COMPETITION LAW AND GUIDELINES FOR DIGITAL

ENVIRONMENT

NAME : P.VARSHINI

CLASS : B.B.A LLB (HONS)

SECTION : C

YEAR : IV

REGISTRATION NO. : HC17144

SUBJECT : COMPETITION LAW

STUDENT SIGNATURE: FACULTY SIGNATURE:

 TABLE OF CONTENTS

HYPOTHESIS 1

STATEMENT OF PROBLEM 1

INTRODUCTION 1

SEARCH ENGINES 2

E- COMMERCE 2

CHALLENGES OF 3
COMPETITION LAW

CONCLUSION 6

REFERENCES 6
 COMPETITION LAW AND GUIDELINES FOR THE DIGITAL
ENVIRONMENT

Hypothesis
In today’s digitised economy, consumers often come across seemingly free services online,
finding themselves providing their data as consideration for the services. In most cases, the
service providers monetise this data by providing it to advertisers, which use it to target
consumers with personalised and relevant ads. It is an efficient system, reducing costs, both
for businesses and consumers. Businesses can get better returns on investment, both in (i)
terms of resources spent on developing products the market wants; and (ii) in terms of
advertising costs by reaching out to groups who are most likely to purchase those products.
Correspondingly, it also reduces a consumer’s search costs, i.e., the cost the consumer would
bear to look for the good or service that would best satisfy his/her want (such as fuel, time,
and money).

While digital markets are rapidly evolving and pose new challenges, competition law is
tasked with scrutinizing the conduct of participants in the market and as a result is reactive
(with the exception of regulating combinations). It is imperative that competition regulation
keep pace with new challenges in digital markets, instead of waiting for the market to
‘stabilise’, because by that time, any anti-competitive conduct shall be fortified.

We look at some major issues that a new entrant in a market dominated by a tech incumbent
may face, and the answers which our laws provide to these situations.

STATEMENT OF PROBLEM

1. are the guidelines framed by the competition commission are effective in digital
platforms?
2. What the guidelines to be introduced for the betterment of the digital market for
competition?

Introduction

Competition laws are based upon the principle that in a free market there is always an
element of desirability for free competition, and in the absence thereof, monopoly breeds.
The purpose of having competition laws is for the prevention of any practices which may be
detrimental or harmful to the welfare of the consumers. This principle is different from that
which has been laid down under the MRTP (Monopolies and Restrictive Trade Practices) Act
whereby the primary focus was to curb monopolies in the market. But under the Competition
Act, the primary objective is to promote and sustain competition in the market along with
protecting the interests of the consumers. Another important feature of the Competition Act is
that it sees to it that the various businesses in the market carry out their operations in a
manner which will not lead to any anti-competitive agreements, practices or control. This in
turn will ensure the level playing field in the market.

A ‘digital economy’ which is also known as a digitalized economy, an internet economy or

an online economy is an economy which is based on digital technologies and makes use of
communication and data processing for the conduct of its business. With the accessibility of
the internet from mobile devices, more and more people are engaged in this digital economy
thereby causing a growth in this sector. In the current scenario, digitalization can be seen in
all economic sectors and this made certain sectors more popular which includes the internet
search engine, social networks as well as E-commerce.

Search Engines

When we look back to the 1990s, search engines have not yet come out in a large scale but in
the present times, Google and Bing are considered as the pillars of multi-billion dollar
businesses in the field of search engines. The net market share shows that Google holds the
highest share in the search engine market which is followed by Bing and Yahoo. This is an
indication that Google has its dominant position in the search engine market.

Social Networking
Another area in the digital economy which occupies a very important position is the ‘social
networking’. This area is considered to be very popular all around the world for the simple
reason that it has helped people to be able to stay in touch with each other wherever they are.
An example to this is Facebook which has helped people to feel much closer to their friends
and families across many places. However, there are various other social network platforms
which serve different purposes. For example, the purpose of Facebook is basically for social
contacts; LinkedIn which is another social network platform serves basically for business
purposes. Therefore, we can say that these two different networks target the same audience
but having their own purpose. With the growth and development of different social
networking platforms, they are also at the same time under the supervision of various
competition laws governing their operations.

E-commerce

Further, when we look at the digital economy, one cannot forget the significant role played
by the digital markets which is also known as E-commerce which has made life quite easy for
everyone. For example, Flipkart, Amazon, Ebay has really helped in the purchase of various
goods and having wide range of choices. Other categories include Netflix, Amazon Prime,
MakeMy Trip (for hotel and flight bookings, etc) which also provide services to the end user
in digital form. Therefore, in such situations, competition law also plays an important role in
monitoring the activities of such enterprises to prevent any anti-competitive practices or
misuse of their market position.

The Amazon-Flipkart Case1

The CCI in the month of January had given an order that investigation should be conducted
as allegations had been made against Amazon and Flipkart as they were contravening
provisions of the Competition Act, 2002.

