Implementation of EU digital regulations: What is the role for economics?

The Digital Markets Act (DMA) was designed to ensure fair markets in the digital sector through formalistic rules, but does economic analysis still have a role to play? In this article, Neil Dryden, Guillaume Duquesne and Javier Ballesteros [1] examine whether the expected rule-based approach has materialised in practice or if a more substantive economic assessment has already become necessary. They argue that while formalism provides clarity and efficiency, it has limitations in evolving digital markets, requiring a balance with effects-based analysis to ensure regulatory goals are met.

The views expressed in this article are the views of the authors only and do not necessarily represent the views of Compass Lexecon, its management, its subsidiaries, its affiliates, its employees or its clients.

Introduction

The Digital Markets Act (“DMA”) aims to ensure contestable and fair markets in the digital sector. It introduces a regulatory framework designed to prioritise clarity, speed, administrability and enforceability.[2] As such, it is characterised by strict rules and clearly defined lines.[3] The implication is that even if economics played a pivotal role in motivating and informing the objectives and ex-ante design of the DMA’s rules, the day-to-day application of these rules would not require detailed economics or analysis.[4]

In this paper, we look at the implementation of the DMA so far, to consider whether the simplistic checklist approach that some expected has emerged in practice and suffices, or if a more substantive assessment is necessary and already evident in the ongoing designation and compliance processes.

Effective regulation requires a balance between form-based and effects-based approaches. Formalism has a clear benefit. It allows regulators to address clear-cut cases efficiently, securing the low-hanging fruits. However, once those initial quick wins are achieved, one must shift to an effects-based approach to analyse the more ambiguous and challenging cases. Extreme formalism, while administratively convenient, would be extremely problematic. The benefit of hard lines has a limit. It is not always possible to impose fixed binary concepts onto complex and dynamic markets. Ultimately, when faced with nuanced circumstances, insisting on simplicity may fail to achieve the policy objectives those simple lines were designed to secure.

This balance is necessary, and we already see evidence of it emerging in the implementation of the DMA. The reliance on quantitative thresholds has provided a straightforward way of designating gatekeepers. At the same time, designation based on qualitative criteria and informed by market investigations reflects a deeper engagement in specific circumstances. As such, the implementation of the DMA so far underscores its commitment to not just enforcing rules but achieving outcomes that promote fairness and competition in digital markets.

This dual approach – form-based where possible, effects-based where necessary – is critical to ensure that the regulation remains robust, effective, and relevant in fast-evolving digital markets. We would therefore expect the role for economics to be even more prominent going forward as the affected parties and markets change.

Form-based vs effects-based approaches: why is neither extreme perfect?

The DMA has been conceived as a form-based approach to regulating digital markets. It holds undeniable appeal. By establishing clear rules and objective thresholds, the DMA accelerates decision-making and provides some legal certainty for regulators and stakeholders, while overcoming possible asymmetry of information.

However, formalism comes at a cost. No rule, however well-intentioned, can simultaneously be straightforward to apply and perfectly aligned with policy objectives. Fast-evolving digital markets defy the static simplicity that strict ex-ante rules rely upon. As a result, a purely form-based approach risks misalignment of rules with changing market context.

Economists, by contrast, often favour effects-based approach. This approach seeks to tailor regulatory interventions to specific circumstances. Its appeal lies in its flexibility and its potential to precisely achieve policy objectives.

Yet, this approach has drawbacks of its own. An effects-based approach can be protracted, resource-intensive, and fraught with uncertainty. The lack of clear boundaries can result in lengthy debates and ultimately fail to deliver valuable legal certainty.

This highlights a fundamental trade-off in regulatory design.[5] Effective regulation must strike a balance between the rigidity of a form-based approach and the flexibility of an effects-based approach. In practice, this involves categorising conducts into three broad groups:

• conducts that unequivocally comply with the rules,
• conducts that unambiguously violate the rules, and
• the grey area in between.

