Standalone Ex-ante Approach: A Mirage?

[By Tejaswini Sahoo]

The author is a student of the West Bengal National University of Juridical Sciences (NUJS).

 

Introduction

The rapid growth of digital conglomerates in the dynamic competitive market has prompted stakeholders from various sectors to mull over a comparative analysis of leading approaches. The regulatory frenzy race is multi-surfaced because of intricate business models, content moderation issues, and burgeoning sociocultural power. Further, because of the endowment of entrenched positions, they build conglomerate ecosystems around their core platform services, strengthening entry barriers and possibly leading to unfair actions. There is a global consensus that conventional competition law is inadequate to accommodate the panoply of the conundrum arising in digital platform markets. Therefore, regulating or not is no more a Shakespearean issue. As a result, the paradigm shift of a deliberative evidence-based approach Ex-post to a form of speculative approach Ex-ante is witnessed in other jurisdictions, including the West.

The present article aims to be provocative in nature. It poses questions on three prominent emerging approaches; firstly, which approach will cure market failure, structural competition problem, and monopoly problems? Secondly, can tailored objective standards be implemented in a subjective, fluid digital market? Thirdly, would the Ex-ante approach involving specific market issues be proportionate towards large digital platforms? Moreover, whether or not these tailored remedies will stifle innovation in an emerging market like India. In the Indian context, regulations should be implemented after properly reframing them against the socioeconomic backdrop.

Paradigm Shift Across Jurisdictions

The perfect storm is brewing for digital platforms on all fronts. For instance, the Digital Markets Act by the EU imposes a series of negative and positive obligations on the enterprises designated “Gatekeepers” based on internal market power, strong intermediation position, large user base, or durable position as determined by the DMA. In the US, the Federal Trade Commission is prioritising Ex-ante measures by reintroducing a rule that restricts acquisitions for organisations and enterprises that pursue “anti-competitive mergers.” The 10th Amendment has already been incorporated into the German competition Act to bring pre-emptive measures thanks to swift action. Likewise, the UK created the “Digital Markets Unit” as a continuous agency oversight, whereas Japan and Australia are all actively working to implement an Ex-ante approach.

In India, the Parliamentary Standing Committee tabled the 53rd report on “Anti-competitive Practices By Big Tech Companies.” The committee observed the distinction between the traditional physical market and Digital markets. It opined to form ‘Systemically Important Digital Intermediaries (SIDIS)’ by identifying leading players. Subsequently, India should create definitions for Ex-ante rules that govern the behaviour of systemically important digital intermediaries following the footsteps of other jurisdictions.

Comparative Analysis of Three Emerging Approaches

Over time, Policymakers have adopted several distinct approaches to regulating large digital platforms. Firstly, antitrust law: a set of flexible, judicially crafted behavioural standards. It does not forbid market power creation, maintenance, or enhancement by procompetitive means, such as innovation or gains in productive efficiency. It aims to treat the disease-causing harmful market impacts rather than just masking its symptoms (such as rising costs and declining quality) as a “palliative” treatment. However, the proponents of the Ex-ante approach will claim that it is too slow to control fast-pacing, multifaceted digital platforms. It does not provide prospective guidance and ends with monopolising the market or controlling unique traits of digital market needs.

, Secondly, Ex-ante are positioned to handle the problems resulting from structural shortcomings in the framework of the digital marketplace. Additionally, to do so fast enough to avoid platforms securing and leveraging their places at the expense of users or by excluding possible competitors. It is determinative and can damage control in a fast- pacing market. However, the Hayekian knowledge issue regarding laws that apply uniformly to various digital platforms will likely worsen. A standard-based strategy customises instructions for a specific context, creating conflict with creative and constantly evolving digital marketplaces. The slightest deviation could result in legal action in the ever- changing digital marketplaces, discouraging innovation. When natural monopoly utilities are obliged to charge rates similar to those that would prevail under competitive conditions, the rules may be intended to force the outcome that would occur if the market were competitive. Such regulations are a palliative treatment for market power since they aim to reduce its symptoms, such as supra-competitive prices, without treating the underlying problem (the lack of competition).

. Thirdly, an expert Oversight Agency is authorised to craft tailor-made codes of conduct for each platform with strategic market status. Further, it is supposed to ensure fair trading, freedom of choice, reliability and transparency. The UK recently adopted to launch “Digital Market Unit” within the nation’s antitrust agency, the Competition and Markets Authority (CMA). Compared to antitrust law, it might be quicker, more precise, and less prone to mistakes than Ex-ante regulation. However, the approach fosters broad discretion of interest group exploitation, susceptibility to political influences, and limited control over their subject matter, which poses serious issues concerning public choice and interest. Therefore, ensuring the fair constitution of the oversight agency plays a crucial part in this approach.

