Protecting competition in the digital space | The Financial Express

Protecting competition in the digital space

CCI, in its recent orders against digital companies, has questioned the rules of engagement between the platforms and their users. These rules, apart from being exploitative, also exclude competitors

Protecting competition in the digital space
Data and customer access can also be used to facilitate adjoining market entry. (IE)

The Competition Commission of India (CCI), in a slew of recent final orders, flashed a red card to digital companies for not playing fair in the market. India now joins a league of nations that have recognised strong antitrust enforcement as an essential element of the overall public policy design governing these companies. CCI has embraced a broader consumer welfare guiding principle while assessing the business practices of these companies which goes beyond a narrow static price competition metric. This expansive approach became evident in the Commission’s first order against Google in 2018, which held that, although users do not pay to avail products and services, they provide personal data to the search engine as a consideration. This is an implicit price imposed on consumers, and Google benefits from the collection of data for its search advertising business.

Also read: Punjab National Bank raises FY23 credit growth prediction

More generally, some big digital platforms have access to a large amount of data as they operate as intermediaries linking market participants such as advertisers and website visitors. Nobel laureate Jean Tirole, in a seminal paper, showed that it is not possible to reach an efficient outcome by avoiding the platform and bargaining bilaterally. The economics has, however, created a cohort of a few data-rich platforms. New asymmetries of power have emerged where the ‘arena’ of competition is an ecosystem of various complementary products/services and associated businesses. The CCI’s recent decisions recognise these platforms’ dominance as ecosystem orchestrators.

CCI, in its orders, has questioned the rules of engagement between the platforms and their users. These rules, apart from being exploitative on account of the unequal bargaining power enjoyed by these platforms relative to businesses, also exclude competitors. In the Google Android OS case, it was observed that Android-based smartphone OEMs have no meaningful choice but to sign an anti-fragmentation agreement that implicitly prohibits device manufacturers from distributing competing versions of Android. According to the Commission, the agreement renders experimentation or architectural innovation on even a single device within the Android ecosystem commercially infeasible. Further, mandatory pre-installation of Google Search on all Android devices (as a widget on the default home screen) is a restrictive contractual agreement that boosts Google’s data advantage.

Data and customer access can also be used to facilitate adjoining market entry. Recognising this, the CCI took suo motu cognizance of the privacy policy update of WhatsApp for its competition impact. In a prima facie order, the Commission observed that lower data protection by a dominant firm may lead to the exploitation of consumers as well as have exclusionary effects through leveraging in neighbouring markets such as display advertising, resulting in entry barriers. The matter is still under investigation.

Also read: Balance sheet of corporate India, banks stronger now, says HDFC chairman Deepak Parekh

Situations can arise where these dominant platforms are in a position to extract huge rents or even oust their trading partners. Competition law should improve economic outcomes that maximise the gains from trade and maintain the innovation incentives of the platform as well as business users. The body of jurisprudence emerging from the Commission has adopted this approach, providing a consistent economic foundation for competition law.

In the most recent order against Google, the Commission found that Google’s control over Play Store, the critical gateway between app developers and users, gives it the power to compel app developers to mandatorily use its payment system. In the MMT-Go matter, the exclusionary contractual commitment of MMT-Go with OYO that resulted in the delisting of franchise service providers such as FabHotels and Treebo was found to be anti-competitive.

Businesses in India—including retailers, hotels, restaurants, media, app developers, and other start-ups—depend on digital platforms such as app stores, search engines, social media platforms, advertising platforms, etc., for visibility and entry. There has been a steady rise in cases being filed across the verticals, such as marketplace platforms, app stores, payment gateways, online travel, food aggregators, and social networking. Such cases pertain to issues such as self-preferencing, leveraging, data-collection practices, deep discounting, etc.

Increasingly, terms such as ‘unfair’, ‘bargaining power imbalance’, ‘asymmetric information’, ‘bottleneck facility’, ‘gatekeepers’, and ‘dependence’ are finding use in the competition law lexicon. In order to address these issues, some behavioural rules through ex-ante regulation may have to be introduced to complement competition rules. Inspired by antitrust cases, which, in some sense, have developed pro-competitive conduct rules, a slew of new legislations has either been enacted or is being proposed the world over. The essence of these legislations is ‘competition law through regulation’.

The debate has already begun in India, and it will be interesting to see how regulatory and institutional responses develop. Going forward, certain proposed legislative changes, including comprehensive personal and non-personal data protection law(s), are expected to infuse competition in the digital space.

The writer is Economic Advisor and Head, Economics Division, CCI. Views are personal.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 04-11-2022 at 04:30 IST