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Competition law issues in digital advertising and search services market

By Abir Roy, Ishaan Chakrabarti, and Vivek Pandey

In today’s digitised economy, consumers often come across seemingly free services online, finding themselves providing their data as consideration for the services. In most cases, the service providers monetise this data by providing it to advertisers, which use it to target consumers with personalised and relevant ads. It is an efficient system, reducing costs, both for businesses and consumers. Businesses can get better returns on investment, both in (i) terms of resources spent on developing products the market wants; and (ii) in terms of advertising costs by reaching out to groups who are most likely to purchase those products. Correspondingly, it also reduces a consumer’s search costs, i.e., the cost the consumer would bear to look for the good or service that would best satisfy his/her want (such as fuel, time, and money).

While digital markets are rapidly evolving and pose new challenges, competition law is tasked with scrutinizing the conduct of participants in the market and as a result is reactive (with the exception of regulating combinations). It is imperative that competition regulation keep pace with new challenges in digital markets, instead of waiting for the market to ‘stabilise’, because by that time, any anti-competitive conduct shall be fortified.

We look at some major issues that a new entrant in a market dominated by a tech incumbent may face, and the answers which our laws provide to these situations.

Competition issues in Digital Advertising

Digital advertising, with the ability to target ads, has been prevailing over traditional advertising in recent years. With increasing number of users, their own data can be used to target advertisements based on behaviour and interests (behavioural targeting), the theme and context of a website (contextual targeting); geographical location of an individual (geographical targeting); social, demographic and economic characteristics such as age, gender, income (socio-demographic targeting) or even based on time, day or week (time targeting). Digital advertising is broadly divided into two categories: search advertising and display advertising. Even though revenues generated via traditional channels such as print and television remain higher, trends show that digital advertising revenues may soon surpass traditional advertising revenues.

I. Search Advertising

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Search advertising uses keywords searched by users for advertisers to bid upon. Usually, general search service providers allow advertisers to display ads in the search results through their own intermediaries, like AdWords for Google, Bing Ads for Bing, etc.

A dominant search engine, especially if they are vertically integrated,  would also be in a position to use its search advertising policies in its favour and to the disadvantage of its competitor, be it in any other downstream market.

Further, there may be transparency issues with the process. Usually, ad placements on search results is decided by ad ranks. It’s in the best interest of search engines to put out the most relevant organic results as well as the most relevant ads. Therefore, they list out several criteria such as bid, ad quality, relevance etc., which decide ad rank for a particular search. While the approach is perfectly sound in theory, there may be a trust deficit given the ever-present room for manipulation due to wide and disproportionate information asymmetry. Further, due to competition law issues emanating out of vertical integration, there may be instances of manipulation in ad ranks for the benefit of entities related to the search engine.

II. Display Advertising 

Digital display advertising simply adopts the traditional display advertising from billboards, banners etc. to the web page. Display advertising is further classified into open display market (such as ad space on web pages such as newspaper sites), and owned and operated market (for instance social media sites).

To briefly put a model of display advertising, there are two sides: supply side and demand side. Suppliers are the publishers (website owners) who supply ad space to advertisers, who are on the demand side. There are agencies who manage and facilitate functioning of both the sides, which are called as Publisher Ad server and Advertiser Ad server. Further, there are supply side platforms and demand side platforms which facilitate the transaction between the ad servers, thereby completing the transaction.

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  • An inherent conflict of interest: In an open display advertising model, a single entity may be present on both the supply and demand side. In fact, Google, a dominant search engine provider, though its entities such as Google Ad Manager, Google AdSense on supply side and Display and Video 360, Campaign manager and Google Ads on demand side, already holds majority of intermediary market share. Thus, a general search service provider which already holds a dominant position in the market, through its associated entities on the supply as well as demand side, can come to acquire a majority in the intermediary market as well. Such presence on both sides of the market raises an obvious conflict of interest, which may lead to the practices of self-preferencing, profit squeezing and eventually, increasing the overall costs.
  • Issues with owned and operated display advertisements may be directly related to the size of the platform itself: Here, service providers aim to attract maximum users and try to capture most of their attention, so that advertisements could be shown to their feed. Number of users on the platform can be directly used to attract more advertisers. This can be stretched to an extent where advertisers do not have any other place to go to and end up paying more to such a platform.

