Regulatory overreach

Consequences of regulatory overreach are discussed in a recent Truth on the Market blog post. Lessons in Regulatory Humility Following the DMA Implementation resonated with me, even before Canada’s Online Harms Act was tabled in the legislature. Peter Menzies and Michael Geist each write about the extreme overreach in Bill C-63, the Online Harms Act.

In response to regulatory overreach, I have been writing about the need for greater humility for almost as long as this blog has been around. Last year, I wrote “Politicians looking to score points with intervention in the digital marketplace should carefully reflect on whether new laws are actually needed.” Seven years ago, I observed “Canada was among the first regulators to set out a light-touch approach to internet regulation” (in 1999).

The Truth in Markets post warns about unintended consequences arising from the European Union’s Digital Markets Act (DMA).

To comply with the DMA, digital platforms will have to adapt their business models, governance, and even their ā€œdigital architecture,ā€ which will affect how they provide services and monetize their assets. These changes will be felt not only by the platforms themselves, but also by the services that run on them (whether called ā€œbusiness usersā€ or ā€œcomplementorsā€) and by consumers, all of whom will be forced to grapple with new risks or a potential reduction in quality.

Canadians have experienced platforms reducing the quality of user experience in response to government legislation. Facebook removed news from Canadian feeds because of the high costs associated with compliance with the Online News Act.

Apple has warned that aspects of the DMA creates new risks for users. “The new options for processing payments and downloading apps on iOS open new avenues for malware, fraud and scams, illicit and harmful content, and other privacy and security threats.”

The reaction to some of the gatekeepersā€™ announcements regarding their DMA-compliance plans shows how we could quickly be thrown into a downward spiral in which regulations beget more regulations. Once the first layer of regulations fail to yield the desired results, politicians, consumers, and business users demand more regulation. This leads, in the end, to more heavy-handed rules like the aforementioned price controls or structural separations.

Regulations beget more regulation. Former CRTC Vice-chair Peter Menzies warns about the Province of Quebec seeking to create its own streaming rules. Will another layer of regulations increase the availability of French language content? Mr. Menzies warns, “there is a widely held view that should the regulatory burden be viewed as overly cumbersome, many smaller streaming companies might make their services unavailable in Canada. And itā€™s not entirely out of the question that some large companies could follow suit.”

Legislation and regulations are almost always designed with aspirational objectives. Unfortunately, there is often insufficient analysis of the consequences of regulatory overreach. Truth on the Markets warns about jurisdictions rushing to be first with digital market legislation. “Countries that take their time, however, to study markets, perform proper regulatory impact analysis, and enact a serious notice-and comment-process, will be those most able to learn from the experience of other regulators and markets. These regulatory impact analyses should, of course, also consider the possibility that the regulation in question may not be necessary at all”.

As I have written before, “we need to explore policies for the digital economy with the thinking of a chess master”. There is a real need to think at least three or four moves ahead.

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