Abuse of Dominance in Digital Market

From purchasing vegetables to posting our lives on social media like facebook, Instagram, we have developed ourselves immensely through digital life. Our lives evolved along with the evolution in technology. We as a customer, while purchasing goods, from vegetables to furnitures to services, we tend to compare prices online on various existing shopping websites such as amazon, flipkart and also even with the existing prices offline and most often we end up purchasing online due to cheaper rates, convenience, and different offers we get.

Due to this shifting of purchasing goods and services online, the digital market has grown enormously. Due to the increasing dependence on social media and growing users in this market, it is essential that competition regulators look into the competition law concerns that can arise from their practices.[1]

The idea that “big is not bad” is an established principle of competition policy.[2] A company may grow in size as an outcome of innovation, a fresh business strategy, or just more effective operations. In other words, it could be the benefit of intense rivalry, which is good for customers and overall economic productivity. However, the competition policy has recognised a few tactics that might be applied by market-dominant enterprises to strengthen or safeguard their market position. These tactics, as opposed to innovation, can harm customers and have a negative impact on the economy more broadly. The legal and economic frameworks for evaluating abuses of dominance have been developed by competition law. These frameworks, however, are unable to address all issues with digital market policy. Alternative competition policy measures, like merger control and advocacy, may be more appropriate in some circumstances.

According to the Indian perspective on competition law, the Monopolies and Restrictive Trade Practises (MRTP) Act 1969 was the first initiative to control market competition. This law was strictly enforced in order to safeguard consumer interests by banning unfair trade practises, preventing economic concentration, and controlling monopolies. The Liberalisation, Privatisation, and Globalisation (LPG) policy of India, which was established in 1991, encouraged industrial development by granting licences to industries that had previously only been available to public sector companies. Industrial development and privatisation led to the emergence of new players in the market which contributed in rising of the competition eventually led to the need for market regulation.[3] As a result, the Competition Act of 2002 revoked the MRTP Act. Anti-competitive agreements, misuse of a dominant position, and combinations (i.e., mergers, acquisitions, and amalgamations) are the three main categories of behaviour that the Act aims to control. On May 20, 2009, the Government of India notified the provisions of the Competition Act related to anti-competitive agreements and abuse of dominant position. This followed the Competition (Amendment) Act 2007, which revised the Competition Act. In this regard, the Competition Commission of India, a body created under the Indian Competition Act, 2002, has broad competence to look into and decide on issues relating to unfair practises in relevant markets. However, increased digitalization of global, Indian markets with the advent of online platforms such as Facebook, LinkedIn, Google, eBay, WhatsApp etc has challenged the adequacy of the competition law. At present, Competition Act 2002 and Competition (amendment) Act 2023, form the legal framework regulating Indian digital markets.[4]

As stated by the Chairman of the Competition Commission of India, “Digital markets are epicentres of technological innovation but lately they have become zones of entrenched and unchecked dominance”. [5] Through interactions between various user groups via applications or websites, digital platforms facilitate the growth of online enterprises and are growing pervasive in contemporary consumer economies. In contrast to the past, the digital world now exists independently of brick and mortar. Along with other aspects like the firm’s size, innovation, and efficiency that are taken into account, the strong market rivalry may also have contributed to the firm’s growth, which ultimately benefited consumers and the overall economic productivity of the region. All these elements are taken into consideration whenever the subject of abusive dominance is raised.

Though there are certain strategies which have been identified by the competition authorities which are generally used by the firms/dominant firms at the market level in order to enhance and protect their market power.[6] If these techniques don’t lead to such innovation, there is a good chance that they will hurt customers and ultimately cause financial damages. In order to prevent these digital marketplaces from abusing their position, a proper assessment is necessary. The creation of appropriate remedies that are directly related to the conduct of a digital market is one of the main issues that tends to exist in the current environment of the digital markets from an Indian perspective.

Abuse of dominance in Indian Market- The Identification

When there exists a single player in the market it tends to dominate its position, manipulate and abuse the market according to its own terms and also limits the preferences of the people in the society. Abuse means improper use or unfair use. Dominant position meaning superiority and in competition law it is economic superiority or independence[7] Abuse of dominance refers to an entity’s excessive or irregular use of its dominant position in the market, which has an impact on market competitiveness. However, dominance in and of itself is not harmful to the market; it is harmful when it is abused. Market leaders can legitimately maintain their positions of dominance, but they shouldn’t abuse their position to the detriment of the market. Particularly, dominating undertakings are obligated to conduct themselves honestly in the marketplace.

The Indian competition Act 2002 defines, abuse of dominance as ‘an ability or superiority possessed by an enterprise which enables it to function in a way affecting the competitors, consumers and relevant market.[8] In other words, dominance of an undertaking is adversely affecting competitors, consumers, competition.

