EUROPEAN COMMISSION Brussels, 15.12.2020 COM(2020) 842 final 2020/0374 (COD) Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on contestable and fair markets in the digital sector (Digital Markets Act) (Text with EEA relevance) {SEC(2020) 437 final} - {SWD(2020) 363 final} - {SWD(2020) 364 final} EN EN EXPLANATORY MEMORANDUM 1. CONTEXT OF THE PROPOSAL • Reasons for and objectives of the proposal Digital services have brought important innovative benefits for users and contributed to the internal market by opening new business opportunities and facilitating cross-border trading. Today, these digital services cover a wide range of daily activities including online intermediation services, such as online marketplaces, online social networking services, online search engines, operating systems or software application stores. They increase consumer choice, improve efficiency and competitiveness of industry and can enhance civil participation in society. However, whereas over 10 000 online platforms operate in Europe’s digital economy, most of which are SMEs, a small number of large online platforms capture the biggest share of the overall value generated. Large platforms have emerged benefitting from characteristics of the sector such as strong network effects, often embedded in their own platform ecosystems, and these platforms represent key structuring elements of today’s digital economy, intermediating the majority of transactions between end users and business users. Many of these undertakings are also comprehensively tracking and profiling end users.1 A few large platforms increasingly act as gateways or gatekeepers between business users and end users and enjoy an entrenched and durable position, often as a result of the creation of conglomerate ecosystems around their core platform services, which reinforces existing entry barriers. As such, these gatekeepers have a major impact on, have substantial control over the access to, and are entrenched in digital markets, leading to significant dependencies of many business users on these gatekeepers, which leads, in certain cases, to unfair behaviour vis-àvis these business users. It also leads to negative effects on the contestability of the core platform services concerned. Regulatory initiatives by Member States cannot fully address these effects; without action at EU level, they could lead to a fragmentation of the Internal Market. Unfair practices and lack of contestability lead to inefficient outcomes in the digital sector in terms of higher prices, lower quality, as well as less choice and innovation to the detriment of European consumers. Addressing these problems is of utmost importance in view of the size of the digital economy (estimated at between 4.5% to 15.5% of global GDP in 2019 with a growing trend) and the important role of online platforms in digital markets with its societal and economic implications.2 Although some of these phenomena specific to the digital sector and to core platform services are also observed to some extent in other sectors and markets, the scope of the proposal is limited to the digital sector as there the problems are the most pressing from an internal market perspective. 1 2 EN Such tracking and profiling of end users online is as such not necessarily an issues, but it is important to ensure that this is done in a controlled and transparent manner, in respect of privacy, data protection and consumer protection. For example, the importance of ensuring a level playing field that supports essential values such as cultural diversity and media pluralism was for instance stressed by the Council in its conclusions on the strengthening of European content in the digital economy and on safeguarding a free and pluralistic media system. 1 EN Weak contestability and unfair practices in the digital sector are more frequent and pronounced in certain digital services than others. This is the case in particular for widespread and commonly used digital services and infrastructures that mostly directly intermediate between business users and end users. The enforcement experience under EU competition rules, numerous expert reports and studies and the results of the OPC show that there are a number of digital services that have the following features: (i) highly concentrated multi-sided platform services, where usually one or very few large digital platforms set the commercial conditions with considerable a