The European Commission unveiled the Digital Services Act (DSA) last December, legislation that updates the eCommerce Directive with the aim of “ensuring fair and open digital markets.” While the overall goal of the DSA to harmonize rules across the Digital Single Market, removing cross-border trade barriers and ensuring legal certainty, is welcome and much-needed, a critical flaw in the DSA is that is imposes unique rules based on a company’s role and size, with special rules applying to very large online platforms reaching more than 45 million consumers in Europe. Creating asymmetric obligations against large online platforms undermines fairness, prevents small and medium-sized enterprises (SMEs) from scaling up due to the threshold effect, and damages consumer welfare and trust as harmful behaviors are not confined to big tech companies.
First, the DSA should apply to all firms irrespective of the company’s size to ensure fairness across market participants. While applying different rules according to the company’s role may at times be proportionate and fair (such as having different rules for online ad networks and online payment processors), applying different rules according to the company’s size is not. There are no objective reasons for applying asymmetric rules for large platforms—if a certain behavior is harmful or unlawful, it should not matter whether that activity occurs on a large platform or a smaller platform.
Critics of large platforms might argue that the risk from large platforms is greater than the risk from small platforms. But this is often not true. For example, consider hate speech, such as comments posted on an online newspaper’s article. From the societal perspective, overall reach of these messages is more important than the size of the platform on which they are shared. The harm caused by sharing a messaging inciting violence may be far worse if shared on a small social media platform by a user with 10,000 followers than a large platform where that same user only has 10 followers.
Second, a company should not be penalized for achieving success. Compliance costs may be a concern for smaller firms, but these costs should not prevail over protecting users from harmful or illegal content online. Moreover, asymmetric rules will prevent, not aid, SMEs from scaling-up due to the threshold effect. This is one reason why the average firm size in the EU has declined in the last two decades and why small firms pay their workers significantly less than large firms in the EU. A startup aims to scale-up across markets, and imposing compliance costs on only large firms creates barriers to expansion. Firms will invest up to the threshold, and then conduct a new cost-benefit analysis. If benefits exceed costs, they will invest and scale-up. Otherwise, they will not, undermining the EU’s goal of growing its domestic tech platforms.
Third, asymmetric rules will damage consumer welfare and trust as consumers will not be protected from harmful behaviors in the whole market. Consumers typically use products and services irrespective of the firm’s size, from SMEs to large firms. They reasonably expect the same protection level regardless of the firm’s size. As harmful behaviors are not confined to big tech companies, consumers will be worse off when browsing online, causing harm and undermining trust in the entire digital economy. Indeed, placing obligations only on large platforms could encourage bad actors to migrate to smaller platforms, making these potential competitors hotbeds of illegal and harmful activity and less trustworthy for consumers.
As the DSA is in the legislative process, the European Parliament and the Council will hopefully eliminate the distinction between small and large platforms and ensure fair and trustworthy digital markets for the benefit of all consumers and businesses.
Image credit: Wikimedia Commons.