Digital start-ups pitch for separate competition law with ex-ante regulatory framework

Domestic digital start-ups have urged law makers to proactively and quickly move to enact a separate Digital Competition Act with an ex-ante regulatory framework, so as to prevent abusive anti-competitive conduct by BigTech.

In the absence of an ex-ante Digital Competition law, BigTech would gain immensely at the cost of Indian digital start-ups, said a spokesperson for the Alliance of Digital India Foundation (ADIF), a policy think-tank for digital start-ups.

“ADIF strongly feels the need for such a law, owing to business dynamics specific to digital markets,” a spokesperson added.

“Indian start-ups are seeking basic rights, including the absence of conflict of interest, BigTech not resorting to self-preferencing, non-bundling of particular services by BigTech, as announced by CCI in its latest order, thus leading to a fair, transparent and democratic internet ecosystem, to create a level playing field for Indian start-ups and to promote fair competition in the digital economy”.

This demand is significant as it comes at a time when India is contemplating whether there is need for a separate Digital Competition law at all. 

Ex-ante approach  

Put simply, an ex-ante approach requires putting in measures to prevent any abusive anti-competitive practices by BigTech, sometimes referred to as Gatekeeper platforms. 

India currently legally adopts only an ex-post regime, where attempts are made to resolve issues after the damage is done.

Watch: Do we need the Digital Competition Act?

“While regulatory interventions in an ex-post regime can, to some extent, minimise some of this damage, the market will never revert to the position that prevailed prior to the commencement of BigTech’s anti-competitive conduct and policies. So timely intervention is needed to not only correct but also, more significantly, to prevent the anti-competitive conduct of BigTech firms,” the ADIF spokesperson added.

Contrary to traditional platforms, the cost of serving each additional customer on a digital platform decreases with an increase in the number of users on the platform. Thus, large platforms would keep decreasing their marginal costs with an increase in the number of users, implying new players would never be able to compete with themt.

Also read: Google ‘dominates’ digital competition law panel, stakeholders seek level-playing field

Similarly, contrary to traditional markets, larger the number of users, more the number of users likely to join that particular platform, eg, social media platforms. These dynamics make these platforms a ‘Winner takes it all’ market, creating entry barriers for new players, and may tempt dominant players in the market to resort to abusive practices.

ADIF said a proactive approach is needed in the new-age digital world to safeguard the interests of both consumers and start-ups. 

“The present system allows BigTech to unilaterally define the rules of the game for the Digital Internet Ecosystem, without any negotiation power on the other side, and the Indian start-up ecosystem has to abide by them, hurting them badly,” the ADIF spokesperson said.

These practices include restrictions on the use of third-party payment mechanisms; restrictions on communicating with consumers using a particular app via email; charging exorbitantly high service fee (as high as 30 per cent) on app purchases, in-app sales and subscriptions; displaying warnings when a user attempts to install an app from a source other than the official app stores; force Original Equipment Manufacturers (OEMs) to pre-install BigTech apps, and at the same time not allow pre-installing of other apps to block out competition, among others. 

“How justifiable are these practices wherein BigTech directly manages the competition matrix and chooses the winners & losers in the market?,” the ADIF spokesperson added.

ADIF also noted that there are many examples wherein BigTech acts both as a platform as well as service provider, thus creating a clear conflict of interest and resorting to self-preferencing to gain commercially. 

In simpler terms, consider a search engine expected to showcase neutral results basis algorithms, displaying its own/ partner’s results on top, or an e-commerce platform selling its own products by showcasing it as ‘top results’. 

“This calls for defining broad contours on the practices the digital companies should not resort to,” the ADIF spokesperson said.