01 Nov 2024
By Esin Aygun
In the last five years, it has been a matter of intense debate whether the competition rules applied to digital platforms are sufficient or not, and what kind of regulation should be made if new rules are needed. Even more, the world’s leading competition authorities accepted/started to implement ex-ante regulations with the aim of establishing effective competition.[1] However, there are notable differences between these regulations.[2] The regulation of digital markets follows a different direction than competition law rules. While mostly similar competition rules apply to different markets, different rules are adopted for digital markets of a similar structure. Some regulatory regimes deal with digital markets by imposing hard rules, while others employ standards, that are comparatively more flexible.[3] This blog considers the choice between rules and standards in regulating digital markets.
Rules vs Standards[1]
Let’s start with a classic explanation: rules establish specific legal boundaries that make it possible for citizens to know the legal situation of their actions with reasonable certainty, ex ante. Standards, on the other hand, allow room for enforcers to consider a range of factors before reaching a legal conclusion.[2] The choice between promulgating or interpreting law as a rule or as a standard is a choice between competing values such as certainty or flexibility, uniformity, or individualization.[3]
How regulators choose between a standard or rule is influenced by many factors including cost analysis of the creation of law, over and under inclusiveness and other issues such as changing conditions over time. The cost analysis of this choice considers rule creation, legal advice, and enforcement costs. Arguably the debate over under and over inclusiveness is based on a trade-off between predictability and accuracy.[4] Another dimension of rules and standards dichotomy is their stand against the changes in conditions. From that perspective, standards might be more efficient than rules when the pending disputes changes over time.[5] After this brief theoretical discussion, let’s look at how this perspective affects the ex-ante regulations of online platforms.
The UK Approach: Principle-Based Regulation
The Digital Markets, Competition and Consumers Act 2024 [6] establishes a new digital markets competition regime where the Competition and Markets Authority is provided with the power to designate powerful digital firms with Strategic Market Status in a digital activity, and then to impose interventions to promote greater competition and innovation. The UK approach is accepted as principle-based where the enforcement authority is granted flexibility both to define the applicable obligations and to apply them.[7] By allowing the enforcer to tailor obligations upon firms on a case-by-case basis, the UK’s Act grants the enforcement authority the highest degree of discretion.[8]
The EU Approach: Rules-Based Regulation
The DMA establishes a set of clearly defined objective criteria to identify “gatekeepers” that are large digital platforms providing core platform services. The new rules establish “do’s” and “don’ts” they must comply with in their daily operations.[9] Therefore, unlike the UK regime, the DMA sets out detailed rules that are not tailored accordingly to the business models or characteristics of digital platforms.[10] As prohibitions are designed “per se”, there is limited room for objective justification. Although there are several mechanisms that might provide some flexibility for the application of rules[11], they do not change the regulatory model of the DMA and it’s self-executing per-se obligations.
The German Approach [12]
In this model, The Bundeskartellamt can prohibit undertakings which are active to a significant degree on markets from engaging in certain practices that are damaging to competition. Several types of abusive practices are included unless the undertakings show that their respective conduct is objectively justified[13], which provides Bundeskartellamt a set of rules to choose for the anticompetitive behaviours of the firms that have paramount significance for competition across markets. It can be accepted as another model between competition law and sector regulation. However, it is closer to a rule-based approach as it specifies the obligations and restrictions to be fulfilled by the digital platforms within its scope and provides legal certainty.
So, there are major differences among these three models in terms of designating undertakings, the reversed burden of proof for digital gatekeepers, having room for objective justification and the degree of discretion left to the enforcement authority in shaping such obligations. However, this divergency is not just about Western Europe. There are many other differences that might be spotted looking closely at the draft regulations of the competition authorities of emerging economies.
Other Emerging Regulatory Regimes
In China, digital-specific provisions have been included into China’s Anti Monopoly Law (AML)[14] and “Implementation Rules” have been accepted to provide clarity for antitrust enforcement in the digital economy.[15] Besides, Platform Guidelines were enacted based on the AML.[16] Additionally, provincial government of Zhejiang announced the first provincial local standard for competition compliance of internet platform enterprises. It indicates that local governments are seeking to implement their own legislation to deal with market power[17] in digital markets. So, it might be said that China stands as a different model compared to the Western models.
In India, the “Report of the Committee on Digital Competition Law” introduced a Digital Competition Act with ex ante measures. The report also reviews different systems around the world and classifies those regulations in terms of being applicable only to pre-identified markets or not restricting themselves with specific markets/services.[18] Looking at the report and draft, it is clear that the Indian example features unique characteristics as it is inspired both from international models and its own institutional and economic situations.
In Turkey, in October 2022, the Draft Amendment to Law No. 4054 on the Protection of Competition was shared with stakeholders. The Draft Amendment proposes amendments with similar provisions of the DMA.[19] Since the proposed change included in the competition law and there is room for objective justification for fulfilling the obligations stipulated by TCA[20] it can be said that it is like the German model. But it is based on a notification system and has similar provisions that of DMA.
