Laws regulating the digital realm have proliferated in the last five years, covering topics as mundane as app store hosting fees, as technical as interoperability requirements with competitors, and as all-encompassing as election integrity. Wide-ranging as they are, these laws tend to share the same objectives: protecting smaller rivals, business users, and consumers from the power and influence of major tech platforms. Often, however, protecting all these groups at once proves difficult and encourages laws that advance the cause of one at the expense of another. At the same time, internal contradictions in legal frameworks place companies between a rock and a hard place, implicitly encouraging endless appeals to the courts and, more recently, to sympathetic politicians.
Nowhere are these tensions on more prominent display than in the European Union (EU). In 2022, the EU passed the Digital Markets Act (DMA) and Digital Services Act (DSA). These laws impose obligations on digital platforms and online intermediaries, though they concentrate rules mostly on firms with a large user base and financial footprint—those labelled gatekeepers in the case of the DMA, and Very Large Online Platforms and Search Engines (VLOPSE) in the case of the DSA. The DMA and DSA are among the most comprehensive tech regulations in the world, and they have greatly shaped subsequent regulations passed elsewhere.
This paper evaluates the DMA and DSA, as well as related EU legislation, according to three key constraints involved in digital regulation:
- Technically and legally infeasible obligations not only discourage major tech firms from operating, but also limit the growth potential for domestic competitors.
- Regulations that lack sufficient market evidence to prove their efficacy are likely to undermine the groups they aim to serve.
- Promoting freedom of speech necessarily hampers regulators’ ability to control illegal, objectionable, and misleading content.
These constraints can make it seem as though all attempts to regulate major tech firms are in vain, as though the status quo is the only possible reality. This is not true. Legislating within these bounds can improve the quality of platforms and the contestability of markets. The EU demonstrates, however, that progress will prove difficult when lawmakers willfully ignore these constraints, demanding that companies somehow provide all the benefits of their technology with none of the costs. This paper, then, provides a set of lessons in how not to approach tech regulation.