COMPETITION LAW OBSERVER

A blog by Centre for Competition law & Policy, NLU Jodhpur

THE NEW WAVE OF ANTITRUST: IS INDIA READY?

Prefatory

Abhinav Singh Chauhan and Taniya Ghangas

Google, Apple, Facebook, and Amazon, [“GAFA”] the big four tech companies that control the data-driven industry’s major part, often making it an Oligopoly, as the market is in control of a few companies. Irrespective of domain, GAFA is usually present at most of the levels in the value chain or across the segments at a single level of the value chain. For example, Apple manufactures iPhones, develops its operating system and utility applications, gives cloud services to its users, and manufactures accessories. This integrated network of products and services can raise the entry barriers in the core and the associated markets, as new entrants would find it difficult to offer products and services at a competitive price due to the presence of players with significant power in the market.

It is undisputed that GAFA has access to vast data, which trains algorithms that underlie the data-driven market. It is not uncommon for GAFA to leverage access to data in one market and enter into another. For example, Amazon leveraged its position as one of the largest online marketplaces to enter the retail market. Though this entry into a cross-sector is not anti-competitive per se, the market dynamics created by integrating services give companies an edge over their competitors in their original market. Amazon has access to data about public perception of different products and offers on the Amazon marketplace. Amazon analyses the data and offers similar products at lesser prices on the same platform, eventually circumventing the competition that other sellers face due to the presence of other sellers offering competitive products.

The big-techs are expanding their horizons to get more data to outcompete their rivals and cement their position in the market. Such practices are not constrained to a particular market and can be witnessed worldwide. The situation becomes grave in countries with immature antitrust jurisdictions, such as India, due to the lacunae of the legislation and diffidence to a novel approach. This article analyses the recent investigations launched by the European Commission against the big-techs and attempts to provide solutions to prevent such situations from arising in India.

Inquiry by the European Commission

The European Commission [“EC”] has recently initiated different investigations against Google, Facebook, and Amazon for alleged abuse of the data collected by them. These companies are accused of using the data of their competitors, which use the platform provided by big-techs, against these competitors on the very same platform.

Amazon

With the advent of e-commerce marketplaces, Amazon has become a significant name in it. Amazon acts as a marketplace and as a retailer in the e-commerce market. As a marketplace, Amazon provides a platform for sellers to sell their products directly to consumers. As a retailer, Amazon competes with other sellers on the same platform to sell its products. The role of Amazon as a marketplace, where sellers can sell their goods directly to consumers, provides Amazon with a massive amount of data about the demand of different types of goods in the market through transactions that take place on Amazon. Amazon can access the data and launch their products at lower prices to drive out the competition in the retail market.

EC, in its investigation, assessed the use of data collected by Amazon while acting as a marketplace. EC formed a preliminary view that Amazon has distorted the competition in the market by using the non-public data available to it for benefiting its own retail business and competing with other players on the same platform. 

The increasing trend and user propensity towards Amazon brings it into the realm of anti-competitive speculation to check its conformity with European Union [“EU”] competition regulations. The EC substantiates, via its preliminary evaluation, that Amazon, albeit creating a platform for independent sellers, profits from the data of those individual sellers available on such marketplace.

Facebook

Facebook has also become the target of systematic competition regulations by the United Kingdom and the European Commission to determine whether Facebook is abusing its dominant position in the social media and digital advertising markets via the collection and use of advertisement data generated on its platform. EC will determine if Facebook has breached EU competition laws by utilising data collected from advertisers in the advertising market to compete with them through its recent venture, ‘Facebook Marketplace’. The commission will also analyse if Facebook attaches Facebook Marketplace to its Social Media Network.

The two-front inquiry by EC is necessary because Facebook has access to “vast troves of data” through the activities of its users, which provides it with the ability to target specific consumer groups. Also, since online ad providers also resort to Facebook for online classifieds due to Facebook’s dominance in the social media market, it becomes necessary to ensure that Facebook does not use the data collected through its competitors against its competitors.

Google

The latest investigation launched by the EC against Google will primarily assess the position and practice of Google in the ad-tech space. Google is present at almost all the levels of the ad-tech industry, from providing a space to advertisers (for example, YouTube) to managing the ad-space through Google Ad Manager coupled with its ability to get the user’s internet behaviour and preference.

The major allegations against Google include that its ad-tech ecosystem is distorting the competition in the market. Since Google prevents access to crucial advertising data regarding the user preference and behaviour to third parties, including the rivals’ ad-tech intermediaries, Google is out-competing its competitors as the data is available to Google’s ad-tech intermediary.

