Before Or After: Ensuring Competition In Digital Markets

In the last few months, there have been significant and rapid developments in the digital competition law landscape.

On Dec. 22, 2022, the Parliamentary Standing Committee on Finance placed a report titled "Anti-Competitive Practices By Big Tech Companies" before the parliament. The report suggested the drafting of a separate set of rules for ensuring competition in the digital economy. On Feb. 6, the Ministry of Corporate Affairs formed a Committee on Digital Competition Law to "examine the need for a separate law on competition in digital markets".

But the committee has been asked to give not only its report but also a draft of the Digital Competition Act within three months. This is either very efficient or very hasty, depending on how one views it.

The SCF report lists 10 anti-competitive practises that big-tech firms indulge in. The practises identified are broad in nature, not uncommon in digital markets, and they could, in some market contexts, be anti-competitive. But our understanding of the full effects of these strategies is still developing, especially in the Indian context. The concern is the suggestion that the proposed DCA outlaw these practises ex ante, devoid of any market context, and not allow companies to engage in these practises at all.

The irony is that while we have borrowed the phrase ex-ante from the EU, we championed ex-ante competition regulation through the now-abolished Monopolies and Restrictive Trade Practises Act. The MRTP Act was passed in 1969 and failed to ensure competitive markets. There is enough evidence to suggest that the act ended up protecting competitors rather than promoting competition. Indeed, "most cases under that act involved consumer complaints and contractual disputes unrelated to competition. Very few cartels were prosecuted, the development of a rule of reason for vertical agreements was hamstrung by the legislature, and the merger review was terminated in 1991.[1] The act was repealed in 2009, when the Competition Commission of India started functioning. The establishment of the CCI and the move to ex-post antitrust were moves in the right direction.

An ex-ante approach to regulation necessarily means that who the rules will apply to has to be decided when the rules are made. In this case, these will be the Systemically Important Digital Intermediaries as suggested by the SCF report. Unfortunately, no matter how one defines SIDIs, the only way to routinely identify a SIDI will be to collect the required information from all digital companies. To stop the underage from entering and consuming alcohol, drinking establishments have to check everyone’s identity, though it hurts when one visibly reaches an age when one does not qualify for ‘carding’ anymore!.

The proposed approach is eerily similar to the MRTP Act. MRTP applied to companies that were either large, with assets exceeding Rs 20 crore, or dominant, with assets exceeding Rs 1 crore and a share of the market exceeding one-third, later reduced to one-fourth in 1982. All such companies were required to register themselves and obtain government permission for mergers, amalgamations, and takeovers, as well as for the establishment of new undertakings and substantial expansion of existing ones. The DCA would operate in the same way, where the company’s business strategies would be routinely subjected to regulatory approval.

The proposed regulatory approach will also treat all digital platforms, irrespective of the sector of operation, the same. So an e-commerce platform will be treated the same as a ride-hailing platform, and they both will be treated the same as a digital payments platform. But these platforms operate in very different markets with different levels of competition and existing regulatory oversight.

More worrisome is that the ideas about how the proposed practises hurt competition come from situations that are different from ours. Platform business models are complex and varied. Platforms offering similar services often have different monetisation strategies. Some charge a pure subscription fee, some a combination of a subscription and transaction fee, and others only a transaction fee. Yet others may monetise consumer presence and attention using third-party advertising. One business model may be more appropriate in a setting where customers cannot pay directly but do not mind a little intrusion in the form of advertising, while another may be more appropriate in a setting where customers are more willing to pay a direct cost rather than view targeted advertisements. Digital expansion in India may require a different balance between priorities than, say, in a society like the EU.

This is not to say there should be no regulation of digital companies. Protecting consumers in the digital age—their privacy and their data—is crucial. A well-designed data protection regulation, which India will get soon, is essential. Platforms should also be required to deal transparently and fairly with their business users. Well-designed, not simply well-meaning, regulations are needed to promote competition in the digital economy. And, before we abandon ex-post anti-trust, we need more detailed analyses of the business strategies of digital companies in the specific context of India.

We have a capable competition regulator in the CCI. In the recent past, it has moved against the anti-competitive strategies of digital platforms. The competition law amendment bill, which will give the CCI more teeth to deal with the digital economy, is also being finalised. The SCF report suggests setting up a digital markets unit (DMU) within the CCI. Digital markets are indeed different from traditional ones, and a better economic understanding of how they work will enable better-designed regulation. One hopes that the DMU will also have some capable economists. The first task of the DMU should be to carry out research studies, release discussion papers, and create a body of knowledge on which specific regulations can be crafted or existing rules amended.

India is charting a different course for its digital economy. Our needs and context are different from those of the EU or the US. Then why are we so reliant on their regulatory approach to the digital economy? Footwear does protect the feet when walking on gravel. But ones that are not the right size may hurt more than the gravel.

Notes:

[1] Bhattacharjea, A. (2008). India's New Competition Law: A Comparative Assessment. Journal of Competition Law and Economics, 4(3), 609-638.

Nishant Chadha is the Head of Research at the Centre for The Digital Future and India Development Foundation, Gurgaon

The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.