Within two weeks of the release of its first report examining the proposed changes to the Competition Act, 2002, the Standing Committee on Finance, led by Jayant Sinha, presented its second report titled, Anti-competitive Practices by Big Tech Companies, on December 22, 2022.
The contrast between the two reports couldn’t be starker. The defining feature of the first report was its emphasis on the need to examine the effects of conduct before condemning it as anti-competitive. The second report stands out for stressing the need for scrapping this requirement altogether.
As its title suggests, the second report identifies ten different business practices and christens them as ‘anti-competitive’ only because big tech firms follow them. In doing so, the Standing Committee calls for the adoption of ex ante rules analogous to the Digital Markets Act (DMA) promulgated by the European Union (EU).
Like the DMA, the Standing Committee proposes to define and then identify “digital gatekeepers” or “systemically important digital intermediaries” for special treatment. It proposes to shift competition enforcement tethered to the weighing of benefits against harms to an approach reserved for ticketing offences, i.e., a per se approach. The question for India, though, is whether we should walk down the path paved in Brussels for the EU.
Rulemaking invariably involves uncomfortable trade-offs. These trade-offs, especially for a developing economy like India, are stark. The ratio of costs and benefits that possibly informed the adoption of DMA by the EU is irrelevant to India.
For example, as the DMA does, the Standing Committee proposes to ban self-preferencing and deep discounting by digital gatekeepers. Self-preferencing is common in several markets. Most notably, consumers have benefitted from supermarkets displaying relatively less expensive private-label goods at the most prominent place in the store. Self-preferencing, coupled with discounts by the digital avatars of supermarkets, i.e., e-commerce firms, has led to cost savings for millions of Indian consumers. The policy trade-off here is simple. Should the benefit to consumers be sacrificed to allow the continued extraction of consumer surplus by brick-and-mortar retailers?
Similarly, the Standing Committee proposes to prohibit tying and bundling by digital gatekeepers. The continuous chain of innovation often results in the incorporation of previously separate products as add-on features to a central product. For example, the earliest version of MS Word did not facilitate a comparison of documents. This function was offered as a separate product by several other firms. Today, users can opt to install specific applications facilitating the comparison of documents or use the built-in document compare feature of MS Word. The list of such innovations is countless. The policy trade-off here is stark. Should we adopt rules that foster innovation or rules that force consumers to an inefficient status quo?
Third, mirroring the DMA, the Standing Committee recommends the prohibition of exclusive tie-ups. Exclusivity agreements produce several pro-competitive benefits. It’s widely recognised that they increase competition for distribution. For example, when X decides to sell one of its most awaited handsets exclusively through A, one of the leading Indian e-commerce platforms, it would do so only when A charges the least distribution fees. The reduced cost of distribution for X would benefit consumers and possibly hurt X’s competitors.
Likewise, in the Indian economy, exclusivity arrangements may help domestic innovators secure much-needed capital. We do not yet have an Indian equivalent of Xiaomi. For years, Korean and Chinese handset manufacturers have collected millions in exchange for the exclusive installation of apps. A prohibition on exclusivity arrangements will deprive Indian entrepreneurs of the capital transfer such arrangements entail.
Each of the other practices followed by big tech firms that the Standing Committee identifies as anti-competitive and seeks to prohibit altogether results in efficiency gains. These gains aren’t distributed symmetrically. Consumers gain more than their competitors. A benefit to consumers, and not of the narrow interest groups that the Standing Committee has consulted while preparing its report, must stay central to India’s competition law and policy. The trade-offs for India don’t mirror that of the EU. Neither should our competition rules for big tech firms.
Rahul Rai is a partner and co-founder, and Shivanghi Sukumar is a counsel, at Axiom5 Law Chambers, a boutique competition law practice. Views are personal, and do not represent the stand of this publication.
Disclosure: Axiom5 represent several tech companies, big and small, on competition law and policy issues.
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