What’s missing from DSA/DMA. (notes for future amendments)

So today VP Vestager and Commissioner Breton introduced the drafts of the new EU digital  regulation.

A very nice piece of work, I must say.

There are some very fine grained measures and more general principles. Among the latters I think that the regulatory ladder, interoperability and device neutrality are particularly worth of consideration. Also the Digital Services Coordinator is a good general principle: a nice idea to improve effectiveness of the regulation itself.

Let’s think of future amendments…

Auctioneers implement an number of strategies to push auction prices up.

Not only the auction mechanism itself like the second price auction, which is well known and understood, but also other more sophisticated strategies like some form of “semantic expansion” which automatically expands the size of the bidding base, or granting to non profits some “money equivalent” to spend in their auctions, or suggesting the bidding price, or altoghether completely managing the bidding price for the bidder (behaving like they are not the auctioneer and the party selling the product, but a mere technically “neutral” part).

Suppose you have a shop, you want to sell shoes online and the bid winning price for your ad is 10c.
The auctioneer goes to the non profit X that gives away shoes to the poor and give them a 10K grant as a “credit” which can be spent on their own adverts (which, by the way, have a zero marginal cost).

They don’t give a contribution in kind (“exposure of the non profit X advert”) which would be accounted for 0USD, given it has a zero marginal cost.

Instead, the non profit X will bid for the “shoe” keyword on the search engine using this “chinese money” (it’s not real money as it cannot be cashed out for fiat dollars) thereby pushing up the price “real bidders” (like your shoe shop) have to pay to win the auctions to place their adverts on search results. (Would that contribution to the non profit also account for a tax break ? I don’t know).

Another example of “non linear behaviour” in auction could be done with rebates. Suppose you have a B&B close to Hoover Dam that you promote via an auction. You would bid for “B&B Hoover Dam” and would compete against online travel agencies (OTA) that bids for the same keywords.

Suppose the auction winning price is 30c per clic. If you win it, then you’d have to pay the 30c. But OTAs are among the highest spenders of digital ads. We don’t know if, at the end of the year, the auctioneer gives the OTA a rebate thereby effectively lowering their true cost to win that clic for the B&B at the Hoover Dam.

It might well be that, in the end, thanks to rebates, the OTA ends up really paying 25c for their “30c bid win”; and with these 25c they win over you, when you have offered up to 29c.

We don’t really know if this kind of things happens. But we once run an experiment for accomodations close to Milan pushing the limits of bid offerings to unreasonable levels. A popular OTA won the bids at a price higher than the cost of the rooms themselves. It is indeed possible that the OTA decided they’d loose money on that transaction, but given that bids run automatically based on algorithms configurations, it is also possible that their euros had a different value than our euros.

The key point here is that we don’t know for sure, because it’s the same entity producing the good that’s being auctioned (that has a zero marginal cost) running the auction and choosing the winner, without a third party inspecting the process and certifying everything runs smoothly and fairly.

This reminds me when FTC and SEC had powers in case of abuses between banks’ retail and investment arms, one telling the other how good was their product and the price to pay.  Some ex ante regulation works best…

I also think, in some cases, we will need some other provisions re. search…

As a general rule, IMHO, search functions should be separated and audited from other applications and the user should have the choice of selecting different search engines (this has already happened with browsers where you can choose a different search engine).

This is going to become the more evident with voice assistants.

When you search something on your screen, you get a list of results and, among those few, you choose which one suits you best to answer your need.

When you ask a voice assistant for something, you directly get a result, with no shortlist selection.

Tying the search function to the device, with no possible choice for the user to change it, creates a really strong lockin to the voice search engine. You would’t buy a full set of new voice assistants (several at home, car, etc.) just to replace the search engine.

When (eventually) antitrust would kick in, the durable effect on the market has already happened.

These devices would likely be considered as a specific market, separated from all other related and intertwined interests of the supplier (e.g cloud services and others) and potential remedies would have a very limited impact on the overall interest of the supplying company. The possible sanction would not be a disincentive to misbehave.

So we’ll need some ex ante measures as well.


If you like this post, please consider sharing it.

Leave a Comment

Your email address will not be published. Required fields are marked *