[Draft] iamai submission to Committee on Digital Competition Law

Failure to examine the implications of an ex-ante approach: Importantly India consciously moved away from the ex-ante regime under the Monopolies and Restrictive Trade Practices Act (MRTP). The move was designed to “shift the focus from curbing monopolies to promoting competition” and “prohibiting practices which cause an appreciable adverse effect on competition in India.”¹² This approach is rooted in a basic principle of competition policy – the role of competition law is in protecting consumers, and protecting the competitive process, not protecting competitors. The Report and its recommendations move away from this standard in at least two significant ways:

• 
  Regulation based on size of entities: The Report calls for identification of SIDIs which will largely be driven by their size.
  
• 
  Regulation without proof of any appreciable adverse effect on competition: As per the Report, SIDIs will be subject to ex-ante regulations. Resultantly, the conduct will not be subject to a case-by-case assessment of its impact. Per se prohibitions do not take into account justifications such as pro-competitive effects, efficiency and innovation.
  

This deviation risks taking competition policy to the ‘big is bad’ era under the MRTP which will slow economic growth and harm consumers.¹³
In conclusion, the Big Tech Report is premised on the flawed assumptions regarding “defining characteristics” of the digital markets. Illustratively, the Report notes that traditional markets have diminishing returns to scale, but digital markets have increasing returns to scale and high entry barriers on account of network effects. The Report also states that digital markets are essentially winner-takes-all markets and therefore, require ex-ante regulation. The Report does not cite any supporting economic or empirical evidence and oversimplifies the complex and dynamic nature of digital markets and user behaviours. The Report does not consider that certain conventional markets that are capital intensive can have significantly high barriers to entry, which is not the case in digital markets. If only network effects could tip markets in favour of one entity, then Myspace with over 300 million users would not have failed and Google+ social media app would have succeeded. Snapchat and Tiktok were launched after Facebook but grew to be Facebook’s significant competitors. The attainment of network tipping point, i.e., the point where the network’s scale makes it more valuable to participants, over any other competing network, is tricky since network externalities, can either reinforce or deplete network scale, depending on other indicators of value – such as product quality. Likewise, when TikTok was banned in India, swarms of creators and users did not necessarily switch to incumbents as much as they did to domestic large tech companies like MX Taka Tak (MX Media Times Internet), Moj (ShareChat), Josh (DailyHunt), and Roposo (InMobi), Chingari, Mitron, Trell, etc.
Therefore, the market “tipping” in favour of Big-Tech companies cannot be an assumption, since market players, including incumbents are continually innovating and competing on merits. This is especially true for markets characterized by multi-homing, where the occurrence of a “tipping point” is questionable altogether. It therefore follows, that any attempts to create a rigid legislative standard that tries to pre-empt the network tipping point, cannot be wholly immune from errors, given especially that “tipping”, if it occurs in the first place, is at best transient owing to continual innovation. In fact, certain concentrations or “attempts to monopolize” can be prevented by way of ex-ante interventions under existing merger control regimes on a case-by-case basis. However, proscribing pro-competitive conduct in an attempt to prevent companies from gaining scale, can limit growth, and adversely impact innovation in Indian digital markets.
For identifying potential anti-competitive practices by Big Tech companies, the Big Tech Report relies on the orders of the CCI initiating investigations. The orders relied upon are prima facie orders where the CCI is statutorily required to only take a preliminary view of facts and not give conclusive findings and observations. These orders by design are not to include detailed analysis and fact-finding. The Report also cherry picks certain observations of the CCI given in the prima facie orders, without context. For example, the Big Tech Report has relied on certain observations of the CCI on the use of data in the prima facie investigation orders against Swiggy and Zomato. However, the Big Tech Report does not acknowledge or mention that the CCI did not find a prima facie case that warrants an investigation into how the food aggregator apps use data.