A knowledge gap at CCI

The competition regulator is ill-equipped to handle the intricacies of digital markets

AReuters report a few weeks ago noted that the Competition Commission of India (CCI) is probing whether Google’s Android mobile operating system has been used to block its rivals. As the fair market regulator, the CCI should be examining such issues. But it appears to be venturing into areas where it has not shown any strong degree of perspicacity.

Digital markets are new territory for all competition regulators worldwide. At one level, markets are intuitively easy to understand. They are a place (physical, spatial, neural) where goods, services and now data are bought and sold. An enterprise can be seen as anti- competitive if it aims to reduce competition and maintain levels of profit. Yet, unless carefully drawn, identifying the relevant antitrust market could be tricky in the digital space since a non-market could also end up seeming like a market.

Why shouldn’t the CCI be able to navigate this terrain? The principal reason is that the regulator has not concentrated on building up its internal capacity since its formation in 2009. It has traditionally packed its bench with retired or about-to-retire bureaucrats who have held numerous impressive posts earlier but have shown no specialised knowledge of the domain of the anti-competitive body. Or they have been lawyers or judges. But CCI, despite its powers to impose penalties, should not be seen as a court. The present composition of three members includes only one economist, selected after a long gap. There has been nobody from finance or from any technology sector. In the absence of specialists, CCI has examined competition issues on the basis of legalese rather than as economic issues.

One can draw on two examples. In 2018, CCI published a competition assessment toolkit to guide ministries and the world at large on what constitutes fair competition. The slim volume has no mention of digital economy in a world where the top four global brands belong to this category. Instead, it perceives competition as essentially freedom from government policies and laws that circumscribe markets. Competition assessment involves “identification of relevant legislations and regulations; application of checklist to be applied to the selected legislations/regulations to find out provisions having competition concerns; finding alternatives to those provisions in consultation with concerned stakeholders, choosing the best alternative for modification; and carrying out post modification impact assessment”. These are important for an economy like India but fall short of the demands of a digital economy.

The second example is the case again involving Google filed jointly by matrimony.com — a network of matchmaking services, whose flagship brand is Bharat Matrimony — and advocacy group CUTS. This was CCI’s first intervention in the digital space.

In February last year, the Commission by a 4 to 2 verdict held that Google India had run foul of competitive behaviour in what is known as the “intermediary services market” and fined it ~136 crore. The problem is in the way the regulator agreed to splitting the online market, as the dissent notes too pointed out.

In the digital space, companies such as Google or a taxi service aggregator offer what is called multi-sided business platform. They bunch up those demanding a ride on one side and those offering a ride on to separate platforms. Those platforms create economies of scale but do not create a market by themselves. The market comes into existence only when those demanding a ride and those offering one come together. Entities like Google use their ability to create innovative business models to attract more people from the two sides to board the platforms. Yet, the regulator defined those platforms as markets by themselves and then went on to determine if the company is a dominant one.

In the matrimony case, the CCI held that Google created a search bias on these platforms. While the Commission did not link its order to adduce any matrimony-related case, it offered the example of what happens when consumers book a flight on the web. Instead of taking consumers directly to portals that offer specialised services for flight bookings, Google prominently places its own flight listing on the search page which “is able to drive traffic to its own (commercial) pages and also generate revenues through advertisements/sponsor results”. Since web services depend on user-traffic such an “unfair diversion of traffic by Google may not allow third-party travel verticals to acquire sufficient volume of business… Thus, the CCI held that Google was leveraging its dominant position in the General Web Search to promote its Commercial Flight Units”.

What the CCI failed to see was that the digital markets are a great arena for the spread of what is called network economics. Shorn of jargon, it is the ability of firms in these spaces to connect consumers on platforms. Naturally, for network economics to flourish, it needs depth in the market. Two things become important in this context. Network economics disproportionately encourages companies to expand. But to expand, companies need to innovate, which often comes through price changes. A Flipkart, Snapdeal and Amazon emerge because of this advantage.

Would this impact the Google Android case? Here, too, it is a case of network economics. But as the European Commission has already fined Google ^4.34 billion for allegedly using Android mobile devices to strengthen the dominance of its search engine, it remains to be seen if the Indian regulator is able to draw its own conclusion independently. The matrimony case was filed with CCI in 2012 but took about six years to be discharged. Did the regulator wait? Meanwhile the EU, on a similar case related to Google Shopping, issued a statement of complaints in 2016 upholding the charges of discrimination against the internet search company.

CCI needs to create regulatory muscle to wrestle with the arguments either way. This does not mean that the regulator needs to slip back into a larger body as it was till last year. It must instead demonstrate it has the wherewithal to handle such cases without simplifications that often get scuttled at the next appellate stage.