Taming the Few: Platform Regulation, Independent Audits, and the Risks of Capture Created by the DMA and DSA

Abstract

In its attempt to better regulate the platform economy, the European Commission recently proposed a Digital Markets Act (DMA) and a Digital Services Act (DSA). While the DMA addresses worries about digital markets not functioning properly, the DSA is concerned with societal harms stemming from the dissemination of (illegal) content on platforms. Both proposals focus on the relative size of platforms. The DMA applies to ‘gatekeeper’ platforms and the DSA has a special regime of scrutiny for ‘very large online platforms’ (VLOPs). Focusing on size, however, can have negative consequences for the enforcement of the DSA: First, risks disseminated by platforms below the VLOP-threshold reside in a regulatory blind spot. Second, VLOPs may leverage their market power against their new mandatory auditors and risk assessors, a threat theorised as ‘audit capture’ in this article. As a result, societal risks may remain undiscovered or downplayed and consumers and citizens may be harmed. This article traces the origin of the size criteria in the legislative history of the DMA and DSA proposals. It argues for safeguards against audit capture and adverse incentive structures in the DSA. The article draws on the debate on audit reform in the aftermath of the global financial crisis of 2007–2008 to provide blueprints for fixing the regulatory gap.

Keywords: Digital Markets Act, Digital Services Act, Platform Economy, Platform Regulation, Digital Markets, Auditing, Market Power, Regulatory Capture, Incentives, Data Access, European Union Law, Targeted Advertising, Recommender Systems, Social Media