden and radical decreases in competition (see Section 2.3.1). The presence of large platforms, often vertically or horizontally integrated in large ecosystems, exacerbates the negative effects that these features can trigger, thus making it impossible for the markets to self-correct. 17.The problems in the digital sector are also most pressing from an internal market perspective. In fact, the OPC and the targeted consultation of NCAs have largely shown that the most salient examples of market failures today stem from the digital sector. Consumer organisations like BEUC have also prominently flagged the particular concerns surrounding digital markets. Likewise, digital markets featured prominently in the expert reports commissioned for the Impact Assessment.

18.On the basis of the available evidence, including the Commission’s regulatory and competition enforcement experience, the Commission has mapped a number of ‘core platform services’ which exhibit these features and where absent regulatory intervention the identified market failures would effectively remain un-addressed. 19.These ‘core platform services’ are those where the problems identified in Section 2.1 are most evident and prominent and where the presence of a limited number of large online platforms that serve as gateways for business users and customers has led or is likely to lead to weak contestability of markets. On the basis of the evidence collected for this Impact Assessment (see Section 5.2.1), the screening of problems led to the identification of the following core platform services: (i) online intermediation services (including marketplaces and app stores) (ii) online search engines, (iii) social networking (iv)video sharing platform services, (v) number-independent interpersonal electronic communication services, (vi) operating systems, (vii) cloud services and (viii) advertising services, including advertising intermediation services, provided by providers of one or more of the above. 20.Furthermore, as explained in Section 5.2.1, it should be possible to designate gatekeepers whenever it can be demonstrated that a provider of core platform services: (i) has a significant impact on the internal market, (ii) operates one or more important gateways to customers and (iii) enjoys or is expected to enjoy an entrenched and durable position in its operations. 21.While this Impact Assessment focuses on issues caused by gatekeepers operating in digital markets, it does also fully recognise the benefits that online platforms bring to the economy and society. The purpose of the DMA initiative is therefore to allow these platforms to unlock their full potential by addressing the most salient incidences of unfair practices and weak contestability so as to allow consumers and business users alike to reap the full benefits of the platform economy. Relationship of the initiative with other ongoing initiatives 22.In parallel to the present Impact Assessment, the Commission is also presenting an Impact Assessment for the Digital Services Act (‘DSA’), an initiative seeking to address primarily societal risks of digital markets and, more specifically, of very large platforms. The definition of ‘gatekeepers’ in the DMA is different in nature and scope from the definition of ‘very large platforms’ falling within the scope of the asymmetric obligations under the DSA. Whilst a handful of gatekeepers may be subject to both the DSA and the DMA, the risks addressed by the DSA and DMA are, however, very different. The DMA addresses risks to contestability and fairness in digital markets where gatekeepers as defined are present. The DSA addresses risks derived from the fact that very large platforms have become de facto public spaces, playing a systemic role for millions of citizens and businesses, creating a need for more accountability for the content which these providers distribute on their platforms. The different risks that both initiatives seek to tackle also translate in different obligations, the content and applicability of which is clearly distinguishable. 23.The impact assessment of the DMA is also being conducted in parallel with a number of ongoing reviews of certain competition rules, most notably the review of the Block Exemption Regulations for horizontal and vertical agreements, including in the motor vehicle sector. These reviews are without prejudice to the Impact Assessment of the DMA, an initiative of a regulatory nature that does not affect – and is not affected by – those reviews. The Block Exemption Regulations pursue a different objective. They apply Article 101(3) of the TFEU by regulation to certain categories of agreements falling within Article 101(1) TFEU, thereby block exempting them from the application of Article 101(1) TFEU. 24.Also ongoing is the review of the Market Definition Notice, which is without prejudice to the Impact Assessment of the DMA. The Market Definition Notice pursues a different objective since it is a soft law instrument providing guidance as regards how the Commission “applies the concept of relevant product and geographic market” in its enforcement of EU competition law. 2.PROBLEM DEFINITION What are the problems? 25.Over the past decade, online platforms have established their presence as important economic players and boosting efficiency, as well as spurring innovation and the development of new business models. Online platforms play an important role in many industries, allowing buyers and sellers of goods and services to trade and communicate with each other. They increase consumer choice and convenience, improve efficiency and competitiveness of industry and can enhance civil participation in society. Online platforms are key drivers of innovation in the digital world and their success is closely tied to the success of a range of businesses that use platforms to reach customers. Platforms allow especially smaller businesses to extend their operations beyond their home state, catering for consumers across the entire Single Market. 26.At the same time, they also raise new issues relating to fairness, transparency and market distortions. According to the evidence collected by the Commission, digital markets are particularly vulnerable to the following three problem clusters. 27.First, in many digital markets large digital providers have emerged as gatekeepers serving as gateways for their business users and consumers. Some of these gatekeepers exercise control over whole platform ecosystems that are essentially impossible to contest by existing or new market operators, irrespective of how innovative and efficient they may be (‘weak contestability of platform markets’). As a result of the weak competitive pressure experienced by these large players, the likelihood increases that these markets do not function well – or may soon fail to function well – and thus do not deliver the best outcome for consumers in terms of prices, quality, choice, and innovation (weak competition in digital markets, or risk thereof). 28.Second, many businesses are increasingly dependent on these gatekeepers, which in many cases leads to gross imbalances in bargaining power and, consequently, unfair practices resulting in conditions for business users that would not be achievable under normal circumstances (‘unfair business conditions for business users’). Such imbalances in bargaining power, coupled with the economic dependency of many business users and costumers on gatekeepers, allow the latter to obtain conditions that they would not be able to obtain in case of well-functioning and competitive markets. 29.Third, digital players typically operate at a global scale and deploy global business models. As a result, different national legislations within the EU may lead to increased regulatory fragmentation and increased compliance costs for these large market players and the business users that rely on them (‘fragmented regulation and oversight’). Smaller players and startups are also negatively affected by this situation, as it impedes them from scaling up easily within the Internal Market in order to grow into contenders vis-à-vis the large, established players in the market. 30.This section describes each of the three problem clusters above in more detail. Weak contestability of, and competition in, platform markets, or risk thereof 31.The market features of digital markets tend to favour the emergence of a few large firms that have become gatekeepers for many digital products and services. These gatekeepers represent a key segment of the digital economy and play an important role in providing third parties with online access to a large number of European consumers. Where such markets have not yet gravitated towards high concentration, they are at the risk of doing so in the near to medium term. 32.There is evidence for a trend of growing market concentration (and, relatedly, growing mark-ups) at the industry level, which has been documented both for the US and for the EU. In digital markets in particular, the level of concentration of economic power is unprecedented: the top seven of the large platforms account for 69% of the total EUR 6 trillion valuation of the platform economy, as a result of vertical and horizontal integration. Large online platforms intermediating between businesses and consumers are growing at an exponential pace. They have several hundreds of millions of users (both businesses and citizens/consumers). Total net revenues of some of these platforms (of billions of euros) double and triple over a few years. Moreover, five out of the world’s ten largest companies by market capitalisation are digital conglomerates (see Figure 3 ). 33.Several respondents, including startups, research institutes and trade associations, point out the positive impact of platforms on startups: by lowering the barriers to entry and extending to companies of all sizes the advantages of cost and speed that can be gained from trading online, they stimulate innovation and the dissemination of new products and technologies. Nevertheless, the large majority of respondents to the OPC and NCAs broadly agreed that “one or few large players on the market (i.e. concentrated market)” constitutes a very important or important source or part of the reasons for market failures. In certain markets, it may be challenging to maintain ‘competition in the market’, notably where having only one network may be the most beneficial outcome for consumers. However, in such a situation it is essential to keep ‘competition for the market’ open. Any successful attempt by a firm to lock in a group of consumers, so that the market is no longer contestable for a new entrant, will prevent such ‘competition for the market’, with possible adverse consequences for prices, quality, choice and innovation.