It is in this grey area that limitations of a pure form-based approach emerge. To minimise errors, regulators must engage in a more substantive assessment to ensure regulatory intervention meets intended policy objectives. This nuanced approach ensures that regulation remains both effective and fair. 

Over time, the balance between form-based and effects-based approaches may shift as markets evolve. Initially, the alignment between rules and market context is strong, as the regulation is designed with current market dynamic in mind. However, as markets continue to transform – shaped in part by the implementation of the regulation – the grey area may well expand or shift. So, what was once a well-fitting regulatory framework may no longer align with the realities of the market it governs.[6]

As with any other regulation, the success of the DMA depends on its ability to maintain this delicate balance. By blending strengths of formalism with insights of effects analysis, the DMA is likely to be able to navigate the complexities of digital markets while remaining adaptable to their inevitable evolution.

This is evident in the first year’s implementation of the DMA. The designation process, while anchored in formalism, has already begun to incorporate elements of effects analysis. Similarly, the compliance process demonstrates how blind application of rules may fall short in delivering the intended outcome. We further discuss this in the following .

Designation process: strict adherence to formalism may not suffice

The designation process was initially envisioned as the epitome of formalism.

At first glance, its formal rules seem to have been a success. The Commission has applied them to catch seven gatekeepers, namely Alphabet, Amazon, Apple, ByteDance, Meta, Microsoft and Booking (see Table 1 in the Appendix).[7] This outcome aligns with expectations. It is, however, unclear whether it results from any robust, sound economic assessment or the combination of strict rules and strong priors.

In theory, the designation process should be pretty straightforward. It is a matter of identifying and classifying well-defined core platform services (“CPSs”) and then identifying whether quantitative thresholds are met or not.[8] In practice, it has proven more involved. This is not completely surprising. The delimitation and classification of CPSs are of strategic importance for gatekeepers. This is for three reasons. It impacts whether the quantitative thresholds are ultimately met; what the scope is of obligations vis-à-vis third parties; and, finally, what the scope is of obligations within their ecosystem (e.g., ability to combine data across CPSs).

There is a compounding factor. The undertakings under consideration generally control an ecosystem of integrated services in which drawing lines between core services is difficult, but still of critical importance.[9] Therefore, the designation process has ultimately faced some of the same difficulties that one generally encounters in market definition.

A strong desire for formalism

To engage with these difficulties, gatekeepers have on occasion put forward economic evidence, but it was not given very much weight. The Commission, so far, has clearly signalled its desire to stay away from any effects discussion and stick to formalism.[10] [11] For example:

• Regarding the delineation of CPSs, the Commission considers the “purpose” of a CPS, which relates to “features and the components of the services offered".[12] In principle, economic insights could help distinguish whether two CPSs have the same purpose, [13] whether two integrated services should be considered as a single CPS or not, [14] and/or for ambiguous cases assess the impact of using different potential classifications on the overall purpose of the DMA. However, in practice, the Commission considers both product characteristics and the uses made by businesses and consumers – which is similar to the first step of market definition, but far from an in-depth investigation. So far, the Commission has not engaged in any in-depth market definition exercise, nor has it relied on existing market definition from the case law [15] or economic analysis. Absent a clear framework for delineation (informed by economics), this simple approach is prone to inconsistency across designation decisions.[16]
• The Commission has been resistant to rebuttal of the quantitative presumption. Although there has been little controversy in assessing whether the presumption is met under Article 3 (2) of the DMA, there has been more debate when it comes to rebutting the quantitative presumption under Article 3 (5) of the DMA.[17] In theory, economic insight would help assess the likely impact of CPSs on contestability or fairness – for instance, in line with criteria listed under Article 3 (8) of the DMA.[18] However, prima facie the DMA foresees limited scope for economic evidence: “the Commission should take into account only those elements which directly relate to the quantitative criteria” and “any justification on economic grounds seeking to enter into market definition [...] should be discarded, as it is not relevant to the designation as a gatekeeper.” [19] In practice, the Commission interprets this recital very narrowly and discussions have focused on whether quantitative numbers are representative or not.[20] The Commission however refuses to enter into substantive discussion on criteria listed under Article 3 (8) and in particular discusses qualitative arguments on whether the platform is a gateway and ultimately negatively impact contestability.
• Regarding designation based on qualitative criteria under Article 3(8), economics played a slightly greater role. However, criteria were almost considered as check boxes with no clear threshold to draw a line.[21]

