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Digital markets have unchecked dominance, will prioritise scrutiny of online platforms: CCI Chairman

In his speech, the chairman identified the characteristics of digital market power and also laid out actions taken by the CCI to address competition inhibiting behaviour. 

“Not long ago, it was widely contended that market power in technology markets is fleeting and interventions would entail a high risk of discouraging innovation. […] However, critics of this notion of digital markets have pointed out that market dominance in these markets is not fragile, but durable,” Ashok Gupta, Chairman, Competition Commission of India (CCI), said on July 29.

Gupta was speaking at the launch of Initiative on Choice, Competition and Innovation (ICCI), a research initiative by the Center for the Digital Future (CDF).

“The application of competition law in such disruptive technologies becomes challenging and the role of the competition authority in the regulatory architecture governing these technologies becomes extremely important,” Gupta said. “The challenge lies in how to craft remedies. Be it antitrust or merger, is there a role for ex-ante regulation, are there blanket regulations or specificities of the platforms that have to be kept in mind?” he added.

Why it matters? As the head of CCI, Gupta arguably plays the most important role in the country when it comes to competition and antitrust regulation. His views on competition in the digital markets give us insight into how the CCI is approaching spaces like e-commerce, food delivery, search engines, and operating systems, all of which are rife with anti-competition complaints and lawsuits.

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What are some characteristics of market power in the digital space?

“While there is no doubt that digital markets are the epicentre of technological progress in innovation, lately, they’ve become centres of unchecked dominance.” – Gupta

  • Network effects: “Characteristics such as network effects may prevent a newcomer with superior technology from replacing an established incumbent,” Gupta said.
  • High switching costs: “Sticky consumer behaviour, combined with a lack of data portability increases switching costs and helps maintain the status quo in the market,” Gupta remarked.
  • Limited number of players: “Business of large economies of scope and consumption synergies between products resulting in a market with room for a limited number of players. Markets in India are ripe with examples of a single player or duopolies commanding a significant market share,” Gupta stated.
  • Platforms control bottleneck infrastructure: “Digital platforms through their exclusive control over search engines, retail e-commerce, app stores, and social media control the bottleneck infrastructure on the Internet and provide services to consumers in direct competition with independent businesses,” Gupta said.
  • Preferencing certain sellers by manipulating algorithms: Giving preference to certain sellers over others may inhibit inter-brand competition and may affect the competitive neutrality of the platform, Gupta said. This may also involve programming algorithms to favour the platform’s own private labels and reduce exposure of their rivals in search results, Gupta added. “A reduction in exposure on the platform would result in loss of sales for sellers and is a form of constructive refusal to deal,” Gupta noted.
  • Control over data by gatekeeper firms: Referring to the example of promoting private labels, Gupta said that platforms have a variety of mechanisms to act upon such incentives such as access to transaction data and ranking data. “Control over data by gatekeeper firms is another area of antitrust concern as it may result in exploitative and exclusionary conduct by firms which may fall foul of the provisions of the Competition Act,” Gupta added.
  • Exclusive contracts: “A dominant platform, would also condition access to the platform on agreeing with the imposition of a vertical restraint. For example, the platform could insist that participants enter into exclusive contracts on price parity restrictions in order to operate on the platform,” Gupta said.

What CCI is doing to address competition harm in digital markets?

Prioritize scrutiny against online platforms: “CCI has prioritized and stepped up its scrutiny against online platforms across particulars. CCI has looked at several antitrust cases against e-commerce firms across sectors such as online retail, food delivery, hotel booking, cab aggregators, search engines, operating systems, online payment systems, etc,” Gupta stated.

Will conclude enquiries in an expeditious manner: “Eliminating competition inhibiting behaviour at the earliest is of utmost importance. Initiating anti-trust investigations and invoking anti-competitive remedies as early as possible is crucial to avoid competition harm to the market,” Gupta said. “Therefore, the commission endeavours to conclude enquiries in an expeditious manner, with interim measures being considered in appropriate cases,” Gupta added.

Areas of focus: Gupta laid out three areas of digital markets that he sees CCI playing an important role in, both in enforcement and policy debates:

  1. “understanding the role of data and developing plausible theories of harm involving data”
  2. “analyzing the dynamics associated with the market power of platforms”
  3. “supervising the way platforms operate in markets with strong network externalities and returns to scale, especially in the absence of data interoperability”

Will not stifle innovation: “Our approach in digital markets will be carefully crafted, nuanced and minimalistic so that we don’t compromise the efficiencies or stifle the innovation incentives of digital firms and at the same time ensure that markets remain competitive,” Gupta concluded.

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