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Business News/ Opinion / Columns/  Opinion | Of digital competition and data transfer principles

Opinion | Of digital competition and data transfer principles

Setting up an Indian equivalent of the UK’s proposed Digital Markets Unit would help  

In the last 10 years, every time a large tech acquisition was announced, analysts have fallen over themselves to proclaim that the acquirer was overpaying for the target. Premium
In the last 10 years, every time a large tech acquisition was announced, analysts have fallen over themselves to proclaim that the acquirer was overpaying for the target. 

The UK’s Digital Competition Expert Panel recently issued its report with suggestions on how to regulate competition in the modern age. It is an interesting read and will doubtless serve as reference for regulators around the world who are looking to address similar issues in their jurisdictions.

One of the principal concerns expressed by the Panel was the harmful effects of concentration in the digital ecosystem—in particular the kind that results from network effects. A digital platform becomes significantly more valuable when the number of users on it grows past a certain critical mass. However, very soon thereafter, the platform crosses into a winner-takes-all zone where it gets so big that it becomes next to impossible for any new entrant to compete with it. While acknowledging the advantages in terms of cost reduction and other customer benefits that arise out of the economies of scale achieved by a concentrated platform, the Panel was concerned that the resulting lack of an effective competition constraint would indirectly harm consumers—leading to impairment in the quality of service, use of unfair terms and offers of preferential access to special business users.

The Panel looked to address all this by calling for the development of systems built on open standards and designed to ensure greater data mobility and openness. By doing this, they are going a step further than the personal data portability rights spelled out in the General Data Protection Regulation (and in the Justice Srikrishna recommendations on privacy in India). The Panel wants government intervention in setting up the standards and systems that will actually facilitate the seamless movement of data between platforms—along the lines of the Data Transfer Project launched in 2017 by Google, Facebook, Microsoft and Twitter. This is an extremely thoughtful recommendation that, if implemented well, could strike a balance between extracting value out of platform economies of scale while at the same time blunting some of the harmful consequences of the winner-takes-all nature of the platform economy.

It should come as no surprise to regular readers of this column that at least some of what the UK is just getting around to put in place has already been implemented in India. As discussed in a previous article, India has already built a system for the transfer of financial information between various stakeholders in the financial services ecosystem using electronic user consent intermediated by licensed account aggregators. Similar data transfer systems are being built for telecom and medical data, and the principles on which these systems are being designed could just as easily apply to almost any sector.

Among the other interesting recommendations of the Panel is its call to establish a new Digital Markets Unit in the UK with the remit to deploy various tools and frameworks to enable greater competition and consumer choice in digital markets. The Unit will be tasked with developing a code of competitive conduct to replace the case law-based competition framework within which the market currently operates. I can see how India would benefit from establishing a similar digital unit that will be able to address many of the challenges posed by the dynamic digital market far more nimbly than is currently possible.

What is of some concern in the Panel report is the reference to the need to reset merger regulations. The Panel pointed out that many of the mergers carried out by large digital companies over the past decade have been of companies that, had they not been acquired, would have provided much needed competition to the platforms that purchased them. At the time, these mergers were not prevented because, despite their high sticker price, there was no reason to suspect that they would have an adverse effect on consumers. And since all the targets prioritized customer acquisition over revenue growth, none of the mergers triggered a mandatory turnover-based notification obligation. Armed with hindsight, the Panel has called for a complete overhaul of the manner in which merger assessments are made in digital markets. In particular, it has recommended expanding the grounds for scrutiny to include harm to future innovation and the future impact of the merger on competition.

It is hard to see how something like this is going to work. In the last 10 years, every time a large tech acquisition was announced, analysts have fallen over themselves to proclaim that the acquirer was overpaying for the target. It is only much later that they came to appreciate the economic wisdom behind the deal. If even experts whose job it is to study the digital market have got this wrong time and time again, I fail to see how a competition regulator will suddenly be blessed with prescience.

In the light of all the other changes suggested by the Panel, I would argue that there may be no need for this sort of radical overhaul of merger regulations. If it is possible to implement the data transfer systems discussed above, all new entrants will be able to access the very data that was previously the primary barrier to their entry. This will allow them to innovate with services and to access customers who were previously beyond their reach. This itself is a significant market improvement that will go a long way in improving the multiplicity of services on offer.

Do we really need to do more?

Rahul Matthan is partner at Trilegal and author of ‘Privacy 3.0:Unlocking our Data Driven Future’

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Published: 19 Mar 2019, 09:56 PM IST
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