Push back from the courts

Initially, the approach the Commission has taken leaves little room for economic discussion as soon as thresholds are met. However, this form-based approach has already been challenged by courts.[22]

In particular, TikTok’s designation process has introduced a significant stress test for the DMA’s formalistic approach to designation. The process was initially crafted to address existing dominant players. So, understandably, the rules that were developed are informed by those existing companies’ market presence and behaviour in mind. However, TikTok’s designation process highlights the limitations of strict formalism once those rules encounter new potential gatekeepers.

In this case, the Court pushed back, requiring the Commission to consider elements of effects analysis alongside formalistic thresholds. The Court made it clear that both quantitative and qualitative elements are relevant; contrary to the Commission’s view that only quantitative threshold-related elements are relevant.[23] The Court, however, also made it clear that the standard of proof is quite high, referring to a “high degree of plausibility”.[24] Ultimately, the Court considered that TikTok did not manage to meet the bar for avoiding designation as a gatekeeper. Importantly, however, neither did it consider that bar against which undertakings are measured should be entirely quantitative; the Court did not reject the relevance of economic arguments made by TikTok – such as the absence of ecosystem benefits, the presence of multi-homing, the absence of lock-in, and the role of TikTok as a challenger. The case underscores that strict adherence to formalism may not always suffice.

Looking ahead, the designation process is likely to evolve further with more room for economics. As digital markets change, the grey area – where formalistic rules meet the complexity of the real-world dynamic – is expected to grow. If the DMA achieves its goal of increasing market contestability, we may see reductions in the market shares of existing gatekeepers over time. This evolution raises important questions about the re-designation process. While many of today’s gatekeepers may have accepted their designation as inevitable in the short term, future challenges could involve more extensive economic arguments to justify changes in designation status. Both the Commission and gatekeepers are likely to engage more deeply in debating the precise boundaries of designation as digital markets transform.

Does this shift toward effects analysis threaten to undermine the formalistic simplicity the DMA was designed to provide? Not necessarily. A good effects-based approach does not replace formalism; instead, it complements it. By incorporating effects-based insights, regulators can ensure that formalism remains relevant and practical in an evolving market landscape.

Compliance process: formalism as a starting point for negotiation

Compliance is inherently more nuanced, as it involves evaluating how gatekeepers implement measures to adhere to obligations set out by the DMA.

Unsurprisingly, therefore, it was anticipated that effects analyses would play a larger role than in the designation process.[25] So far, however, its role has been pretty limited in the compliance process. That might seem unexpected, but we argue that this is actually a predictable reality, given the early stage of this process. We expect a growing role for economics in the compliance process, for exactly the same reasons that it has a greater role in the designation process than some expected: ultimately, rules must achieve the intended outcomes, and as markets and parties evolve, it requires analysis to ensure that they do.

In theory, economics helps inform whether the compliance measures proposed by gatekeepers are proportional to achieve the intended policy objectives. Even the compliance report template itself mentions the relevance of including economics.[26] It explicitly mentions several instances where data and data analysis – such as, A/B testing [27] or customers survey – would need to be submitted to support gatekeepers’ compliance reporting and demonstrate effects on contestability and fairness. The compliance report however leaves it to gatekeepers to put forward the data and analysis they believe are most appropriate and relevant to assess effectiveness.

As such, one could expect an effective compliance report to contain technical and economic facts and information describing how the gatekeeper complies with the DMA. This includes gatekeepers own impact assessment of proposed measures on contestability and fairness. Contestability might be reflected in quantitative indicators and measures such as business user access to consumers, business user entry, end user choices, end user switching, price changes, and the like. Fairness might be measured by analysing the different prices, fees, and rules concerning data.

