Vikas Kathuria evaluates India’s new ex-ante framework to regulate digital markets. He assesses its divergences from Europe’s archetypal Digital Markets Act and the characteristics of India’s political economy that explain these differences.
India, the world’s fifth-largest economy and third-largest economy in terms of digitalization, is on the path to adopting ex-ante rules to ensure competition in digital markets. Ex-ante rules seek to prevent anticompetitive harms from occurring through general guidelines rather than identify and punish them after they have already occurred (ex-post). The Committee on Digital Competition Law (CDCL), which was constituted by the Ministry of Corporate Affairs, presented in March its report recommending an ex-ante framework and also introduced the Draft Digital Competition Bill, 2024 (DCB).
The motivation behind the Bill
India enacted its first legislation to promote competition in markets in 1969. It introduced its modern competition law, which was driven by contemporary economic thought, in 2002. This created India’s competition regulator, the Competition Commission of India (CCI). However, the CCI only became functional in 2009 due to challenges to its constitutional validity.
The CCI barely got started before complex tech cases came its way. The case against Google for allegedly preferencing its own services was brought before the CCI in 2012. Other cases alleging abuse of dominance against firms in e-commerce, ride-hailing, social media, app stores, and booking platforms soon followed. In all these cases, the CCI struggled to ensure competition with the ex-post tools. Either the firm was not “dominant” in the sense of traditional competition law, thus escaping the jurisdiction of the CCI. Or lengthy investigations and challenges to the CCI’s actions at various stages rendered impossible timely intervention in markets characterized by network effects, and thus prone to “tipping,” in which a company acquires a dominant and difficult-to-reverse position. The CCI realized its limitation and asked the government to add ex-ante tools to prevent similar obstacles to enforcement in the future.
Around the same time, the CCI’s market study on e-commerce revealed that the e-commerce sector was concentrated and experiencing opacity and anticompetitive practices. There were specific concerns regarding platform neutrality, unfair contractual terms, the presence of price parity clauses, exclusive contracts, and discount policies of platforms. The CCI could only recommend self-regulation to address such practices. The developments within India coincided with similar concerns on the digital economy in the EU and other jurisdictions. Several international expert reports underscored the limitations of competition law in ensuring contestability in the peculiar technological and economic context of digital markets.
One crucial factor that may have motivated the commission of the CDCL is the disadvantages that home-grown startups and businesses have faced due to the superior bargaining power of Big Tech platforms. Home-grown businesses and civil society have brought several cases before the CCI, including alleging self-preferencing in search, billing practices of app stores, and exclusive and preferential listing on e-commerce platforms.
The CDCL in its report, much like other international reports, has highlighted the systemic economic features that make digital markets prone to concentration and give undue power to large firms. Additionally, the CDCL noted, based on ongoing cases, the lengthy nature of competition proceedings that inhibit timely action to arrest “tipping” in digital markets. For these reasons, the CDCL has advocated an ex-ante framework in the form of the DCB.
The Draft Digital Competition Bill
The DCB proclaims “contestability, fairness and transparency” to be its objective. The enforcement candidates are “systemically significant digital enterprises” (SSDEs) that provide nine “core digital services,” which are services that are susceptible to concentration, such as search and advertising. The DCB is thus similar to the recent EU Digital Markets Act, which targets gatekeepers in the digital market that provide an array of identical services. The one notable difference is that the DCB does not list virtual assistants as a core digital service. The DCB also does not explain what an SSDE is, unlike the DMA, which sets out the characteristics of a “gatekeeper” in Article 3(1). However, going by the CDCL report, it is clear that the DCB refers to large digital undertakings that are important gateways for both business users and end users, suggesting SSDEs and gatekeepers will significantly overlap in identity.
An undertaking can be designated as an SSDE based on either a quantitative threshold or qualitative criteria. The quantitative criteria refer to local and global turnover, gross merchandise value, global market capitalization, and number of users. Even if an undertaking does not meet the quantitative criteria, it may still be designated as an SSDE based on a long list of qualitative criteria that reflects its bargaining power. Once designated as an SSDE, an undertaking is mandated to operate in a fair, non-discriminatory, and transparent manner with end users and business users. The activities that are prohibited for SSDE are self-preferencing, using or relying on non-public data of business users, restricting third-party applications, anti-steering, and tying and bundling. The CCI has been tasked to pronounce upon non-compliance that may result in a penalty. Notably, structural remedies are missing.
Assessment
The DCB appears to be strongly inspired by the DMA so far as the substantive provisions are concerned. In places, however, one can identify the bargains that the drafters of the DCB encountered in the peculiar context of a developing country. At places, the drafters seem to balance between ensuring a level playing field while ensuring that investor confidence in Indian markets is not spooked. In other places, they seem wary of regulatory capture or have attempted to economize on already constrained government resources.
Fear of going overboard
Not all obligations featured in the DMA emanate from the ongoing cases before the EU Commission. Instead, the Commission sought to identify a range of potential harms to competition, even those not yet under scrutiny. This makes sense as once the economic features, most prominently economies of scale and network effects, have been identified as giving disproportionate powers to big firms to skew the rent distribution and affect contestability, policymakers do not have to wait to see the manifestation of this phenomenon in different forms in other cases.