34.Large gatekeepers benefit significantly from the entry barriers characterising digital markets. In this context, new market operators that may want to enter or expand in digital markets where a gatekeeper is present may find it extremely difficult to overcome some of the inherent barriers to entry or expansion without access to a sufficiently large user base. For instance, a new entrant must convince a sufficient number of users (due to the importance of network effects) to coordinate their migration to a new service, taking e.g. part of the social network along, or other associated data assets such as purchase or preference histories, or ratings. This lack of contestability due to high barriers to entry is extensively echoed in the academic literature. 35.These gatekeepers therefore have an entrenched market position, which is hard to contest, and which they further expand through the creation of ecosystems. The largest platform companies are active across many different markets, creating extended data-driven ecosystems around their core activities, often cross-subsidising one service with data or revenues from another. In this regard, a large number of respondents identified online intermediation services, search engines, operating systems for smart devices, consumer reviews, network and/or data infrastructure/cloud services, digital identity services, online advertising intermediation services, payment services, fulfilment services and data management platforms as activities that can strengthen the gatekeeper role of such large online platforms when any or all of these are integrated within a single corporate structure. 36.It is sometimes argued that incumbent offer their services often for free and that competition is ‘just one click away’ or that it is vigorous in some segments. This is a too narrow and selective view of the overall dynamics of the digital platform economy. However, the entrenched position of gatekeepers has shown to be lasting and essentially unchallenged by competing platforms, thus leading to weak inter-platform competition. Unfair gatekeeper practices vis-à-vis business users 37.Gatekeepers’ successful business models based on platform economy specificities have allowed them to gain strong market positions and economic power, enabling them to create ecosystems for which they set the rules by which other economic players should abide. If set in an unfair manner, these rules can be detrimental to business users, and limit Small and Medium Enterprises’ (‘SMEs) online visibility and associated sales. 38.The enforcement experience and input to the OPC show that unfair practices can take on different forms. They could relate to gatekeepers’ size, their capacity to acquire and monopolise data, imposition of contractual conditions or preferential treatment and/or the interplay between these elements. For a full overview of different unfair gatekeepers’ practices and the ongoing and closed investigations and antitrust cases please see Section 5.2.2 and Annex 5.6 to the Impact Assessment. 39.One of such unfair practices is the imposition on business users of ‘anti-steering’ provisions, by which gatekeepers prevent business users from directing acquired consumers to offers other than those provided on the platform, even though such alternative offers may be cheaper or otherwise potentially more attractive. For instance, an app store that does not allow its business users to advertise alternative subscription options outside its platform to acquire customers. Also, cross-platform parity clauses, i.e. clauses that oblige business users to offer the same or better retail conditions as those offered on other platforms to the contract party, tend to disincentivise competition between platforms. In particular, they prevent business users from ‘rewarding’ other platforms that may provide better or cheaper platform services, by offering better retail prices or conditions on those platforms. 40.Another example is the imposition of the platform’s ID services, which is a lock-in strategy where the user is required to sign up/register with an email service of the gatekeeper’s core platform services when using another of its products (e.g. an operating system, social network). The US House of Representatives Judiciary Committee also describes lock-in strategies including free tier offerings for cloud services. 41.The broad category of ‘self-preferencing’ refers to practices in which a usually vertically integrated gatekeeper acting in the dual role of providing core platform services to business users and at the same time competing with them when providing ancillary services applies more favourable conditions to its own services compared to the third-party services hosted on the gatekeepers’ platform. Self-preferencing occurs in many situations in the online and offline world (e.g. in supermarkets with own brands). Such behaviour may not be considered generally anti-competitive under the EU competition rules or unfair in all business relationships. However, certain forms of self-preferencing may amount to an unfair business practice. An important concern here is the fair balancing of interests, in this case those of the gatekeeper platforms versus that of their business users. In particular, the special position of gatekeeper platforms that play a dual role and may engage in favouring their own services may lead to the exclusion of alternatives by business users that are largely dependent on these gatekeeper platforms to reach consumers, reducing choice for them, and potentially undermining the quality of service and increasing prices. 42.One example is an app store, which markets a number of its own popular apps and at the same time maintains a marketplace for competitors, self-preferencing its own marketplace by applying more favourable policies for its own products and selectively drafting rules favouring its own products. Another example is a search engine or marketplace treating more favourably its own products and services in the results displayed to end users. 43.Feedback to the OPC shows that business users consider self-preferencing to be a very common practice deployed by large, vertically integrated platforms. Responses by business users suggest that search and ranking algorithms often give preference to the platform’s own services, but also that a platform often has an incentive to bias its recommendations towards the content provider charging a lower royalty. 44.Business users are faced with limited or no access to vast amount of data (e.g. app store limiting the information that third-party app providers receive about their subscribers) as well as lack of any or meaningful interoperability to access such data that may be collected by gatekeepers. 45.The Impact Assessment study and input to the OPC point to practices that prevent both consumers and business users from switching. In the digital sector, being able to port both historical and real-time data is an important precondition for both multi-homing and switching. Business users and consumers alike repeatedly raise the issue of not being able to use any other platform or service because the incumbent refuses to provide an enhanced and continuous real-time ability to port personal and non-personal data in interoperable format. These practices affect contestability, and limit business users’ possibilities to move to or rely on alternative platforms or services. As yet another example, an advertising intermediation services provider collecting multiple datasets from business users’ services which it uses for better targeting and attribution measurement, but does not share them with advertisers. 46.Another example of a data related practice that could be considered unfair, and has been raised by many stakeholders in the context of the OPC, is the situation where a gatekeeper restricts business users from accessing and using the data that they provide, receive from their customers or generate in the course of their use of the gatekeeper’s platform or service, as is the case as regards an app store limiting the information that third-party app providers receive about their subscribers or an online intermediation service restricting data generated in the curse of the use of its platform by third party sellers and their customers. Feedback to the OPC shows that business users are regularly confronted with the imposition by large platforms of proprietary services and an authentication through the platform even when third party services are used to create a direct link with customers to the detriment of third-party providers. Respondents suggest that gatekeepers exclude business users from access to user data and attempt to remove the direct link between the client and third party suppliers (so-called disintermediation). 47.Other examples include (i) gatekeepers that use certain data that they received from business users for a particular use, for instance advertising services, for other, unrelated purposes, (ii) gatekeepers operating a marketplace benefit from their dual role and ability to evaluate product, sales and customer data generated from the sales of goods provided by third party merchant business users on its marketplace, or (iii) gatekeepers operating a video sharing platform that has access to a rich set of (first party) data about its consumers, data that it can re-use to improve its own products, including in other areas, but restricts the access to this rich set of data to its competitors. 48.Thanks to their strong market position, gatekeepers, can either limit access to their platform or make such access conditional upon specific requirements. Gatekeepers often impose unfair terms of access to business users, for instance in relation to price for the services they offer or accepting specific bundles which do not allow the mix-and-match by customers (e.g. a provider of cloud services bundling this service with other services or a social network services provider applying terms and conditions, which make the use of its services conditional on the possibility to collect and combine user data from multiple sources). 49.Another example is gatekeepers limiting the access to or the interoperability of certain of their platform services/functionalities (e.g. operating system) with the services offered by business users, reserving those functionalities to their own services. For example, in certain circumstances third-party providers of payment wallets may require access to near-field-communication (‘NFC’) functionalities in the hardware and the gatekeeper exclusively reserves such functionality to its own services. 50.The work supporting this Impact Assessment shows that the above problematic practices are most prominent in relation to the following core platform services: e-commerce marketplaces, online search engines, app stores, social networks, video-sharing services, operating systems, cloud, number-independent messaging services, and online advertising. Also the negative effects of the problem drivers are most severe in relation to these core platform services. These services present characteristics that have been identified as driving the problematic practices assessed in this document, i.e. they have a multi-sided character, which allows them to accumulate data on all sides of the market and thus benefit from strong indirect network effects (e.g. social network services, video sharing services); they have an important intermediation function (e.g. marketplaces, app stores) and/or playing important ‘visibility’ role (e.g. online search, operating systems), and are characterised by the presence of big ‘gatekeepers’ (e.g. number-independent messaging services) which often are vertically integrated and operate a large ecosystem (e.g. cloud services). 51.From the foregoing, it becomes apparent that there is substantive evidence concerning the urgent need to address unfair practices by gatekeepers. The fact that this evidence cuts across not only jurisdictions of both common and civil law, but also across numerous enforcement bodies of different kinds and with diverse mandates is yet another indication of the urgency underlying the intervention. In fact, as outlined by the evidence quoted in this impact assessment and the numerous reports, there are only few other questions currently triggering a similar level of consensus between enforcement authorities, judicial bodies and law makers around the world like the need to tackle problems related to digital gatekeepers. Legal uncertainty for market players

