Competition in any market is crucial to maintaining its viability, transparency, and expanding opportunities. Such competition consists of various manufacturers, producers, enterprises, and firms vying and contending with each other for accessibility and engagement with consumers to sell their goods and services.
In a healthy competitive market, there is encouragement of efficiency, innovation, and consumer choice. It consists of numerous buyers and sellers, with minimal barriers to entry or exit in the market. This forces businesses to constantly enhance their offerings to attract and retain consumers. As a result, consumers reap the benefits of lower costs, high-quality products, and a broader selection.
Competition Law in India
To prevent the creation of monopolies in the economic system, the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP) was enacted. The act was based on the principles enshrined in the Directive Principles of State Policy which acts as instruments of instruction for the State to prevent the concentration of wealth and minimise economic inequalities. Articles of the Constitution such as Article 39 (3), “The State shall, in particular, direct its policy towards securing—that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment,” serve such socio-economic purpose. With the liberalization of the economy, a need was felt to enact a law that would focus on promoting competition in the market rather than primarily working to prevent the creation of monopolies in the economic system. Consequently, the MRTP Act was repealed and replaced by the Competition Act (CA) enacted in 2002.
Advantages and Disadvantages of the Current Framework
The Competition Act offers a broader definition of “combination,” a more transparent and efficient procedure for resolving disagreements, greater powers to the Competition Commission of India (CCI), provisions for acts outside India impacting competition within India, clarity on penalty proceeds, a separate chapter on the commission’s advisory jurisdiction, a more lenient punishment approach centred on fines instead of imprisonment, and higher fines for offences.
The act effectively promotes competition and safeguards consumers in India. However, certain issues continue to haunt the legal framework which the Competition Act does not effectively address. The act has a limited scope when it comes to the areas dominated by big tech. It has not been able to keep up with the fast-paced change in the digital market. Only in 2023, a proposed amendment about the deal value threshold was brought in, when a lot of such mergers such as WhatsApp and Facebook had already taken place. The rise of big technology companies that act as both intermediary platforms as well as providers of services and goods in several markets like Google, Amazon, Apple, Microsoft, and Facebook, has increased the concerns about potential harm to the competition in the market brought in by the concentrated of power in the digital economy.
53rd report of the Parliamentary Standing Committee on Finance
Regulations in Competition law can be “ex-ante” (after the event) or “ex-post” (before the event). An example of “ex-post” regulation is punishing past antitrust violations while “ex-ante” regulation can be price control, which restricts companies’ pricing freedom.
Competition authorities across borders have started to prefer the ex-ante approach in the regulation of the market. This shift stems from concerns about the ineffectiveness of traditional competition tools, which rely on price and consumer welfare metrics, in addressing emerging competition issues in the digital economy. The tools have not been so successful due to the unique characteristics of digital markets, including their multisided nature, zero-price services, network effects, economies of scale and scope, and the crucial role of data access and monetization. Additionally, defining relevant markets and determining dominance in digital markets poses significant challenges. Standard economic analysis methods and traditional competition tools, such as market share and the small but significant and non-transitory increase in price test, have proven inadequate in cases involving digital platforms.
The rapid evolution of the digital economy has created significant challenges for competition authorities worldwide due to fundamental differences inherent in these markets compared to traditional markets. In light of the same, the Parliamentary Standing Committee on Finance (2022-2023) proposed the implementation of ex-ante regulatory measures to address anti-competitive practices by big tech companies in India through its 53rd report titled “Anti-Competitive Practices by Big Tech Companies.” The Report highlighted the limitations of ex-post measures in mitigating irreparable harm in digital markets. It advocated for an ex-ante regulatory approach akin to the EU’s Digital Markets Act (DMA), where market-dominating intermediaries or gatekeepers are designated as Systematically Important Digital Intermediaries (SIDIs). Annual compliance reports have been recommended for such SIDIs to ensure adherence to regulatory obligations.
Flexibility in Designating an Intermediary as SIDI
Identifying the intermediaries to be subject to ex-ante regulations will need to be done properly and effectively so that none of such potential intermediaries having anti-competitive effects in the market is left behind. In other jurisdictions, this task has been carried out differently. The German Act, French and Italian proposals require the definition of the relevant market and the finding of a dominant position to identify firms subject to ex-ante regulation. However, the UK Digital Markets Taskforce (DMT) and the European Commission (EC) do not require a finding of dominance or even a definition of the relevant market. They instead use quantitative criteria, such as turnover or market capitalization, to identify gatekeepers. The purpose of these criteria is to ensure that the new regulations cover the largest firms that have raised the most competition concerns. While the DMA gives the EC some flexibility to designate a gatekeeper even when the quantitative criteria are not met. Germany, on the other hand, did not introduce quantitative criteria to identify firms subject to ex-ante regulation. Instead, it gives the Bundeskartellamt the power to order an undertaking to notify every concentration in one or several specific sectors of the economy.
The Standing Committee report suggested criteria based on quantitative factors such as revenue, market capitalization, and active business and the end users for identifying such intermediaries. However, given the novel nature of the field of digital competition, the criteria need to be kept flexible but not to the extent of keeping the firms in uncertain situations. Flexibility in the approach allows for a more tailored approach to regulation, avoiding the unnecessary targeting of firms without valid justification. Additionally, this flexibility ensures that the regulations remain applicable in the face of future market developments and prevents companies from artificially modifying their services to evade the quantitative criteria. However, this flexibility also introduces an element of uncertainty into the designation process, potentially increasing costs and risks for companies that must self-assess their compliance with the regulations. Further, firms falling under the same bandwidth may remain uncertain about their position in the market of whether or not they come under the category of SIDIs. This can be addressed by specifying a range of quantitative and qualitative factors to consider, along with a process for assessing these factors in specific cases. Moreover, a tiered approach could be imbibed which would involve differentiating the level of regulatory scrutiny based on factors such as the size, market power, and potential impact of a firm facilitated by increased transparency and accountability in the process.
Digital competition law is a rapidly evolving field that aims to address the unique challenges posed by the digital economy. Traditional competition law frameworks, which were designed for brick-and-mortar businesses, are often inadequate for addressing the complex dynamics of digital markets. The law is still in its early stages of development, and there is ongoing debate about the most effective approach to regulating digital markets. Competition authorities around the world have only recently started advocating legislation pertaining to the digital market. Given its novel nature, the approach must be kept flexible and facilitated by apt measures so that the process can quickly adjust as per the evolving circumstances and the business is not thrown into a state of uncertainty because, in the end, the aim of competition law must not only be to prevent monopolies, rather promote competition in the market.
This article is written and submitted by Rahul Ranjan during his course of internship at B&B Associates LLP. Rahul is a BBA LLB 2nd year student at National Law University Odisha.