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Deep Dive: Why CCI is setting up a Digital Markets Unit

India’s competition watchdog CCI is setting up a Digital Markets Unit due to the growing number of tech antitrust cases and their complexity

“In view of the growing number of cases and complexity in the digital sector and the increasing need for data and technology skills, we are now planning to set up a dedicated Digital Markets Unit within CCI,” Ashok Kumar Gupta, Chairperson, Competition Commission of India (CCI) announced on June 11 at the National Conference on Competition Law.

CCI is currently investigating tech platforms across various sectors like e-commerce, app stores, food aggregators, search, operating systems, etc. But the antitrust watchdog faces many unique challenges in these investigations because the competition laws in the country were framed with traditional markets in mind. Additionally, a year ago, Gupta had said that big tech has unchecked dominance and CCI will prioritise scrutiny of online platforms. Against this backdrop, it makes sense that CCI is exploring setting up a dedicated unit to deal with antitrust concerns in the tech sector. India is not alone in this endeavour. Last year, UK’s Competition and Markets Authority also announced that it is setting up a Digital Markets Unit and this year, US lawmakers proposed a new regulatory body to oversee the “powerful” tech sector.

Why is CCI increasing its focus on digital markets?

Behavioural shift to online channels: “A significant change that all of us have noticed over the last two and a half years is that the pandemic has caused a behavioural shift amongst buyers and businesses to online channels of distribution. Even though the use of online distribution as a matter of intermediation had started much earlier, the pandemic has really accelerated it,” CCI Member Dr Sangeeta Verma said at the conference.

A handful of platforms controlling everything:  Consumers, as well as businesses in India including retailers, hotels, restaurants, and app developers, all depend on a handful of intermediary platforms to connect with each other, Verma explained. “Given their control over data and online real estate, platforms are in a unique position to influence consumer choices and also to steer consumer traffic to specific businesses,” Verma said.

The unequal bargaining position, in conjunction with the intrinsic features of digital platforms, raises some serious concerns for competition and contestability. As market regulators, we cannot overlook these challenges that the market power and business practices of such platforms pose to other market participants. Even small actions on their part may marginalize their rivals. This may also distort competition between businesses that depend on them in some connected downstream market. – CCI Member Dr. Sangeeta Verma

What challenges does CCI face in digital markets?

Tech platforms have significant power despite not being dominant in the traditional sense: Verma explained that India’s Competition Act, 2002, is quite flexible because it allows CCI to look at a range of competition harms. “It can look into any conduct of a dominant player that may result in denial of market access or amount to leveraging, et cetera,” she said. But all of this applies only when an entity is dominant. “Many of the platform markets in India have market structures such that under the traditional assessment framework, the entity may not be found to be dominant. But these players do have significant market power, and their conduct can be quite akin to unilateral conduct by a dominant player. Moreover, entities with market power often adopt the same practices, so multihoming between platforms cannot mitigate the concerns of business users,” Verma remarked. “The traditional parameter of market share … needs to be complemented with several other considerations, like the network effects, the vertical integration, the countervailing forces, switching costs, and other such parameters,” CCI Adviser Jyoti Jindgar Bhanot suggested.

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The need for new enforcement regimes and ex-ante regulations: “At the macro level, two issues have been a matter of debate across the globe. The first is whether the existing antitrust legal frameworks are equipped to deal with the conduct of these platforms or are new enforcement regimes needed. And the second is, is the enforcement route on itself and by itself sufficient, or is some form of ex-ante regulation needed. Across the world, this has meant a relook at existing competition legislation, and some tweaking of competition laws has taken place in some jurisdictions. In some other jurisdictions, legislations with ex-ante powers to regulate digital pockets are either at a proposal stage or at an advanced stage of becoming law,” Verma explained. Countering this argument, Ramji Srinivasan, Sr. Advocate, Supreme Court of India said: “We don’t need new laws. Our existing laws are good enough, they are wide enough, and they empower the CCI. Many people say CCI, no teeth. I beg to disagree there. If it wants, it can be one of the strongest regulators and it has done that. It bites where it’s required, but the philosophy has been one of trust in the industry.”

