India's Digital Competition Question
Should India wait for the metaverse?
2023 is turning out to be a landmark year for regulatory developments for the digital ecosystem. With the enactment of the country’s long awaited data protection law, much attention is now turned toward the upcoming law on digital competition.
The central issue of digital competition does not fundamentally differ across jurisdictions. A primary advantage of online platforms has been the size of their user base. An increase in the size of these “networks” vastly improves the value proposition of these platforms for both existing and potential new users. This can create a snowball effect which tech companies can leverage to become digital behemoths.
It is neither possible nor helpful to eliminate network effects. This has vastly complicated the task for regulators, who are struggling to devise appropriate solutions for handling the monopolistic impacts of large tech companies. This central concern of digital networks compared to traditional economic markets has been clearly acknowledged by the Indian Parliament’s Standing Committee on Finance in its July 2023 report on “Anti-Competitive Practices by Big Tech Companies”, where it noted that digital markets tip quickly in favour of leading players in a short period. By the time laws and policies for handling digital markets are formulated, the winning company has already taken control of most of the market.
All subsequent anti-competitive practices (such as steering, platform neutrality, predatory pricing, bundling etc.) ultimately stem from the market dominance that a large tech company can exert on competitors, users and downstream markets. Consequently, the Standing Committee has recommended to the Central Government that an ex ante competition law for digital markets be devised. This dramatically differs from the existing approach to competition regulation, where the regulatory intervention is made only after a market failure takes place. An ex ante approach requires regulators to not just identify, but also predict how market failures may take place in order to design preventive legal obligations for participating entities in the market. The broad recommendations of the Parliamentary committee have now been placed before the Ministry of Corporate Affairs which constituted a Committee on Digital Competition earlier this year for drafting the digital competition law.
Even more interestingly, the committee reached the conclusion that user data-driven analytics enabled by large-scale personal data collection by systematically important digital intermediaries (SIDIs) creates too much of a market advantage. The committee has therefore suggested direct controls on how companies derive insights from user personal data be built into this new digital competition law. These restrictions applicable on SIDIs, and intended to mitigate an unfair advantage, would not be applicable to other companies which do not dominate any core digital service. Enforcing restrictions on how specific companies draw insights from personal datasets may be difficult, if not impossible in practice. Further, the committee recommendations only encompass the usage of personal data, whereas use of anonymized datasets for consumer insights and targeting of products/services has been part of standard industry practice for many years.
Putting aside the concerns of feasibility, such solutions may enable different companies to capture new digital sectors but may not prevent the creation of digital monopolies as such, as the core aspects of network effects won’t be offset. My intention of highlighting these issues is to point out just how challenging the effective regulation of competition can be, particularly when adopting an ex ante approach.
However, there is one core assumption of the parliamentary committee, which may put into question the utility of any such ex ante digital regulation. India is moving along with the rest of the world towards toward the age of Web 3.0. The architecture of Web 3.0 is likely to transition the internet away from monopolizing social platforms with more democratic technologies such as blockchain, and generative AI. Even in their infancy, these technologies are foreboding a radical restructuring of how our economy will function. If the predictions on Web 3.0 do fructify, one can argue that the upcoming digital competition law will be a Web 2.0-era legislation being introduced into a Web 3.0 world with brand new regulatory concerns. We will have to wait for the eventual draft bill to understand how the complicated dynamics of digital competition will eventually pan out.
I am an independent Delhi-based lawyer with interests in technology, law and policy. The views expressed in this post reflect my personal opinion.