US Should Learn From Europe's Damaging Tech Regulations
Final European Parliament approval of the Digital Markets Act (DMA) and the Digital Services Act (DSA) last week puts the most aggressive regulation of ‘big tech’ yet one step closer to implementation. Both the DMA and the DSA are full of bad ideas that will raise costs, degrade innovation and ultimately harm consumers; U.S. lawmakers should take note and then chart a different course.
The DMA regulations impose the biggest costs and obligations on American tech companies Amazon, Alphabet, Apple and Meta, which EU authorities designate as “gatekeepers” that exercise dangerous amounts of market power. The ex-ante rules aim to preserve competition, but inevitably they will come with great costs.
For example, the interoperability requirements among leading services and their rivals may seem a common-sense boon, but they will surely involve trade-offs of security, speed of innovation and variety of products. It’s at least plausible that there’s very good reasons that, for example, Meta’s WhatsApp and Apple’s iMessage services don’t interact. To dismiss even that possibility by mandating otherwise reveals a faith in regulatory micromanaging over market outcomes that is inconsistent with the observed superiority of the latter throughout history. That divergence in mindset from the American approach might explain some of why Europe doesn’t boast even one among the top ten tech companies globally, while the U.S. can claim five.
Similarly, the DSA’s requirement to obtain “explicit consent” from users before using personal data to target ads to them will have harmful unintended consequences for advertising markets, smaller firms that rely on that promotion and even consumer convenience. Again, observing related efforts in the real world, California’s digital privacy law hasn’t been the gamechanger it was touted to be. It’s proven confusing, expensive and “functionally useless.” In its first year, Google reported only 276 personal information deletion requests from Golden State residents, but noted that 15 million Americans used the company’s existing tools to accomplish the same in 2020. Markets are better able to respond to consumers than government regulations and the digital sector is proving no exception.
The DMA will force Apple to open its user’s devices to third party apps stores and their apps. That’s a security risk that may not be fully appreciated until European consumers are besieged by malware and fraudulent actors. Consumers that choose Apple’s more closed system over other more open options may be doing so explicitly for security benefits. Apple only allows apps that undergo a rigorous vetting into its App Store and only allows apps to be downloaded via that App Store. In contrast, the Android operating system is more open in allowing side-loading of third-party apps, but is generally less secure from threats because of it. There’s a trade-off there, but consumers should be allowed to choose for themselves. Their choices should not be curtailed in the name of “fairness” to smaller competitors.
Continental consumers will suffer again for the sake of less successful tech companies with the law’s ban on “self-preferencing.” In practice, that means that big digital platforms cannot promote their own products and services over lesser competitors. For consumers, that may lead to suboptimal search results, fewer conveniently bundled or preloaded items and fewer shopping offerings with lower prices or other comparative advantages for buyers. Even if a Google Maps result is the best search result, Google may not show it prominently for fear of running afoul of the law. Consumers lose again.
The best way forward is for the tech companies affected to contain the regulatory damage by offering DMA and DSA-compliant offerings in the EU instead of exporting Europe’s misguided policy around the world. The U.S. would be wise to wait on passing regulations similar to the EU’s. If Europe is willing to conduct the disastrous experiment on itself, we’d be fools not to let them go first.
Jessica Melugin is the director of the Center for Technology and Innovation at the Competitive Enterprise Institute and a 2022 Innovators Network Foundation Antitrust and Competition Policy Fellow.