52.While in many areas of the single market, the objective is to ensure further integration, the online platform market is naturally integrated (due to the intrinsically cross-border nature of the platform economy). However, there is an increasing regulatory fragmentation of the online platform space in the EU (see Annex 5.4 and 5.5 to the Impact Assessment). In addition, coordination among national legislators may be insufficient, leading to potentially heterogeneous responses across the EU. 53.Such fragmentation becomes problematic where it creates increased compliance costs for all market players. This is particularly harmful for smaller platforms and startups, potential entrants and smaller business users since it creates regulatory barriers to entry and limits their ease of scaling up across the Single Market. At the same time, diverging laws may also endanger the benefits stemming from large platforms’ activity; such costs may imply regulatory shopping, ultimately resulting in unequal impacts on EU consumers. If emerging platforms are unable to grow sufficiently in order to compete with gatekeepers, the latter would be able to further gain power, strengthening their ability to establish market rules and (potentially) behave unfairly. This would exacerbate the above described issues of weak market contestability and competition, as well as unfair business practices. 54.In the OPC, respondents from all categories mention that EU level rules would prevent further legal fragmentation across Member States, considering that several Member States have already started to introduce new rules to address concerns arising from the presence of gatekeepers. Stakeholders generally consider that an effective coordination between EU bodies and the relevant national regulatory authorities is needed, especially in light of the fact that issues related to gatekeepers are likely to have an important cross-border component. Platforms in particular point out the need to minimise fragmentation and allow for a pan-European approach. What is the size of the problem? 55.As explained in more detail in Section 2.1.1, the characteristics of digital markets often favour the lack of market contestability and the emergence of strong concentration, which tends to be accompanied by rising mark-ups and weaker competition. The trend of increasing industry concentration has been documented for both digital and non-digital industries alike. For instance, in 2014 the mean European high ‘digital intensity’ industry had 4 percentage point higher sales concentration than in 2000. 56.As regards trends in mark-ups, empirical studies suggest that company mark-ups have increased by 4% to 6% for the period 2001-2014, on average across country, and that the result is mainly driven by the top of the mark-up distribution in the digital sector. For the top 10% of the firms in the sample, the growth in mark-ups over the period 2001-2014 amounted to 20%, while the remaining firms in the sample exhibit a flat trend, i.e. mark-ups stayed roughly the same. To the extent that this observed trend of increasing market power of this top 10% of firms is a sign of insufficient competitive constraints faced by these firms, increasing competition in these markets could contribute to slowing down the growth trend in mark-ups, decrease prices and increase choice, quality and innovation. For example, a recent study shows that more concentrated industries also feature a more negative relation between markups and investment and innovation. 57.As regards the size of the problems related to unfair practices by gatekeepers (explained in Section 2.1.2), it is importance to note that the number of merchants and small businesses affected by gatekeepers’ conduct varies depending on the sector, but can be estimated to reach between one and four million. 58.A good indicator of businesses’ dependence on platforms is turnover from sales and share of revenue via online platforms as a proportion of the company’s total revenue from e-commerce. According to the Observatory’s estimates, around half of enterprises derived more than 25% of their revenues from online platforms. For almost 10% of companies, online platform sales exceed 75% of all revenues; while according to Statista estimates, in 2017, 18% of company revenues across the EU-28 came from e-commerce, the highest proportion being 33%. 59.Another indicator of businesses’ dependence on platforms is the use of platforms to publish online advertising. Of SMEs in the EU that sell online, more than eight in ten rely on search engines as a mean of marketing their products or services. In 2018, an average of 26.2% of enterprises across the EU paid to advertise online. In northern European countries, such as Sweden and Denmark, this figure was over 44%. 60.The degree to which businesses have integrated into and depend on the platform economy is further illustrated by the fact that in some cases more than 50% of goods sold on a marketplace come from third-party sellers. There are over 26.4 million software developers in the world who depend entirely on large platforms providing the infrastructure and setting the rules for the distribution of their apps. 61.Gatekeepers’ unfair practices affecting businesses do not represent a one-off problem, but are systemic and recurrent. In the OPC on Ex Ante Rules, 88% of the businesses and business users that replied, encountered issues concerning trading conditions on large platforms. According to Cullen International’s database, around 30 antitrust investigations concerning platforms have been formally opened in the EU (by DG Competition or NCAs) since 2015. However, the prevalence of unfair practices by large gatekeeper platforms is evidenced not only in the number of cases that have been investigated by competition authorities, but also from the interviews and case studies run in the context of the support study for the Impact Assessment. 62.As regards the anti-competitive use of third party data, both the Commission and NCAs (Italy, the Netherlands and Germany) are running a number of investigations against four different large online platforms. In case of preferential treatment, except for the Commission cases, also at least two NCAs (Italy and the Netherlands) are running investigations concerning self-preferencing by online platforms. With respect to inadequate or late access to own (business-user related) data and lack of access to key functionality, the investigations were initiated in each case against three different online platforms in three different Member States, while anti-steering and MFN clauses were recently subject to investigations against two different online platforms. 63.The size of the market and the implications of the issues identified are also an angle of approaching the ‘the size of the problem’ question. The digital economy is estimated to account for between 4.5% to 15.5% of global Gross Domestic Product (‘GDP’) in 2019, depending on the definition. The top 50 online platforms, representing an average of over 60% of traffic share across the Member States, achieved worldwide revenues of almost EUR 276 billion in 2018, and employed almost 600 000 people.Online platforms’ role is constantly increasing due to e-commerce upward trends; it has further strengthened with the widely introduced lockdowns due to the COVID 19 outbreak in 2020; consumers have shifted their habits more towards search engines, social media and online entertaining media. 64.The ongoing fragmentation in the Digital Single Market might also reverse the positive trends in cross-border online trade. Assuming a 10% decrease per year in online cross-border trade, the opportunity cost of the digital market fragmentation would be EUR 1.76 trillion after 10 years (see Annex 5.5 to the Impact Assessment). 65.The reduced contestability of digital markets in which gatekeepers operate seems to result in suboptimal innovation levels, with notably implications for societal welfare. Relevant data supports the view that many markets are becoming more concentrated and display less competition. Profit margins are widening, with a few firms reaping a significant share. Innovation levels are also sub-optimal. 66.Gatekeepers bring benefits for consumers in terms of convenience, increased choice of free of charge online products and services. However, there are also important adverse consequences for consumers, namely reduced choice in terms of number of competitive platforms , insufficiently informed choice decisions , and lack of data/privacy-friendly services . Also, due to the distorted intra- and inter-platform competition described in the problem definition, consumers risk experiencing higher prices and/or less quality. Problem drivers 67.This section describes the problem drivers for the problem clusters described in Section 2.1. These problem drivers can be grouped into two overarching categories, namely gatekeeper related market failures (Section 2.3.1), and fragmented regulation and oversight (Section 2.3.2). Market failures 68.From the competition law perspective, the term ‘market failure’ indicates a situation in which a market does not allow consumers to benefit from the results of effective competition in terms of low prices, better quality, as well as more choice and innovation, while firms are able to earn supra-normal profits which are not competed away over time.