Digital markets are time-sensitive: When it comes to procedural issues, “no doubt we would want the best procedural standards to be followed, but every procedure we all know involves time,” Verma said. “And in digital markets, given how dynamic they are, loss of time may lead to irreversible harm to competition. So regulators have to balance between procedural fairness and timely correction in digital markets to overcome delays due to long, drawn-out investigations and adjudicatory processes,” Verma explained. To address this, many countries are adopting ex-ante regulations, Verma said, giving the EU’s Digital Markets Act as an example.

Enforcers need to have a deep understanding of advanced technologies: “The complex business structures and models have evolved based on advanced technologies. Diversity and complexity of anti-competitive agreements have increased with the use of new arrangements such as the hub and spoke model, algorithms, and blockchain technology, which is a challenge both for the investigator as well as CCI, because what it prerequisites is a very deep, proactive, and sound understanding of the underlying technology, of the product in question, the market, the interplay between various layers within the entire ecosystem, the incentives, and the strategies that drive these arrangements,” Bhanot said. “Enforcers in a way need to be ahead of the curve. And that of course is not a small task,” Bhanot added.

Anticompetitive conduct might permeate across several products and services: “Another distinction from the traditional market is that due to the data-driven, direct and indirect network effects, and multisided nature of these markets, the impact of the practices get amplified and may not be confined to the product in question, but may actually permeate across several products and services and thereby affect` the entire ecosystem. So any analysis which is undertaken cannot be in isolation and must factor in these interdependencies and these unique characteristics make it very difficult to apply the conventional competition law framework,” Bhanot explained.

Balancing efficiency of digital technology with scope of harm: Bhanot explained how digital companies often bring several benefits to the consumers, but at the same time there might be consumer harm in terms of deterioration of quality standards, privacy, lack of choices, and adverse effect on competition. “So in this backdrop, another challenge before the enforcer is how to weigh these efficiencies and the harm, and how to strike a balance so that while we are able to address the harm, we do not take away the incentives for innovation,” Bhanot said.

The approach of the Commission has always been to have a very proportionate and targeted, well-calibrated intervention because the benefits that these markets bring to the table need to be retained. These are also epicentres of innovations and solutions for the problems which are being faced by the people. — Jyoti Jindgar Bhanot, Adviser, CCI

Competition issues interface with other policy issues: “These competition issues do not happen in isolation. Very often they are basically interfaced with other policy objectives like intellectual property rights, privacy, and consumer protection. So this calls for a very holistic approach and a committee between regulators,” Bhanot remarked.

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Data, in fact, is assuming centre stage in competition law matters, and particularly those related to new age markets. And definitely, there is a very close interface with competition law as far as CCI is concerned. We are interested only with the competition aspect of data. There can be both exclusionary and exploitative effects of access to data. — Jyoti Jindgar Bhanot, Adviser, CCI

What should CCI do going forward?

Natural monopolies should be allowed to exist, only abuse should be stopped: Defending tech companies, Sanjeev Bikhchandani, Founder and Executive Chairman of Info Edge (which owns stakes in Naukri.com, PolicyBazaar, Zomato) said that it is natural for one or two players to have significant power when it comes to marketplaces and platforms. “These are natural markets with network effects, virtuous cycle, and we’ve seen that earlier in offline businesses as well. For example, if you look at the newspaper industry, typically in every city, you will have one dominant newspaper. […] Nobody has looked at potentially monopolistic behaviour there, but that does not mean it does not exist,” Bikhchandani remarked.

