Bengaluru: In June, the Competition Commission of India (CCI) announced that it was conducting a market study on e-commerce in India. While doing so, the antitrust regulator gave perhaps the first public indication about the novelty of challenges posed by the internet and giant platforms that it enables.
“In view of the rapid growth of electronic commerce and the rising importance of online trade in a large number of goods and services in India, the study will allow the commission to develop a better understanding of the functioning of e-commerce in the country and its implications for markets and competition,” the CCI said at that time. The antitrust regulator made sure to add that the study does not form part of any investigation or inquiry but was “necessary given the novel issues and challenges that digital markets bring forth for competition regulation”.
This is the closest the CCI has come to admitting that the present competition laws may not be equipped to deal with the shape-shifting, confounding challenges posed by the nature of internet platforms to competition regulation.
Globally, regulators and legislators have been waking up to the threat posed by the dominance of internet platforms to competitors. Over the past two months, various US publications have reported that Alphabet Inc.’s Google, Facebook Inc. and Amazon.com Inc. are all being investigated about competition-related matters. A candidate for the US presidency, Elizabeth Warren, has even called for the breakup of the largest tech companies and proposed a list of measures that would limit their power. In Europe, regulators have introduced laws that seek to rein in internet companies and have fined Google and Facebook billions of dollars for antitrust violations.
Google in a spot
In India a number of internet platforms including Google, Facebook, Walmart Inc.-owned Flipkart, Amazon, Uber Inc. and Ola Cabs (ANI Technologies Pvt. Ltd) enjoy dominant positions in their respective niches. So far, while cases have been brought at the CCI against the likes of Google, Flipkart, Uber and Ola, the regulator has only found merit in one complaint against Google. In February 2018, Google was fined ₹136 crore for abusing its “dominant position” in search by the CCI in response to a complaint filed by Matrimony.com Ltd and Consumer Unity and Trust Society.
But recently, the regulator has increased its scrutiny in the space. Apart from the market study on e-commerce, the CCI has ordered another investigation to determine whether Google, which owns Android, has misused its dominance in the mobile software space.
In response to a query about the ongoing CCI investigation, a Google spokesperson said in an email that Android has “enabled millions of Indians to connect to the internet by making mobile devices more affordable”, and that the company will demonstrate to the CCI that Android has “led to more competition and innovation, not less”. The CCI didn’t respond to an email seeking comment.
The new ballgame
However, experts said Indian competition law needs to be upgraded to even recognize the nature of challenges posed by internet platforms. Indian competition law was made to curb anti-competitive practices by large industrial conglomerates in the last century. These companies could be evaluated using traditional metrics like revenues and asset size. Such measures are ill-suited to the internet space where metrics like gross merchandise value, number of users, time spent on the platform are often more relevant indicators of supremacy and future impact.
“Unless there are new guidelines and a new framework, it will be tough for the CCI to understand and evaluate competition practices of internet companies in a comprehensive manner,” said Avimukt Dar, partner at law firm Indus Law. “Especially where M&A (mergers and acquisitions) is concerned the current triggers, turnover and asset size, may not apply in internet deals. Internet companies are very nimble when it comes to M&A and they often acquire startups that may not have revenues or sizeable assets but these acquisitions could still affect competition activity significantly.”
What makes it tough to act against internet companies, as regulators in the US and Europe have found, is the consumer welfare principle that lies at the centre of antitrust regulation. Traditionally, antitrust regulation has focused on practices by dominant firms of predatory pricing, price collusion and others that finally cause harm to the end consumer. Often it is hard to argue that the practices of internet companies cause any direct financial harm to consumers. Many services such as Google and Facebook are free while others such as Amazon, even after they have attained dominance, continue to push prices lower.
The consumer welfare principle, however, does not take into account the nature of internet platforms, which are not only service providers to shoppers but also to other businesses. For instance, Ola and Uber serve both drivers and cab riders. Amazon delivers goods to shoppers but it also hosts third-party sellers. In the case of internet platforms, experts said the consumer welfare principle needs to be expanded to consider businesses that deal with internet platforms.