So far, this is not the case in practice. The compliance reports that have been submitted are lists of technical measures implemented to comply with the DMA.[28] There is virtually no discussion on their concrete expected effects on contestability and fairness. That makes it extremely difficult to appreciate whether they indeed contribute to DMA’s objectives and ultimately identify failure to comply and opportunistic behaviours from competitors who complain on the insufficiencies of compliance measures.[29] An example would be the way Apple complies with the DMA by opening up to alternative distribution channels; prima facie that looks good, but at the same time Apple changes terms and conditions which may disincentivise app developers to use those alternative channels, as claimed by some commentators. Actually, the Commission has already opened several investigations for non-compliance with the DMA.[30]

In these initial stages, therefore, gatekeepers have adopted a largely formalistic approach to compliance, not the Commission.[31] Gatekeeper’s initial strategy is understandable. It allows them to explore and define the boundaries of what the Commission and stakeholders consider acceptable under the DMA. Gatekeepers aim to establish clarity on regulatory expectations while avoiding unnecessary concessions, which could have implications in the vast amounts of on-going litigations.

This phase is likely to serve as a precursor to more substantive discussions. Eventually, the focus will shift to whether compliance measures genuinely align with the DMA’s overarching objectives. The distinction between good faith compliance and attempts to circumvent regulation hinges on this question. While checkbox measures provide a baseline, they will not suffice. The only way to truly distinguish meaningful compliance from superficial efforts is by analysing effects of gatekeeper actions in achieving contestability and fairness. Economic analyses are critical in this respect and should be an important part of gatekeepers annual reporting.[32]

As with designation, formalism in compliance is effective at addressing straightforward, clear-cut issues – the low-hanging fruit of regulatory enforcement. However, the true test lies in whether those measures improve contestability and fairness in practice. Over time, as industries evolve and the digital market landscape becomes more complex, compliance questions will grow trickier. When such issues reach the Court, the relationship between compliance measures and their actual effects will become a focal point. Courts will likely emphasise whether these measures fulfil the DMA’s policy objectives, necessitating a more effects-based analysis.

Although we anticipate this shift, that does not suggest, nor do we expect, a collapse into formless, unstructured regulation. Instead, effect analysis should serve as a guiding framework that refines and enhances formalistic rules to ensure they work in practice. In short, the objective is not to abandon formalism, but to complement it.

Conclusion

The DMA has demonstrated the strengths of formalism in its early implementation. By relying on strict, clear, objective criteria, the Commission has successfully designated expected gatekeepers. This success reflects the value of formalism in delivering swift and predictable outcomes.

While formalism has been effective thus far, the role of effects-based analysis has already emerged and is set to grow. Addressing the complexities of the designation and compliance processes often involves answering challenging questions that formalistic rules alone cannot resolve. For the DMA to achieve its goals of contestability and fairness, regulators must grapple with the nuanced realities of digital markets, which are shaped by rapidly changing dynamics and interdependencies.

Effects-based analysis becomes especially critical when dealing with trickier questions – issues that lie at the intersection of formalistic rules and real-world market dynamics. Without a deeper engagement with effects, the DMA risks falling short of its broader objectives. As digital markets evolve and become more contestable, and new gatekeepers emerge, the challenges facing formalism will intensify. Rigid rules that worked well for today’s dominant players may not align with the characteristics of tomorrow’s markets.

When these challenges inevitably reach courts , the relationship between the rules and their intended effects will become increasingly important. Courts are likely to scrutinise whether the rules effectively promote the DMA’s core objectives. This dynamic will require formalism to evolve, ensuring that it remains relevant and effective in achieving policy goals while addressing the realities of changing market conditions.

This adaptation does not imply a reversion to the lengthy and uncertain processes associated with purely effects-based regulation. Instead, it suggests a balanced approach where formalism and effects-based analysis complement one another: applying the form-based approach where possible, supported by an effects-based approach where necessary.

Appendix

Table 1: Gatekeeper designations

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References