One does not see this in DCB, however. For example, the DCB does not prohibit price parity clauses/most favoured nation (MFN) clauses. MFNs, both “narrow” and “wide,” have received criticism and prohibition from antitrust agencies in the EU. Likewise, compared to the DMA, there are no provisions to enhance advertising transparency and mandate interoperability. In the DCB there is no obligation for firms to inform about concentration. Once again, while the DMA reserves structural remedies for exceptional cases of systematic non-compliance, the Indian DCB has no provision for the same.
Saving Regulatory resources and fear of capture
The DCB has no provision for regulatory dialogue with the SSDEs. In the peculiar context of an ex-ante framework, participative regulation has become a necessity and has been adopted by the EU. This allows the European regulator to work with gatekeepers to identify harms, mitigate them, and fine-tune DMA obligations. The DCB, however, places misplaced reliance on the CCI to unilaterally craft compliance requirements for CDSs. The DCB attempts to be precise by stating that differential obligations may be crafted for different SSDEs providing the same core digital service based on the nature of the market, the number of users in India, and such other factors that the Commission may deem fit. This is not enough, however. For instance, the design of the choice screen is an obligation that may be complied with in different ways. Which way is more efficient? While the CCI may recommend optimal ways to arrest self-preferencing, it may not account for consumer preferences. Regulatory dialogue between regulators and SSDEs is important to avoiding these missteps. And if a regulatory dialogue were not to bring about satisfactory results, the regulator could always start non-compliance investigations.
The EU Commission has organized compliance workshops where gatekeepers present their solutions and stakeholders present their views. This helped the Commission to decide that certain compliance measures failed to follow the objective of the DMA. For example, some stakeholders complained regarding Apple’s and Alphabet’s fee structures. Some also pointed to shortcomings of Apple’s compliance solutions by referring to the poor choice screen design, burdensome process for changing defaults, and inability of end users to uninstall several of Apple’s key apps. These will be amendments and revisions that the DCB misses.
The DMA accords an undertaking that meets the quantitative thresholds a right to rebut the presumption in exceptional cases. The DCB, even though it accords an opportunity of being heard to the enterprise, does not give a full-fledged right to show that even after meeting the thresholds the enterprise is not a SSDE gatekeeper. Notably, the DCB does not have a similar provision to Article 3 (1) of the DMA where the characteristics of a SSDE/gatekeeper are set out. Arguably, therefore, a right to be heard in the DCB is only limited to contesting the information that the CCI employs in the designation process. This is a limited right and does not allow for accommodating exceptional cases.
The omissions could be for two reasons. First, the Committee could be wary of regulatory capture; second, it was mindful that regular interactions with regulatees might constrain the already limited resources. In the context of an emerging market, both these reasons acquire amplified importance.
The fear of capture is manifested elsewhere as well where the drafters have attempted to limit the interactions with the regulatee. The drafters have put the onus on the CCI, while crafting regulations, to account for (a) economic viability of operations; (b) prevention of fraud; (c) cybersecurity; (d) prevention of unlawful infringement of pre-existing intellectual property rights; (e) requirement of any other law in force; and (f) such other factors as may be prescribed. It is evident that this information is specific to undertakings and hence they are best placed to assist the regulator in crafting appropriate obligations. In contrast, Article 9 of the DMA puts the onus, and rightly so, on gatekeepers to demonstrate that compliance would endanger economic viability.
A Hidden Weapon
Along with fairness and contestability, an additional objective of the DCB is “transparency.” The CDCL report does not elaborate upon this concept. For a concept such as fairness, vagueness is not problematic as Chapter III obligations (except Section 10) are rule-based obligations. In this case, the DCB adumbrates what violates fair practices. However, Section 10 states that an SSDE shall operate in a fair, non-discriminatory, and transparent manner with end users and business users. Unlike other obligations featured in the DCB, this provision is not made concrete in rules or further direction, leaving it broad and vague. In theory, this principle leaves enormous scope for the CCI to cast several obligations regarding transparency on an SSDE, such as ensuring objective ranking, charging equitable and non-discriminatory onboarding fees, restricting unfair contractual terms, objectivity in deplatforming etc.
Recommendations
The DCB is a brave step in the right direction. However, its efficacy can be improved by adopting a few measures. First, the DCB should incorporate additional obligations for SSDEs, such as those regarding interoperability and prohibitions on MFNs. Another crucial addition is regulatory dialogue, which is a mandatory tool to ensure optimal compliance. In addition, while it may appear resource-intensive prima facie, regulatory dialogue is a cheaper safety net when compared to a larger number of non-compliance investigations at a later stage. The possibility of capture can be mitigated by publishing the non-confidential reports of engagement. The DCB must include structural remedies as well for exceptional cases. These changes will indeed require more resources at the CCI. There is no alternative, however, to increasing resources if the Indian government is serious about ensuring fairness, contestability and transparency in the digital markets.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