1
https://www.livemint.com/industry/retail/the-amazon-flipkart-antitrust-case-files-11583250005881.html
A society which comprises of “Micro, Small and Medium Enterprises (MSME) traders
dealing in smart phones and related accessories approached the CCI with a complaint against
Amazon and Flipkart alleging contravention of Section 3 (4) read with Section 3 (1) and joint
dominance under Section 4 (2) read with Section 4 (1) of the Act. The allegations involved
issues relating to: (a) exclusive launch of mobile phones, (b) preferred sellers, (c) deep
discounting, and (d) preferential listing or promotion of private labels. The CCI noted that the
allegations are interconnected and warrant a holistic investigation to examine – (a) how the
vertical agreements operate; (b) what are the key provisions of such agreements; and (c) what
effect do they have on competition. The CCI’s assessment of the issues involved in the
complaint is as follows:

 Exclusive launch of mobile phones: It was noted by CCI that exclusive launch of
mobile phones had been done by Amazon and Flipkart on their respective platforms
whereby, Amazon exclusively launched 45 mobile phones in the year 2018 and 67
mobile phones were exclusively launched by Flipkart.
 Preferred sellers: Allegations were also such that both Amazon and Flipkart were
having their own preferred sellers and that these preferred sellers have nexus with the
e-commerce platforms. Based on this allegation, it was noted by CCI that the
exclusive launch along with giving preference to few sellers and the discounting
practices which they were engaging may prima facie lead to an ‘appreciable adverse
effect on competition (AAEC)’.
 Heavy discounting: CCI also examined the prices of different smart phone brands
which were  being sold through Flipkart and Amazon making comparison of the
original price as well as the discounted price. CCI came to the conclusion that certain
smart phone brands were available at significantly discounted price on these platforms
and they were also being sold largely through the ‘preferred sellers’ only.
Accordingly, investigation was directed by CCI to find out ‘whether funding of
discounts is an element of the exclusive tie-ups between the platforms and the sellers’.
Based on the above observations, Amazon and Flipkart were prima facie found by CCI to be
contravening Section 3 (1) read with Section 3 (4) of the Competition Act, 2002 and directed
the Director General to make investigations. CCI noted that the allegations in the information
were interconnected and warranted a holistic investigation of examining the vertical
agreements in operation and their effect on competition. Further, it noted that since both
Amazon and Flipkart appeared to follow the same strategy with respect to exclusive tie-ups
and preferential terms with brands or sellers, competition between the platforms prima facie
did not play a role in mitigating the potential adverse effect on competition on the platforms”.

Challenges of Competition Law

The technology companies are generally admired for their ability to bring about
modernization and advancement in the digital economy. However, such businesses are
vulnerable to acquisition and abuse of market power. As has been witnessed in the current
scenario, competition in India is transforming rapidly and various concerns have also arisen
from numerous unfair practices in the market. There are situations whereby the dominant
entities in the market acquire the smaller firms to eliminate competition. The CCI could
review such agreements which have been entered by the parties under section 4 of the
Competition Act dealing with abuse of dominant position. By doing this, it will regulate the
practices of the dominant entities which had acquired the competitors and thereby abusing
their position. Also, due regards should be given by CCI while examining the practices of
huge enterprises having extensive capital who eliminate their competitors by enticing
customers through their practice of ‘predatory pricing’ or ‘below-cost pricing’.

To be able to differentiate between what is predatory and legitimate pricing in a competition

is not an easy task due to various factors prevalent which determine the market price.
Therefore, substantially high standards of evidence is required to punish those who actually
engage in such predatory pricing practices and at the same time to also prevent those who are
actually engaged in legitimate pricing. One of the commonly used benchmark test is the
‘equally-efficient-competitor benchmark test’ which scrutinizes whether competition can be
maintained between the competitor on one side and the dominant enterprise on the other.
However, one may observe that such a test is not enough to determine whether the practices
are anti-competitive or not and certain other ways and means should be implemented to meet
the requirements.

The Ola case2

An information had been filed against Ola stating that it had abuse its dominant position as it
was involved in ‘predatory pricing’ in the relevant market by “offering heavy discounts to
passengers and incentives to cab drivers, which contravened Section 4 (2) (a) (ii) of the
Competition Act. Allegations were such that Ola being in control of over 50% of a highly
concentrated market shows its dominance in the market. The Informants also alleged that
there were considerable entry barriers present which made it difficult for a new player to
effectively compete. Consistent payment of high incentives along with exclusivity clauses in
agreements with drivers allowed Ola to prevent effective competition and created a wide base
of customers. Allegations were also that due to the reason that Ola has a large network across
the nation it has restricted the power of consumers to negotiate and substantially affect the
service provider by shifting to a competing network. CCI was of the view that Ola was
having a dominant position in the relevant market of ‘Radio Taxi services in the city of
Bengaluru’ and therefore, a detailed investigation was directed to the Director General. The
Director General came to the conclusion that the relevant product market would be the
‘market for radio taxi services’ and the relevant geographic market would be the ‘city of
Bengaluru’. The Director General made comparison of the number of rides carried out by
different players in the relevant market between the year 2012 and 2016 and observed that
Ola’s growth rate was 63% whereas Uber’s growth rate was 1200% in the same period.
Therefore, Uber being a healthy competitor defeated the argument for presence of entry
barriers and the Director General came to the conclusion that Ola was not in a dominant
position.