In order to assess such dominance of an enterprise, there is a 3-step process involved including-

Determination of relevant market –

According to the Competition (Amendment) Act, 2023, Relevant market is defined as ‘market involving all those products or services which are substitutable by consumer, because of their intended use, prices, characteristics’[9]. Furthermore, it states that the supplier will consider the production or supply to be interchangeable if it is simple to switch production in response to such goods or services in the short term without incurring additional costs or risks or in the event of a slight but significant change in price.

A relevant market is determined by relevant product market and relevant geographical market

Relevant product market– Section 2(t) of Competition Act defines the relevant market as a market comprising all the products or services, enabling consumer to substitute, by reason of their characteristics, price, intended use.
Relevant geographical market– Section 2(s) of Competition Act defines the relevant geographical market, the conditions of competition in relation to supply of products or services or for demand of products or services are homogenous, which can be easily distinguished from the existing conditions in neighbouring area. According to the Competition Act, it includes availability of distribution facilities, consumer choices, transport costs, after-sale services, regular supply.

Assessment of the Dominant position- the factors

Section 4 (1) of Indian competition Act 2002, defines abuse of dominant position, which prohibits abuse of dominant position by an enterprise or group in a relevant market. The Competition Act does not specify any single criterion for accumulating whether an enterprise or group enjoys a dominant position in a relevant market; instead, it provides a list of several factors, which may be considered by the CCI when determining such dominance. As mentioned in the section 19(4) of the competition act, 2002 these factors includes market share, size and resources of an enterprise, size and importance of competitors, market structure and size of market, and countervailing buying power.[10] The Competition Act indicates an exhaustive list of practices,which, when carried out by a dominant enterprise or group, would constitute an abuse of dominance and any behaviour by a dominant firm which falls within the scope of such conduct is likely to be prohibited.

Abuse of dominance of Power

Abuse of a dominating position is represented by behaviours that hinder entry, limit production or development, discriminate on the basis of pricing, deny access to the market, and impose unfair terms on transactions.

The final step in holding a company accountable for abuse of dominance is proving that the company’s practises are exploitative or exclusive, which in turn results in misuse of their dominating position. The difficulties experienced by other offline businesses in proving that their conduct is not abusive are very different from those confronted by social media platforms.

These includes as mentioned in the section 4(2)[11] of competition act, 2002

limiting or restricting:
production of goods or provision of services of a market; or
technical or scientific development relating to goods or services to the prejudice of consumers;
indulging in practice or practices resulting in denial of market access, in any manner;

The “Digital India” programme was launched in 2015 with the goal of transforming India into a society where everyone has access to the internet. This scheme, together with the current COVID-19 situation, opened the door for other internet platforms. These factors have, on the one hand, sparked an increase in online platforms and digital transactions. On the other hand, it is difficult for competition authorities to regulate or keep up with the speed of expanding digital markets.

Anti-competitive practises by online platforms (Amazon and Flipkart), food delivery services (Swiggy), online travel agencies (Make my trip), WhatsApp, etc., have recently been under scrutiny. Controlling such anti-competitive practises in the digital space is urgently needed. In support of this objective, Ministry of Corporate affairs has appointed a committee on digital competition law to examine the need for having a separate law regulating competition in digital markets[12].

Emerging forms of abuse in digital market

The unique market conditions and forms of conduct that have arisen in digital markets have led to proposals to develop new theories of harm[13]. These theories, in some cases, attracted controversy, given that they do not fit within the ambit of established theories and analytical frameworks.

Forced free riding

This theory of damage focuses on the special function that digital platforms have, particularly the transactional or content platforms that consumers use to market goods or deliver content to their customers. Forced free riding occurs “when other businesses that rely on a platform for access to consumers appropriate innovation from the platform.”.

self-preferencing

A comparable new notion of harm refers to a dominant corporation operating in numerous connected markets (whether they are related horizontally, for example as complements, or vertically, as an input and finished product). Abusive leveraging (or discriminatory leveraging) theories of harm, however, put more of an emphasis on how a company can exploit (or leverage) its dominating position in one market to favour its products in a connected market.

Privacy policy tying

privacy policy tying occurs when a dominant firm imposes data collection terms on its consumers that allow it to use consumer data in a wide set of circumstances. It can use data collected in the market for which it is dominant to enter a new market with an overlapping user base.

Google v. matrimony- A case study

In Matrimony v Google[14] , the Matrimony, provides online platform for prospective marriage alliance It claimed that Google was violating Section 4 of the Competition Act of 2002 by prioritising its own services and business partners over those of third parties.

It has been highlighted that Google offers vertical services like YouTube, Google News, and Google Maps in addition to its search offerings. Google began blending its search results with its vertical offerings. For instance, when a person searches for a song on Google, he is shown with links to YouTube videos of that song.

