THE RISING ANTI-COMPETITIVE CONCERNS OF DIGITAL ECONOMY IN INDIA

“Digital is the main reason just over half of the companies on the Fortune 500 have disappeared since the year 2000.”

– Pierre Nanterme

These are the lines of the Chief Executive Officer of Accenture, Pierre Nanterme. It sums up the revolutionary and powerful impact of the digitization of the economy across the globe.

The term ‘digital economy’ was coined by Don Tapscott in the year 1995. A digital economy is primarily based on the internet and represents the way the internet has changed the way business is conducted across the globe.

It is pertinent to note that the digital economy encompasses a range of economic activities which make use of the digital knowledge for production, sales, marketing, innovation, brand-image, etc. It has been responsible for changing the global landscape radically. Even in India, the prevalence of this ‘new economy’ has been steady owing to the infrastructure contributed by both the private and public sector.

The Competition Law regulates the anti-competitive behaviour in the market which may be in terms of anti-competitive agreements, abuse of dominant position, etc. The digital economy can0020be differentiated from the older economy in terms of innovation, technology, network effects, increasing returns to scale, etc. Thus, in the emergence of the digitized economy, the need to analyze these anti-competitive concerns grows.

An example of such an anti-competitive concern can be seen in the ‘radio-taxi market’. The cab providers Ola and Uber have been incurring sustained losses over a considerable period due to various factors like higher driver incentives, deep discounts, offers, etc and the process is premised on the financial capital available to them. This practice has also been observed in e-commerce industry giants like Amazon and Flipkart. Thus, the availability of financial capital leads to strategies for luring customers through attractive offers and discounts. This practice causes a short-term profit to the consumer, however, it can be easily predicted that, in the long run, due to sustained loss and elimination of competition in the market, the customers might have to bear a price rise during recoupment.

In this light, the ‘recoupment test’ as propounded in the case of Matshushita Electric Industrial Co. v. Zenith Radio Corporation can be applied by the Competition Commission of India (CCI) to further investigation with respect to recoupment of loss by the firm in the long run.

Another major concern in a digital platform is the changing nature of the business. Thus, the time frame adopted for disposal of cases by the CCI cannot cope up with the rapidly changing nature of online business.

Further, the impact of the network effect is also a concern in the digital platform. Network effect, in general parlance, refers to an increase in value due to an increase in the number of consumers. It can be both direct and indirect. Direct network effect can be found in social media networks like Facebook and WhatsApp whereas Indirect network effect can be found in apps like Airbnb,eBay, etc which bring buyers and sellers on a common platform. Indirect network often leads to complex pricing because prices are charged from both sides.

Another consequence of network effect is that these companies may acquire ‘tipping-point’ i.e. the market may tip in its favour not because of innovation or efficient use of technology but because of anti-competitive measures adopted like offers, schemes and discount.

Another rampant practice which can be violative of consumer interest and has been made possible with the pervasiveness of technology is the monitoring of consumer preferences. This often leads to discriminatory pricing practices. An example can be seen in the price-surge in Uber and Ola, based on consumer preferences.

Further, a company with a large user base like Google may take an anti-competitive stance by adopting exclusionary policies, thereby, creating barriers to the entry of new firms in the market. In the recent past, Google has been accused of search bias, search manipulation, denial of access to competing for search engines, etc.

Another challenge faced in the context of online business is with regards to the establishment of a dominant position. The factors for determining the dominant position includes market share, size of the firm, resources available, etc. However, in the case of internet-based businesses, it is difficult to decide the dominant position because of the absence of ‘statistical data’. Thus, the Competition Authorities may face enforcement challenges.

To summarize, the Competition authorities in case of digital market consistently face the problems of enforcement and regulation primarily due to factors like disruptive innovation and as a consequence faster evolution of the market. Thus, the traditional mechanism in the process of enforcement requires revision in terms of legal and economic concepts which has been the basis for Competition authorities.

ABOUT THE AUTHOR: 

Shreya Jha is a third-year law student at Amity Law School, Delhi, IP University. Her areas of interest are Competition Law, International Humanitarian Law and International Arbitration. In order to pursue her interests, she takes deep interests in writing research papers and mooting.