Mint Explainer: How to prevent the birth of digital monopolies

The need for ex ante regulations

The digital economy, in many ways, fails to yield the benefits of a free market. There’s now growing global concern that digital markets are throwing up a small set of outsized winners, and transforming into a winner-takes-all market. Much of the concern in the US, and beyond, has been around the monster footprint of Facebook, Amazon, Apple and Google. There are worries that the digital economy may become monopolistic and skewed.

Sample what a US Antitrust Sub-Committee had to say in 2020: “First, each platform now serves as a gatekeeper over a key channel of distribution. By controlling access to markets, these giants can pick winners and losers throughout our economy. They not only wield tremendous power, but they also abuse it by charging exorbitant fees, imposing oppressive contract terms, and extracting valuable data from the people and businesses that rely on them….”

Not surprisingly, there’s considerable consensus building up globally on the need for ex ante regulations, and the Indian parliamentary panel too has taken this line. It’s widely believed that ex post (results driven) competition laws alone have not been enough, as seen in the formation of digital monopolies.

Pre-emptive regulations, it’s hoped, can catalyze a structured, orderly and even desirable development of the digital economy. In fact, regulations can be far broader in scope than competition laws, pushing the development of the digital ecosystem in a direction that may be seen to be socially desirable, for example, pushing companies to share data that may reveal important socio-economic trends. Or to push e-commerce platforms like Amazon and Flipkart to source products from a defined region.

Now, for India, ex ante regulations may also work better for another simple reason — It will help cut down enormous time wasted fighting legal battles under ex post competition laws.

In fact, laws for digital businesses globally are seen to be out of sync with the needs of the times. The OECD conceded as much in a report in 2021. “ … lengthy legal ‘battles’ between antitrust authorities in the US and the EU and the large platforms show the limitations of purely ex-post, anti-trust remedies to foster competition in the platform economy”, it said.

The parliamentary panel too recognizes this problem, and makes a case for a Digital Competition Act that will spawn a fair, transparent and contestable digital ecosystem.

India may need a digital regulator

Now, the parliamentary panel has suggested giving the Competition Commission of India (CCI) more teeth to enforce rules and laws. It recommends a Digital Market unit within the CCI staffed with experts to monitor the digital economy.

Globally, there’s considerable debate on the regulatory framework for digital markets. While Germany, Italy and France want the competition authority to implement the rules, the European Commission wants a new specialized unit, within or outside the competition authority. But housing a digital regulator of sorts within the competition authority, the CCI, may not meet all the objectives of the government, or even the world. Ex ante regulations, as explained, must be wider in scope than competition laws. Not only should regulations seek market efficiencies, but broader socio-economic objectives of a country as well.

In fact, a separate regulator for the digital economy may work, given the digital explosion in India and across the world. In India, a fairly autonomous Sebi and RBI have managed to deliver exceptional results over the years, enforcing regulations even-handedly and ensuring a level-playing field.

Ensuring fair access to data

The data explosion in recent years has changed the dynamics of the digital market in recent days. Access to data is vital to make future estimates of market opportunities and expand operations. The parliamentary panel suggests ways for fair and transparent ways of data distribution, from prohibiting use of personal data for online advertising to cross-use of personal data from “the relevant core service in other services”.

Globally, the debate around data usage has also centered around data portability – which will allow consumers to port their data from one platform to another, making data sharing more easier, fairer and transparent, preventing data monopolies in the digital market. The UK and the EU are brainstorming data portability and make businesses adopt it in some form.