A competition law that clicks for all

Source: The post is based on an article “A competition law that clicks for all” published in Business Standard on 20^th April 2023.

Syllabus: GS 3 – Economy

Relevance: concerns associated with the Digital Competition Law

News: The government has constituted a committee in February 2023 to examine the need for a separate law on competition in digital markets.

What are the arguments in support of the separate competition law for digital markets?

The proponents of a separate competition law for digital markets (SCLDM) argue that entities in digital markets enjoy increasing returns and have a huge repository of data.

This might allow them to gain a monopolistic position in the market and engage in abusive practices such as market denial and the creation of entry barriers.

As a result, the idea is for a SCLDM that is based on ex ante rules and places specific requirements on systemically significant digital intermediaries (SIDIs).

However, the proposed idea to have separate competition law for digital markets may not be appealing.

Why is separate competition law for digital markets not a good step?

First, market failure usually arises from distortions in the choices made by producers and consumers. The distortion occurs when an economic activity is placed on a different level than others.

Hence, different laws for physical markets and digital markets would distort the level playing field and thereby contribute to market failure.

Second, digital markets are not different from physical markets in terms of competition. The sources of dominance, such as increasing returns to scale and data repositories, are not unique to digital markets.

Similarly, abuses like denial of markets and entry barriers are equally prevalent in physical and digital markets. The remedies like ex-ante regulations and obligations on large enterprises are equally relevant in both physical and digital markets.

Therefore, it is difficult to define digital markets and distinguish them from physical markets.

Third, newer kinds of markets keep emerging with time and technological advancements. Hence, it would be never ending as lawmaking cannot match the speed of technological changes.

Further, there are governance norms that disincentivize entities from abusing their dominance and entities cannot use their huge repository of data because they do not own it.

Thus, concerns, which are broadly similar in digital markets as in physical markets, are being addressed, as they emerge, without having a separate law.

Fourth, the case for SCLDM rests on the issue that an entity in digital markets may become dominant faster. However, this is irrelevant as dominance ceased to be a concern with the repeal of the Monopolies and Restrictive Trade Practices Act, 1969.

Moreover, instead of prohibiting dominance, competition law prohibits abuse of dominance. The Competition Act, 2002, prohibits the abuse of dominance by a dominant enterprise, and defines who is “dominant” and what is “abusive”.

However, such definitions could be obsolete as market structure changes with time.

What can be the way ahead?

The existing competition law could adopt a similar approach to the prohibition of fraudulent and unfair trade practices (PFUTP) adopted in the securities markets.

Further, if Digital Competition Law is being considered then it is necessary that it digitalises the processes relating to compliance, monitoring, surveillance, investigation, enforcement, and appeals under the competition law.