69.While markets typically feature self-correcting mechanisms, there can be obstacles that prevent these mechanisms from operating, leading to non-transitory losses of economic value. For instance, abnormally high profits in a market should in principle not be sustainable in the long run because they would attract new entry into this market. As the new competitors start offering the same or very similar products as the incumbent(s), they will steal market share, and hence profits, from them, until the abnormally high profits will gradually be competed away. However, this self-correcting mechanism may be impaired when there are, for instance, barriers to entry that make it very difficult or even impossible for potential competitors to enter the market and challenge the incumbents. Such barriers to entry are particularly salient in digital markets, because they do not allow entrants to be cost effective (because of scale and scope economies), to replicate the incumbent’s products or services (because of data dependency or vertical integration), or to induce consumers to switch away from the incumbent(s) (because of network effects, switching costs, or asymmetric information). Such barriers to entry therefore allow incumbents to sustain market power, which in turn leads to longer-term societal losses in terms of higher prices and less product variety for consumers, and less dynamic innovation. 70.It is important to stress that the features of a market include both structural and behavioural ones and that demand-side considerations, in particular the behaviour of customers, play an equally important role in this regard. Therefore, in many cases, there is a combination of those elements leading to or constituting a market failure. 71.This section analyses a list of gatekeeper related market failures, notably: (i) entry barriers to gatekeeper markets (Section 2.3.1.1) and (ii) economic dependence and imbalanced bargaining power (Section 2.3.1.2). Entry barriers to gatekeeper markets 72.Market players in the digital economy face important barriers to entry. This is due to the fact that digital market features can be exploited by gatekeeper platforms to strengthen their market position and prevent market entry. 73.There has been broad consensus among the NCAs , as well as among the respondents to the OPC that extreme economies of scale and scope, high start-up costs, high fixed operating costs, high degree of vertical integration, single-homing, switching costs, multi-sidedness, network effects, zero-pricing markets, information asymmetry, data dependency access to data, and behavioural bias are important or very important sources for market failures in digital markets. Moreover, according to an International Competition Network (‘ICN’) report, an important proportion of respondents indicated that most of these factors were playing an important role in digital markets’ power assessment in the competition enforcement cases that they have investigated. 74.Regarding economies of scale, the Commission in Google Shopping, based its dominance assessment for the market for general search services among other things on the existence of barriers to expansion and entry, notably the significant investments in terms of time and resources required to establish a fully-fledged general search engine. Likewise, in its Google Android decision, the Commission found that “developing a smart mobile OS [operating system] is a costly and time-consuming process”. As regards economies of scope, the Commission made particular reference in its Preliminary Assessment in the Amazon e-book MFNs case to “[t]he ability of e-book readers to drive sales and lock-in customers: that with its Kindle e-book reader, Amazon operates a closed "ecosystem" (or "walled garden"). Customers who own a Kindle can use that e-book reader only for ebooks purchased in Amazon's Kindle store”. In the same case, the Commission also found substantial economies of scale for e-book retailing, in particular because of the need to construct a sufficiently large catalogue of available titles (which requires agreements with a large number of E-book Suppliers), and because of the scale and scope of investments needed to set up a viable e-book distribution platform. The Special Advisers Report refers to “the presence of strong economies of scope favouring the development of ecosystems and giving incumbents a strong competitive advantage. Indeed, experience shows that large incumbent digital players are very difficult to dislodge”. 75.Due to the two-sided nature of platform markets, once a gatekeeper managed to bring both sides of the market on board, it becomes very difficult for a new, emerging platform, to establish itself in the market, as it has to convince both users and developers simultaneously that it is a viable alternative to the already established platform. For instance, in establishing Google’s market power in the Google Android case, the Commission quoted Orange as saying that “[g]iven the two-sided character of this market (attracting enough developers requires having a large user base and users will reciprocally be attracted to shops offering many apps) it is indeed very difficult to offer an app shop in competition with Google Play given (i) its link with Android OS and (ii) its current size”. 76.The problem of challenging a gatekeeper is often exacerbated in situations where at least one side of the market (typically the final users) is served at zero prices by the incumbent platform - with firms monetising their services through advertising and/or access to consumer data - so that there is no room for the entrant platform to attract final users through aggressive pricing policies. 77.The zero pricing strategies described above also explain why network effects tend to favour large incumbents preventing smaller rivals from effectively challenging incumbents and stealing market shares from them. The Commission has found in the Microsoft case, for instance, that network effects represented a relevant barrier to entry because “[a] media player would not meet with significant consumer demand if there was no or no significant amount of corresponding digital content which this player could play back”. In Google Android, the Commission found that “network effects arise because, when deciding which licensable smart mobile OS to develop for, app developers consider the revenue potential of that OS and since they ‘earn their profits mainly by app downloads, mobile OSs with a large user base are considered more attractive by app developers”. 78.Indirect network effects are particularly strong for large-scaled platforms also due to their unlimited capacity to expand data sets, i.e. data-driven network effects. In addition to this network amplification function, data is a major asset in the digital economy. It is particularly important for a business to have access to data related to its consumers and stemming from its activity on a platform since such data allow the business to adapt its market strategy. Business users’ dependency on data could be used to prevent them from competing effectively on the platform. This is particularly problematic when the business user is in direct competition with a gatekeeper who can use data generated by the business user’s activity to its own interest. Data can thus be used by gatekeepers as a barrier to entry, expansion and competition and is therefore an essential element for enabling market contestability. In the Google Shopping case, the Commission identified the availability of data in the form of user search queries, paired with users’ tendency to single-home on Google for their general searches, as an important barrier to entry: “[B]ecause a general search service uses search data to refine the relevance of its general search results pages, it needs to receive a certain volume of queries in order to compete viably. The greater the number of queries a general search service receives, the quicker it is able to detect a change in user behaviour patterns and update and improve its relevance”. 79.The presence of network effects and the multi-sidedness of certain markets imply that even markets where initially multiple competitors are active are particularly prone to tipping: once a firm has obtained a certain advantage over rivals in terms of market share, its position may become unassailable and the market may gravitate towards a situation of dominance or (quasi)-monopoly. This advantage can be due to its presence in other related services, access to data or simply because it is the first mover into the market. In these cases, markets may not yet have generated a gatekeeper, but show clear signs of increasing market power in the hands of one firm. Respondents to the OPC generally considered that important or very important market features of a tipping market are the following: (i) direct network effects; (ii) indirect network effects; (iii) users predominantly single-home and (iv) economies of scale. Respondents generally considered that tipping is common or to some extent common in digital markets. When asked about the need for the Commission to be able to intervene early in cases of emerging gatekeepers to preserve/improve competition, the large majority of respondents agreed, including the majority of businesses and business associations, civil society organisations (i.e. consumer associations, NGOs and citizens) and public authorities (including NCAs). 