The Digital Markets Act — Dissolving the Platform Rent by Mandated Interoperability

Summary

The Digital Markets Act — Regulation (EU) 2022/1925 of the European Parliament and of the Council, in force since 1 November 2022 — is the European Union's ex-ante regulation of the largest digital platforms. Where a digital services tax or Romer's ad tax tries to capture platform rent by taxing it, the DMA takes the opposite pole of the design choice the wiki's data-rents page poses: it tries to dissolve the rent by attacking the moat that generates it. Its declared purpose is markets that are "contestable and fair" — and its central mechanism is mandated interoperability, which forces open the network-effect and lock-in advantages that let a dominant platform hold a land-like position.[1] The DMA is the flagship dissolve instrument in the Furman Review's spirit, but — unlike the Furman Review — it is binding law with obligations, deadlines and fines.

The regulation applies only to firms designated "gatekeepers": undertakings with "a significant impact on the internal market," running a "core platform service which is an important gateway for business users to reach end users," and enjoying "an entrenched and durable position."[1] That last criterion is, in competition-policy language, the definition of a durable rent: income from an exclusive position that competition has not eroded. The DMA is therefore an unusually clean natural experiment in the Geoist question — what happens when a state chooses to compete the rent away rather than tax it.

What It Establishes

The diagnosis is the data-rents diagnosis. The DMA's own recitals name the moat in the same terms the wiki's data-rents concept uses. Recital 13 attributes "weak contestability" to services with

"extreme scale economies, very strong network effects, an ability to connect many business users with many end users through the multisidedness of these services, lock-in effects, a lack of multi-homing or vertical integration," so that "often, there is only one or very few large undertakings providing those digital services."[1]

The gatekeeper test then makes durability the trigger: the rules bite only where an undertaking has "an entrenched and durable position, in its operations, or it is foreseeable that it will enjoy such a position in the near future," backed by bright-line thresholds (annual EU turnover ≥ EUR 7.5 billion or market cap ≥ EUR 75 billion; ≥ 45 million monthly active EU end users and ≥ 10 000 yearly active EU business users).[1]

The instrument is interoperability — opening the location so it can't be held. The DMA's obligations (Articles 5–7) go beyond conduct rules; three impose interoperability that directly targets lock-in:

• App-store openness (Art. 6(4)). "The gatekeeper shall allow and technically enable the installation and effective use of third-party software applications or software application stores using, or interoperating with, its operating system," accessible "by means other than the relevant core platform services of that gatekeeper."[1]
• Hardware/OS interoperability (Art. 6(7)). The gatekeeper "shall allow providers of services and providers of hardware, free of charge, effective interoperability with, and access for the purposes of interoperability to, the same hardware and software features... as are available to services or hardware provided by the gatekeeper."[1]
• Messaging interoperability (Art. 7) — the landmark provision. A gatekeeper messaging service "shall make the basic functionalities of its number-independent interpersonal communications services interoperable with the... services of another provider... upon request, and free of charge."[1] The obligation phases in: one-to-one text and file-sharing on designation, group messaging within two years, and one-to-one and group voice and video calls within four years.[1] This is the first time a major jurisdiction has compelled messaging networks to open to rivals — a direct assault on the single strongest network-effect moat in consumer software.

The mechanism is the wiki's own "dissolve the moat" logic made statutory: if users can reach their network from a rival service, the gatekeeper's position stops being an exclusive location and its rent competes away — no tax required.

An analytical assessment finds interoperability can, in principle, do exactly this. Kades & Scott Morton (2020) give the DMA's mechanism its economic case. On a social network, they argue,

"Mandatory interoperability based on robust and effective rules could overcome the network effects that protect the incumbent from entry, maximizing the potential for new entrants to enter at minimal cost, compete in the market, and take share from the incumbent."[2]

And crucially for why this is attractive relative to taxing land-like rents, the cost of opening a digital network is low: "in today's internet-based network markets, interoperability carries no incremental costs such as dedicated wires and machines... Its main cost is the establishment of an open standard to exchange commonly used functionalities."[2] They also flag the binding qualifier the DMA is now testing in the field: interoperability is "likely a necessary, but not necessarily a sufficient, condition for an effective remedy."[2]

Relation to the Georgist Case — the Dissolution Pole, Legislated

The DMA belongs on the contested frontier of the rent gradient, and it resolves — as a matter of enacted policy — the design fork the wiki's data-rents page leaves open: capture the rent, or dissolve it. The DMA is the dissolution instrument in force, and it sharpens the Georgist argument in a specific way.

