The European Union’s (EU) new digital regime, the Digital Markets Act (DMA), took effect in March. While the DMA was intended to increase competition in Europe, its rules, which almost exclusively target American tech companies that provide popular products and services, have instead hurt European consumers and businesses, and created a less innovative and dynamic economic landscape.
For consumers, the DMA has placed significant restrictions on the types of services that so-called “gatekeeper” companies can offer to their users. Because of this, the new rules have resulted in worse experiences for people using popular apps, products, and other online services. For example, many Europeans have complained that the DMA has degraded search engines. In addition, experts have long warned that the DMA’s interoperability requirements threaten to make devices more vulnerable to cyber threats. The latter point, which bears on the national security interests of the EU’s own member states, was curiously treated as almost an afterthought as the proposal wound its way through the legislative process. As a result, instead of improving users’ experiences, the DMA has forced companies to pull back on innovations that provided consumers with a more seamless, efficient, and safe digital environment.
Similarly, companies in Europe have reported declining growth following the DMA’s adoption. Its new advertising regulations have put severe limitations on how small- and medium-sized businesses can use digital ads, a fact that has only helped further entrenched large companies across different industries, thereby restricting competition, rather than promoting it. European hotels, for example, have seen bookings fall by as much as 30%, and airlines based in the EU have warned that restrictions imposed by the DMA have limited their ability to compete with larger industry players.
Ironically, one of the DMA’s core objectives was to increase competition in order to create a more vibrant (“contestable”) and innovative digital economy in Europe. But instead, the DMA has chilled research and development into new technologies. Small businesses and startup companies have warned that Europe’s regulatory environment has made it more difficult to attract the kinds of investments needed to drive innovation. Ironically, a recent report by former Italian prime minister Mario Draghi, commissioned by the European Commission itself, points out that the EU’s heavy-handed regulatory approach has led to low productivity and anemic economic growth. Something that Mr. Draghi, in the report, calls an “existential challenge” for Europe.
Despite warnings from European consumers, businesses, and regulators, some American lawmakers and government officials have pushed to implement EU-style regulations in the United States, a step that would onshore the harmful consequences the DMA has had for European consumers, businesses, as well as its economic and national security interests. Ultimately, American policymakers should learn from Europe’s mistakes, not replicate them.
