Date: 29/12/2022

Relevance: GS-3: Indian Economy and Issues related to fair competition in market; digital economy and its challenges.

Key Phrases: Regulation of Tech companies, Competition Commission of India (CCI), Digital Market Economy, Digital Competition Act (DCA), Systematically Important Digital Intermediaries (SIDIs), Killer Acquisitions.

Context:

• Recently, India’s Standing Committee on Finance tabled its report on “anti-competitive practices by big tech companies” in the Lok Sabha.

Need for ex-ante regulations for tech giants

• The CCI feels a strong need for ex-ante regulations for tech giants because many challenges have emerged during multiple competition inquiries into the digital markets in the recent past.
• Digital markets present special challenges as market dominance here can be exploited in ways different from the conventional business practices.
• There is rising global scrutiny of Big Tech companies such as Google, Apple, Facebook and Amazon, for their alleged abuse of market positions and misuse of user data.

What are the major recommendations of the committee?

• To address the unique needs of digital markets, the committee has recommended the introduction of a ‘Digital Competition Act’ (DCA), which would ensure a fair, transparent and contestable digital ecosystem in India.
• The committee has also recommended the establishment of a dedicated ‘Digital Markets Unit’ at the Competition Commission of India (CCI), staffed with skilled experts to handle issues and cases related to digital markets.
• The committee has emphasized the need to globally harmonize regulations governing digital markets to reduce the overall regulatory burden.
  • This indicates that the DCA may be developed along the lines of Europe’s Digital Markets Act.

Dealing with the leading tech players:

• The committee has recommended that a small number of leading tech players which can negatively influence competition must be identified as ‘Systematically Important Digital Intermediaries’ (SIDIs).
• The SIDIs would be based on their revenue, market capitalization and number of active users.
• Certain mandatory behavioural obligations should be imposed on SIDIs and they must be required to submit an annual compliance report to the CCI and publish a copy on their websites.
• In case of any merger or acquisition (M&A) involving a SIDI, where the target provides services in the digital sector or enables data collection, it must be notified to the CCI, even if it does not otherwise trigger a CCI filing.

How will the SIDIs address key competition issues in digital markets in India?

• To address key competition issues in digital markets the committee has recommended that a SIDI should
  • Not make platform access conditional on acceptance of ‘anti-steering’ conditions.
  • Not indulge in self-preferencing, including search biases or a pre-installation requirement of its own apps (i.e., must maintain platform neutrality)
  • Not make access to platform’s core service conditional on subscribing to any other service (i.e., bundling).
  • Neither commercialize user data of third parties using the platform nor use it to compete with its business users.
  • Not curtail the freedom of businesses to list their products or services on various platforms/ websites at any price or terms.
  • Not indulge in self-preferencing in search rankings (i.e., a search bias) and must offer fair and non-discriminatory terms to ensure organic search results.
  • Allow use of third-party apps and prompt users to positively choose their default apps so that such apps can fairly compete with the SIDI’s own apps.
  • Offer transparency on advertising revenues.
• To address the bargaining power imbalances and global developments on this issue (e.g. Australia) the panel also recommended that a SIDI must ensure fair advertisement revenue-sharing arrangements with news publishers.

What is a Killer Acquisition?

• It is the situation when a large firm may buy an entrepreneurial startup in order to shut down the target firm's projects before they become a competitive threat.
• Because such acquisitions eliminate promising, but competing, innovation thus establishing the acquirer firm’s market hold.

Key challenges involved implementation

• A key challenge would be to monitor compliance by SIDIs, as these reports would be prepared by them internally.
• It may lead to ‘Killer acquisitions’ which have been identified as a concern for healthy competition.
• Limited deliberations with stakeholders regarding the introduction of a deal-value based threshold, in addition to existing turnover/ asset based thresholds.
  • No information on introducing a requirement to pre-notify every deal led by a SIDI in the digital economy.
• There is no minimum threshold or local nexus requirement to keep no-issue deals out and avoid an unnecessary burden on the CCI.

Way Forward

• Learning from other countries
  • India must be guided by learnings from other countries which may be marginally ahead of us in implementing digital intermediary regulation rules.
• State intervention is needed to protect smaller players
  • Digital markets are beginning to manifest initial signs of maturity therefore some level of state intervention may be reasonable to ensure fair competition and the successful co-existence of mavericks and smaller players.
• Striking a balance between regulation and freedom to innovate
  • A fine balance must be struck between the need to regulate and the freedom to innovate.
  • Whilst arriving at such a balance, we must also focus on developing the concept of ‘voluntary and informed consent’ and make it compatible with the use of big data.

Conclusion

• India has witnessed an exceptional growth of the digital economy and has contributed immensely to keep the Indian economy on its feet during the pandemic.
• Also, a bright forecast of the Indian digital economy requires a state intervention but at the same time, we must be mindful of our local market conditions and tailor the DCA to our specific requirements, aligning it with other digital policies and laws which are already in the pipeline.

Source: Live Mint

Mains Question:

Q. To address the unique needs of digital markets in India and ensure a fair, transparent and contestable digital ecosystem in India there is a need for a Digital Competition Act on the lines of Competition Act. Discuss. (250 words).