Is a Speculative Blanket Restriction Necessary?

An influential industry group representing Google, Meta, and Amazon, among other tech firms, hailed the Standing Committee Report of India as regressive, prescriptive, and absolutist. There are two types of regulation: Symmetric (applicable to all the firms) and Asymmetric (applicable to only a few enterprises compared to objective criteria). The question arises: Will shifting to speculative obligations cure market failure, structural competition, and monopoly conundrums? Further, whether the application of regulations asymmetrically will fix the inherent root issue?

The answer depends on whether market failures are caused by monopoly issues or structural market failure. In case of a structural issue, symmetric regulation is necessary because it must handle the issues brought on by the market’s structure, regardless of the scale of the companies involved. On the contrary, if a monopoly issue is identified, Asymmetric regulation is necessary, and asymmetric regulation is required as the regulation has to address only the monopoly power of the dominant firm. Here the question arises whether these digital platforms are natural monopolies or artificial (due to the invention of the market structure). In the digital economy, platforms compete for the market and not in the market. It starts from the nascent stage and, subsequently, with better goods & services, namely innovating and competing. Then, network effects, access data, and the economics of scale and scope further their dominant position. Therefore, large digital platforms are not natural monopolies but rather the invention of the market structure.

Uber (India systems privates limited) V. Competition Commission Of India explains the two ingredients of §4 of the Competition Act; if there is to determine abuse of the dominant position, firstly, the dominant position itself and secondly, abusing the same. The remark of Makan Delrahim is pertinent here, “big is not bad, but big behaving badly is bad.” Only large digital platforms will comply with the directives resulting from Asymmetric applications. It will prohibit dominant company behaviour but not (the same) behaviour that allows for establishing a dominant position. By leveraging network effects, access to data etc., a non-dominant platform will be able to become dominant in the future. Hence, the present policy will deal with the monopoly issues but not (the underlying causes) of competitive structural issues.

Complementary Model

The author supports the idea of eschewing the Nirvana fallacy (one size fits all) to complementary institutions fitting into the context. To defy the contention of subverting the irreversible damage by not taking imminent action, Ex-ante remedies can be applied Ex-post as well. §33 of the Act empowers the CCI to grant interim measures in certain circumstances. The Competition Commission of India V. Steel Authority of India, established the evidentiary standard. The following conditions are:

A) Record its satisfaction (which has to be of a much higher degree than the formation of

a prima facie view under §26(1) of the Act in clear terms that an act in contravention of the stated provisions has been committed and continues to be committed or is about to be committed;

  1. B) It is necessary to issue an order of restraint and
  2. C) From the record before the Commission, there is every likelihood that the party to the list would suffer irreparable and irretrievable damage, or there is definite the apprehension that it would harm competition in the market.”

Interim measures were recently positioned in FHRAI v. MakeMyTrip Pvt. Ltd. with immediate effect. The substantial evidentiary standard avoids the rigid and regressive front. Additionally, it creates room for innovation and growth in the digital market.

Conclusion

The present article strives to ignite the conversation on the complexity of digital competitive dynamics in India. There are few international precedents because most governments are still trying to grasp the complexity of digital marketplaces. However, the blockage of the Alstom-Siemens merger by the EU hampered the competitiveness in “railway signalling systems and high-speed rail”. This perfectly illustrates the importance of the whole government approach while implementing competition policy and regulation with a pinch of caution. The regulations should supplement innovation for the growth of the economy.

The three comparative institutional analysis has their limitations and advantages in specific circumstances. Regulating such a non-static digital market requires the models to work harmoniously. Ex-ante rules are not a complete solution, as their current form needs to be updated. Moreover, the scattered directives have created a blind spot in regulation. Meanwhile, the suggested complementary model of interim measures will harmonise the intricacies. Before jumping into the regulatory race, India must consider all dimensions of the debate and information from prominent jurisdictions. Therefore, the author propagates switching to a “wait & watch” approach from “plug & play” solutions from distinct jurisdictions.

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

Contact Us

Kerwa Dam Road., 
National Law Institute University, Bhopal
Madhya Pradesh, India. 462044​.

write to us at – cbcl@nliu.ac.in