A Comparison of The German Competition Act (GWB) and the Digital Markets Act (DMA)

In response to mounting concerns surrounding market dominance and the protection of user privacy, Germany has instituted The German Competition Act (GWB), while the European Union has introduced the Digital Markets Act (DMA). While both aim to restore balance, their strategies diverge. Let's delve into the similarities and differences between these regulatory frameworks, examining how they tackle the digital age's unique challenges.

What is the German Competition Act (GWB)?

The German Competition Act, formally known as Gesetz gegen Wettbewerbsbeschränkungen (Act Against Restraints of Competition), is a comprehensive legal framework that aims to prevent anti-competitive behavior and ensure fair competition in the German market. Enacted in 1958, it has been amended several times over the years to adapt to the evolving economic landscape, particularly the rise of the digital economy.

The GWB is enforced by the Federal Cartel Office (Bundeskartellamt), an independent government agency with broad powers to investigate and sanction anti-competitive conduct.

Objectives

• Promote fair competition: The GWB seeks to level the playing field for businesses of all sizes and prevent larger companies from abusing their market power.
• Protect consumer interests: Consumers benefit from a competitive market with diverse choices and competitive prices. The GWB helps to ensure that consumers are not exploited by anti-competitive practices.
• Prevent cartels and other anti-competitive agreements: Cartels are groups of businesses that agree to fix prices, restrict production, or divide markets.The GWB prohibits such agreements and imposes strict penalties for violations.
• Control mergers and acquisitions: The GWB regulates mergers and acquisitions to prevent the creation of dominant market positions that could harm competition.

Key Provisions

• Prohibition of cartels and other anti-competitive agreements: Any agreement between businesses that restricts competition is generally prohibited.
• Regulation of abuse of market power: Dominant companies are prohibited from engaging in practices that harm competition, such as predatory pricing or exclusive dealing arrangements.
• Merger control: Mergers and acquisitions above certain thresholds must be notified to the competition authorities for review.
• Private enforcement: Individuals and businesses can seek damages from companies that violate the GWB.

What is the Digital Markets Act (DMA)?

The Digital Markets Act (DMA) is a relatively new EU regulation targeting large online platforms, also known as "gatekeepers," that act as critical gateways to users and businesses online. Unlike more traditional competition laws focused on specific anti-competitive behaviors, the DMA takes a broader, proactive approach to prevent dominant gatekeepers from abusing their market power and fostering a fairer and more competitive digital environment.

The DMA applies to gatekeepers operating within the EU, regardless of their headquarters, making it a landmark regulation with the potential to reshape the global digital landscape.

The DMA is also part of a broader package of EU digital regulations, including the Digital Services Act (DSA).

Objectives

• Promote fair competition: Ensure smaller businesses and new entrants have a chance to compete on equal footing with dominant gatekeepers in the digital market.
• Protect user choice and innovation: Encourage gatekeepers to open up their platforms and enable users to freely choose how they access information and services online.
• Enhance user privacy and data protection: Limit the ways gatekeepers can collect and use user data, giving users more control over their information.

Key Provisions

• Gatekeeper identification: Defines specific criteria for identifying dominant online platforms with significant market power and user base.
• Do's and don'ts for gatekeepers: Prohibits certain unfair practices like self-preferencing, bundling, and data self-preference, while requiring them to allow interoperability with other services and fair access to platform data.
• Transparency and enforcement: Gatekeepers must be transparent about their algorithms and data practices, and face significant fines for non-compliance.

What are the similarities between the GWB and the DMA?

While the GWB and the DMA have distinct roles and targets, they share several important similarities:

1. Goal of Fair Competition: Both aim to promote fair competition and prevent powerful entities from abusing their market dominance. The GWB encompasses all sectors, while the DMA focuses specifically on digital gatekeepers, but both ultimately seek to level the playing field for smaller businesses and ensure consumers benefit from diverse choices and competitive prices.
2. Transparency and User Control: Both emphasize transparency and user control over data. The GWB encourages fair competition, which promotes transparency in business practices, while the DMA directly mandates transparency in gatekeeper algorithms and data practices. Additionally, both prioritize user control over personal data, with the GWB enabling private enforcement for data breaches and the DMA granting users more control over data stored and used by gatekeepers.
3. Enforcement Mechanisms: Both utilize robust enforcement mechanisms to ensure compliance and deter anti-competitive behavior. The GWB features the Federal Cartel Office with investigation and sanctioning powers, while the DMA relies on national competition authorities and the European Commission to enforce its provisions through significant fines and potential corrective measures.
4. Adaptability to Evolving Market: Both the GWB and the DMA demonstrate recognition of the need for adaptability in the face of ever-changing market dynamics. The GWB has been amended several times to address new economic challenges, and the DMA explicitly considers future developments in the digital sphere. This commitment to ongoing adjustments ensures their continued relevance in fostering a fair and competitive market.

