Abstract:
We develop a sequential game-theoretic model to analyze the compliance incentives of digital gatekeepers under the European Union's Digital Markets Act (DMA). A gatekeeper chooses between full compliance and strategic compliance - a strategy of tactical, superficially lawful implementation that preserves a larger share of monopoly rents. The European Commission decides whether to accept the gatekeeper's compliance or initiate enforcement proceedings. Using backward induction, we show that in high-impact markets, the gatekeeper's equilibrium strategy is strategic compliance, investing in legal complexity to deter enforcement. In low-impact markets, full compliance is the equilibrium outcome. We extend the base model by endogenizing the Commission's enforcement incentives, modeled as increasing in the fine imposed, and derive conditions under which raising fines may paradoxically fail to induce full compliance. The model contributes to an emerging literature on regulatory compliance in digital markets and identifies the negotiation-oriented nature of DMA enforcement as a key determinant of strategic gatekeeper behavior.