“The current competition law is focused on consumer welfare but as far as internet companies are concerned their sellers are also, in a sense, consumers, and the law has no provision to deal with this,” said Anupam Manur, assistant professor at the Takshashila Institution.
Question of dominance
There are other major deficiencies in the competition law when it comes to understanding internet companies, Manur said. “Without establishing that a company is dominant, the CCI cannot take any action. But we haven’t clearly defined what the relevant markets are for internet companies. Are Ola and Uber the two largest cab companies? Or are they small players in a very large transportation market that included cabs, metros, trains, etc?” This is one of the defences used by internet companies—that their relevant market isn’t restricted to the internet space. For instance, Google and Facebook argue that they are small players in the larger advertising market, online and offline.
Additionally, because of automated technology and artificial intelligence there could be room for price collusion on internet platforms that may not be visible to outsiders, Manur said. As it stands, the competition law is not even equipped to detect some of the antitrust issues in the internet space, added Manur, an antitrust regulation researcher.
To be sure, the CCI has made some moves to bolster its ability to check the growing power of internet companies. In the recent past the CCI has discussed introducing a new metric of transaction value in acquisitions in addition to the turnover and asset triggers, one person familiar with the matter said on condition of anonymity. The regulator is also aware of the possibility of price collusion by internet platforms and their automation technologies, the person said.
In the internet space the CCI takes its cues from European competition regulators, this person said. Every year the CCI officials meet with their counterparts from Europe and exchange notes about the latest developments in the regulation of internet companies, among others.
Antitrust law is just one component in an interlinked, seemingly overlapping world of internet regulation where matters of data privacy, sovereignty-related matters, smartphone addiction all converge. In the US, some have even called to regulate internet firms the way tobacco companies were reined in at the end of the last century. Such an approach, however, may not be suited to a largely-poor country like India where increasing the adoption of the internet is considered the preponderant objective that dwarfs the problems created by internet companies.
For now regulators will have to demarcate clearly each of the regulatory spheres in the internet space and introduce updates to existing laws if they are to curb the excesses of internet companies while retaining their positive impact on consumers. “Antitrust law does not need a major overhaul but certain tweaks are needed in order to deal with the challenges posed by online platforms,” said Nisha Kaur Oberoi, national head of the competition law practice at Trilegal.
“It should ideally include Big Data as one of the factors for determining dominant position. Certain changes are also needed to existing merger regulation provisions in order to deal with acquisitions of small, but successful startups with a quickly growing user base and significant competitive potential by dominant platforms. There is a need to introduce provisions making acquisitions in the digital space notifiable to the CCI based on transaction value and not the current turnover and asset threshold,” said Oberoi. He added that acquisitions in the internet space should be scrutinized by the CCI on a case-by-case basis rather than adopting a blanket approach to evaluate M&As.
Manur said it was imperative to add the data footprint of an internet firm as one of the metrics in considering the impact on competition. “The consumer data owned by an internet company is one of the most important indicators of its dominance and impact. In gauging M&As in the internet space this factor needs to be added to the list of considerations.”
Reliance on the future
Apart from the present internet platforms, there is another major player in the internet space that could soon be relevant in considering competition regulation: Reliance Industries Ltd (RIL).
Mukesh Ambani’s RIL, which owns Reliance Jio Infocomm Ltd, has announced aggressive plans to expand its footprint in the internet space including in online retail, content and business-to-business commerce. Over the past year RIL has bought several startups including music app Saavn, chatbot platform Haptik, online education provider Embibe and logistics service Grab A Grub. RIL also owns the media firm Network18.
In January, Ambani announced that RIL will roll out its e-commerce platform to more than one million retailers and store owners in Gujarat as part of a nationwide plan. RIL didn’t respond to an email seeking comment.
Along with the dominance of internet platforms, the interplay of Jio with RIL’s media business and its fast-expanding digital presence may in the future test the ability of competition regulation to cope with the challenges of the internet era.