‘World is witnessing exponential growth of IT enabled digital platforms that are disrupting the traditional businesses in areas such as education, e-commerce, healthcare, hospitality, and transport. Many start-ups that use digital platforms and associated markets to provide products and services have become unicorns with sky high valuations. These platforms have also changed the traditional economy to gig economy, thus providing on-demand services through real time supply-demand matching of associated labour and services. The technology firms that offer digital platform based services have so far avoided regulatory scrutiny of their business processes and methods due to their innovation, superior and evolving technologies and associated economic benefits they create.

Common examples of platforms are that of transportation providers such as Ola and Uber, e-commerce firms such as Amazon and Flipkart, and education platforms such as Coursera and Vedantu. There are also other classes of digital platform that provide Internet based communication and broadcasting services such as WhatsApp, Hike, and Netflix that compete directly with the traditional telecom and broadcasting firms.

Two Sided Markets (2SM) and associated Platforms (P) form the basis of operation of most of these digital firms... Typical examples include an e-commerce portal that connects users on one side with suppliers of goods on the other side; a travel portal that intermediates between travellers on one side and the travel firms on another; and so on... This becomes very important especially in an unorganised sector where it is of prime importance for the platform provider to bring a semblance of organisation, thus facilitating commerce between the two sets of users. India is unique in this aspect, compared to many other countries since a large number of unorganised set of firms exists and that too especially in direct consumer related verticals such as travel, consumer goods, healthcare, apparel, fashion, to name a few.

By playing a technology based intermediation role, the 2SMP firms decrease search cost for the users on either side of their platform. In an unorganised market, search costs are often very high...

Economies of scale

...A recurring theme of technology-enabled market places has been the creation of greater economies of scale – cost advantages that business enterprises get as the amount they produce or transact grows. These network effects can be local or global. Be that it may, the economies of scale and network effects lead to winner-take-all nature of 2SMPs and hence monopolisation or cartels in the market place.

Excessive market power can threaten consumer welfare. For example, in India Uber/Ola and Amazon/ Flipkart control major market shares in cab riding and e-commerce respectively.

Hence regulatory oversight and Significant Market Power assessment is needed to avoid predatory pricing, cartelisation, and abuse of dominant power. In general, the competition watchdog should frame rules that are appropriate for the 2SMPs, that is welfare enhance and does not reduce the public benefits of such market forms.

These 2SMP firms collect data about users, and user behaviour. There are associated information privacy concerns due to collection of data at granular level by these firms. While on one hand the collection and analysis of consumer data improves personalisation of services including price discrimination, it might invade security and privacy of individuals. For example, the location information helps cab aggregators to build a more appropriate supply-demand model; demographic information helps hotel aggregators to match the interests of room seekers and hosts. However, this information if not used appropriately can lead to privacy issues.

Market monopoly

While traditional regulation attempts to minimise market failure—due to information asymmetry, inequitable outcome, significant market power; or existence of negative externalities; whether the same is applicable to the platform economy is not clear. For example, if the platform firm gets greedy and morphs into a network monopoly, it may exhibit its market power much like the traditional firm, thus wiping out the true benefit to the stakeholders. What if the platform economy firms use regulatory arbitrage to win over incumbents, but do not conform to certain minimum safety, security, environmental and privacy requirements? They can also engage in anti-competitive behaviour, which can be harmful to their users.

It is propounded by researchers that the right philosophy for regulating this new age platform economy is one that rejects the idea that creators of new technologies seek permissions from public officials before taking their services to market... For innovation to blossom, entrepreneurs need a clear green light from policymakers that signals a general acceptance of risk-taking—especially risk-taking that challenges existing business models and traditional ways of doing things, thus leading to “permission-less innovation”.

...Globally, regulators are struggling to cope up with the realities of the platform economy. While platform companies are innovating with disruptive solutions, which challenge existing operations and business models, they may not fall neatly into existing business structures and corresponding regulatory frameworks. Regulators, in many cases, seem to react by extending or modifying existing regulations to cover such companies, some-times conflicting with their key business propositions...

...There are host of issues such as predatory pricing, privacy violation, consumer welfare and safety, worker safety and labour contract, consumer discrimination, data localisation (i.e. whether the digital platforms should store and process consumer date within country), substitutability and complementarity of services of digital firms with traditional not-so-digital firms, content moderation including fake news, that warrant regulatory intervention...

...In India, Telecom Regulatory Authority of India, Competition Commission of India, as regulators have been having a number of consultations with all stakeholders about the above issues periodically.’

Edited extracts. With permission from Springer