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Urvi Pathak and Vallari Dronamraju*
(This is the first post of a three-part series)
I. INTRODUCTION
This is the first of a three-part series on the ongoing debate on India’s proposed Digital Competition Bill (“DCB”). The first piece addresses the foundational question of whether digital markets require regulation. Given the risks emanating from Big Tech’s anti-competitive practices, this piece finds that, in principle, competition intervention will pose significant benefits towards creating fair and contestable digital markets. However, the success of such regulation hinges on thoughtful policy design choices, such as considerations of state capacity and the chosen regulatory architecture. In this vein, the second piece explores the state capacity necessary within the enforcing regulator, the CCI, to implement the DCB. The third piece analyses the principles-based approach adopted by the DCB and offers recommendations to ensure that this relatively novel regulatory design meets with implementational success.
II. DIGITAL PLATFORMS AND THEIR ROLE IN DIGITAL MARKETS
The internet, as we know it today, is shaped by “platforms” that act as intermediaries, laying out a system of entry points for various users, and facilitating their interactions. Platforms adopt different business models tailored to the sector they operate in, ranging from e-commerce, to travel bookings and search engines. Some platforms have successfully leveraged the dual benefits of two phenomena: the “4 Vs” of data and network effects, earning them the title of “Big Tech”. Popular examples of Big Tech entities include both foreign and homegrown entities such as Apple, Amazon, Flipkart, and MakeMyTrip.
The 4 Vs are variety, velocity, veracity, and volume of data. These dimensions encapsulate the diversity and reliability of the data managed by platforms, the pace at which it is processed, and the magnitude of data accumulation. Illustratively, Apple, Amazon, Google, and Facebook alone hold 1.2 billion gigabytes of data. Access to such data sets enables these platforms to refine their operations, such as optimised search results and delivering more targeted advertisements.
With this arsenal, Big Tech entities are able to impose “take-it-or-leave-it” terms on all participants, leaving them with little choice but to accept such conditions or face extinction. These practices, alleged to have anti-competitive effects on markets, have come under the scanner of competition authorities across the world. Most recently, Google has been slapped with antitrust notices for its dominance in the search engine space in the US and its skewed app store billing policies by the CCI.
Noting the increasing influence of Big Tech on markets, regulators across the globe have begun efforts for increased oversight of their activities. However, the regulatory efforts approaches vary, with three notable stances emerging: the US has favoured a market-driven model with minimal tech regulation. China, currently engaged in a fierce tech war with the US, has oscillated between laissez-faire regulation and stringent crackdowns on technology. Meanwhile, the EU employs a rights-driven approach focused on striking a balance between technological advancements and safeguarding fundamental rights and democracy.
None of these models has yet been perfected: inadequate regulation in the US contributed to scandals such as the Cambridge Analytica incident, China’s inconsistent regulation has had an adverse impact on its tech sector, and the EU’s balancing act has hit significant roadblocks, as seen in mounting costs from GDPR compliance.
However, there are valuable takeaways from each of these approaches for India. The US experience shows that a complete disregard for tech regulation provides fertile ground for misuse, signaling that India cannot neglect some form of oversight. At the same time, unlike China, India must ensure that such regulation is clear and consistent for a balanced and positive growth of the tech ecosystem. Finally, drawing from the EU, regulation must be calibrated to prevent disproportionately negative impacts on commercial interests.
IV. CHALLENGING THE FALSE CHOICE BETWEEN REGULATION AND INNOVATION
Although there is global consensus on the need to safeguard against anti-competitive Big Tech practices, regulatory efforts are criticised based on the popular belief that they will stifle innovation.
However, a closer look at differing perspectives showcases that regulation does not inherently stunt innovation. Rather, it can actively boost innovation by promoting commercial interests. For instance, intellectual property rights accord recognition and financial benefits, incentivising the creation of subsequent inventions, designs, and trademarks. Similarly, intervention by competition authorities can spur innovation. A prime example is a slew of cases faced by Microsoft in the US in the 1990s, when it controlled 90% of the world’s personal computer market. One such case involving web browsers led to greater diversification in the market, as Microsoft’s Internet Explorer, once the dominant player, came to face stiff competition from Google Chrome, Mozilla Firefox, and Apple’s Safari. The intervention ultimately resulted in a more competitive market.
