P2B and the missing relational dimensions of the Digital Services Act

Ohad Somech, Law Data Lab, Bar-Ilan University, Ramat Gan, Israel
Maayan Perel, School of Law, Netanya Academic College, Israel
Niva Elkin-Koren, Faculty of Law, Tel Aviv University, Israel, elkiniva@law.haifa.ac.il

PUBLISHED ON: 23 Nov 2021

This op-ed is part of a series of opinion pieces edited by Amélie Heldt in the context of a workshop on the Digital Services Act Package hosted by the Weizenbaum Institute for the Networked Society on 15 and 16 November 2021 in Berlin. This workshop brought together legal scholars and social scientists to get a better understanding of the DSA Package, in detail and on a meta level.

Zac Plansky woke up one morning to discover that the products he sells on Amazon received a high number of suspicious favourable reviews, The Verge reported. Zac signalled the incident to Amazon which promptly removed most reviews. Two weeks later, however, Zac was shocked to find out that Amazon had suspended his account and frozen his funds. The cause of the suspension was a single competitor’s allegation that Zac had purchased the reviews. Fearing for his business, Zac spent anxious weeks going through Amazon's appeal system to learn how he may get his account restored, all the while being unable to conduct business or withdraw funds, journalist Josh Dzieza found out. Could the EU’s Digital Services Act (DSA) release people like Zac from Amazon's grip?

Zac’s story is not unique. Digital platforms exercise tremendous power to control significant aspects of our daily lives: they shape what we know; determine which products might be sold, and by whom. While this affects all users alike, users who rely on digital platforms for business or social entrepreneurship, are particularly vulnerable. Gross power discrepancies underline the contractual relationship between digital platforms and business users. Online businesses are extremely dependent on platforms to generate income; they may literally collapse if their account is suspended or terminated. Hence, alongside the significant benefits platforms have fostered for businesses, they may also harm business users’ fundamental rights.

Three sources of power discrepancies

Three interrelated reasons contribute to these power discrepancies: First, the market structure of digital platforms, including network effects, enables dominant platforms to unilaterally govern the relationship with their users (Guggenberger, 2021). Many online businesses must surrender to platforms' totalitarian management for the lack of meaningful alternatives. Second, the consolidation of market control at the hands of data-driven platforms enables them to shape both supply and demand sides of the market by exploiting users’ data (Calo & Rosenblat, 2017). Their business users do not operate in a regular competitive market, in which income is shaped by contradictory economic pressures generated by competitors, on the one hand, and consumers, on the other. Rather, digital platforms may influence the market to meet with (or even manipulate) their users' preferences in order to maximise their profits. Third, business users' specific investment in the platform ecosystem, to sustain their online businesses, effectively locks them in this imbalanced relationship (Kahn, 2017). Business users invest heavily in building their online reputation, developing a community of supporters, followers, fans, and, eventually, potential consumers and nourishing their accounts. It is often practically impossible for them to switch between platforms and move their businesses to someplace else.

While the first reason for power discrepancies described above is structural, the second and third reasons are relational. They stem from the complex P2B relationship, in which business users provide the goods and services which are exchanged on platforms (i.e., content on social media or products in Amazon), and, at the same time, also generate the data which facilitates platforms' business relations with third parties. Any attempt to fully address the power discrepancies between platforms and business users should therefore address both the structural and the relational aspects.

The Digital Services Act and P2B relationships

Recently, the EU embarked on a project for the regulation of digital platforms, with the explicit objective of empowering users and creating competitive and fair markets. The Digital Services Act (DSA) is a pivotal part of this endeavor. Does the DSA address both the structural and the relational aspects of P2B power discrepancies?

The DSA alleviates some structural concerns. In particular, by requiring a transparent and objective use of content moderation tools (Article 12); and obliging platforms to inform users and provide them with reasons for any removal of content (Article 15), it might help to limit the arbitrary exercise of power by platforms.

The DSA should be read as part of a larger regulatory effort. The Digital Market Act (DMA), and the Regulation on Promoting Fairness and Transparency for Business Users of Online Intermediation Services (which the DSA references as a lex specialis) also address the power imbalance between platforms and users. For example, the DMA prohibits platforms from engaging in different unfair business practices, including combining data from various online services; Most Favored Nation clauses; self-preferencing; and using non-publicly available data in competition with their business users.

The EU regulatory attempts are admirable. Nevertheless, they do not fully address business users’ concerns. Generally, market regulation aims to create competitive markets by tackling market failures and, when competitiveness cannot or has not yet been achieved, curving the ability of actors to (ab)use their market power. So does the DSA and complementary regulation. By requiring transparency, interoperability, and data portability, as well as limiting the permissible uses of data, the regulation tackles two main anti-competitive causes: asymmetry of information and barriers to entry. Moreover, acknowledging that competition would not instantly occur, it also restricts incumbents’ ability to use their market power to extract favourable contractual terms.

Nevertheless, and though undoubtedly needed, the DSA addresses only one of the three sources of power discrepancies discussed above, namely: market structure. But consider the second source of power imbalance - incumbents’ access and control of data pertaining to the entire market. Indeed, platforms are prohibited by the DMA from using such data “in competition with business users”. Yet, unless “in competition” is given an (unusually) extensive definition, the data would still provide incumbents with a substantive advantage. For example, though platforms may not use the data to outright copy successful products, they may still employ it in the design and architecture of their website, stirring users to their (i.e., the platform’s) desired destination.

Consider also the third source of power inequality: specific investment, and assume that the platform market became relatively competitive. Business users who engage with a platform and consider switching to a competitor, would still forfeit some (or all) of their investment in improving their rating, visibility, and customer-base (so-called “lock-in effect”). In particular, the competitor would often be unable to replicate the benefits of the investment; and, even if some benefits could be restored, the competitor may refuse to do so, as it would reduce the incentives to make a similar investment in the new platform. Thus, even if market competition was achieved, platform-specific investment made by business users is likely to keep them at a disadvantageous position.

Importantly, and in conclusion, our argument is not that these are problems yet to be addressed by regulators. The regulation of markets is usually understood as tasked with tackling market failures to ensure the creation of competitive markets and to maximise consumer welfare (Kahn, 2019). Thus, regulation was never intended to address particular relations and is likely not up to the task. Instead, other legal instruments, and contract law in particular, seem more suitable to empower users in P2B relationships. Indeed, doctrines such as good faith in performance and implied terms could allow users to raise legal claims against platforms and seek compensation for their investments (Dagan & Dorfman, 2021).

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