A defense of ex-ante regulations and the Digital Competition Bill

It is beneficial to have markets where smaller developers or companies can thrive and have a chance to reach consumers on an equal footing with large companies.
Google, Facebook, Amazon, Digital Competition Bill
Google, Facebook, Amazon, Digital Competition Bill

Critics of the Digital Competition Bill have argued that such a regulation is misguided and will negatively impact digital markets. That digital markets are inherently beneficial to consumers and small and medium enterprises who rely on them. That, while similar regulatory efforts have taken shape globally, they are not suited to Indian market conditions. That many different kinds of markets are anti-competitive, so why should we focus on digital markets? Instead, we should focus on strengthening existing ex post competition law mechanisms.

It is necessary to clarify certain principles on which this Bill is based. Digital markets have created companies incomparable in size and significance to most entities in other markets. Despite competition law enforcement against them, their power is only increasing with time. This is because competition in digital markets is different from other markets as competition is for the marker rather than in the market. This means that once a player is able to acquire a substantially large user base for its product, that product becomes the industry standard, and it is very hard for rivals to dislodge it from the market. Competition is then essentially for crumbs that the winner leaves behind in the market. This power can then be extended from one market to others.

In digital markets, certain players have become ‘gatekeepers’ as they control access to critical aspects of digital markets. For example, most consumers rely on Google search to access any information on the open web. This creates dependence on Google to return relevant search results and provide accurate information. In turn, Google has incentives to use its power as the only search engine that most people use to return search results that benefit its commercial ends.

Numerous Competition Commission of India (CCI) orders against big tech companies such as Google, Meta and Amazon have shown how this dependence leads to discriminatory behavior, arbitrariness and opacity. For instance, the CCI’s investigation in the Google Play case revealed that Google’s charging of 15%-30% fees to certain app developers and not others was not based on any economic value provided to those app developers. App developers are dependent on Google Play to reach consumers, as it is the most significant channel for app distribution globally. Thus, app developers have no realistic choice but to pay the arbitrary fee charged by Google as not being on Google Play is simply not an option for an app.

The Bill contains an obligation for gatekeepers to charge a fair, transparent and non-discriminatory fee, which will surely help bring back balance to this market. It seeks to regulate gatekeepers that are called Systemically Significant Digital Enterprises (SSDEs) to ensure they do not use their power to exploit users or unfairly compete in markets to exclude rivals. It is not intended to regulate markets where several players are operating and no one player is in a significant position.

Significantly, the Bill’s objectives of fairness, contestability and transparency are meant to ensure that gatekeepers remain accountable, and markets are open to competition from diverse sources. There could be little argument against the benefits of injecting more competition into digital markets. The example of OpenAI shows how greater competition and threats of disruption foster innovation. Companies that already have significant positions in markets have less incentive to disrupt themselves. They invest in new technology defensively, to protect themselves from competition. This is also evident from the example of OpenAI as the prime mover in the AI space. OpenAI has spurred big tech companies to create their own competing AI. As such, it is beneficial to have markets where smaller developers or companies can thrive and have a chance to reach consumers on an equal footing with large companies. However, the structure of today’s digital markets have significant barriers for this to happen organically.

One of the differentiators of digital markets from other kinds of markets is the opacity of algorithms. We as consumers or businesses or even regulators do not fully understand how data is used and monetised by gatekeepers who have access to unimaginably detailed amounts of information about us. The data-related obligations in the Bill will protect smaller business users whose dependence is exploited by gatekeepers, which use their data against them by competing with them based on products created using their own data. This makes traditional competition law enforcement, which is based on assessing the positive and negative effects of business practices (called a rule of reason analysis) weaker, as we do not have a complete understanding of the implications of these business practices. Orders from the CCI and other jurisdictions show that competition law has struggled to adapt to and understand these new business practices that move away from conventional price-based markets.

Proponents of the conventional competition law understanding that consumers are inherently benefited by zero price markets where some innovation is taking place, should consider whether gatekeepers who have built strong moats around their businesses would have incentives to vigorously compete for the business of consumers or business users. Actions like ‘anti-steering’ that the Bill regulates, restricts competition as consumers are steered away from rival businesses and do not access them. While big tech has crafted justifications for all these practices, such as protection of privacy or security, advancements in technology may enable the goals of privacy and security to be met through means that are less restrictive to competition.

The scale at which big tech operates hampers the competitive process as rivals do not have a fair ground. The Bill seeks to protect the competitive process of digital markets in a timely manner before it is too late to do so. As such, while the Digital Competition Bill suffers from certain flaws, such as significant discretion to the CCI and low thresholds for designation of SSDEs, amongst others, its aim of ensuring that consumers and business users can have more choices in markets and that these choices could spur big tech to create even better products, is an inherently sound one.

Shilpi Bhattacharya in a Professor at Jindal Global Law School.

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