The informants’ contention that the control of more than 50% of the relevant market by Ola
was sufficient to determine test of dominance was rejected by CCI. It held that the test
enshrined under Section 19 (4) of the Competition Act has to be met to determine dominance
and such a numerical threshold cannot be accepted as a valid test under the Act. Although
CCI held that Ola was not in a dominant position, it made certain observations on its ‘pricing
strategies’. The Commission rejected the contention of the informants that ease of access to
wide pool of funding exclusively with Ola acted as a key constraint on smaller competitors
and new entrants from effectively competing in the relevant market. The Commission
observed that in an innovative technology industry, a level playing field in access to funding
2
https://www.delhicourses.in/blog/the-ola-case-study-how-to-disrupt-a-sector/
would be the key element to determine the existence of an entry barrier as opposed to a mere
high requirement of capital. On the basis of an analysis of pricing strategies of the players in
the market, the Commission concluded that Ola’s alleged ‘aggressive pricing strategy’ was
not an independent strategic choice but was rather a reaction to Uber’s aggressive pricing
which was itself indicative of the competitive forces already present in the relevant market”.
Another challenge faced by the authorities is due to the dynamic nature of the market. The
companies in a digital economy keep on implementing new strategies in the market thereby
leading to an ever-changing nature to the digital markets. Take the example of PayTM
whereby it has made its entrance in the market being a money transfer application and has
evolved tremendously in just a short span of time.

The next challenge is with respect to mergers. Under the Competition Act, 2002, it states that,
“any merger or combination which causes or is likely to cause Appreciable Adverse Effects
on Competition (AAEC) is void under the Indian Competition Act”. Mergers and
combinations are also considered to be one of the daily activities of the technology related
companies as well. For example, Facebook taking over WhatsApp and Microsoft acquiring
Skype and several others are examples of some of the well-known mergers in the sector of
technology. Due to the emergence of such technological enterprises, the CCI is faced with yet
another challenge which is the ‘pre-emptive merger’. The main objective of ‘pre-emptive
mergers’ is to “acquire the potential competitors in order to be able to prevent disruption of
one’s own business model”. This method is contrary to the principles of a competitive market
as it will reduce the competition as well as innovation thereby consumers will be given very
limited options to select from. The biggest challenge here lies in the fact that it will be
difficult for the authorities to identify such mergers either as possessing competitive business
strategies or anti-competitive strategies because in some cases such acquisition may also be
for motivating smaller firms to innovate.

Lastly, the anti-competitive practices which the dominant players in the market conduct are
indescribable. One of such practices is the ‘restrictive trade agreements’ which involves
‘exclusivity agreements’. Exclusivity agreements are “those agreements between two or more
parties to purchase goods exclusively from a specified seller in the agreement”. Here, the
buyer has been restricted to promote, buy or use similar products from any other vendor or
provider. For example, Apple and Amazon were engaging in exclusivity agreements. The
audiobook by the name ‘Audible’ is a subsidiary which belongs to the e-commerce giant
Amazon. As per the terms of the agreement, Apple was not permitted to purchase digital
audiobooks from other suppliers thereby making the whole agreement anti-competitive and
Amazon stands in a dominant position. But later on the companies decided to end the
agreement.

Another example to similar agreements is that which Google had entered with Mozilla
Firefox, etc. Google had signed exclusive agreements with Mozilla Firefox, Opera and Apple
Safari whereby in each of these browsers Google is the search default.

The abovementioned challenges are only a few out of the many which the competition
authorities are dealing with in a digitalized economy. The problems and challenges are
present at every level of the market operations. The competition authorities should focus
more on generation of profits by the companies as well as their turnover. Further, the
authorities should also observe the potential competitors who are in a position to steal profits
from the incumbents.

Conclusion

As had been discussed, social networks, search engines and E-commerce are the main facets
in a digitalized economy and only few firms are in domination of these areas. The leading
firms will try to employ numerous methods to maintain that dominant position in the market.
At times when activities which are anti-competitive or unfair emerge, the authorities are
faced with the challenges to analyze them in a proper manner to identify their anti-
competitive nature. The digitalized economy is developing rapidly; therefore, more tests and
means to analyze such anti- competitive practices should be discovered and implemented for
the benefit of the consumers and the market as a whole.

REFERENCES

https://www.orfonline.org/research/a-legal-toolkit-for-fair-and-competitive-digital-
markets-in-india/

https://wtocentre.iift.ac.in/workingpaper/WorkingPaper52.pdf

https://lakshmisri.com/insights/articles/the-evolving-dynamics-of-competition-regulation-in-
digital-markets/