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The Devil In Disguise: Examining The Feasibility Of Ex-Ante Regulations In The Indian Digital Market

The authors are Harshita Sharma and Arjun Kapur, second year students at Maharashtra National Law University Mumbai.


Introduction


India's anti-competitive regulations have rapidly evolved, with the Competition Amendment Bill 2023 introducing Technocrats to the Commission to become more inclusive of other emerging marketplaces, one of them being the digital market. The digital market presents unique challenges, such as low marginal costs, easy access to habitual users, and a conglomerate effect. This results in a winner-remains-winner situation, making it difficult for new and innovative start-ups to enter. Ex-ante regulations aim to regulate anti-competitive practices in the digital market space. These are statutory interventions that predict market behaviour and maintain fair competition. The Parliamentary Standing Committee on Finance recommended the introduction of Ex-ante regulations in its 53rd Report, addressing the growing digital market space since Covid. The Indian Digital Marketing market was valued at $3931.3 million in 2022 and is expected to grow by 30% by 2028. Digital platforms and technology have the potential to significantly alter Indian firms' internal and stakeholder interactions, making it crucial to analyse the impacts of Digital Competition Act (DCA)-style Ex-ante regulations before implementation. This blog bring into light the two major issues posed by DCA-style Ex-ante regulations and suggests policy changes by comparing and contrasting these regulations with competition regimes throughout the world.


The Standing Committee's proposal for specialised legislation to ex-ante regulations competition in the digital sector is influenced by trends in nations like the European Union (EU), the United States, and the United Kingdom (UK), which have already passed legislation or are in the process of doing so. The Standing Committee, however, has not considered that there is still no universal agreement on the benefits of such legislation on a national and international level. The EU's recently passed Digital Markets Act (DMA) has drawn criticism worldwide, including Fredric Jenny, chair of the OECD Competition Committee, who claimed that the DMA might limit innovation or competition to preserve competition in the digital ecosystem. The DMA faces criticism for its inability to adapt to new platforms and markets, anti-competitive actions, and influence on antitrust cases. In the UK, no ex-ante competition regime exists for digital markets, but discussions are underway for a pro-competitive regime. The UK government suggests a code of conduct tailored to specific businesses' unique needs. Similar issues prevented congressional support for the American Innovation and Choice Online Act and the Open App Market Act in the US; it worries about the unanticipated effects of ex-ante regulation on consumers, growth, and innovation services as they develop over time. The proposed framework from the ACCC is currently silent on appeals.


The Standing Committee should consider that numerous competing legal interpretations would ensue if various countries introduced global ex-ante legislation without a common understanding so that we don't end up opening Pandora's box. This will have a severe disproportionate impacts on India's entire digital environment as well as those of other countries.


Problems posed by DCA-Style Ex-Ante Regulations in India


Determining Dominance: Taking a step back to the MRTP act

The first and major issue that werecognised is using mere quantitative factors to determine dominance. A throwback to the Monopolies and Restrictive Trade Practises Act of 1969, which tried to regulate monopolies, is the advice to identifySystematically Important Digital Intermediaries(SIDIs) based on limited criteria such as revenues, market capitalization, and user count. The MRTP Act received criticism for a number of reasons, but mostly for how it assessed dominance, which limited economic growth, diversity, and competitiveness. Whether or not a party had abused dominance, it was nonetheless deemed bad per se under the MRTP Act if it had been established. According to the MRTP Act, a company would be deemed dominant if it had at least a 25% market share (or control over it) and met other severe mathematical requirements. This was a flawed strategy, though, even if a company had, say, a 24% market share (or influence over it), it would not be regarded as dominant, which was unfair and a hefty price to pay for the extra 1%.


According to the Standing Committee's Report, the DCA will identify "market winners" based on quantitative factors like revenues, market capitalization, and the quantity of active businesses and end users, which will set India's competition laws back. The proposed DCA's broad ex-ante requirements that are intended to be placed on such "big" digital actors go counter to contemporary competition law's rulings that sheer size does not constitute a violation of the law.


