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Business News/ Opinion / Views/  Digital markets must be defined well for competition regulation

Digital markets must be defined well for competition regulation

We need proper assessments of relevant markets so that India’s digital emergence story doesn’t end up stifled by overregulation

Photo: iStockPremium
Photo: iStock

The rise of the digital sector has presented unique challenges for Indian regulatory authorities, including the Competition Commission of India (CCI), thanks to significant differences in the way such markets operate compared to traditional markets. Further, several issues emerging from the growth of digital markets are being analysed by regulators in other countries simultaneously, resulting in a lack of guidance from other jurisdictions.

There is growing demand, worldwide and in India, to hold digital platforms responsible and accountable for adverse impacts caused by them. This is evidenced by recent investigations initiated by the CCI into the operations of digital platforms such as Google, WhatsApp, Apple, Zomato, Swiggy, etc.

A preliminary step involved in such probes is that of defining a ‘relevant market’ within which such digital platforms operate. The Competition Act of 2002 requires the CCI to define a ‘relevant market’ based on what is regarded as interchangeable or substitutable by a consumer (“Relevant Market Test"). The factors required for consideration by the CCI while defining a ‘relevant market’ include the physical characteristics or end use of goods, prices of goods or services, consumer preferences, regulatory trade barriers and local specification requirements, among others.

The CCI’s approach so far: Until 2016, while defining a ‘relevant market’ for e-commerce companies and marketplaces (such as Snapdeal, Ebay, Yepme, Cloudtail, etc), the CCI viewed online and offline segments as different channels of distribution and not different relevant markets. This was based on the CCI’s view that the two segments differ in terms of discounts and the shopping experience, and buyers would typically weigh both online and offline options before making purchase decisions. Further, if prices of the same product or service available online were to increase significantly, then the consumer was likely to buy the product or service from an offline channel, and vice versa.

In 2018, when examining a complaint filed against e-commerce companies that alleged ‘abuse of dominance’ by way of predatory pricing and preferential treatment to certain sellers, the CCI diverged from its initial view and recognized the possibility of a distinction between online and offline segments. In October 2019, it drew a defined distinction in its prima facie order initiating a probe against MakeMyTrip by defining the ‘relevant market’ in its case as “the market for online intermediation services for booking of hotels in India". This case is still under consideration.

Following the MakeMyTrip case, the CCI has considered ‘relevant markets’ for certain online-only players in several cases related to digital markets. For instance, it has defined the relevant market for (a) Google as “the market for Online General Web Search Services in India and the market for Online Search Advertising Services in India", for (b) WhatsApp as “the market for Over-The-Top (OTT) messaging apps through smartphones in India" and for (c) Apple as “the market for app stores for iOS in India".

Subsequent orders of the CCI in cases where arguments were made that offline products or services could be substitutable with online products or services did not clearly apply the Relevant Market Test, and did not clarify whether all products and services that could be considered interchangeable by consumers were considered while arriving at a ‘relevant market’ definition.

The need of the hour: Given the pace at which the digital sector is expanding in India, and the emergence of several issues prompted by this growth, it is essential that the CCI carefully consider the question of ‘relevant market’, and more particularly, the question of whether the online and offline distribution segments of such a market are substitutable in each case and industry. Prima facie analysis of the ‘relevant market’ would result in a more efficient and streamlined process of investigation.

A ‘one-size-fits-all’ approach to this question will prove unsatisfactory, given the large variation in business models today and the significant number of businesses that have add-on ‘online’ delivery channels. Accordingly, the CCI should define a ‘relevant market’ in the digital sector by taking into consideration all substitutable and interchangeable products or services for each industry, including what’s available offline.

One way to address concerns in various quarters would be to conduct market surveys to explore consumer preferences, habits and dependence on digital platforms, on a case-to-case basis. While the CCI has undertaken a few market studies, it needs to reach out to consumers on a wider scale and not limit its analysis to secondary studies or surveys. Such an approach may seem rather costly and time-consuming. However, given the magnitude of consequences that could arise from the question of ‘relevant market’, each industry and sector must be given due consideration.

India’s digital sector needs proper market assessment and, in some cases, correction. For this, a consistent approach that’s inclusive of all stakeholders, including the consumer, would ensure that the country’s digital story does not face overregulation or other unwarranted hindrances.

In summary, it is imperative that the CCI’s approach in digital markets is well considered, consistent and proportionate, so that the digital sector gets space for growth while safeguarding the interests of competition and consumers.

Simran Dhir, Akshat Kulshrestha & Anuja Agrawal are, respectively, head and associates of the competition law practice at S&R

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Published: 16 May 2022, 10:15 PM IST
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