Geopolitics and fines for breaches of the EU’s Digital Markets Act

The European Commission is working to a deadline of 25 March to decide whether Apple, Meta and Alphabet have breached the European Union’s Digital Markets Act (DMA, Regulation (EU) 2022/1925). Apple and Alphabet are accused of breaches including preventing app developers from prompting their customers to bypass their app stores. Meta is accused of irregularities in eliciting its users’ consent for cross-platform personal data sharing. If found noncompliant, the digital giants could face fines of up to 10% of their global turnover. These would be the first penalties imposed since the DMA obligations became applicable in March 2024.

The decisions will be taken in a politically charged context. The United States dislikes the DMA and has threatened to retaliate with tariffs. As a result, any fines may be modest. 

But bowing to foreign pressure is not good policy. Softening the enforcement of EU laws undermines competition in European markets. Vacillating over the DMA would generate uncertainty, undermines the credibility of the EU as a regulatory power and make the EU subordinate to the US.

The primary goal of DMA enforcement is deterrence – dissuading the huge online platforms from infringing the law. However, what if the Commission were to add to this the objective of minimising trade retaliation? In that case, a simplified game-theory model suggests, counterintuitively, that the Commission should increase rather than reduce DMA fines.

To act as a deterrent, DMA fines must at least offset the illegal profits made by infringers (in practice, this rarely happens because fines have upper bounds – such as a maximum of 10% of a company’s turnover – while illegal profits can be very high).

Formally:

Where 

is the additional illegal profit earned through the infringement, p is the probability of being sanctioned and F is the fine amount. It follows that F is a decreasing function of p:

In other words, the greater the probability of getting sanctioned, the lower the fine needs to be to act as a deterrent and vice-versa. As a simple illustration, consider illegal parking. If drivers expect the street to be patrolled regularly, a small fine may be enough to persuade them to pay for parking tickets. But if they do not expect checks, a bigger fine would be needed as an incentive.

In a scenario in which minimising retaliation is also a goal of DMA enforcement, reducing the size of fines would make little strategic sense. This is because it is fair to assume that almost any fine amount would be used by the US administration as a pretext for retaliation (even if it has no basis in international trade agreements). In the eyes of President Trump, a €300 million fine is likely to be as unacceptable as a €2 billion fine. On the US side, there is no mechanism to ascertain whether a fine is fair, since in the US view, the whole EU regulatory framework is unjust by construct.

In any case, the Commission cannot opt out of sanctioning infringements when they are brought to light (for example, through whistleblowing), unless it is sued for having failed to act (moreover, harmed parties may also sue DMA infringers directly for compensation for damages).

If the Commission were to seek to minimise retaliation, there are better tools than reducing fines. The Commission has significant discretion in using its investigative powers. The DMA empowers the Commission to request extensive information from any company, and to conduct interviews and inspections and open market investigations in relation to systematic non-compliance.

To avoid irritating the US, the Commission could thus simply reduce its proactive evidence-seeking efforts. In the simplified model described above, this translates into a lower p. The Commission would reduce street patrols and fewer DMA infringements would be pursued. However, in this case, the goal of deterrence implies adjusting F upwards.

Note that p may decrease also if the Commission does not bow to US pressure, but at least one EU country does. The Commission is the sole authority responsible for DMA enforcement but national authorities can, on their own initiative, open investigations to collect information and help the Commission carry out its enforcement duties. An EU country wanting to avoid Trump’s ire can choose not to investigate possible DMA infringements – thus a lower p.

The US’s efforts to interfere with regulatory enforcement in the EU have already generated an expectation of fewer upcoming DMA cases. Higher fines can partly counter the detrimental effect that such an expectation has on the value of the DMA as a deterrent.