Data has become the most valued asset in the twenty-first-century digital economy. Similar to how in earlier centuries oil-powered economic revolutions, data drives market dominance, innovation, and decision-making in contemporary time. The data-based economy has revolutionized the manner in which businesses compete, the way consumers behave, and the way the market operates. Firms skilled in siphoning off and analyzing data possess an enormous competitive advantage as they are able to take raw data and convert it into intelligence to help create markets and shape consumers experiences. With their massive stores of data, prominent technology conglomerates (“PTCs”) pose real challenges to traditional antitrust policies and enforcement in this emerging data-intensive digital economy.
PTCs manipulate data to enhance pricing strategies, personalize their services, and rapidly adapt to market shifts. They are often involved in Hub and Spoke Arrangements, which is a collusive practice whereby a core organization serving as a hub directs and coordinates deals or interactions among various other organizations that are described as the spokes. However, their dominance in the market often has appreciable adverse effect on competition (“AAEC”) against players. Algorithmic cooperation among competitors subtly coordinated behavior through algorithms or automated systems, presents even more complexity to antitrust enforcement. Thus, antitrust authorities are presented with the challenge of effectively applying existing competition norms while combating important anti-competitive effects in the rapidly evolving digital economy.
In light of PTCs’s anti-competitive behaviours in the digital economy, this article analyzes the issues in two-fold manners. In the first fold, it addresses the issue of PTCs’s abuse dominance position in the digital economy. And the second fold seeks to addresses the artificially intelligent algorithmic collusion practiced by PTCs. Lastly, it ends with concluding remarks.
Abuse of Dominant Position
In contrast to the conventional marketplaces, competition in the digital economy is unique as consumer data is regarded as a valuable asset and has evolved as the new black gold of the century. In the matter of Meta Platforms Inc., Competition Commission of India (“CCI”) imposed a penalty of INR 213.14 crore due to abuse of its dominant position in concern with the data sharing with meta and its affiliates. CCI reasoned that Meta’s high number of active users and sharing of such a huge consumer data to its affiliates creates high entry barriers and caused AAEC.
Reports suggest that firms operating in digital-intensive sectors exhibited higher markups than other entities between 2001-03 and 2013-14, reinforcing the notion of rent-seeking behavior where PTCs secure undue economic benefits by influencing their data dominance, rather than through genuine wealth creation or value addition. Where advantages are sought through manipulation of existing ampules of data structures rather than productive activity. As in the matter of Meta Platforms Inc., CCI observed that Meta unilaterally dictated coercive terms of take it or leave it terms regarding data sharing to its consumers, contravening Section 4(2)(a)(i) of the Competition Act of 2002 (“the Act”).
More data in digital economy equates to greater quality and reliability; that is, as more end users become part of a data network, more value increases for business services. It becomes difficult to break through entry barriers imposed by the data network effect alone by new competitors as observed by CCI in the matter of Meta Platforms Inc. New entrants find themselves trapped in a negative feedback loop, whose limiting effect ensures that not very many use their services. To boot, the issue is compounded by their inability to raise service standards due to the unavailability of data on customers, whose impact follows a domino effect.
Within the digital-intensive sectors, the favored domains of PTCs profit margins ascend like eagles at dawn. Why? Because these sectors thrive on data, connectivity, and innovation. As companies operating in the digital economy realms amass profits, they inadvertently bolster positive network effects, hindering the entry of new competitors, small enterprises, and innovators into the market. This is evident from the UK Digital Competition Expert Panel’s 2019 report highlighting market concentration: Google dominates the online search, Meta in social media, Apple and Google in mobile apps, and Amazon in e-commerce.
Under Section 4 of the act that directly or indirectly imposes unfair conditions, prices or limits or restricts production of goods or technical or scientific development are considered an abuse of dominance, i.e., causes AAEC against participants as they result in a competitive disadvantage for new market entrants, and innovators, thereby hindering their ability to compete on a level playing field with dominant market players.
Artificially Intelligent Algorithmic Collusion
The digital economy with development of Artificial Intelligence (AI) has led to the emergence of monopolistic data usage by dominant entities in the digital market arising out of algorithmic collusion. Digital eye is one of the four ways of algorithmic collusion as per the description of Ariel Ezrachi and Maurice Stucke, where digital entities use machine learning and deep learning technology to keep an eye on market conditions, gathering market data, and managing production violating the provisions of the Act. The main problem in this type of collusion that AI-based digital eye collusion is more subtle and difficult to detect than conventional collusion, which involves communication through machine learning and deep learning technology among participants. To deal such collusive practices the present Act is not competent as there exist no agreement between the parties and act based on predictability.
The trend of digital eye instance of algorithmic collusion is frequent in India in flight booking sites. As it has been observed that though there exist no direct or indirect communications between the Airline companies, their fare somehow matched exactly similar with a negligible difference of 100 to 200 bucks. Recently, Minister of State for Civil Aviation stated that supply, demand, seasonality, and operational factors all affect airfares and airfares are monitored by CCI. But there are serious allegations that digital eye based AI algorithmic collusion is being practiced by the Airline companies. As the current Act and mechanism of CCI is not advanced to scrutinize such practices that is the reason why the Airline companies are not penalized for harming the consumers.
In spite of the fact that the apex court in the matter of Samir Aggarwal vs. CCI, has dismissed the allegations of collusions among the platform based ride service providers, such as ola and uber, the question still remains unattained about the ineffective mechanism of the CCI to scrutinize such collusion. Where authorities neither know nor can control collusive consequences caused by common algorithmic use, questions of their responsibility persist.
Nonpublic document prepared by CCI stipulated that Swiggy and Zomato has involved in anti-competitive contracts through algorithmic means contravening the provisions of the Act. So, in this type of collusion there exists agreement between the parties and CCI is equip to scrutinize such collusion. But in instances where there exists no agreement as it befalls in the instance of digital eye based AI algorithmic collusion, CCI fails there. To effectively manage the risks associated with AI-based collusion, it is a pressing need to amend Indian antitrust regulations.
Conclusion
It is necessary to prioritize consumer well-being in the digital economy of 21st century to enable free choice, and combat digital monopolization of data in order to safeguard domestic digital economies from the stranglehold of PTCs abuse of dominance positions.
To meet such concerns, a multi-pronged approach consisting of legislative changes of the antitrust regulations, regulatory control, industry self-regulation, and public campaigns is needed. CCI needs to examine whether their existing competition law is sufficient to deal with the issue of algorithmic collusion or needs to be revised in consideration of the new-found fact that algorithms have colluded and coordinated prices.
And it needs to detect and prevent algorithmic collusion, make algorithmic technology transparent, and enhance interaction between competition authorities and regulators. Thus, the aim is to establish a digital space that enforces democratic values in the digital era, protects user rights, promotes innovation, and creates wholesome competition at a national and global level.
Authored by Md Mujtaba and co-authored by Nitika Dheer, both 4th-year BBA LLB students at the Indian Institute of Management Rohtak.
