The World is digitalising rapidly. As a Consequence of which there has been growth of a new sphere in the Competitive market i.e Digital Market. This Market is blooming rapidly and many powerful players have come up in this new evolving competitive ecosystem. These Players are known as Big Tech Companies. Our Present Anti-Trust Regime does not address this new Competitive ecosystem and this is a matter of grave concern.
Without a checking mechanism, these powerful Digital Market Forces could resort to anti-competitive practices as the competition is low in the nascent ecosystem. To address the issue, the Parliamentary standing committee[1] on finance up with the proposal of an Anti-Trust Regulation for the digital markets in 2022 to prevent the abuse of dominant position by a niche group of giant players in the ecosystem thereby ensuring a fair competitive environment. Following the report, the Ministry of Corporate Affairs (MCA) constituted a Committee on Digital Competition Law(CDCL)[2] which recently came up with a Draft Digital Competition Bill on February 2024.
Need of Ex Ante Regulations?
The Competition Act, 2002[3] provides for an Ex-post Regulatory mechanism wherein the Competition Commission of India (CCI) is authorised to intervene after the commission of an anti-competitive conduct. On the contrast, an Ex-Ante Regulatory Mechanism acts as a precautionary measure . It is a checking mechanism which has its effect even before the anti competitive activity is conducted. The Earlier standing Committee came up with the idea of an Ex Ante regulatory framework which has now been given a concrete structure by the Draft Digital Competition Bill 2024[4] which has been proposed by the CDCL. So, the question arises that why an Ex-Ante legislation when there is an already existing ex post legislation in the form of the Competition Act, 2002. The Plausible answer to the proposed approach is two fold-
- The earlier Standing Committee was of the opinion that the digital markets differ from traditional competitive markets in the sense that due to strong network effects , the digital ecosystem tends to have a ‘winner takes most’ phenomenon and even the later constituted CDCL agreed with the same.
- The CDCL held that the current Ex Post Mechanism as provided specifically under the scheme of Section 3 , Section 4 , Section 26 and Section 27 of the Competition Act, 2002 does not facilitate early detection and intervention required to prevent digital markets from irreversibly tipping and cannot be addressed by an Ex Post Regulatory Framework and hence there is a need of an Ex Ante Regulatory Mechanism as is followed by other countries like Japan ( TFDP Act), Australia ( Bargaining code) and the GDPR and DMA 2022 of the European Union among many others to deal with the growing anti-competitive tendencies of the large tech giants ( Big Tech Companies as is technically referred to) to prevent abuse of dominant position and adversarial leverage in the digital markets.[5]
A Step to Foster Innovation
Let us address the first argument that it is a step to foster innovation. The arguments in favour of the same are threefold-
- It is argued that due to the Schumpeterian market phenomenon, there is always a fight for the market rather than competing in the market . The Systematically Significant Digital Enterprises (SSDE) as the Committee termed these Digital giants get an unfair advantage and though they donot qualify the definition of a dominant player envisaged under Section 4 of the Competition Act, 2002 , they create an obstruction in the path of other small players and hence there is a need of an ex-ante mechanism to deal with the same . It is further argued that by the proposed legislation , the FMCG companies will benefit . FMCG companies rely heavily on digital space to market their products, the proposed bill by ensuring a level playing field prevents big tech giants from stifling competition .
- It is argued that due to economies of scale and network effects, these market spaces are prone to concentration by the incumbent giants. It acts in a negative way for the small sellers or business who rely on these platforms only to advertise their products and reach their consumers. Hence, there was a need to de concentrate these markets so that it is beneficial for the businesses to have a wide array of options and platforms to reach their customers rather than being dependant on a few players .
- It is argued that the customers will also benefit from the proposed regulatory mechanism. A common characteristic of a Schumpeterian Market space is that by limiting the market ecosystem to certain big players , it creates an atmosphere where the customers are left with no choice other than relying on the goods and services being provided by these market dominators. Hence, there is a need to de coagulate the system so that other market players can come up and the customers are a plethora of options to choose from.
A Devise to Stifle Innovation
The big tech giants are of the view that this will be a negative step and will curb innovation. The arguments in favour of the same are four-fold-
- It is argued that the size of the digital economy in India as of now is around 3 percent of the total size of the digital economy of Europe. Startups have just started to bloom and hence an ex-ante regulatory mechanism at this nascent stage will be detrimental to the growing digital ecosystem and would be averse to innovation.
- If the proposed bill becomes an Act, then the Indian market will have two regulatory legislations (the already existing Competition Act and the new Digital Competition law) which will increase the regulatory cost of digital enterprises and will indirectly curb innovation and growth.
- Certain big players in the digital space like Amazon and Flipkart are highly regulated by FDI policies which ensure that they act only as online marketplaces and not as sellers hence an ex-ante mechanism will overburden these enterprises with overregulation and thereby curb innovation and growth.
- The very idea of the proposed Digital Competition Act finds its origin in the pre-existing ex ante regulatory regimes of the big economies and hence it is very pertinent to have a look at the ex-ante regimes existing at two big economies for the sake of strict evaluation. The TFDP of Japan envisages for a mechanism which regulates only two factors namely transparency and reporting. Further , the UK’ s proposed DMCC calls for a sector specific phenomenon which is best suited to their market space. So as the inception of having a Digital ex ante regulation lies in these foreign legislations and proposed frameworks, it becomes imperative for our legislators to learn from the approach that these legislations embarked upon and not rush into having a legislation and rather contemplate a mechanism which is more specific, liberal and suited to the Indian Digital space. Hence, the scheme of the Bill which envisages for a General ex ante mechanism needs to be contemplated upon and be made more specific.
Conclusion
The above discussion makes it evident that the proposed legislation can be a devise to foster regulation as well as a devise to stifle innovation. It all depends on the way the proposed Act is implemented. An overall analysis of the proposed regulation makes it crystal clear that it is nevertheless beneficial for the small players as an ex-ante mechanism act operates before the irreversible tipping phenomenon and ensures a level playing field and fosters innovation. But at the same time as India will be having two regulatory mechanisms i.e the Digital Competition Act supplementing the Competition Act, there is a chance of overregulation, and this can cause adversarial effect to the startup ecosystem and will stifle innovation. So, a fine balance is to be struck between a strict mechanism and a liberal regulatory system so as to ensure that the digital market giants donot enjoy anti-competitive advantage and at the same time , the regulations are not so strict that rather than fostering innovation, they become averse to it.
[1] Lok Sabha (n.d.). Standing Committee Report on Finance. LOK SABHA. Retrieved December 25, 2024, from https://loksabhadocs.nic.in/lsscommittee/Finance/17_Finance_53.pdf
[2] Ministry of Corporate Affairs (2024, February 27). Report of the Committee on Digital Competition Law. Retrieved December 26, 2024, from https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open
[3] India Code (n.d.). Competition Act, 2002. Retrieved December 26, 2024, from file:///C:/Users/Itishree/Downloads/A2003-12%20(1).pdf
[4] Ministry of Corporate Affairs (2024, February 27). Report of the Committee on Digital Competition Law. Retrieved December 26 , 2024, from https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open
[5] Soni, D. (2024, July 19). Ex-Ante Measures to Regulate Competition in the Digital Markets: Analysing the Report of the Committee on Digital Competition Law, 2024. December 26, 2024, from https://articles.manupatra.com/article-details/Ex-Ante-Measures-to-Regulate-Competition-in-the-Digital-Markets-Analysing-the-Report-of-the-Committee-on-Digital-Competition-Law-2024
Author: Soumya Lenka, a 3rd Year Law Student at Institution- Faculty of Law, Utkal University.
