Digital Economy

The use of the term 'technology' has evolved significantly over time. Today, technology has delved into almost every aspect of our daily lives making sure that traditional fields of our economy are having serious competition from the new age digital economy.

The Merriam-Webster Learner's Dictionary offers a definition of technology as "the use of science in industry, engineering, etc., to invent useful things or to solve problems" and "a machine, piece of equipment, method, etc., that is created by technology.". One aspect of technology that has overtaken our daily lives recently is the digital economy which has got further robust boost recently due to the restrictions imposed on brick and mortar stores during the times of Covid -19.

Technological developments have provided consumers with new products and services, in many instances offered free of charge in exchange for their data. Digital platforms are at the centre of such developments and provide digital infrastructure and intermediation services in different markets, including marketplaces (Amazon), application stores (Apple), social networking sites (Facebook) and search engines (Google).[1]

Conflict With Anti Trust Law's

The digital economy has been defined as unique and it is characterised by network effects that promote concentration of markets, while service providers have multiple routes available for delivering digital services to users which can lead to the market being contestable. Thus, resulting in market power which can be challenged by entrants more easily and often faster than in more traditional areas of the economy.[2]

The uniqueness of the digital economy has resulted in issues pertaining to anti-trust laws not only in India but also around the World. The rapid growth in the sector has put it at odds with anti-trust/competition regulators in several parts of the World.

The European Commission has defined an online platform as "an undertaking operating in two (or multi)sided markets, which uses the Internet to enable interactions between two or more distinct but interdependent groups of users so as to generate value for at least one of the groups."

Digital Platforms And Competition Act

India is the fastest growing market for the e-commerce sector. Revenue from the sector is expected to increase from USD 39 billion in 2017 to USD 120 billion in 2020, growing at an annual rate of 51 percent, the highest in the world.[3] The growth of the digital economy in India has been enabled by the increase in the mobile phone subscriber base and penetration of the internet across the country. The number of internet users in India increased from 445.96 million in 2017 to 665.31 million in 2019 and is expected to increase to 829 million by 2021.[4]

In 2002, the Competition Act was passed replacing the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) which was repealed. The introduction to the Competition Act states that it is an Act which provides for establishment of a Commission whose duty is to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India. [5] The Competition Act is the sole legislation in India on Competition Law.

Competition Commission Market Study 2020

The Competition Commission conducted a Market Study in 2020 on E-Commerce in India[6] wherein it has found that there is an increased intensity of price competition across the categories studied and that e-commerce has transformed the way price information is disseminated. On the one hand, consumers enjoy increased price transparency and the consequent ease of price-comparison, on the other hand it enables sellers to monitor competitors' prices on a real-time basis and use it as an input in setting their own prices.

The Competition Commission in report has stated that E-Commerce platforms when serve as both a marketplace and a competitor on that marketplace, have the incentive to leverage their control over the platform in favour of their own/preferred vendors or private label products to the disadvantage of other sellers/service providers in the platform.

The platforms have a variety of mechanisms that they can use to act upon such incentive, including their access to transaction data and ranking of search results. The dual role of the platform gives rise to the concern of ranking biases that may be created by the platform as a discriminatory device.

The Commission pointed out to lack of transparency and credibility issues around the user review and rating policy of some of these platforms was highlighted by the business users as a factor that further allowed for search result manipulation, which in turn impacted their ability to compete effectively with the vertically integrated entities or the platforms 'preferred entities.

Under Section 4 of the Competition Act 2002, no enterprise or group shall abuse its dominant position by directly or indirectly imposing unfair or discriminatory conditions in purchase or sale of goods or services, engage in predatory pricing or include any discriminatory condition or price which is adopted to meet the competition.

The section also states that no limits or restrictions can be imposed on production of goods, provision of services, technological development or scientific development relating to goods or services to the prejudice of consumers, denial of market access in any manner, makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which by nature of commercial usage have no connection with the subject of the contract and use its dominant position in one relevant market to enter into or protect other relevant market. If the report of the Competition Commission is perused then prima facie it indicates to violation of Section 4 of the Competition Act 2002 by online platforms.

The CCI recently has penalised Google for abusive practices in the market of online general web search services. The CCI held that Google enjoys a dominant position in the relevant markets of online general web search and web search advertising services in India and that Google abused its dominant position.

The Commission observed that Google had leveraged its dominance in the market for online general web search, to strengthen its position in the market for online syndicate search services. Further, competitors were being denied access to the online search syndication services market on account of such prohibitions.[7]

The Competition Commission has prima facie held that Amazon and Flipkart have contravened the provisions of the 2002 Act by entering into anticompetitive exclusive agreements, deep discounting and giving preferential listing to certain 'preferred sellers'.[8]

The Competition Commission in its market study has pointed out a way forward, it has suggested that ensuring competition on the merits to harness efficiencies for consumers, promoting transparency to create incentive for competition and to reduce information asymmetry and fostering sustainable business relationships between all stakeholders.[9]

Competition Amedment Bill

The Central Government has also introduced the Draft Competition Amendment Bill 2020 wherein it is provided that the Central Government may in public interest and in consultation with the CCI prescribe any criteria, the fulfilment of which shall cause any acquisition of control, shares, voting rights or assets, merger or amalgamation to be deemed to be a combination and a notice for such acquisition, merger or amalgamation fulfilling such criteria shall be given to the CCI. The Draft Bill has proposed to broaden the definition of an 'enterprise' in Section 2(h) of the Competition Act, 2002, which significantly increases its scope and effectively encompasses a wider array of trades including e-commerce.

Conclusion:
The spread of the digital economy has no doubt provided benefit to consumers in terms of choice, pricing and other benefits. However, these short term benefits must be considered in the context of the long term impact that it may have. Dominant position whether held in traditional economy or the digital economy has equally negative effect on economy, society and business. It must also be considered as to how much of an impact the dominant position of digital platforms has on the brick and mortar stores which are more employment intensive.

In 2018, Walmart had an equity of USD 79.6 Billion Dollars with 2.2 Million Employees, while Amazon had a equity of USD 43.55 Billion Dollars with 575,000 employees[10] Walmart had less than twice the equity worth of Amazon, yet it employed four times the number of employees. The growth of digital platforms must not only consider consumer interest but also employment interests of society.

End-Notes:

1. Competition Law, Policy and Regulation in Digital Era, United Nations Conference on Trade and Development. 28th April 2021
2. Challenges for Competition Policy in a Digitalised Economy, Directorate General for Internal Policies, Policies Department, Economic & Scientific Policy. July 2015.
3. Indian Ecommerce Industry Report, IBEF, 2019. https://www.ibef.org/industry/ecommerce.aspx
4. Ibid.
5. The Competition Act 2002.
6. Market Study on E-Commerce in India: Key findings and Observations, Competition Commission of India, 08th January 2020.
7. Matrimony.com Ltd. Vs. Google LLC & Ors. (Case No. 07/2021)
8. In Re: Delhi Vyapar Mahasangh & Ors. (Case No. 40 of 2019)
9. Market Study on E-Commerce in India: Key findings and Observations, Competition Commission of India, 08th January 2020
10. 7 Ways Amazon and Walmart Compete – A look at the Numbers. Forbes, Blake Morgan. 21st August 2019.