The Experts' Opinion: An Observatory and its Influence on The Digital Services Act

Taso Advisory
Jul Wed, 2020
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  • The European Commission has published three interim reports produced by an independent Observatory which has been examining how online platforms could be regulated differently.
  • Included in the recommendations are calls for large tech companies to flag their acquisitions of smaller companies, further studies into the effects of differentiated treatment on platforms, and a better understanding of the value of data.
  • The findings in these interim reports will feed into ongoing work to regulate online platforms through the Digital Services Act (‘DSA’) expected in 2021.

This blog follows our previous piece on the DSA and highlights the takeaways of the three reports and what this could mean for the shape of future legislation.

THE CONTEXT

The three draft progress reports were produced by the Observatory for the Online Platform Economy, a group of academics and experts tasked with examining key questions to improve the EU’s understanding of the effect of online platforms on the markets in which they operate.

The Observatory was established by the European Commission alongside the Platform to Business (‘P2B’) Regulation. P2B aimed to promote fairness and transparency for business users of online intermediation services by introducing broad transparency requirements for platforms and setting rules for their operation .

Taking this legislative action further, the European Commission will make another intervention with the DSA – expected in early 2021 – which Taso Advisory has covered here. These three reports will feed into the DSA, which could introduce greater rules for, among other things, how platforms can act as intermediaries between businesses and consumers.

MEASURING THE IMPACT OF ONLINE PLATFORMS

The main report covers the perceived gaps in policy makers’ ability to quantify and observe the effect that online platforms have on the economy.

In doing so, the Observatory suggests how platforms can be better understood and measured:

  • The economic significance of platforms for the broader economy – which could consider the volume of trade mediated by platforms, a platform’s size and importance, and the importance and definition of data.
  • Platforms’ power over business users – which could acknowledge how businesses depend on platforms, platforms’ share of consumer “attention” online and acquisitions as a competitive strategy by dominant platforms (this may require notifying the European Commission of all takeover activity for monitoring purposes).
  • The consequences of platforms’ power –which could include the impact of sudden changes to platforms – such as their design or terms and conditions – and the negative impact this has on business users, transparency of the rules platforms set for their business users and complaint handling systems.

The most headline-grabbing recommendation here is the notification of all M&A activity to the European Commission. Yet the other areas are also important as they reconceptualise the measurement of how consumers and business users are affected by online platforms.

This is significant because policy makers for the digital economy – particularly competition policy – are increasingly looking for new ways to conceive the welfare gains (or losses) from the operation of the digital economy. Considering a platform’s power based on trade volume, business user dependency or complaint handling systems could change where policy interventions are made in the future and place significant regulatory burdens on platforms.  

DIFFERENTIATED TREATMENT

Differentiated treatment is used in a range of different contexts like showing more relevant information in search engine results, or rankings of more popular products sold online. The report acknowledges that prioritising certain content or goods has practical applications to make the online world more accessible to the end user.

But ultimately the Observatory argues that differentiated treatment can be used by platforms for their own benefit, for instance by promoting their proprietary goods or demoting overly successful business users. The Observatory’s conclusion is: “it is difficult – if not impossible – to reconcile the interests of platforms, businesses and consumers in one particular way that is to be regarded as ‘fair’…‘fairness’ should not be seen as a black-and-white concept, but instead as a range”.

In response, the Observatory notes further areas of scrutiny to ensure the balance is within a range of ‘fairness’:

  • A study aimed at increasing the observability of differentiated treatment by platforms that use techniques such as localisation and personalisation for consumers.
  • A comparison across ecommerce platforms examining how vertical integration affects differentiated treatment, in particular the use of data sharing by large platforms to restrict new competitors from challenging them (foreclosure).
  •  A study into the frequency, impact, and availability of redress mechanisms for businesses who feel wronged by large platforms.

The P2B Regulation was drafted specifically to increase transparency and establish elementary rules for the areas set out above. The European Commission itself has listed some of these in its roadmaps for the DSA and it is probable that they will try to address these when drafting the upcoming legislative proposal.

DATA AND ONLINE PLATFORMS

Here the Observatory has considered the different types of data, how it is collected by platforms and the impact it can have on the interactions that platforms mediate between business users and consumers.

The Observatory acknowledges that platforms will seek to share data with business users for benign reasons, e.g. where it is beneficial for platforms that business users improve goods or services offered to consumers based on data. On the other hand, the Observatory notes that there are instances where data sharing is against the interests of the platform, such as giving too much information so that transactions may take place outside of a platform or where there is a risk that a business user could emerge as a competitor to the platform.

The strong takeaway here is that the Observatory feels that there is a lack of understanding of the commercial uses of data and that public policy should reflect the nuances and lack of homogeneity. Turning to some recommendations, the Observatory plans to collect:

  • Empirical evidence on data sharing by platforms and the dependency of business users on having access to such data.
  • Information on the technical issues associated with data sharing like the API ecosystem and emerging technology interfaces for data-sharing.
  • Solutions for dilemmas between incentives and constraints with data sharing, including: discriminatory access to data, exclusivity arrangements, and a possible reversal of a “burden of proof” where platforms refuse to share data.

NEXT STEPS

Stakeholders can provide comments on the draft progress reports until 8 September, after which the Observatory will finalise its work and submit a final report to the European Commission by the end of 2020.

Meanwhile, the Observatory will continue to work on its broader mandate regarding the impact of online platforms. In particular, their work will contribute to the ongoing monitoring of the effectiveness of the P2B Regulation which has just entered into force.

The ideas presented here and in the final report will be considered by the European Commission as they prepare the text of the upcoming Digital Services Act, expected in 2021. The DSA is set to be one of the most defining pieces of legislation for the digital economy and will have far reaching implications for how online platforms are regulated in the EU while also setting a standard for other jurisdictions.

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