The investigation against Google will also delve into the role and impact of Google’s mandate to use Google Ad Manager for advertising on its platform. Further, the plans of Google to replace third-party cookies with a ‘privacy sandbox’ is of significant concern. Through privacy sandbox, Google will restrict the availability of advertising identifiers to third parties if a user opts out of the personalised advertising on their android devices. However, Google will still have access to the critical advertising data, which it can use to the detriment of its rivals.

The coincidence of distortion

The common aspect among all the abovementioned investigations is that all these companies have been accused of abusing their access to critical industry data. Through such data, companies influence the market in their favour, which may distort the competition. Google, Amazon, and Facebook have a significant (if not dominant) position in their respective markets, such as Search Engines, Online advertisements, E-marketplace, Social Media, among others. Network effects, under which the product or service gains additional value as more people start using it, can also be regarded as a crucial factor due to which big-techs are attaining a status of pseudo-monopoly,[1] helping big-techs to hold their position in the market.

The significant position of these companies in the market makes it difficult for users at both sides of the market, i.e. seller front and the buyer front,  to bypass them, providing companies with more market data insights, which influence the market in favour of these companies.

The use of these data insights is not only limited to improving services in the original market but also to use such data generated from the service users (like advertisement providers and sellers) to compete against such users in the other market. At first, it may seem that the new entrant in the market increases the market, but the problem lies with the force such new entrant makes the entry. Due to access to critical market data, these companies already have an idea about the market dynamics, making it easier to hit the hammer at the right place, eventually outperforming their rivals in the market.

Big-Techs in India

The situation of big-techs is similar in India as well. The integration of services by big-techs allow them to offer better services, enhancing the user experience and may allow companies to divert profits from other domains to provide services at a lower price to get hold of the market. For example, Amazon operates at every level of the e-commerce market in India. Though there are other major market players such as Flipkart, the critical difference between Amazon and other players is that Amazon has a significant presence in ancillary markets through its various arms, such as Amazon AWS, Amazon Logistics, among others eventually creating an ecosystem of its own. Through this ecosystem, the different branches of a company work together to create a value that other companies find difficult to create, as an increase in the business of one arm will automatically increase the business of another. For example, since Amazon depends on Amazon logistics to deliver its products, so if the business of Amazon grows, the business of Amazon Logistics will automatically increase as it will be shipping more products.

The only reason big-techs can influence the market and integrate across the domains is the lack of an ex-ante measure to prevent them from attaining such a position in the market. Though dominance is not bad per se, the need for ex-ante regulations for big-techs is to avoid the monopolisation of the industry, where a single player will be dominating across the sectors. As with only a few players, it often slows down the innovation in the market by raising the entry barriers, as explained above.

The problem with the current framework in India is that under the competition act (see §§3-4), the companies are only brought into the Competition Commission of India’s [“CCI”] scrutiny after they have distorted the competition in the market. Even after CCI initiates an inquiry into the conduct of big-techs, it is not certain that the big-techs will be penalised, notwithstanding the fact that the behaviour is evident to be anti-competitive. The Indian antitrust regime is still finding it difficult to hold companies dominant due to the market being nascent, making it impossible to assess the abuse.

In its proposed Digital Markets Act, the EC has imposed various duties on significant players in the market, including sharing crucial industry data so that new entrants in the market also have an equal chance to compete in the market. Ex-ante regulations are necessary because once the competition in the market is distorted, restoring it is a challenging task due to network effects and resistance of users to move to new services, as the service provided by the big-techs is usually better than others.

Conclusion

Though CCI is attempting to assess the position of big-techs in their relevant market, still there is room for making provisions more stringent. The moment CCI initiates an enquiry against a company, it is witnessed that the companies often try to cause a delay in the process. For example, Flipkart and Amazon knocked on every door till the supreme court, against the CCI’s order directing a DG investigation against them. Facebook and Whatsapp also tried to delay the process when the CCI took suo-moto cognisance of the change in Whatsapp’s privacy policy by filling inapt replies.

The need of the hour is to regulate the big-tech even before they become dominant to ensure competition in the market. Something on the line of EU’s Digital Market Act, which imposes a duty on such tech giants, can be added to the existing framework to make it more effective. Such ex-ante procedures would also pave the way to assess the conduct of big-techs, even if they do not hold a dominant position in the relevant market.

The authors are third-year students at National Law University, Odisha


[1] Shapiro and Varian, Information Rules: A Strategic Guide to the Network Economy (Harvard Business School Press, 1999) 13–14.

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