Investigation against digital enterprises – a boon or a bane?

August 01, 2021 1:24 PM

Imbalances between efficient and inefficient enterprises even within the traditional markets, force the inefficient to exit the market as they gradually lose consumer preference.

In addition to improving the top line of a business, digital changes the way an enterprise is valued. “Digital has a snowballing effect on an enterprise’s value.In addition to improving the top line of a business, digital changes the way an enterprise is valued. “Digital has a snowballing effect on an enterprise’s value.

By Manas Kumar Chaudhuri, Alisha Mehra & Armaan Gupta

Businesses thrive on fair competition, which at times may not be truly fair.  The challenge becomes even more complex if a technology-driven enterprise enters an existing traditional market and disrupts it, albeit having been established after following proper legal formalities.  The disruption may not be harmful to the end consumers yet raises unsubstantiated fear in the minds of incumbent traditional enterprises.  Traditional enterprises without meeting the challenge fairly, rush from pillar to post to garner sympathy of the powers that be to ensure uninterrupted patronage of customers. By virtue of their sheer numbers and political connections, these traditional players very often succeed in obtaining  regulatory protection even though they were first movers in the markets.

Imbalances between efficient and inefficient enterprises even within the traditional markets, force the inefficient to exit the market as they gradually lose consumer preference.  No political and/or antitrust/competition authorities go out of the way to protect such inefficient enterprises and help them survive in the market.  Once the inefficient enterprise gets driven out by market forces, the remaining efficient ones keep growing until some of them become market leaders and/or one of them becomes a monopolist.  Being a market leader or a monopolist may not be truly an economic or competition law concern unless unilateral and/or collusive conduct(s) of such enterprises start(s) affecting the markets and stakeholders adversely. Only after such adverse effects of the market and stakeholders is established by robust evidence being produced before an appropriate forum, can regulatory interference be justified.

It is undeniable that the e-commerce sector has tremendous economic potential to grow in India. Competitive pricing, deals, and last-mile deliveries have altered the buying experience of Indian consumers.

Antitrust/competition authorities must not presume that harm to competitors necessarily results in a harm to “competition” and “consumers”. Instead, one must confront theory with evidence, to ascertain whether arrangements have truly anticompetitive effects. Today, Indian digital markets face the substantial risk that competition laws will condemn procompetitive conduct in their pursuit to ferret anticompetitive conduct. The conduct of e-commerce platforms is unlikely to raise anticompetitive results from their market structure. This segment is not characterised by barriers to entry which is evidenced by recent entries of  “Paytm Mall” and “Reliance Retail”.

Customers are provided an opportunity to compare prices as well as merits and demerits of a product, explore various delivery options, etc.  The Competition Commission of India (CCI) has more recently stated (All India Online Vendors Association vs. Flipkart India Private Limited and Others – Case No. 20 of 2018 decided on 06 November 2018) that it is undeniable that online marketplaces (like Flipkart) offer convenience for sellers as well as the buyers. For sellers, they save costs in terms of setting up a store, sales staff, electricity and other maintenance charges. For buyers, they save time, commuting expenses and enable them to compare multiple goods. This demonstrates the accrual of benefits to consumers and the improvements in distribution of goods and provision of services, such pro-competitive factors were considered by the CCI while determining appreciable adverse effect on competition (AAEC), the condition precedent to conclude as to whether or not a breach proved or a “safe harbour” established under the Competition Act in a vertical business relation.

Of late, however, the market-trends have deviated from the age-old concept of customary fair competition between efficient and inefficient enterprises.  Antitrust/competition authorities – with not so strong circumstantial evidence  – stepped into the market as an ex-ante regulator in the absence of direct legal mandate, attempting to discipline the digital enterprises on their own volition even before any breach of any existing laws, much less competition laws, has really arisen.  It has almost emerged as a global phenomenon i.e., “digital economy vs rest of the world” without regard to the benefits that accrue to the most important element that is the end consumers, who are oblivious of this new turf war.

Market economy may not truly be a theory of “political socialism” where socially weak, by government policies, is brought at par with superior performers, high achievers and brilliant innovative minds.  The current trend unfortunately shows that the antitrust/competition authorities have without any justifiable or rational reasons, decided to apply “political socialism” on “market economy” though the same, even if succeeds transitorily, may have a short life-span of real-time success yet vigorously pursued.   Scientific innovations and research and development, for overall economic well-being, cannot be reversed now when the entire world has become a single market for enhancement of economic efficiencies and consumer welfare.  Interestingly, the Government of India, DPIIT on 5 July 2021 has brought out a Press Release showing setting up of a policy think-tank council by the name “Open Network for Digital Commerce” (“ONDC”).  Selection of some of the Members of this Council may require an explicit probe regarding methodology of selection of some such Members.

It is time that before the growth of enterprises engaged in digital-markets becomes an artificial “bane” for most of the stakeholders, let us lawfully assess the regulatory activism and celebrate the “boon” before it is too late.

(Manas Kumar Chaudhuri, is Partner, Head of Competition Law Practice Group, Khaitan & Co LLP and Alisha Mehra and Armaan Gupta are Associates of the Competition Law Practice Group, Khaitan & Co LLP. Views expressed are personal and do not necessarily reflect that of Financial Express Online.)

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