80.Behavioural bias is another important feature of digital markets. This feature merits further attention in this section since it contributes to increasing switching costs and keeping users locked into the gatekeeper platform, i.e. leading to user lock-in, thus strengthening entry barriers. Platform companies routinely design services to optimise their users’ experience, often using advanced behavioural profiling and testing techniques, such as A/B testing, or finely targeted personalisation of their service offerings. Gatekeepers use various techniques (e.g. design of choices, misdirection, social pressure, sneaking items into the user’s shopping basket, and inciting a sense of urgency or scarcity) that ‘nudge’ users into certain decisions. A recent search on 11 000 shopping websites identified 1 818 patterns of practices used to incite users doing things they have not intended to do. 81.From the perspective of platform competition, research on the basis of ‘agent-based simulations’ also found evidence of biases that reinforce consumer lock in, such as ‘escalation of commitment’, and ‘availability bias’. In ‘escalation of commitment’, users commit themselves to one platform, even when switching may provide higher user utility. Hence, those users never switch platforms. For instance, a consumer purchasing on a large e-commerce marketplace offering a range of products, would not switch to one or several other platforms even if the latter are specialised in the specific type of goods the consumer is interested in. Convenience and user habits would prevail over the benefit (e.g. higher quality) potentially resulting from the use of a more specialised platform. Users subject to an ‘availability bias’ may make platform choice decisions using a heuristic that relies on vivid or recent data. For example, users may easily recall a platform that has many users, as social media would be mentioning such a platform. Social norming (e.g. follow friends’ behaviour) may play an additional role for user lock-in and increase switching costs. Behavioural bias discourages switching to different alternatives (such as a different browser, different search engine, etc.) whenever certain software products come pre-installed on consumers’ devices, and therefore has similar adverse effects on competition as would limited information about the existence of these alternatives. 82.For instance, in the Google Android case, the Commission found that “users that find apps pre-installed and presented to them on their smart mobile devices are likely to ‘stick’ to those apps”. In other words, users suffer from ‘default bias’ or ‘status quo bias’, which in turn makes pre-installation of operating systems, app stores, search engines, etc., a powerful tool to lock in users to these specific services: “In 2016, approximately 260 million smartphones were sold in Europe, of which approximately 197 million smartphones or 76% were Google Android devices. Practically all of these Google Android smartphones had the Google Search app pre-installed with the rest of the GMS bundle”. 83.The Commission’s enforcement practice under Article 102 TFEU has shown that that the presence of high switching costs makes it more difficult for entrants to contest the market position of firms that have already acquired a large customer base. For instance, in an internal document, Microsoft itself stated that “The Windows API […] is so deeply embedded in the source code of many Windows apps that there is a huge switching cost to using a different operating system instead”. Switching costs are also relevant where customers are businesses, not final consumers. This is demonstrated by the Google Android case, where the Commission found that “OEMs wishing to switch to other licensable smart mobile OSs face switching costs. […] For example, Sony has estimated that the initial development cost ‘to implement the Android OS on our devices was approximately 50 million Euro, with lead time of 1.5-2 years’”. One implication of high switching costs in the platform context is that either one (or both sides) of the platform tend to single-home for specific purposes, i.e. users only use one platform, rather than using several platforms simultaneously. For instance, the vast majority of smartphone users owns either an iPhone or an Android phone, but not both at the same time, and they tend to be very loyal to their operating system. 84.The above entry barriers are gradually reinforcing each other due to the ‘winner–take-all’ dynamics in digital markets. The bigger the platform, the stronger the indirect network effects, the larger the amount of data and the higher its quality. This leads to increased insight into user profiles and preferences, allowing gatekeepers to offer them more personalised services and advertisements, thus attracting even more users and reinforcing consumer lock-in, favouring single-homing and rendering switching to alternative platforms more difficult. Economic dependence and imbalanced bargaining power 85.Dependence and imbalanced bargaining power characterise business relations with all platforms including small ones. What distinguishes however relations with gatekeepers, is the particularly strong level of dependency and the important scale of power imbalance, which together with unfair conduct engaged in by these gatekeepers can have serious harmful effects on the business users and customers. 86.First, gatekeepers have become a strategic business partner; an enterprise not present on these platforms would not reach a very significant number of consumers. Figures in some sectors illustrate well the strong degree of dependence. In 2024, consumers are projected to download 181 billion apps from biggest app stores. Over 80% of social referrals to e-commerce sites come through the most used social platforms some of which having more than 2 billion monthly active users and 7 million active advertisers. This explains the millions business pages and companies using these social media every month to target this large audience.

87.Gatekeepers’ role as key trading partners is constantly strengthened due to e-commerce trends. The Business-to-consumers (‘B2C’) e-commerce turnover was growing at an average pace of 13% between 2014 and 2019 with turnover forecasted to hit EUR 621 billion in 2019. On average, 16.2% of retail trade in 2020 in Europe takes place on line, almost double in comparison to 2018. The share of online shoppers in Europe making cross-border online purchase has also increased significantly over the past decade, nearing 50% in 2019. Cross-border B2C e-commerce sales in Europe are projected to grow at a double-digit rate at least through 2022. 88.Second, the incomparable economic strength of gatekeeper platforms show the extent to which their commercial relations with business users are imbalanced. In 2019, the biggest app stores generated over USD 83 in revenue. In 2019, one of the most important social networks had over USD 70 billion in revenue. Fragmented regulation and oversight 89.Various national rules in the EU are emerging in partial response to the problems identified. In addition, insufficient coordination among different national authorities setting rules vis-à-vis platforms may lead to potentially heterogeneous responses across the EU. Fragmentation already exists with regard to platform-specific regulation, as for example in the cases of transparency obligations and MFN clauses. 90.Furthermore, fragmentation results also from differing legislation relating to dependency situations in place in various Member States (Belgium, Bulgaria, France, Germany, Hungary and Italy) while in the remaining Member States there is no legislation addressing dependency in place. Regarding MFN clauses there are two different types of fragmentation: fragmentation due to the fact that some Member States imposed legislative bans and some Member States did not. Furthermore, fragmentation is observable due to differences in the MFN-legislations in those Member States where they are in place. For instance, in some Member States (Austria, Belgium, France, Italy) all types of price parity clauses are prohibited, i.e. also narrow MFN clauses, while in the remaining Member States MFN clauses may be challenged under EU competition law only. Conclusion: problem drivers’ effects 91.The above-described problem drivers can lead to a number of issues. The economic dependence of business users on gatekeeper platforms and the imbalance of bargaining power - between these two types of players as well as between gatekeepers and smaller platforms - can result in important economic harm. Business users need to be present on gatekeeper platforms in order to reach consumers as the above analysis show, which allows gatekeepers to set the rules of access and use of their platforms in an unfair way. Gatekeepers can undermine the trading conditions for dependent business users by behaving unfairly, thus limiting (national and cross-border) sales and trust in the platform economy. 92.Digital markets’ features (see in particular discussion on market failures in Section 2.3.1) have mutually reinforcing effects which in the winner takes it all dynamics of these markets constitute unsurmountable entry barriers. The latter drive a number of issues related to weak market contestability and gatekeepers’ sustained market position leading to longer term societal losses in terms of products’ and services’ prices, consumer choice and suboptimal innovation opportunities (as illustrated in Section 2.2 and further described in Section 6). Gatekeepers control the conditions for innovation and entry by independent firms. An important effect of the exercise of control by gatekeepers is that they can inhibit innovation by potential alternative platforms or by applications providers operating on their platform. Potential competitors, which might offer an alternative route to customers, may find it challenging to gain a foothold in markets with gatekeepers. 93.The extensive nature of problems associated with gatekeepers has led a number of Member States to take or consider their own measures to address gatekeeper power. However, isolated and uncoordinated national approaches to addressing a problem which concerns cross-border platforms, and is hence pan-European in scope, risk creating different national rules which increase the compliance costs for platforms (and especially entrants or small scale platforms) operating cross border, and for business users, including SMEs, providing services across the EU. How will the problem evolve? 