• It marks the one structural difference between land rent and platform rent. Land cannot be un-scarce: its supply is fixed, so its rent can only be taxed, never competed away — the reason LVT is the clean case. A platform moat, by contrast, is scarcity manufactured by lock-in and network effects, and lock-in can be engineered open. The DMA is the practical demonstration that on the digital frontier a second Georgist remedy exists that has no analogue for land: make the location contestable so the rent dissolves without capture. This is why the wiki carries capture and dissolve as two poles rather than one — and the DMA is the dissolve pole with legal teeth.
• It corroborates the rent diagnosis from a non-Georgist authority. The EU legislature, with no rent framing, defines its targets by "entrenched and durable position" and blames network effects, scale economies and lock-in — the exact ingredients the data-rents page and the Furman Review identify as the source of platform rent. That an official body legislates against a durable, hard-to-contest position is outside confirmation that these returns behave like rent, not transient competitive leads.
• It sidesteps the quasi-rent objection instead of answering it — which is its Georgist advantage and its limit. A rent tax on platform profit runs straight into the taxing-quasi-rents-kills-innovation objection: tax the return and you may dull the incentive to build the service. Interoperability finesses this — it leaves the platform's revenue alone and instead removes the barrier to competition, so a firm that keeps winning on genuine quality keeps its customers, while one coasting on lock-in loses them. In principle it disciplines rent without taxing quasi-rent. The catch is that it only works if the moat really is lock-in rather than a genuinely superior product — the same is-it-rent question, relocated from the tax base to the effectiveness of the remedy.

The gradient-honest takeaway: the DMA shows the digital frontier offers a policy move the clean land case never has to make — dissolve rather than tax — and that a serious government has chosen it. Whether it works (whether messaging interoperability actually erodes the moat, or whether gatekeepers retain their position because their advantage was partly real quality) is the empirical question the next few years will answer.

Limits

• Early, and effectiveness unproven. The DMA entered force in November 2022; the first gatekeepers were designated in September 2023 and compliance obligations began in March
• The messaging voice/video interoperability deadline runs four years from designation. Whether interoperability actually dissolves the rents — or whether, as Kades & Scott Morton warn, it proves "necessary but not sufficient" — is not yet observable. This page states the design and its rationale, not a measured outcome.
• Interoperability has real costs and risks the DMA itself hedges. Messaging interoperability strains end-to-end encryption and security; the regulation requires interoperability only where the gatekeeper can preserve security and integrity, and the technical standards are contested. "Free of charge" and "basic functionalities" are doing heavy lifting and are the subject of ongoing implementation disputes.
• It is competition policy, not rent capture — no revenue is raised. By design the DMA captures no rent for the public; if it succeeds, the rent is competed away into lower prices and better services rather than into a citizen's dividend. That is a feature for the dissolve view and a missed opportunity for the capture view — the two poles genuinely diverge on who ends up with the surplus.
• The analytical assessment carries a disclosure. Scott Morton discloses in the working paper that she "consults for a range of corporations including Apple and Amazon on antitrust litigation issues"; the paper states no party other than the authors' institutions funded it. The analysis is nonetheless the standard reference for the interoperability-as-remedy case.
• Provenance. All regulatory quotations (subject matter, gatekeeper criteria, thresholds, Recital 13, and Articles 6(4), 6(7) and 7) were taken verbatim from the consolidated EUR-Lex HTML of CELEX 32022R1925 (fetched and parsed this session). The Kades & Scott Morton abstract and cost passages were taken from the Washington Center for Equitable Growth working paper (via its published abstract and PDF, fetched this session).

See Also

• Platform and Data Rents — the capture-or-dissolve design choice the DMA answers on the dissolve side; the concept explicitly names "the logic of the EU's Digital Markets Act 'gatekeeper' rules"
• Furman Review — Unlocking Digital Competition — the intellectual template for interoperability-and-data-mobility remedies the DMA enacts
• Digital Services Taxes and Their Incidence — the capture pole, and the cautionary incidence tale
• Romer's digital advertising tax — the other capture-side instrument aimed at the same firms
• Korinek & Ng — digital superstars · Superstar Firms · Rochet & Tirole (two-sided markets)
• Radical Markets — the data-as-labor capture alternative for the same moat
• Objection: Taxing quasi-rents kills innovation — the objection interoperability sidesteps rather than answers
• Geoism — the rent-domain program and its capture-or-dissolve menu

Sources

1. European Parliament and Council of the European Union (2022), Regulation (EU) 2022/1925 on contestable and fair markets in the digital sector (Digital Markets Act), OJ L 265, 12.10.2022, p. 1. CELEX 32022R1925. EUR-Lex — used for the "contestable and fair markets" purpose (Art. 1(1)); the gatekeeper designation criteria and "entrenched and durable position" (Art. 3(1)) and quantitative thresholds (Art. 3(2)); the "weak contestability"/network-effects/lock-in diagnosis (Recital 13); and the interoperability obligations — third-party app stores (Art. 6(4)), hardware/OS features (Art. 6(7)), and number-independent messaging with its phased text/group/voice/video functionalities (Art. 7) — and all verbatim quotes (A-claims; primary legislative text, fetched and parsed this session).
2. Michael Kades & Fiona Scott Morton (2020), "Interoperability as a competition remedy for digital networks," Washington Center for Equitable Growth Working Paper, September 2020. Equitable Growth · PDF — used for the analytical case that mandatory interoperability can "overcome the network effects that protect the incumbent," the low-incremental-cost point, and the "necessary but not sufficient" qualifier (C/D-claims; working paper; Scott Morton's antitrust-consulting disclosure noted; fetched this session).