Reform of the competition law for the digital era | Opinion – analysis
In a recent event, the president of the Competition Commission of India (ITC) warned against the creation of large digital platforms and the agglomeration of data in the hands of some entities. However, the extent to which it is a matter of policy deserves careful evaluation, taking into account the fact that political considerations have long dictated the government’s response to e-commerce players and other digital platforms. Any attempt to reform the competition law for the digital age must focus on the real cause of the damage and then adapt the remedies that address this cause.
Traditional Amazon competitors, politically relevant and well organized through associations such as the Confederation of All Merchants of India, have long complained about discount practices. The technology giant has also been accused of using its vast data knowledge to compete directly with vendors while distributing its products on its platform. This erosion of platform neutrality had previously influenced key decisions in India’s foreign direct investment policy, including a clear preference for market models over inventory-based models. Subsequently, in February 2019, the Department of Industry and Internal Trade Promotion published a draft of the national e-commerce policy that advocates drastic measures such as restrictions on cross-border data flows and that forces large technology companies to open Your data for the benefit of new Indian companies. .
These responses have generated criticism because they are based more on instinctive politics than on a well-informed policy. The recent call for reform of the antitrust law and competition policy must be appreciated with these developments and criticisms in the background.
The Indian Competition Act of 2002 has operated extensively in line with the antitrust law in the United States, which means that its foundations have been based on economic efficiency arguments. These arguments that trace their origins to those of Robert Bork The antitrust paradox (1978) did not take into account the evolution of data as an economic asset. For Bork, anti-competitive behavior meant practices that resulted in price distortion.
Data driven innovation, on the other hand, focuses on identifying efficiency gaps in traditional business models and solving them using a variety of data mining and predictive analysis. In the course of advanced efficiency, digital platforms also benefit from network effects. In simple terms, the greater the number of consumers and sellers that carry out transactions through a platform, the more essential and indispensable the platform will be for both parties. Apparently, consumers benefit from this phenomenon as platforms compete to get them on board. However, existing vendors would be in an unequal negotiating position with the digital platform. In addition, new companies would find it difficult to compete with the dominant technology platforms because the latter already control large amounts of data. Competition law has been fighting for a while to capture this.
Before the current competition law emerged, the practice was to repress companies that expanded in size and scale. This was motivated by the philosophy that big is bad. The Competition Law Review Committee, chaired by Injeti Srinivas, submitted a report to the corporate affairs ministry in July 2019, which echoes this philosophy. In order to address the acquisitions of large digital platform platforms, the report advocates the scrutiny of mergers above a certain commercial value on the existing practice of merger counting based on the value of assets. This is because many digital platforms fall short of assets and are valued instead for their network and wealth of data.
It is true that many of the larger digital platforms have eliminated competition simply by acquiring smaller platforms. However, experience suggests that many of these acquisitions eventually fail, leading to large losses for the acquirer. For example, Flipkart recently closed the Jabong online retail platform that it had previously acquired for $ 70 million.
Decisions on firm acquisitions must be left to the acquirer and any ex ante The scrutiny of competition based on the value of the agreement should be avoided. Instead, the actual reform should address the truly worrying cause: mastery of the data that could result in any acquisition in the technology industry. Even this idea of data mastery is too broad, with room for greater refinement and granularity in the supervision of competition through merger control. Big data analysis is generally considered to derive a value of four Vs; veracity, speed, volume and variety of data. Of these, improving the variety of data due to an acquisition is probably the most damaging, since it allows technology platforms to extend their domain to other sectors.
Therefore, CCI must compare the variety of data in the hands of the acquirer, compare it with the variety of data held by the acquiree and then evaluate whether after the acquisition, the variety of data in the control of the merged entity or the acquiring company it would be such that it may lead to undesirable long-term consequences in data-based innovation, including excessive centralization of power. This is only one instance of adapting the remedy to the cause, and an attention similar to the actual damage must dictate any future reform of the competition law to adapt to the digital era.
Ananth Padmanabhan is Dean, Academic Affairs, Sai University and a visiting member of the Policy Research Center.
The opinions expressed are personal.