Digitalisation dilemmas: Comprehensively competitive

Digitalisation requires streamlining of existing competitive frameworks for it to thrive

Such issues are complex owing to the dynamic nature of technology, cross border digital platforms and data flow.
Such issues are complex owing to the dynamic nature of technology, cross border digital platforms and data flow.

By Gulshan Rai

Digital India has accelerated the adoption of a digital transformation in the country. The digital economy is likely to surpass the target to cross $1 trillion by 2024. In fact, it will significantly surpass the target. The instant real-time payment registered 595 crore transactions in May 2022. New digital technologies, including AI, blockchain, crypto, machine learning, VR and robotic process automation (RPA), are now embedded in the digital products and services in the country. It will be right to say that digital transformation taking place at the level of technological ecosystems is having profound effects on economy and society.

Companies active in digital markets are remarkably involved in merger and acquisitions (M&A) and constantly seeking out interesting start-ups. It is the desire of the bright younger generation to set up, start up and sell subsequently. Based on publically available information, the six big tech companies of the world, during the last five years, have acquired more than 500 companies spread out worldwide. More than 50 start-up entities have also been acquired during the five years by Indian tech companies. Some common trends visible in such M&A activities are to help companies provide products and services optimised for use from mobile devices; and invest with companies that would help with advanced data analytics techniques (machine bearing, artificial intelligence and big data).

Another striking feature of acquisitions undertaken generally is that targets are often very young, firm, and oriented towards striking technology to give leverage to data and markets related to consumers across a wide range of economic sectors. The importance of acquisitions, particularly by tech firms, and the accelerated use of digital technologies have led to a range of emerging issues and more particularly relating to data governance and competition. Such issues are complex owing to the dynamic nature of technology, cross border digital platforms and data flow.

The scenario will become more complex with the mass-scale adoption of Web 3.0 decentralised technologies, which has resulted in decentralised autonomous organisation with their own issues in terms of regulations, money laundering, government control, licensing, taxation, and so on. The government is already seized of issues being posed by the crypto market and crypto exchanges. It will be not wrong to say that digitalisation may pose multifaceted challenges for governments, particularly those regulating competition/M&A and overall data governance. There are distinct features of the rapidly evolving digital markets, the precise boundaries of which are unclear. However, the range of characteristics has the potential to lead to concentration, market power and revenue. The digital market involves both horizontal and vertical integration as well as conglomerate structures, resulting in a cross-platform network effect. The examples of big tech companies, both worldwide and in India, are before us. Data has emerged to be the most important and central element in the emerging scenario. It is now a competitive asset which has the potential to impact ‘entry barrier’ and the quality of products and services, thus changing the market dynamics.

The issues arising from digitalisation are already a focus of public and government worldwide. The European Union recently enacted twin legislations—the Digital Markets Act and the Digital Services Act. The US and the advanced digital economies of the world are engaged in bringing comprehensive legislation to address issues, more particularly crypto and competitive data governance. There are reports in the media on creating digital public infrastructure (DPI) on the lines of UPI, Aadhaar, health data etc. The central element of DPI is that data and the underlying issues are the same and may be more complex as mentioned. In India, the Open Network for Digital Commerce (ONDC) has already been launched.

There is a fragmentation of policy and legal frameworks dealing with digital economy in the country. Digitalisation has the potential to lead to better economic growth and integration of economic sectors, but it can also cause fragmentation if not regulated in a balanced and holistic way. India needs to assess the depth of the issues and require good comprehensive framework with non-traditional technological models and methods. The framework requires deep understanding of zero-price markets, implication of multi or single homing pattern, entry barriers, and most importantly, indirect network effects. For example, there is a clear trend in the world of online sellers and platforms employing pricing algorithms to reduce transaction costs—it is quite prevalent to simultaneously change different prices to different customers for the same product. The adoption of the RPA algorithm is well-prevalent in digital markets and a hub-and-spoke model in digital platforms is being deployed. Extensive data collection and machine learning allows companies to target pricing to specific consumer groups and individuals in a sophisticated way. Whether this leads to discrimination is an empirical question that requires deeper understanding. The study of cases arising out of legislation enacted by the EU and some cases like Facebook’s acquisition of Instagram and Google’s acquisition of Fitbit need to be studied in depth.
In India, the current framework, particularly the Competition Act, focuses on market power rather than on innovation and digital assets. The use of data and algorithms is competitive and needs to be kept in mind while evolving a policy for digital economy. The need of the hour is to urgently amend Section 5 of the Competition Act and categorise data as an asset. Further, it will be necessary that frameworks are operable not only in the country, but also worldwide. Aggressive and balanced frameworks of data governance and competition will boost growth and employment in the country. Such a framework will further drive the other frameworks as well.

(The author is Senior advisor, Dua Associates, and ORF’s former national cybersecurity coordinator)

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