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Q. It has been argued that digital monopolies pose a threat to the fundamental fabric of market- competition. In this context, examine the effectiveness of the regulatory framework in India to deal with digital monopolies.

Approach:

• Define Digital Monopoly.
• Mention the threats posed by digital monopolies to competition.
• Highlight India’s regulatory framework to deal with digital monopolies and evaluate its effectiveness.
• Conclude with a way forward.

Answer:

Digital monopoly is a market situation in the online space where one firm, or a group of firms act in unison and control the supply of goods or services.

They pose a serious threat to competition in the following ways:

• They may create high entry barriers for smaller firms to enter the market.
• They may use their dominant position to acquire smaller firms, convert open source software to proprietary or even de-platform them from hosting their products/services on their online marketplaces/app stores to thwart competition.
• They operate largely outside the jurisdiction of the sovereign governments and escape regulations, which are applicable to the smaller firms.
• As an example, heavy discounting practices by major e-commerce firms has had an adverse effect on competition.

Regulatory framework to deal with digital monopolies:

India enacted Competition Act in 2002 and set up the Competition Commission of India (CCI) as the arbiter of any activity that may have an adverse effect on competition. To check the growing power of Internet companies, it has taken the following steps:

• CCI has imposed heavy fines on firms using their dominant position to drive out smaller firms. For example, the CCI had imposed a Rs. 136-crore fine on Google for “search bias” and abusing its “dominant position”.
• The regulator is also aware of the possibility of price The draft E-commerce policy raises the issue of predatory pricing and consumer data abuse.
• Every year the CCI officials cooperate with their counterparts from Europe and exchange notes about the latest developments in the regulation of internet companies.
• However, the framework is highly inadequate to deal with the changing business and technology environment and faces theng issues:
• The traditional metrics (like revenue and asset size) used to determine dominant status by the law are not suited for digital firms, where metrics like gross merchandise value, number of users, time spent on the platform are often more relevant indicators of supremacy and future impact.
• The law does not define markets for Internet companies, who argue that their markets are not restricted to the Internet space. For instance, Google and Facebook argue that they are small players in the larger advertising market, online and offline.
• The current competition law is focused on consumer welfare but as far as internet companies are concerned their sellers are also consumers, and the law has no provision to deal with this. The consumer welfare principle does not take into account the nature of Internet platforms, which are not only service providers to shoppers but also to other businesses.
• The current triggers for merger control rules aimed at regulating transactions that impede competition 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.

There is a need for a clear definition of the relevant markets and use of new metrics to determine dominance for digital firms. A code of ethics when they dominate the market and a law for data privacy, digital residency and digital sovereignty can help strengthen the regulatory framework to tackle digital monopolies in India. Corporate ethics and a sense of responsibility to respect welfare of consumers and societies will drive the future of digital firms.