While their scope and specific targets differ, the GWB and the DMA share fundamental objectives and principles in their mission to protect competition and consumer interests in the evolving digital landscape. They represent complementary tools, with the GWB providing a broad framework and the DMA focusing on specific digital market challenges.

What are the differences between the GWB and the DMA?

The GWB and the DMA share the general goal of promoting fair competition, but their approaches and targets differ significantly, leading to several key differences:

Scope:

• GWB: Broadly applies to all sectors of the German economy, encompassing any anti-competitive behavior regardless of industry.
• DMA: Focuses specifically on the digital sector, targeting large online platforms ("gatekeepers") with significant market power and user base.

Approach:

• GWB: Takes a reactive approach, investigating and prohibiting specific anti-competitive practices after they occur.
• DMA: Takes a proactive approach, imposing ex-ante obligations on gatekeepers to prevent abuse of market power even before harm occurs.

Key Focus:

• GWB: Addresses traditional competition concerns like mergers, cartels, and abuse of market dominance across all sectors.
• DMA: Prioritizes user privacy and choice in the digital market, regulating data collection, self-preferencing, and interoperability within gatekeeper ecosystems.

Enforcement:

• GWB: Relies on the Federal Cartel Office for investigations and sanctions against individual cases of non-compliance.
• DMA: Employs national competition authorities and the European Commission for collective enforcement, with potential for significant fines and corrective measures.

Adaptability:

• GWB: Subject to regular amendments to adapt to changing economic landscapes but operates within the existing legal framework.
• DMA: Designed with future-proofing in mind, explicitly allowing for adjustments to address unforeseen developments in the digital sphere.

In essence, the GWB serves as a general competition watchdog for the German economy, while the DMA acts as a specialized regulator for dominant gatekeepers in the digital market. Both are crucial for ensuring a fair and competitive digital landscape, but they offer complementary tools with distinct advantages and limitations.

How does the GWB and DMA affect businesses?

Both the GWB and the DMA can impact businesses in different ways, depending on their size, industry, and online presence:

For all businesses:

• General compliance: All businesses need to be aware of both the GWB and DMA regulations to avoid potentially costly fines and penalties. This includes understanding prohibited practices like cartels, price fixing, and misleading advertising under the GWB, as well as adhering to the DMA's requirements for transparency in data practices and fair treatment of competitors on online platforms.
• Fair competition: Both laws aim to level the playing field, which can benefit smaller businesses by limiting the ability of larger companies to engage in unfair practices. This can create more equal opportunities for everyone to compete for customers and market share.
• Data privacy and security: Businesses need to ensure they comply with data protection regulations outlined in both the GWB and DMA. This includes obtaining informed consent for data collection, implementing appropriate security measures, and respecting user rights to access and control their personal data.

For businesses operating in the digital space:

• Focus on gatekeepers: The DMA primarily impacts businesses designated as "gatekeepers" due to their dominant market position in the digital realm. These businesses face additional obligations related to interoperability, data access, and fair treatment of other services on their platforms.
• Transparency and user control: The DMA mandates gatekeepers to be transparent about their algorithms and data practices, allowing users more control over their information. This can affect businesses by requiring them to provide clear explanations for how user data is used and offer options for users to manage their privacy settings.
• Innovation and new entrants: The DMA aims to create a fairer environment for innovation and competition in the digital market. This can benefit smaller businesses and new entrants by making it easier to reach consumers and compete with established gatekeepers.

Overall, the impact of the GWB and DMA on businesses varies depending on their specific circumstances. While both laws pose compliance challenges, they also offer opportunities for businesses to adapt their practices and benefit from a fairer and more competitive digital landscape. Staying informed about these regulations and proactively ensuring compliance can help businesses thrive in the evolving digital environment.

Final thoughts

The GWB and DMA offer a glimpse into a future where digital giants are held accountable and fair competition flourishes. While challenges remain, their combined force presents a promising foundation for a more equitable and vibrant digital world. As we observe their implementation and impact, let us remain vigilant in advocating for, and actively shaping, a digital future that truly benefits all.