94.Concentration and mark-ups in most digital markets have been increasing over the last years, and there is no indication that this trend will be inverted during the next years. In some cases, markets have already stabilised at a high concentration level and do not show any evidence of possible increase in competitiveness in the future. Data is also becoming more and more important, exacerbating the market failures associated with the control of data. 95.The COVID-19 crisis has dramatically increased the importance of e-commerce and trading via digital platforms in the EU’s economy. This has only accelerated the dependency of users and businesses on the services provided by the few gatekeepers – as evidenced indirectly by the increase in stock market valuation of some of the largest platform companies. 96.The following graph illustrates the stock price development for five major big tech companies from 2014-2018. To the extent that stock prices reflect market expectations of future profitability, this graph can be interpreted as measuring (future) profits of the respective companies. When comparing these figures to the S&P 500 index, which grew by about 60-70% over the same period, this graph shows how the five digital operators – Alphabet (Google’s parent company), Apple, Facebook, Amazon, and Netflix – have consistently outperformed the market average. 97.Absent any EU intervention, the economic drivers are likely to increase, exacerbating the observed problems. As an illustration, further development and use of voice assistants can also be expected to reinforce gatekeeper platforms’ position. Voice-activated services may create concerns in relation to search for online products/services/information. The provision of a single answer to a search request limits the possibility to access alternative results, thus reducing choice and limiting competition. 98.Innovation would remain concentrated within a small number of gatekeepers, ultimately limiting consumers’ possibility to access innovation and data-friendly services provided by a larger number of platforms than gatekeepers. 99.Regarding fragmentation likely to occur in the near future, legislation to address imbalances in the relationships between digital platforms with economic power and their business users is currently in process to be adopted in several Member States (e.g. Germany, France and Romania). Some Member States (Belgium, Luxemburg and the Netherlands) are currently mainly supporting action at EU level. However, they would most likely take legislative action at national level in the absence of action at EU level. Those legislative projects already in the process of adoption and also those likely to be tabled in the absence of action taken at EU level demonstrate the likelihood of further fragmentation. 3.WHY SHOULD THE EU ACT? Legal basis

100.Given the intrinsic cross-border nature of the services provided by gatekeeper platforms and the risk of further regulatory fragmentation regarding functioning of the Single Market for digital services, in particular in relation to gatekeeper platforms as well as functioning of digital markets, Article 114 TFEU is the relevant legal basis for this initiative. 101.As set out above, the current regulatory approaches at Member States level are a patchwork of existing or proposed regulatory solutions (see detailed description in Annex 5.4 to the Impact Assessment). This creates legal uncertainty for companies operating in the internal market, whether at national or on a pan-European basis and risks creating an appreciable distortion of competition in the internal market and undermine fundamental freedoms protected by the Treaty. Subsidiarity: necessity and added value of EU action 102.The objectives of the intervention cannot be achieved by Member States acting alone, as the problems are of a cross-border nature, and not limited to single Member States or to a subset of Member States. The digital markets at stake (including those featuring gatekeeper platforms) are often of a cross-border nature, as is evidenced by the volume of cross-border trade, and the still untapped potential for future growth, as illustrated by the pattern and volume of cross-border trade intermediated by digital platforms. Almost 24% of total online trade in Europe is cross-border. It is estimated that by 2025 online marketplaces will represent 65% of cross-border online sales in Europe. 103.Even where these digital markets may be geographically defined as national in scope, the problems at stake nevertheless remain of a cross-EU nature for three main reasons. First, the goods and services offered by the market players concerned are typically of a cross-border nature. Second, digital players typically operate across several Member States, if not on an EU-wide basis, which is particularly the case for markets such as online advertising, social media, online retail, cloud services, e-commerce or online search. This is not to say that services such as online advertising and search do not have to be tailored to Member States’ languages - however, the overall business strategy will normally be EU-wide. 104.Accordingly, market failures in digital markets have Union relevance, as they can arise across borders and affect several Member States, thus not being limited to a specific national market of a Member State. 105.As regards the particular case of unfair business practices, in the absence of an EU measure, there is a high risk that with national approaches, business users or application developers seeking to serve the internal market will need to understand a range of diverse rule-sets and pursue actions in multiple countries across the EU, which is likely to fragment the Single Market for digital services, create barriers to expansion and compliance costs, especially for start-ups and SMEs. A lack of harmonised rules in this space risks complicating the regulatory landscape faced by platforms operating on a pan-European or indeed global basis. An intervention at the EU level is therefore more efficient, insofar as it introduces a common set of rules across Member States to address in a consistent manner the same unfair business practices carried out by large digital gatekeepers across the Union. 106.Similarly, intervention by individual Member States or NCAs would be ineffective in tackling gatekeeper related market failures across the Union. Each Member State can only address market failures in its own territory, imposing its own remedies, whereas market failures may affect the territory of several Member States because of the wider geographic scope of the relevant market concerned or the cross-border business activities of the market players concerned. Addressing market failures with a cross-border dimension at national level could also lead to inconsistencies in the remedies imposed, with the ensuing risk of fragmenting the Digital Single Market. 107.Therefore, by addressing market failures in respect of key digital markets, the functioning of the internal market will be improved through clear behavioural rules that give all stakeholders legal clarity and through an EU-wide intervention framework allowing to address market failures in a timely and effective manner. 4.OBJECTIVES: WHAT SHOULD BE ACHIEVED? General objective 108.The general objective of this initiative is to ensure the proper functioning of the internal market by promoting effective competition in digital markets, in particular a fair and contestable online platform environment. This objective feeds into the strategic course set out in the Communication ‘Shaping Europe’s digital future’ as shown in Section 1. Specific objectives Address market failures to ensure contestable and competitive digital markets for increased innovation and consumer choice 109.As explained in Section 2.3.1.1, certain digital markets may not be functioning well and delivering competitive outcomes due to their particular features, in particular extreme scale (or scope) economies, and a high degree of vertical integration; direct or indirect network effects; multi-sidedness; data dependency; switching costs; asymmetric and limited information, and related biases in consumer behaviour as well as the conduct of gatekeepers. Therefore, a specific policy objective is to allow identifying and addressing such market failures in respect of key digital markets to ensure that these markets remain contestable and competitive. This will contribute to digital markets delivering low prices, better quality, as well as more choice and innovation to the benefit of EU consumers. Address gatekeepers’ unfair conduct 110.As explained in Section 2.3.1.2, gatekeepers’ economic strength, their position of intermediaries between businesses and consumers together with markets dynamics fueling gatekeepers’ growth lead to an imbalance in power between gatekeepers and their business users. This enables gatekeepers to impose unfair commercial conditions on business users, thus hampering competition on the platform. Such unfair behaviour does also have a negative impact on (the emergence of) alternative platforms since it strengthens consumer lock-in thus preventing multi-homing. In light of this, a specific policy objective is to lay out a clearly-defined set of rules addressing identified gatekeepers’ unfair behaviour, thereby facilitating more balanced commercial relationship between gatekeepers and their business users, which would be also expected to create the right incentives for multi-homing. Enhance coherence and legal certainty to preserve the internal market 111.The gatekeeper-related problems identified above are currently not (or not effectively) addressed by Member States in existing regulation. The national legislative initiatives may partially address problems identified but also lead to increased regulatory fragmentation. In addition, tackling issues identified through legislation at national level is suboptimal in light of the cross-border nature of the platform economy. Moreover, the systemic importance of gatekeepers for the internal market deserve a better coordinated and more effective intervention across the EU. As explained in Section 2.3.2, national laws lead to legal fragmentation of the platform space and increase compliance costs for all market players. Therefore a specific policy objective is to improve coherence and effectiveness of oversight and enforcement of measures vis-à-vis gatekeepers, thus contributing to increased legal certainty. How do the objectives link to the problems identified?

