About the Competition Act 2002: Gatekeepers of digital markets

Source: The post is based on the article “Gatekeepers of digital markets” published in the Business Standard on 20^th November 2022.

Syllabus: GS – 3 – Changes in industrial policy and their effects on industrial growth.

Relevance: About Competition Act 2002.

News: The Competition Commission of India (CCI) has recently issued a series of orders penalising entities for abusing their dominant positions in digital markets. These orders expect digital platforms to serve as gatekeepers to maintain market contestability.

What is the need for Competition Act 2002?

Digital platforms provide a gateway between consumers and producers and must not impose terms that restrict users’ ability to compete and innovate. According to the CCI, any condition imposed on business users by the gatekeepers or platform operators should be fair, reasonable and non-discriminatory.

By abusing market power (dominance), digital platforms can make it difficult for others to do business. Hence, the Competition Act 2002 (Act) proscribes abuse of dominance and empowers the CCI to protect businesses from such abuse.

What are the concerns associated with the Competition Act 2002?

The Act guides the demarcation of relevant markets, determines its dominance in the said market, and defines whether its conduct amounts to abuse or not. But such guidance may not be helpful in the case of digital markets/ platforms. This is because

1) Digital markets/ platforms can restrict access to markets by denying or restricting access to sellers in such platforms. Hence, the platform decides what to be consumed and what to be produced in an economy, 2) The firm providing the platform may be competing with other firms and, therefore, having a conflict of interests. For example, a firm may be producing games, and listing games of the same genre, including the ones produced by it, on its platform.

3) A platform enjoys certain externalities that enable it to wield huge market power. For instance, the platform has vast data collected from its users, which it may use to strategise digital advertising, 4) Digital platforms create entry barriers to digital markets. For instance, platforms usually create networks of users. They may attract new users by making it free to connect with existing users of the network. The larger the number of users in the network, the larger is the network externality.

Note: These concerns, to some extent, exist in brick-and-mortar space as well. But, they do not own the data hence, have trust.

What are the recommended amendments to the Competition Act 2002?

The Parliamentary Standing Committee on Commerce recommended that a) The Act should prescribe norms for the identification of gatekeeper platforms for stricter oversight, b) The CCI should formulate a mandatory code of conduct that comprises a set of core principles, as well as a list of hardwired dos and don’ts for gatekeepers.

How can the Digital Markets Act of the EU help India to frame a better Competition Act of 2002?

The Digital Markets Act of the European Union adopts ex-ante regulations to make digital markets fairer and more contestable. For example, it a) Defines gatekeepers as entities that have significant market influence as well as the threshold of turnover or users, b) Places a set of negative and positive obligations on such entities, and c) Bars targeted advertising and the use of personal data gathered from one platform to offer services on another.

India’s Competition Amendment Bill should include these provisions and ensure fair competition.