By Rahul Rai and Shruti Aji Murali
The Indian antitrust regulator, the Competition Commission of India (CCI) has a little more than a decade of enforcement experience. Yet, it hasn’t shied away from taking on global tech giants. News reports indicate that the CCI is speeding up all cases involving big technology firms, by deploying additional officers for some cases and implementing more stringent internal deadlines to complete investigations.
To the two ongoing investigations against Google, the CCI has added one more. It plans to forge ahead and restart the stalled investigation against Amazon and Flipkart at the earliest. In the middle of all these high-stakes cases, for the very first time, the CCI invoked its suo motu powers to start an investigation against Facebook and WhatsApp, joining the Bundeskartellamt the German competition authority, in coining breach of privacy as competition concern.
What explains the CCI’s aggressive pursuit of cases against big tech companies? Perhaps, the CCI is concerned that if it dithers, it will be too late for it to make any meaningful intervention. Historically, Indian regulators have tended to err on the side of caution. They would rather assert their jurisdiction than be perceived as soft. Proactive intervention is often viewed as a sign of courage or coming of age for regulators. Indeed, the CCI is not alone in opening investigations against big tech companies. But is the CCI missing a beat by aggressively pursuing charges against big tech firms?
Take for instance the case against Amazon India and Flipkart (now controlled by Walmart). The two firms enjoy an early mover advantage in the Indian online retail space. Some of this has already been blunted by foreign direct investment rules that prohibit all foreign-owned/controlled online retail platforms from holding inventory. No such restrictions apply to domestic owned/controlled online retail platforms. Two of India’s largest and most respected conglomerates, TATA Sons and Reliance Industries, are making huge investments in setting up their e-commerce platforms. Others may follow suit.
Online retail platforms offer a competitive substitute to traditional localised monopolies:
As online retail platforms become the preferred mode of shopping for daily needs, the traditional brick-and-mortar retailers are feeling the heat. For years the corner stores run by amiable uncles have benefited from a lack of choice for customers. Often they have run the only store in the neighbourhood, cushioned by the lack of competition from anyone else. Customers now have a choice. The choice offers them the ease of shopping from their homes, the option to choose from several brands, and the potential upside of a discount (funded by economies of scale that online retailers typically enjoy). The traditional brick-and-mortar store owners must adapt or perish.
Instead, they have chosen to complain. By complaining about exclusive arrangements between certain manufacturers and Amazon and Flipkart, deep discounting and preferential listing, physical retailers are pushing back on those very aspects of online retail that make online retail attractive for consumers.
CCI’s inquiry targets core of online retail platforms’ business model:
The CCI started enforcing the provisions on anti-competitive agreements and abuse of dominance on 20 May 2009.
The CCI also appears to think that these defining traits of online retail platforms do not augur well for the competition. It has directed its investigation arm to enquire whether the alleged exclusive arrangements, deep-discounting, and preferential listing by Amazon and Flipkart are being used as an exclusionary tactic to foreclose competition. In doing so, it has betrayed its suspicion for big-tech firms.
While initiating an investigation against Amazon and Flipkart, the CCI ought to have considered whether Indian competition rules are designed to cushion the impact of changing technologies on traditional businesses? Exclusive arrangements between a manufacturer and online retail platforms cut out the costs associated with distribution. Some of this may result in what the brick & mortar retailers describe as “deep discounting”.
Exclusivity and discounts benefit consumers:
Such deep discounting though helps put food on the table provides for education or simply adds to the well-being of millions of lower and middle-income Indians. A ten percent discount on a 12,000 rupee cell phone could put eggs on the table for a family of five for two whole months. It could provide for a week’s groceries, or a month’s stationery, for two school-going kids.
Consumer welfare alone must guide CCI’s investigations:
In 2002, India’s revamped competition legislation did away with its earlier, more limited avatar to center consumers in its policy framework. Indeed, the Competition Act, 2002 (Competition Act) recognises that firms with market power can engage in practices that perhaps hurt other competitors. But it requires the CCI to intervene only when consumers lose out – whether through higher prices or limited choice. However, competition theory recognised that business practices that indeed end up being exclusionary can benefit consumers immensely. CCI’s sanctions must be reserved for only those instances of harm to competitors which will inevitably cause harm to consumers as well. This means that the CCI ought not to rush through its investigations- certainly not when restricting impugned business practices can end up actively harming consumer choice and benefit.
Hasty decision to equate privacy protection as a competition concern:
The CCI’s haste in equating privacy as a competition concern, specifically when the Indian Parliament has been polishing the nuts and bolts of a personal data protection law, highlights an urgent desire to assert its jurisdiction. Although, in this case, it has set itself up for an imminent clash with the proposed personal data protection regime.
Equally, in the rush to investigate Facebook and WhatsApp, the CCI appears to have been guided by a simplistic and arguably superficial understanding of the relationship between privacy and competition. The CCI’s investigation is premised on the theory that if data is the price that consumers pay to platforms, privacy inevitably becomes an aspect of competition. The CCI extends this theory to argue that WhatsApp and Facebook’s market power manifests in lower levels of privacy.
Emerging literature highlights complex relationship between privacy and competition:
As academics, regulators, and students of privacy and competition law study the interface between the two, interesting insights on consumer behaviour are emerging. For instance, antitrust scholarship indicates that although consumers profess to care deeply about privacy, they continue to offer up their (personal and sometimes sensitive) data to platforms that offer free services such as internet search or social media (privacy paradox).
A recent study by Pinar Akman, a law professor at the University of Leeds indicates that as much as 40% of Indian consumers3 believe that “free” services offered by platforms are a good bargain. To a follow-up question highlighting the data collection and targeted advertising-based business model of platforms, as much as 29% of Indian respondents continued to think that the platforms offer them a good deal.
Pinar Akman’s study at the very least emphasises the need to study the privacy paradox in greater detail in the Indian context. Shouldn’t the CCI study consumer preferences and choices to see whether they indeed respond negatively to firms’ data use policies? What if an overwhelming percentage of Indian consumers actually prefer to barter privacy protection for free services offered by platforms (as the Akman study appears to indicate)? Would privacy then continue to be a metric for measuring competition? In such a scenario the CCI’s intervention would override consumer preferences. It could even result in a reduction in the quality of the services offered by tech platforms, which are continuously improved through a feedback loop of customer preferences gleaned through collected data.
Absent a contextual and nuanced study on consumer preferences it isn’t possible to offer some of the services (including targeted advertising) that we are all accustomed to. As an input into a larger service chain, consumer data creates value through customisation. Privacy protection and data benefits appear to tug in opposite directions. Greater the privacy protection, lesser the benefit from data. Shouldn’t the CCI then pause for a moment and examine these questions before rushing into and possibly rushing through investigations?
Consumers must stay at the center of competition cases:
The preliminary competition concerns identified by the CCI in its orders directing investigation against Amazon and Flipkart and Facebook and WhatsApp seem to relegate consumer welfare and choices to secondary considerations. The Indian Parliament though has put consumer welfare at the very center of the Competition Act. If, and when, the courts examining the validity of the CCI’s orders directing the investigations uphold the CCI’s decision, we hope that the CCI slows down a bit to weigh competing considerations and reaches a decision that truly brings consumers back to the centerstage.
Rahul Rai and Shruti Aji Murali have worked with leading Indian law firms that advise big-tech companies on various issues. Currently, they are not advising or representing any big-tech firm, directly/indirectly in any ongoing case before the CCI or any other court. Views expressed are strictly personal.