The Commission observed that, although the Act does not point towards a market share threshold, beyond which dominance can be presumed.[15]

However, Google’s market share in the relevant market—which is higher than that of its nearest rival—clearly demonstrates its supremacy. On the matter of “denial of market access,” the Commission had different opinions.

There was no proof that two distribution agreements amounted to a refusal of market access, and the distribution agreements with Mozilla’s Firefox and Apple’s Safari do not have exclusivity as they just state that Google will be the default search engine on the respective browsers. 150 It is important to take note of the Commission’s statement in paragraph 203 of the order that the Commission is aware that any action relating to the technology markets should be carried out with prudence because it could result in depriving consumers of the benefits of innovation. Additionally, it might have an impact on the nation’s economic growth and wellbeing.

In the end, the Commission determined that Google had a dominant position and violated Section 4 of the Competition Act 2002 by unfairly forcing users to use its search services and by forbidding publishers with “negotiated search intermediation agreements” to use the search services provided by rival search engines. It levied a fine equal to 5% of the average revenue generated by activities in India for the fiscal years 2013, 2014, and 2015.

Map towards digital competition bill

Ex-ante rules are being enacted by numerous legal systems throughout the world to control gatekeepers in digital markets. Ex-ante regulation was advised by the Parliamentary Standing Committee on Finance in its 53rd report to sustain successful competition in digital markets.

The report mentions that Indian digital ecosystem is growing, and its digital economy is expected to reach USD 1 trillion by 2030. Also, Anti-competitive practices have been identified and global regulations i.e. DMA of EU, American Innovation and Choice Online Act, USA, Open APP Market Act, USA, 10th Amendment of German Competition Act, The Ending Platform Monopolies Bill, USA, have been discussed in the report.[16]

A committee on digital competition law was recently established to examine international best practises in the area of digital marketplaces and to determine the need for ex-ante regulation. Within three months, the Committee must present a report and a draught of the Digital Competition Act.

Conclusion

The legal framework in India for addressing abuse of market dominance in digital markets is still developing. Abuse of dominance theories are fundamentally challenged by digital marketplaces. If competition enforcement agencies are unable to apply these frameworks to digital business models, it may raise concerns about the abuse of dominance cases’ general applicability as a tool for competition enforcement. Without a clear legislative framework on the digital market, CCI is making every effort to deal with dominant groups’ anticompetitive activities. Notably, CCI has rendered decisions in several disputes involving digital markets, including those involving WhatsApp, Facebook, and Google. In order to analyse this instance of abusive practises by a social media platform, CCI still needs to alter its tools. It is more important than ever to switch from its qualitative standards to an examination based on effects. When making such decisions, the SSNDQ test as stated above must be modified. In addition, while determining whether the firm has misused its dominant position, the Commission might need to consider additional criteria not mentioned in Section 4(2). While the section’s discussion of exploitation and exclusionary practises is relevant to offline markets, it is important to emphasise the demands of the expanding technological marketplaces while resolving such issues. There is potential for success in this area because the Ministry of Corporate Affairs and Committee on Digital Competition Law are collaborating to create a digital competition law that will regulate monopolistic businesses and prevent their abuse of power to guarantee fair competition in digital markets. It is anticipated that India will have a Digital Competition Act soon.

[1] Ayush Verma, Abuse of dominance in the social networking market – iPleaders, IPleaders (May 23, 2021), https://blog.ipleaders.in/abuse-dominance-social-networking-market/.

[2] (Oct. 13, 2020), https://www.oecd.org/daf/competition/abuse-of-dominance-in-digital-markets-2020.pdf.

[3] https://www.globalcompliancenews.com/antitrust-and-competition/antitrust-and-competition-in-india/.

[4] https://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=9121622&fileOId=9121656

[5] Tanya Saraswat, Abuse Of Dominant Position In Digital Era, India (Feb. 23, 2023), https://www.mondaq.com/india/hotels–hospitality/1286014/abuse-of-dominant-position-in-digital-era.

[6]Abuse Of Dominance In Digital Market, https://www.legalserviceindia.com/legal/article-10737-abuse-of-dominance-in-digital-market.html.

[7] https://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=9121622&fileOId=9121656.

[8] https://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=9121622&fileOId=9121656.

[9] Competition Act 2002, section 2(f)

[10] https://www.globalcompliancenews.com/antitrust-and-competition/antitrust-and-competition-in-india/.

[11] Competition Act, 2002, section 4(2)

[12] https://www.globalcompliancenews.com/antitrust-and-competition/antitrust-and-competition-in-india/.

[13]
(Oct. 13, 2020), https://www.oecd.org/daf/competition/abuse-of-dominance-in-digital-markets-2020.pdf.