112.The figure below shows how different objectives are linked with the problems and the underlying problem drivers. It also shows that the specific objectives, i.e. address market failures to ensure contestable and competitive digital markets for increased innovation and consumer choice, address gatekeepers’ unfair conduct and enhance coherence and legal certainty in the online platform environment for a preserved internal market, contribute to achieving the general objective of ensuring the proper functioning of the internal market (through effective competition in digital markets and through fair and contestable online platform environment). 5.WHAT ARE THE AVAILABLE POLICY OPTIONS? 113.This section presents the three policy options retained (Section 5.3), the baseline scenario from which they will be assessed (Section 5.1), and the options that have been considered but discarded (Section 5.4). What is the baseline from which policy options are assessed? 114.Gatekeepers are currently subject to two main sets of laws: first, competition laws which are applicable across all sectors of the economy, and, second, EU rules of a more sector-specific scope or with a less punitive nature including, among others, the P2B regulation, the General Data protection regulation (‘GDPR’) and the EU consumer law. 115.Broadly speaking, the EU competition policy toolbox includes rules on antitrust, merger control, State aid, and public undertakings and services. Generally, a distinction is made between competition rules allowing for an intervention ex post or ex ante. Antitrust enforcement – under Articles 101 and 102 TFEU and the accompanying implementing regulations – belongs to the first category, as it aims at detecting anti-competitive behaviour by companies that has the actual or likely effect of causing distortions of competition. Merger control and state aid rules aim at preventing anti-competitive outcomes by assessing ex ante whether a merger between undertakings or the granting of State aid would negatively affect competition. Intervention under the existing EU competition rules can therefore only occur if: (i) a company is dominant pursuant to Article 102 TFEU and abuses this position, (ii) there is an anticompetitive agreement or concerted practice between two or more undertakings covered by Article 101 TFEU, (iii) there is a merger/acquisition with EU dimension falling under the EU merger control rules or (iv) a Member State grants aid falling under the EU State aid rules. 116.Under the baseline scenario, the Commission would not propose any changes to the current competition legal framework. This means that the Commission would continue to vigorously apply and enforce the existing competition law framework, in particular Articles 101 and 102 TFEU, against gatekeepers in digital markets, should the conditions for such intervention be met. Competition enforcement by the Commission would include making full use of the existing tools within this framework. The ongoing reviews of existing legislation (e.g. the Block Exemption Regulations for horizontal and vertical agreements) as well as of the Market Definition Notice would continue as planned. 117.The majority of the respondents to the OPC indicated in their replies that, while some of the issues connected to gatekeeper powers could potentially be addressed by competition law enforcement through procedural and/or organisational changes, there were restrictions that could not be overcome with competition law enforcement. Respondents argued that the main challenges with regard to the enforcement of Article 102 TFEU relate to situations where dominance does not exist, and the difficulties with remedying a conduct found to be anti-competitive in an appropriate and effective manner, notably once the damage has already occurred. They considered that these challenges also have a negative effect on the duration of antitrust investigations and the ability of the existing competition law framework to ensure the contestability of the markets concerned. Respondents also highlighted the need for a regulatory solution regarding conduct recurrently showing negative effects on competition, as well as the need to pursue more exploitative cases and to take non-economic objectives into account in the competitive assessment. A minority of respondents to the OPCs argued that Articles 101 and 102 TFEU are suitable and sufficiently effective in addressing market failures, and were primarily satisfied with the level of enforcement of the existing competition rules. These respondents pointed towards interim measures, sector inquiries, merger control and deadlines as potential ways to tackle any shortcomings that competition law may have. Some respondents also pointed to the ongoing reviews of competition legislation such as the Market Definition Notice, as well as the rules applicable to vertical and horizontal agreements as other ways to improve the existing competition law framework. Some respondents also argued for a broader use of sector inquiries and a review of the EU merger regulation. 118.The Commission considers that the current legal framework would not allow it to address the market failures described in Section 2.3.1 for the following reasons. 119.First, existing EU competition rules cannot conceptually deal with market failures resulting from the behaviour of gatekeepers in the absence of some preconditions, such as the existence of an anticompetitive agreement in the case of Article 101 TFEU or of a dominant position in the case of Article 102 TFEU. In addition, in some instances, existing EU competition rules may be able to prevent or address a market failure, but not in the most effective manner. The Commission’s enforcement of Articles 101 and 102 TFEU rules can only take place ex post, i.e. after a competition problem has emerged. As a recent report by the European Court of Auditors (‘ECA’) also indicates “particularly in the digital economy, this may be too late to tackle a competition problem”. The ECA report also flags that “the Commission has currently no tools in its hands that would allow it to intervene ex ante i.e. before competition problems would occur”. Moreover, – even when using interim measures, explained below – competition law enforcement requires a detailed economic and legal analysis which, jointly with the procedural safeguards, bring the duration of the investigations to at least around two years and usually more than that. In markets characterised by powerful network effects and economies of scope, competition law interventions may mean not only delays in the interventions but also that irreparable effects such as tipping may no longer be reversible. 120.Second, market failures associated to tipping markets cannot be tackled on the basis of the existing competition rules, notably where market tipping is triggered primarily by the market structure, and not (or only to a lesser extent) by any specific conduct. 121.Third, the existing EU competition rules do not necessarily capture all unfair business practices by large digital gatekeepers. This is because these practices do not necessarily have an anticompetitive object or effect under Article 101 TFEU, or may not be captured by Article 102 TFEU, if there is no effect on competition on clearly identifiable relevant markets. 122.Fourth, specific competition tools cannot address the gatekeeper related market failures: ·Prohibition (fines) and commitments decisions (Articles 7 and 9 of Regulation 1/2003) are decisions addressed to individual companies for a breach of the EU competition rules, and not suitable for addressing market failures that are not, or not exclusively, caused by such breach of the EU competition rules. ·Sector inquiries (Article 17 of Regulation 1/2003) are investigations that the Commission carries out when it suspects possible breaches of the competition rules in specific sectors of the economy. There is, however, no possibility to impose remedies following a sector inquiry. ·Interim measures (Article 8 of Regulation 1/2003) are a tool allowing the Commission to intervene in “cases of urgency due to the risk of serious and irreparable damage to competition” where a ‘prima facie’ infringement of the EU competition rules can be shown. Interim measures, however, would not allow the Commission to tackle the problems explained in this Impact Assessment for two main reasons: first, interim measures can only be imposed where a prima facie infringement of Articles 101 or 102 TFEU can be shown, and second, interim measures are founded on a very specific test requiring the finding of ‘urgency’ as well as ‘serious and irreparable damage’. Interim measures have only been used twice in the last nineteen years. 123.Fifth, the ongoing reviews of existing legislation (e.g. Block Exemption Regulations for horizontal and vertical agreements) as well as of the Market Definition Notice will also not tackle or address the problem drivers: ·The ongoing reviews of Block Exemption Regulations cannot tackle or address the problem drivers. The Block Exemption Regulations pursue a different objective than the DMA. They are by their very nature not aimed at addressing specific competition issues and/or market failures, but at block exempting agreements that are on balance efficiency enhancing, thus helping companies to self-assess compliance of their agreements with Article 101 TFEU.