Countering excessive regulations in the Digital Market

Further, another major concern that comes with the introduction of DMA style Ex-Ante regulations is excessive regulation in one area. It is pertinent to note that the digital space is already undergoing major changes with acts like the Digital India Act 2023 and the Personal Data Protection Bill 2022 which gives rise to the possibility of overregulation that might lead to incorrigible outcomes. The introduction of excessive regulations can discourage innovation and the entry of new players. It might also result in overlapping legislations resulting in increased disputes over the same issue under different regulations. In addition, the entry of a new regulator may lead to turf-wars with the Competition Commission because the two bodies are bound to knock horns while dealing with the problems. The digital market is in dire need of stability and consistency of governing laws which seems to be a bleak possibility with the present model of Ex-Ante regulations sought by the government.


Conclusions and Policy Suggestions


Firstly, An impact-based evaluation and empirical analysis, both of which involve extensive public consultation, are the foundations of sound regulation. Ex-ante regulation must be administered cautiously due to its broad repercussions. The CDCL should be commended for its efforts in this area, especially its engagement and consultation with stakeholders. To deal with this issue, the legislators can draw inspiration from the Ex-ante models analysed henceforth.


The ACCC, Australia's competition and consumer regulator, recommends a framework similar to the UK for defining large digital platforms as "Designated Digital Platforms" based on qualitative and quantitative criteria.[1] These platforms must follow a unique code of conduct, which should be flexible to address competitive challenges. Germany has established its own ex-ante rule, the GWB Digitalization Act, which allows platforms to be classified as "undertakings with Paramount Cross-Market Significance" using qualitative criteria. The responsibilities that must be imposed under German law after a platform has been designated as a PCMS are specifically adapted for each platform, and parties are free to make submissions in this regard. In contrast to the DMA, where the scope of appeal is restricted, parties in Germany have the right to challenge (on the basis of merits) both the PCMS designation and the restriction judgements. Notably, Germany, along with France and the Netherlands, has expressed its support for tailored correction rather than rigid requirements that run the danger of being excessive and undermining innovation.


Further, Countries working on implementing ex-ante rules are trying to avoid the problem of over-regulation through different ways to identify the so-called “gatekeepers”. They don't follow a broad-brush approach. Most jurisdictions have The services that need to be regulated are determined by (a) objective thresholds based on turnover, (b) entrenchment and local nexus factors, and (c) specific requirements that are based on the market of the relevant jurisdiction.


The South Korean digital market has shown excellent resilience against anti-competitive measures without the introduction of arduous regulations by going down the path of self-regulation. The Korean Fair-Trade Commission directed its attention towards enhancing the enforcement measures for the already existing regulations rather than tsking up the burdensome task of enacting new law. Following this, the Korean market has not encountered issues with under-enforcement with numerous cases being filed at the KTFC in a short span of eight months. Similarly, Germany has rejected the DMA style implementation of Ex-Ante regulations by introducing amendments to its existing Competition Act. By the aegis of the 10th Amendment, Germany has set out regulations for ‘Undertakings with paramount significance for competition across markets (UPSCAM)’ in theGerman Act against Restraints of Competition. Following the same, the Canadian Competition Bureau (CCB) is planning to bring amendments to the legislation in place. Further, the CCB has launched a new subset known as ‘CANERI’ which is primarily a Digital Enforcement and Intelligence Branch equipped with the work of analysing digital markets to assist the regulator in monitoring anti-competitive practises in the digital regime. Hence, these are the models that India can incorporate while bringing in ex-ante legislations to avoid the problems recognised above.


The regulation of digital markets in India must make sure that no restriction impedes the tremendous development that digital India has demonstrated. By enabling an unheard-of expansion of Indian industry and consumer comfort, the advent of digital markets has improved the Indian economy. Notably, start-ups and established enterprises are entering and considerably expanding in the digital arena, creating severe rivalry in the Indian digital markets. Consultations with experts and stakeholders will be essential to solve concerns like those listed above. Exercise caution and make sure the ex-ante regime meets the dual goals of fostering innovation and growth in India's emerging digital realm while maintaining competition in the online markets if it is to be adopted.

[1]Interim Report, paragraph 5.4.1, page 114-121.

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