By Viswanath Pingali
Policymakers, industry, start-ups, newspapers — everyone is talking about digital platforms and their effect on market competition, with the platforms’ alleged anti-competitive conduct often coming under the spotlight in these conversations. Conduct like self-preferencing, where platforms prefer their services over other market players, is often the bone of contention.
A critical element that escapes scrutiny in these discussions are the pro-competitive effects, including substantial consumer benefits, of digital services. It is essential that these effects also receive attention to ensure a balanced and nuanced approach to their regulation.
Digital platforms often enhance competition by lowering entry barriers and spurring innovation, eventually safeguarding the interests of consumers and small sellers. For instance, e-commerce platforms have revolutionised retail in India, providing consumers with a wide range of products at competitive prices and enabling small vendors to compete with large ones.
This does not imply that there are no competition bottlenecks in digital markets. However, while resolving these challenges, policymakers should also consider the positive impact of the effects, particularly for small businesses. The law must address specific and proven competitive harms while avoiding unintended consequences, like undermining digital platforms’ pre-existing competitive and consumer benefits.
What does traditional competition law say?
Traditional competition frameworks allow for consideration of pro-competitive effects, an aspect overlooked in the current discourse on platforms. These effects are assessed by weighing the positive impact of conduct on efficiency, innovation, and consumer welfare with any anti-competitive concerns. Further, the Competition Commission of India (CCI) may also consider pro-competitive effects, including accrual of benefits to consumers or improvements in the production or distribution of goods or provision of services, while assessing the conduct of companies.
The CCI has routinely considered these effects. In the case of Uniglobe Mod Travels Pvt. Ltd. vs Travel Agents Association of India & Ors, the commission observed that the presumption of an appreciable adverse effect on competition could be rebutted by the parties if they can prove that their conduct has pro-competitive effects, or that it does not cause an appreciable adverse effect on competition in India. Other jurisdictions like the European Union also follow this approach, where they consider efficiencies and consumer benefits in their assessments.
Winds of change
Policymakers’ approach to pro-competitive effects seems to be changing, as evident by proposed digital competition laws. For example, the Digital Competition Bill (DCB), a proposed law that aims to regulate large technology players, does very little to account for pro-competitive effects.
The DCB provides exemptions to regulated companies from various obligations based on factors such as cybersecurity and fraud prevention. However, the exemptions do not allow assessment of the pro-competitive effects of market conduct, including consumer benefits and cost-reducing efficiencies.
Further, the Bill provides various principles that will form the basis of obligations for regulated entities without considering pro-competitive effects. For example, it provides that covered entities cannot require or incentivise the use of their products or services, as well as those of related or third parties, along with their core digital services.
While a prohibition on conduct that forces users to buy tied or bundled products can help provide users with more choices, restrictions on incentivisation will curtail the pro-competitive effects of digital services for consumers, like lower prices and better engagement terms. In Sonam Sharma vs Apple Inc. (2013), the CCI observed that tying could result in pro-competitive effects and spur innovation.
Too little, too late
The Committee on Digital Competition Law’s (CDCL) report provides the theoretical basis for the Bill. It acknowledges that digitalisation can have several pro-competitive effects, such as market contestability, innovation, and new offerings, and that certain practices highlighted under the DCB’s obligations can also have benefits such as reduced manufacturing and distribution costs and enhanced product quality.
However, the DCB does not sufficiently reflect these considerations. The CDCL envisages that subsequent regulations, which will provide principle-based obligations for different services, will account for pro-competitive effects. Unfortunately, this would be too little, too late. Regulations will find it challenging to account for pro-competitive effects if they are not mentioned in the principles within the Bill. The CCI will also find it difficult to consider these effects if the relevant exemptions are not available in the law.
Digital services have often provided pro-competitive benefits to business operations in India. For example, cloud computing has led to cost savings for business users. Cloud services typically follow a pay-as-you-go model, allowing businesses to pay only for the resources they use, thus reducing upfront capital entry barriers related to hardware and software.
Additionally, it offers scalability, enabling firms to quickly adjust their resources based on demand. Lastly, these services can innovate by democratising access to advanced technologies such as artificial intelligence and real-time analytics. These considerations should find prominence in the upcoming Bill.
What next?
The DCB could benefit from several changes to better accommodate the dynamic nature of digital markets. Incorporating exemptions that allow the regulator to consider the pro-competitive effects of conduct would be a first step in balancing regulatory oversight with the ability to leverage the benefits of digital platforms. Inspiration can be sought from the UK’s Digital Markets, Competition and Consumers Act 2024, where exemption of countervailing benefits can be availed if the conduct benefits users or the benefits outweigh the potential negative impact on competition.
Further, the obligations within the Bill could be refined to account for pro-competitive effects meaningfully. By making these adjustments, the DCB can better promote fair competition without hindering the benefits that digital platforms can present to Indian markets.
The author is Faculty member in the economics area at IIM-Ahmedabad.
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