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Digital Competition Bill: Ex-Ante Framework

10th July, 2024 Economy

Digital Competition Bill: Ex-Ante Framework

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  • In February 2023, the Ministry of Corporate Affairs (MCA) constituted a Committee on Digital Competition Law (CDCL) to examine the need for a separate law on competition in digital markets.
  • After a year of deliberation, the CDCL concluded that the current ex-post framework under the Competition Act, 2002, should be supplemented with an ex-ante framework.
  • This new framework was outlined in the draft Digital Competition Bill.




Digital Competition Bill (DCB), 2024

  • The aim of this Bill is to regulate Big Tech platforms of a prescribed size on an ex-antebasis, following a global trend.
  • The Bill specifies quantitative (turnover, user base) and qualitative criteria for identifying Systemically Significant Digital Enterprises (SSDEs) and their Associate Digital Enterprises (ADEs).
  • Enterprises exceeding these thresholds will be scrutinized by the Competition Commission of India (CCI).
  • SSDEs are required to comply with stringent obligations outlined by the Committee for Digital Competition Law (CDCL).
  • These obligations restrict practices such as self-preferencing, restricting third-party apps, imposing anti-steering policies, misusing business users' data, and bundling products and services.

What is an ex-ante framework?

  • The Competition Act, 2002 is the primary legislation concerned for preventing practices that have an adverse effect on competition.
  • It establishes the Competition Commission of India (CCI) as the national competition regulator.
  • As with competition law in all other jurisdictions, the Competition Act, 2002 is based on an ex-post framework. This means that the CCI can use its powers of enforcement only after the anti-competitive conduct has occurred.
  • In the case of digital markets, the CDCL has advocated for an ex-ante competition regulation. This means that they want the CCI’s enforcement powers to be supplemented such that it allows it to pre-empt and prevent digital enterprises from indulging in anti-competitive conduct in the first place.

Ex-ante Competition Regulation: An Unusual Approach

Global Perspective

  • Limited Adoption: Ex-ante competition regulation is unusual globally. The European Union (EU) is the only jurisdiction where a comprehensive ex-ante competition framework, under the Digital Markets Act, is currently in force.

CDCL's Advocacy for Ex-ante Regulation

  • Unique Characteristics of Digital Markets: The Committee on Digital Competition Law (CDCL) supports the EU's approach due to the unique characteristics of digital markets.

Key Characteristics of Digital Markets

  1. Economies of Scale and Scope:
    • Economies of Scale: Digital enterprises benefit from a reduction in cost of production per unit as the number of units produced increases.
    • Economies of Scope: These enterprises also experience a reduction in total costs of production with an increase in the number of services offered.
    • Rapid Growth: These factors enable digital enterprises to grow much faster compared to players in traditional markets.
  2. Network Effects:
    • Utility Increase: The utility of digital services increases as the number of users grows.
    • Growth Acceleration: Network effects further accelerate the growth of digital enterprises.

Need for Ex-ante Regulation

  • Market Tipping: Digital markets can quickly and irreversibly tip in favor of incumbents.
  • Time-Consuming Ex-post Process: The existing framework is time-consuming, allowing offenders to escape timely scrutiny.
  • Preventative Obligations: The CDCL has advocated for preventative obligations to supplement the ex-post facto enforcement framework.

Basic Framework of the Draft Bill

  • Template: The draft Bill follows the EU’s Digital Markets Act.
  • Targeted Regulation: It does not intend to regulate all digital enterprises, focusing only on those “dominant” in digital market segments.

Core Digital Services

  • Identified Services: The draft Bill identifies ten core digital services, including online search engines, social networking services, and video sharing platform services.

Criteria for Dominance

  1. Quantitative Standards:
    • Significant Financial Strength Test: Assesses financial parameters to determine dominance.
    • Significant Spread Test: Evaluates the number of users in India.
  2. Qualitative Standards:
    • Systemically Significant Digital Enterprise (SSDE): The CCI can designate an entity as an SSDE based on qualitative criteria, even if it does not meet the quantitative standards.

Systemically Significant Digital Enterprises (SSDEs)

Systemically Significant Digital Enterprises (SSDEs) are large-scale digital corporations that wield significant influence in markets, prompting regulatory and policy concerns regarding their potential impacts on economic stability, data privacy, and market competition. These entities are pivotal within the digital ecosystem due to their substantial size, dominance, and pervasive influence.

Obligations of Systemically Significant Digital Enterprises (SSDEs)

  • Anti-competitive Practices: SSDEs are prohibited from engaging in anti-competitive practices.
  • Fair Operation: SSDEs must operate in a fair, non-discriminatory, and transparent manner with users.

Prohibited Practices

  1. Self-Preferencing: SSDEs cannot favor their own products over third-party products on their platforms.
  2. Restricting Third-Party Applications: SSDEs cannot restrict the availability of third-party applications or prevent users from changing default settings.
  3. Anti-Steering: SSDEs cannot restrict business users of their services from directly communicating with their end users.
  4. Tying and Bundling: SSDEs cannot tie or bundle non-essential services with the primary service being demanded by the user.
  5. Data Utilization: SSDEs cannot cross-utilize user data collected from the core digital service for another service.
  6. Non-Public Data: SSDEs cannot use non-public data of users to give an unfair advantage to their own services.

Response to the Draft Bill

  • Opposition: The overall response to the draft Bill has been one of opposition.

Concerns Raised

Effectiveness of Ex-ante Regulation:

    • Transposition Issues: Skepticism exists on how well an ex-ante model will work, partly because it seems to be directly transposed from the EU without considering the differences between the jurisdictions.
    • Lack of Evidence: There is little evidence of the ex-ante model working well in the EU.

Impact on Investments and Start-ups:

    • Negative Effects on Investments: Concerns that the draft Bill may negatively impact investments for start-ups in India.
    • Scaling Deterrent: Start-ups may be deterred from scaling up to avoid meeting the quantitative thresholds for regulation.

Impact on MSMEs:

    • Operational Costs: Restrictions on tying, bundling, and data usage could negatively impact MSMEs that rely on big tech to reduce operational costs and enhance customer outreach.

Support from Indian Start-ups

  • Addressing Monopolistic Practices: Some Indian start-ups support the draft Bill, arguing that it would address concerns against monopolistic practices by big tech.
  • Threshold Revisions: These start-ups have called for a revision of the financial and user-based thresholds to prevent domestic start-ups from being unduly regulated.

Way Ahead

  • To move forward, India should adapt the ex-ante framework for its unique digital market, engaging stakeholders to refine the draft, Bill.
  • Revising thresholds is crucial to avoid hindering start-ups while capturing dominant entities.
  • Impact assessments should gauge effects on investment and innovation.
  • A phased implementation approach and continuous monitoring will ensure effective regulation as the digital landscape evolves, fostering fair competition and innovation-driven growth.

READ ABOUT CCI: https://www.iasgyan.in/daily-current-affairs/competition-commission-of-india-cci#:~:text=Functions%20of%20CCI%3A&text=Undertake%20competition%20advocacy%2C%20create%20public,by%20the%20country's%20competition%20laws.


Q. Discuss the need for regulatory frameworks to govern Big Tech platforms, with a focus on their impact on market competition and consumer welfare. Evaluate the effectiveness of existing laws and propose measures to address the challenges posed by these platforms in the digital economy.