To conclude
Tackling the anti-competitive practices of digital platforms is one of the top priorities of competition authorities and new models are emerging as regulatory choices. Although there are commonalities, there are also important differences between the emerging regimes. The adoption of regulations based on different approaches carries various risks such as the ineffective implementation of new rules and making compliance difficult for platform service providers. Digital services are offered globally, and these platforms operate in many countries. However, these different approaches based on rules or principles may lead to country-specific pursuance and affect the way digital activities are offered. Thus, before deciding which model can work better for these markets, a theoretical discussion might be helpful to find starting point. So, the “rules vs. standard” approach and its reflection in current regulatory models can be used to find for optimal solutions. A systematic approach to newly adopted regulations or secondary regulations in the light of the rules/standards approach can reduce the problems of divergence and facilitate convergence.
[1] Louis Kaplow, ‘Rules Versus Standards: An Economic Analysis’ (1992) Duke Law Journal 42 557; Eric Posner, ‘Standards, Rules and Social Norms’ (1997) 21 Harvard Journal of Law and Public Policy
[2] Russell B. Korobkin, ‘Behavioral Analysis and Legal Form: Rules vs. Standards Revitised’ (2000) Oregon Law Review 79 (1)
[3] Pierre J. Schlag, ‘Rules and Standards’ (1985) 33 UCLA Law Review
[4] Jan Broulik, ‘Factual Predictability in Competition Law Enforcement: Rules versus Standards’ (2024) Amsterdam Law School Research Paper No. 2024-10, 5
[5] Korobkin, (2000)
[6] https://bills.parliament.uk/bills/3453
[7] OECD, ‘Ex Ante Regulation and Competition in Digital Markets’ (2021)
[8] OECD, ‘G7 inventory of new rules for digital markets: Analytical note’ (2023)
[9] DMA, Article 5, 6, 7
[10] Cappai and Colangelo, (2020)
[11] See the difference between Article 5 and Article 6; Article 9, Article 3(5), Article 17(4).
[12] Witt names as “hybrid competition law model with reversed burden of proof”, (2022)
[13] German Act, Section 19a (2)
[14] Huanbing Izzy Xu and Yiming Sun, ‘Digital Markets Regulation Handbook’ (2022)
[15] https://globalcompetitionreview.com/guide/digital-markets-guide/third-edition/article/china-the-latest-steps-towards-more-robust-enforcement-framework-anti-monopoly#:~:text=Article%2021%20of%20the%20Platform,to%20reduce%20the%20level%20of
[16] https://globalcompetitionreview.com/guide/digital-markets-guide/third-edition/article/china-the-latest-steps-towards-more-robust-enforcement-framework-anti-monopoly. In addition, both the drafts of “Classification Guidelines for Internet Platforms” and “Guidelines to Implementing Subject Responsibility for Internet Platforms” has been issued in October 2021 but the final version of these two guidelines has not been issued yet. It is argued that the draft of these guidelines is more about ex ante regulation, see https://centrocompetencia.com/anti-monopoly-regulation-of-digital-platforms-in-china/
[17] the Internet Platform Enterprise Competition Compliance Management Specification (DB33/T 2511-2022)
[18] Ministry of Corporate Affairs Government of India, Report of the Committee on Digital Competition Law’ (2024)
[19] Henry Mostyn (https://www.clearygottlieb.com/professionals/henry-mostyn), Patrick Todd and Göksu Kalayci, ‘Digital Markets Regulation Handbook’, https://www.clearygottlieb.com/-/media/files/rostrum/turkey/22092308%20digital%20markets%20regulation%20handbookr16turkey. As the draft law has been shared with stakeholders and has not been announced in a formal way, at this stage of the blog post the publicly available resources have been used.
[20] ACTECON, ‘A New Age for Digital Markets in Turkey? The Draft Amendment to the Law No. 4054 on the Protection of Competition’ available at https://competitionlawblog.kluwercompetitionlaw.com/2022/10/25/a-new-age-for-digital-markets-in-turkey-the-draft-amendment-to-the-law-no-4054-on-the-protection-of-competition/
[1] Act Amending the Act against Restraints of Competition for a focused, proactive and digital competition law 4.0 and amending other competition law provisions, Digital Markets Act, Digital Markets, Competition and Consumers Act 2024
[2] Amelia Fletcher, ‘International pro-competition regulation of digital platforms: healthy experimentation or dangerous fragmentation?’ (2023) Oxford Review of Economic Policy 39 (1); Marco Botta, ‘Sector Regulation of Digital Platforms in Europe: Uno, Nessuno e Centomila’ (2021) Journal of European Competition Law & Practice 12 (7)
[3] Botta, (2021); Anne C. Witt, ‘Platform Regulation in Europe – Per Se Rules to the Rescue?’ (2022) Journal of Competition Law & Economics 18(3); Marco Cappai and Giuseppe Colangelo, ‘Taming digital gatekeepers: the more regulatory approach to antitrust law’ (2020) Stanford-Vienna TTLF Working Paper 55 1