In online and digital, you will find that there will be one dominant search engine, one dominant social network, one dominant professional network. And these are natural monopolies. So I don’t think I should try to fight nature. — Sanjeev Bikhchandani Founder and Executive Chairman of Info Edge

Bikhchandani said that the regulator should instead try and ensure that there is fair play. “I would say that if the market is naturally monopolistic, we should be looking at misuse of monopolistic position of power and not monopolistic position itself. […] So the question is how do you conduct yourself as opposed to do you have a dominant position?” Bikhchandani remarked.

Bikhchandani further recommends that the industry should exercise self-restraint. “My advice to industry is it is better to be restrained and do it yourself than have it done to you by CCI. So it’s okay to be slightly less aggressive.”

Eliminate barriers to entry: Supporting, Bikhchandani’s views, Suraj Saharan, Co-founder of Delhivery said:  “I think dominance does help consumers in certain industries. As an example, in logistics, the larger we become, the cheaper it will be for people to use logistics services, whether it’s individual consumers or companies. And that ultimately helps the economy, helps the consumer in some way.”  Saharan recommended that we should instead try to eliminate barriers to entry. “There’s a classic example of Nestle Cerelac in the infant baby food space. It has over 90% share in India. But that’s not because they are the best, but it’s because there’s a ban on advertisement for this category in the country and so no other player can actually enter and compete. And so that’s what you want to eliminate,” Saharan said.

CCI should always err on the side of innovation:

Who would have ever imagined that we’d be sitting in the last two years conversing with people almost space-age like, it takes me back to Star Trek, short of saying, ‘Beam me up, Scotty.’ I’m on my iPhone and I can actually see somebody across the Atlantic and speak to him or her and have conversations and have exchange of international seminars, which we did successfully earlier also, and have court hearings and have judicial disposals… And all of that happened because I think personally that the CCI did not intervene when Jio came. Even though we would want CCI to be Nostradamus, it is impossible for you to predict the future and therefore it is better to err and allow innovation. And that’s exactly what the CCI has done throughout. It has fostered innovation. It has not, to borrow a phrase, gun jumped. — Ramji Srinivasan, Sr. Advocate, Supreme Court of India,

Increase awareness about competition: “There’s very little awareness about anti-competition. I’ll be honest. We’re an eleven-year-old company. We know CCI because whenever we raise any funding or if you’re trying to acquire another company, we have to come to CCI to get approval for a combination. […]  But other than that, we’ve never in our senior management discussions ever spoken about making sure we are compliant with the competition law. […] And I think that is something that has to become important and awareness has to be built around it because unless companies proactively start thinking of not doing something which hurts or sort of gets them holed up by the CCI, the proactiveness of what we are trying to achieve here through this discussion is never going to come by,” Saharan said.

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Redefine how we look at relevant markets:  “Assessment in rapidly changing digital markets also cannot be relied on a static approach and what needs to be followed is a dynamic approach at every stage of assessment, be it defining the relevant market, assessment of market power, analysing the conduct or even giving remedies. […] Initially, online platforms were basically considered as just alternate distribution channels and were thought to be part of the same market. But over a period of time, when consumers and businesses started relying more and more on these channels, what has emerged is a clear preference or distinct characteristic of the online market which may require them being treated as separate markets,” Bhanot said. Concurring with these views, Saharan added that “we need to start redefining the sectors and not just say it is retail because people are buying stuff directly from the company.”

Have to go beyond price-centric parameters and traditional theories of harm: “On the challenges related to assessment frameworks in big tech markets, I would say that it is no longer a matter of debate that regulators have to go beyond price-centric parameters and traditional theories of harm. Instead, we have to look at the specificities of each platform. And the assessment of harm, then, should account for factors such as data quality, choice, privacy and innovation. But the questions that arise when we try to look at harm on these counts are how easy is it to assess harm on these parameters? Should presumptions be made about certain conduct by dominant firms guide our decision-making?” Verma asked.

As you can see from what I have just said, there seem to be more questions than answers. — CCI Member Dr Sangeeta Verma

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