In this blogpost, one of the founders of FIDMA, Dr. Behrang Kianzad (School of Economics and Management, Lund University), depicts the background which inspired the creation of the European Researcher Network on Fairness in Digital Markets and Artificial Intelligence.
Most of us who have followed the past ten years of regulatory and legal landscape have pondered much about the emergence of Digital Markets Act and other related regulatory acts such as AI Act, Data Act and Digital Services Act, and how these ex ante regulatory acts interact with ex post competition law.
Digital Markets Act pursues distinct objectives: fairness and contestability. Recital 33 argues that for the purpose of the DMA, unfairness should relate to imbalance between the rights and obligations of business users where the gatekeeper obtains a disproportionate advantage. It is not important whether the gatekeeper derives this advantage from anti-competitive behaviour or if it is related to the characteristics of the market. The existence of an undue competitive advantage justifies the implementation of the rules set out in the DMA.
The curbing of “unfairness” caused by entrenched market positions and misuse of data is what has been the driving force behind enactment of legal acts such as DMA and the AI Act, which operate somewhere between ex ante regulatory law and competition law, elevating fairness as an end-goal in itself, already being a point of criticism.
Although both DMA and TFEU rules on competition entailed in e.g. article 102a TFEU have direct effect throughout the European Union, one cannot ignore the fact that matters such as fairness do rely on cultural-historical elements unique to various member states, although one can strive for a more universal, objective framing of the concept as well, along the lines offered by behavioural and experimental economics, which display a certain “fairness preference” in humans.
Indeed, one could argue that the matter of fairness / unfairness has been one of the main topics investigated in law, philosophy and economics throughout the recorded human history, from writings regarding fair market rules in tablets of Hammurabi, Jewish and Christian teachings, and all the way to modern thinkers such as Immanuel Kant but also Adam Smith who famously noted in Wealth of Nations that “Justice is what holds the edifice together”.
Nevertheless, the concept of (un)fairness is a complex and contentious one, in both law and economics, as evident from the debates surrounding the application of Article 102a Treaty on the Functioning of the European Union (TFEU), which prohibits unfair pricing. Although codified already at the birth of the European Union, there has been many cases, and yet even more legal and economic commentary on “fairness” as a goal for competition law.
The intersection of fairness and competition law has noted a revival with added focus on digital markets and tech giants in the EU and opening of investigations and issuance of hefty fines against tech giants such as e.g., Google (2.4 billion Euros) and Apple (1,8 billion Euros), as well as by a string of other cases against “unfair” pricing in other sectors such as pharma, why there is an analogous area that can be used for the purposes of making the approach of DMA to fairness more clear.
Regarding the “imbalance between rights and obligations” as the be-all definition of unfairness in DMA, one can quickly observe that almost all business transactions display some element of this “imbalance”, and that much business acumen is built on others doing a less wise choice. Certain situations and markets do necessitate a more careful consideration, mostly in cases where the markets are not contested, due to severe barriers to entry, or other characteristics.
Naturally digital markets do fall in this category, a matter which motivated the creation of DMA in the first place, and designation of certain gatekeepers which occupy a unique position due to their size and access to vast amounts of data, creating insurmountable barriers to entry, and also displaying certain abuse of this market power, in turn enabled by the sheer access and control over data-driven platforms such as Meta, Amazon or Apple.
Fairness can also be able to function as an economic concept, provided fairness can be defined objectively, rationally, and practically. The simplistic claim that ”fairness is not an economic concept” is fraught with challenges, as it is a matter of choice and values inherent in rejecting fairness as being an incalculable externality, to be dealt with other disciplines.
Indeed, an immense body of economics have concerned itself with different nuances of fairness and equity. As demonstrated by behavioral and experimental research, both firms and consumers take fairness considerations seriously regarding e.g., pricing. Nevertheless, the concept of fairness and its practical application in law and economics is not without manifest challenges in overcoming the inherent “subjective” element entailed in fairness considerations.
The challenge ahead for both ex ante regulatory approaches but also ex post competition law enforcement lies in how to translate the abstract notion of fairness, and the rather vague framing of fairness in DMA and the AI Act, into practical and workable concepts when dealing with matters such as zero price products, algorithmic collusion and exploitative abuses enabled by network effects and misuse of data.
One possible approach would be to define fairness more alongside traditional consumer welfare standard, and equitable exchange, taking a more holistic view of the interest of the trading parties on the market. Nevertheless, in order to avoid Type I and Type II errors, more hands-on guidelines are needed to make the application of the recently introduced acts a practical and objective endeavor.
FIDMA is committed to pursue interdisciplinary research on this subject from both legal, economic and philosophical perspectives, in order to be able to offer clearer analysis and foster a European approach to these matters.
Behrang Kianzad