·The ongoing evaluation of the Market Definition Notice cannot, by its very nature, tackle or address the problem drivers as it is a soft law document to provide guidance on the definition on the relevant market and on the relevant parameters to be taken into account for it when using Articles 101 and 102 TFEU or the EU Merger Regulation (Regulation (EC) 139/2004). The Market Definition Notice cannot therefore address competition issues and/or market failures in digital markets. 124.Some respondents to the OPC – across different stakeholder categories – considered that there was no need for the DMA and that the Commission should rather reassess the situation after the P2B Regulation had shown its effects. A minority of respondents, mainly several large platforms and their trade associations, and some research institutes and academics, disagreed with the need for the proposal of new ex ante rules as they consider that the risks posed by gatekeepers can be addressed with existing regulation. Some platforms, trade associations and national authorities emphasised the need to focus the regulatory attention towards specific actions and perceived market failures. 125.Under the baseline scenario, the Commission would continue to apply and enforce the existing more sector-specific EU rules including, among others, the P2B regulation, the GDPR and EU consumer law. The Commission considers however that the current regulations will also not tackle or address the problem drivers described in Section 2.3 for the following reasons: ·Regulation (EU) 2019/1150 on fairness and transparency for business users of online intermediation services (the ‘P2B Regulation’) entered into force on 12 July 2020. It is the first EU-level legislation specifically targeted at commercial issues engaged in by online platforms, or online intermediation services, as well as by online search engines. It applies to more than 10 000 platforms in Europe and reflects the fact that a certain dependency of professionals, or business users, is inherent in any successful online platform. This feature of online platforms means that the fairness, transparency and redress rights and obligations that the P2B Regulation provides are necessarily high-level and principles-based. Since this legal framework establishes a general ‘safety net’ for all professionals active in the online platform economy, it does not address issues deriving from the concentration of economic power and unfair business practices of a limited number of very large gatekeeper platforms. ·EU data protection legislation specifies the fundamental right to the protection of personal data. It therefore covers business-to-citizen and government-to-citizen interactions, rather than commercial and competition-related issues. Article 20 of the GDPR provides a limited right to data portability, though it is broadly considered that there are still many implementation challenges and that this right is at present insufficient to significantly lower entry barriers and to facilitate the contestability of markets. ·EU consumer law does address a range of potentially harmful practices, at EU level notably through the Unfair Commercial Practices Directive (‘UCPD’) and the Unfair Contract Terms Directive (UCTD). While these directives define a number of relevant concepts, such as 'professional diligence' and 'good faith', their scope is explicitly limited to business-to-consumer transactions. Conversely, the Misleading and Comparative Advertising Directive (MCAD) covers certain Business to Business (‘B2B’) relations. However, the provisions set forth in the MCAD are limited to a narrow subset of advertising practices, which are not specific to online platforms or digital markets, and do not deal with the unfair business practices carried out by large gatekeeper platforms. 126.Finally, in the absence of further EU legislation, and subject to enforcement of the existing legal framework, the legal fragmentation is likely to further increase as Member States are likely to continue to adopt horizontal or sector specific national measures against gatekeepers, as shown in Annex 5.4 to the Impact Assessment. What are the main parameters that determine the range of available policy options? 127.The problems and drivers map on to a set of parameters that characterise the range of available policy options. These parameters include (a) the scope of the intervention; (b) the range of unfair practices at stake; (c) the speed of the instrument and the degree of flexibility offered; and (d) the investigative and enforcement framework available and appropriate. Before presenting the options, this section explains these main parameters and highlights some of the inherent trade-offs. Scope: core platform services, gatekeepers, thresholds 128.As highlighted in Section 2.1, the scope of the intervention is characterised by two particular concepts – the nature of the ‘core platform services’ where problems arise, and the notion of ‘gatekeepers’, i.e. companies that offer one or more core platform services. Core Platform Services and Gatekeepers can be identified robustly by a series of criteria, as set out below. Identification of core platform services The enforcement experience under EU competition rules both at the EU and national level, numerous expert reports and studies – including the study supporting the present Impact Assessment – and the results of the OPC show that there are number of services that have the following features: (a)highly concentrated multi-sided platform services, where usually one or very few large digital platforms set the commercial conditions with considerable autonomy from their competitors, customers or consumers; (b)few large digital platforms act as gateways for business users to reach their customers and vice-versa; and (c)gatekeeper power of these large digital platforms is often misused by means of unfair behaviour vis-à-vis economically dependent business users and customers. While these concepts are broad, the work supporting this Impact Assessment shows that unfair practices by gatekeepers are more prominent in some platform services than in others; in identifying the core platform services to which the regulation of the DMA should apply, the Commission was guided by the following principles: (a)Clearly defined obligations should apply only to those services and gatekeepers where the identified problems are most prominent and egregious; (b)To ensure the highest level of legal certainty for gatekeepers and other market participants alike, it is important to identify services as clearly as possible in the rules themselves. The Commission identified several services, which meet these criteria and where absent regulatory intervention the identified problems in Section 2 could effectively remain un-addressed. Such core platform services are: (a)online intermediation services (including marketplaces and app stores), (b)online search engines, (c)operating systems, (d)cloud computing services; (e)video sharing platform services, (f)number-independent interpersonal electronic communication services, (g)social networking services and (h)advertising services, including advertising networks, advertising exchanges and any other advertising intermediation services, provided by providers of one or more of the above services. The mere fact that a given service is identified as a core platform service does not suggest however that any provider of such a service will automatically be considered as a gatekeeper. Determination of these services as core platform services just means that they satisfy the criteria identified above and that therefore any provider of these services, if meeting the conditions for being designated as a gatekeeper would have to comply with the relevant regulatory obligations as set out in the different policy options. Other categories of digital services were also considered for the scope of ‘core platform services’, such as streaming services or B2B industrial platforms. However, these were excluded from the scope of such core platform services at this point either because (a) they lack the multi-sided market characteristics (e.g. for video streaming or video-on-demand services); or (b) they do not exhibit at this point the strong asymmetry in bargaining power that results from the presence of a service provider acting as gateway between consumers and business (e.g. for industrial B2B platforms). 129.The table below summarises the main features and practices in relation to the core platform services retained. The details about the evidence supporting those elements are provided in Sections 2.3.1 and 5.2.2. There is no consistent publicly available data about the mark-ups in each of these core platform services. In addition, some of these services do not generate direct revenue as prices are set at zero (e.g. online search services, social network services, number-independent messaging services), but are monetised via advertising services on the other side of the platform. Nevertheless, the players active on those services are some of the most profitable companies in the world (see Section 6.6.1). 130.There is also not much research developed about the impact of concentration in the innovation efforts in relation to these services. According to the Stigler report “Disruptive innovation in markets that are characterized by high concentration levels and network effects is likely to be reduced compared to a competitive market. […] Entrepreneurs may expect a low payoff to developing a free-standing product because of entry barriers and exclusionary conduct by the incumbent platform.” This report further concludes that “The incipient but growing technical research supports a concern for the impact of big tech on innovation” based on some studies on the innovation in social platforms, internet software (e.g. operating systems and other related apps) and internet retail. Core platform service Main features and practices Online intermediation service (such as for example marketplaces or app stores) Main features: online marketplaces and app stores are examples of core platform services that benefit from strong network effects given that the higher the number of users on one sid