Competition issues in the Online Search Services Market

General search services are mostly provided for free to attract advertisers, and competition regulators across the world have received complaints which have led them to scrutinize various kinds of conduct adopted in this market by incumbents.

  • The issue of self-preferencing has arisen even in this context as a search service provider may rank its associated services (e.g. weather, email services, maps or news) higher than other results on the search results page. Such a conduct has adverse implications for any search service provider providing its services for a specialized topic or in a particular area (specialized search service provider).
  • It also becomes problematic when the general search service provider deploys techniques to display seemingly relevant information in innovative or attractive designs to customers (for example in boxes or through a use of picture and text which is usually designed to be easily distinguishable from the general search results), when in reality the results shown in such attractive layouts are again those of related parties, and may not actually have any nexus with the relevance of the search.

How search engines become gatekeepers

Search engines try to achieve a successful positive feedback loop (network effect) which can lead to a situation where the search service can occupy the position of a ‘gatekeeper’, deciding how users navigate and interact with the wide expanse of the web. Therefore, search service providers may tie up with web browsers whereby they become the default search engine. Such a move has the consequence of further strengthening the search service providers position in the market. If kept unchecked, over a period of time, the search service provider may be successful in acquiring the position of a gatekeeper, thus regulating how users interact with the internet and what results they see. Businesses relying on the search engine results page to get access to customers are left virtually remediless in the face of ensuing issues such as self-preferencing, as even if they choose to get sponsored results on a different search engine, the sheer lack of traffic makes the exercise futile. Therefore, a dominant search service provider must not be allowed to further strengthen or protect its position in the market by entering into such arrangements as arguably, the same would be in contravention of Section 4(2)(b)(ii) of the Competition Act, 2002.

Yet another way for a search service provider to entrench its position in the market is to enter into syndication agreements with third parties. Under a syndication agreement, the third party can display organic search results as well as sponsored results under its own branding. A search service provider, once in a stronger bargaining position, can impose onerous terms on the third party which does not allow the third party to display results from other search service providers. This would also lead to a situation where a competing search service is not given access to customer queries and data to compete. However, it is important to note that all such allegations must be backed by evidence as regulators may not be inclined to find a violation of the Act based on conjecture, as has happened in the past.

Acquisitions as a Competition concern

One of the biggest concerns associated with digital markets is concentration of markets to a limited number of enterprises. Big Tech has been on an acquisition spree for several years, likely a major contributor to their success. These entities are not restricted to a single business, and instead dominate multiple markets. Google, for instance, dominates the search engine market, mobile operating system market, and ad intermediary market. Facebook killed most of its competition by acquiring Instagram.

Apart from the traditional analysis of combinations under Section 5 and 6 of the Act, it may be argued that acquisition can also fall in the category of ‘anti-competitive agreements’ under the Competition Act, 2002, and is subject to investigation by the authorities since the  coverage of Section 3(1) of the Act is very broad in scope which prohibits agreements which causes (effect test) or likely to cause (object) test an appreciable adverse effect on competition in India.

This is important from the competition perspective because, as shown above, several big tech giants have acquired startups at a very initial stage to eliminate any potential competition and create ecosystems. Holding a dominant position in even of the market gives a competitive advantage to such enterprise to promote their other services.

The greater concentration of market power with a limited number of tech giants would most affect small and medium size companies, startups and obviously, the end consumers. Both the end consumers as well as smaller companies need to be aware of the competition concerns that revolve in the rapidly changing market and secure their stake.

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Abir Roy is the Founder & Partner in charge of Competition Law at Sarvada Legal. He has represented clients across sectors (e-commerce, radio taxi, automobile, auto parts, start ups) before the Competition Commission of India. Roy has been recognized as Leading Individual in Competition law by Legal 500 in 2017 and 2018, Future Leader by Who’s Who Legal in 2019, Recognized Practitioner by Chambers & Partners in 2019, Notable Practitioner by Asia Law. He can be reached at abir@sarvada.co.in

Ishaan Chakrabarti is an Advocate in the competition law team at Sarvada Legal. He can be reached at ishaan.c@sarvada.co.in

Vivek Pandey is an Advocate in the competition law team at Sarvada Legal. He can be reached at vivek.p@sarvada.co.in

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