It can be seen that the debate between regulation and innovation is a false choice. Anu Bradford, a leading academic, demonstrates this misconception by comparing the US and EU tech markets. Some credit the US’s global tech leadership to its minimal regulation, compared to heavier compliance burdens in the EU. Bradford contends that attributing this gap solely to regulatory differences oversimplifies the issue, arguing instead that Silicon Valley’s success has been fuelled by the US’s deep capital markets for financing opportunities, skilled workforce, unified market, and legal regime that cushions risk-taking in business ventures. In sharp contrast, the EU lacks these advantages.
Therefore, the lesson for India is that fostering innovation in the tech industry hinges on multiple factors, with regulation being one element. For instance, similar to the EU, India requires a substantial influx of skilled labour to keep pace with rapid technological advancements in digital markets.
However, it is crucial to note from further explorations of Bradford’s works that although it is necessary to assess innovational success through a multifaceted lens, a flawed or fragmented regulatory framework can indeed harm innovation.
V. WAY FORWARD: CALIBRATING REGULATORY CHOICES FOR DIGITAL COMPETITION
The above discussion shows that the popular apprehension that regulation inherently stifles innovation is a misconception. Rather, regulation can enhance competition, and its absence can hinder innovation. However, while regulation is only one piece of the puzzle in achieving sizable breakthroughs in innovation, faulty regulation can indeed be detrimental. Therefore, policymakers ought to cast a wider net of interventions for bolstering innovation, including attractive capital markets regulation and upskilling the technology workforce. Concomitantly, for scenarios wherein regulation is introduced, such as the DCB, it must be accompanied by rigorous decision-making in the adopted policy choices.
The Committee on Digital Competition Law studied the need for a separate competition law to regulate digital markets and recommended the enactment of the DCB.
The DCB is an ex-ante law, providing a novel perspective to assess competitive harms as it aims to prevent anti-competitive harm from arising. The DCB does so by imposing obligations such as restrictions on tying and bundling and data usage. In comparison, the existing Competition Act, 2002 assesses harm on an ex-post basis after it has occurred.
Given its ex-ante approach to assessing competitive harms, the DCB has created ripples in the industry. Various stakeholders have competing claims on the DCB’s prioritisation. Some stress the importance of protecting consumer welfare or gig workers. Others express concerns about the indirect impact of Big Tech’s new obligations on pricing and convenience, since they may necessitate re-engineering platform operations. For instance, Microsoft is set to unbundle Microsoft Teams from Microsoft Office globally to avert possible antitrust penalties. Such actions will dramatically reshape how we use and understand the internet in the future.
As such, the DCB is navigating a challenging path, learning to manage the trade-offs between various stakeholders’ considerations. Its ultimate goal is to create contestable marketplaces for players of all sizes and promote innovation within the entire tech ecosystem by safeguarding against the anti-competitive activities of Big Tech.
Crucially, successful implementation hinges on adequate state capacity within the CCI which is the nodal regulator of the DCB. Further, given that the DCB’s principles-based framework is a relatively novel regulatory framework, it necessitates careful implementation and numerous preparatory measures prior to the DCB’s launch. The combination of a well-rounded principle-based digital competition law enforced by an enhanced CCI will position India to unleash the full potential of its digital markets.
*Urvi Pathak is a Research Fellow with the Corporate Law and Financial Regulation team at Vidhi Centre for Legal Policy, urvi.pathak@vidhilegalpolicy.in. Vallari Dronamraju is a Research Fellow with the Corporate Law and Financial Regulation team at Vidhi Centre for Legal Policy, vallari.dronamraju@vidhilegalpolicy.in. The authors would also like to thank Manjushree RM, Team Lead and Senior Resident Fellow, at Vidhi Centre for Legal Policy, for her guidance on these articles. The authors were part of the team which assisted the MCA in the preparation of the CDCL report.
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