Context:
Recently, during the 15th annual day celebrations of the Competition Commission of India (CCI), the Chairperson emphasized the tendency of digital markets to concentrate, leading to monopolistic practices.
Relevance:
GS II: Polity and Governance
Dimensions of the Article:
- What is a Digital Market?
- Key Highlights of the Event
- Challenges with the Competition in Digital Markets
- Solutions to Monitor the Digital Markets Competition
What is a Digital Market?
Digital markets, often referred to as online markets, are virtual spaces where businesses and consumers interact and conduct transactions through digital technologies.
Examples:
- E-commerce Marketplaces: These are platforms where businesses directly sell products to consumers (B2C). Prominent examples include Amazon and eBay.
- Digital Advertising: This involves placing advertisements on websites, social media platforms, or search engines. Notable examples are Google Ads and Facebook Ads.
- Social Media Marketing: This strategy uses social media platforms such as Facebook, Instagram, and Twitter to engage with customers, build brand awareness, and promote products or services.
- Search Engine Optimization (SEO): This practice involves optimizing website content and structure to achieve higher rankings in search engine results pages (SERPs), thereby increasing organic traffic.
Digital markets often exhibit certain characteristics that can result in monopolistic tendencies. These include low variable costs, high fixed costs, and significant network effects, which together can lead to a few firms dominating large market shares.
Key Highlights of the Event
Control of Digital Platforms:
- The CCI Chairperson noted that control of digital platforms over large datasets can create barriers to entry for new players, compromise platform neutrality, and lead to algorithmic collusion.
Monopoly Concerns:
- The Attorney-General for India highlighted the monopoly of e-commerce platforms over user data as an area for scrutiny, emphasizing the need for new ideas to balance free market and social benefits through legal innovation.
Future of the Digital Economy:
- The digital economy presents immense opportunities for innovation, growth, and consumer benefit but challenges traditional competition law frameworks worldwide.
Importance of Behavioural Economics:
- The event underscored the significance of using behavioural economics to understand human preferences in the context of digital markets.
Challenges with the Competition in Digital Markets
Anti-competitive Practices:
- Market Dominance: A few powerful players can control a large market share, stifle innovation, and limit consumer choice.
- Self-Prioritisation: Platforms may prioritise their own products or services over competitors in search results or promotions.
- Example: Google allegedly favouring its own shopping results over other platforms.
- Bundling Products: Forcing users to purchase unwanted products or services alongside desired ones.
- Example: iPhones offer a smooth user experience when paired with other Apple products, potentially limiting user options with other brands.
- Exclusive Agreements: Locking suppliers or distributors into exclusive agreements, hindering competition.
- Example: Streaming platforms like Hotstar and Jio Cinema securing exclusive rights to shows, limiting viewer options.
- Network Effects: The value of a platform increases as more users join, creating a snowball effect that makes it difficult for new entrants to compete.
- Example: Social media platforms like WhatsApp and Instagram become more valuable with more users.
User Data and Privacy:
- Vast Data Collection: Digital companies collect vast amounts of user data, giving them an advantage in personalisation, targeted advertising, and product development.
- Opaque Data Practices: The method through which user data is collected, stored, and used can be opaque, leading to privacy violations.
- Barriers for New Entrants: New entrants may struggle to compete with established players who have a rich data set to leverage.
Regulatory Challenges:
- Fast-Paced Nature: The fast-paced nature of digital markets can make existing regulations ineffective.
- Defining Anti-competitive Behaviour: Proving anti-competitive behaviour in complex digital ecosystems can be difficult.
- Identifying Dominant Firms: Determining a dominant firm is a substantial challenge.
Solutions to Monitor the Digital Markets Competition
Regulatory Designation and Actions:
- Designation of Systemically Important Digital Intermediaries (SIDIs): Identify dominant players with significant market power and subject them to stricter regulations.
- Ban Self-Preferencing and Exclusive Dealing: Explicitly ban practices that stifle competition.
- Example: A platform can’t prioritise its own products over competitors in search results.
- Mandate Data Sharing or Interoperability: Allow users to move data or services between platforms more easily.
- Example: Allow users to transfer their online shopping cart from one platform to another.
Strengthening Regulatory Bodies:
- Provide Additional Powers to CCI: Equip the Competition Commission of India (CCI) with more powers, resources, and personnel to effectively monitor digital markets and investigate potential anti-competitive practices.
- Example: The 53rd Parliamentary Standing Committee Report recommended strengthening the CCI.
Framework for Startups and Data Protection:
- Establish a Regulatory Framework for Startups: Enable testing of innovative products and services in a controlled environment with reduced regulatory burdens.
- Enforce Transparent Data Collection Practices: Frame detailed regulations requiring platforms to be transparent about data collection practices and provide users with meaningful control over their data.
- Example: The Personal Data Protection Bill, 2023 aims to empower users with greater control over their personal data.
-Source: Indian Express
