The advent of the digital ecosystem has introduced disruptive marketing strategies and other innovations that often fall into a grey area under the existing antitrust jurisprudence. This is more so in the absence of any empirical study of the emerging markets.
Antitrust authorities worldwide are trying to adapt and design frameworks to tackle the competition law problems associated with such upcoming business forms. In India, the focus of the Competition Commission of India (CCI) has also shifted on competition policy issues arising due to rapidly changing markets led by technology and disruption.
The Ola-Uber case was one of the first decisions to be rendered on the aggregator services business model. It was alleged that cab drivers were being lured to enter into agreements with lucrative incentives, leaving the drivers locked into one network. The model of providing unrealistic incentives to drivers and deep discounts to customers in addition to low fares was alleged to be aimed at gaining a high market share, and foreclosed competition in the market by creating entry barriers.
CCI held that the drivers connected to various aggregators through apps could easily switch between different aggregators depending on the incentive scheme by simply switching away from the aggregator’s application. Moreover, as per CCI, there were no reasons to believe that there were supply constraints in the market for drivers such that the alleged agreements could cause lock-ins and pose a barrier to entry into the radio taxi services market.
In the hospitality industry, the ‘OYO case’ concerned a hotel aggregator which was brought before the CCI for alleged abuse of dominance. The argument was that OYO held a ‘dominant position’, by which it imposed unfair and one-sided terms on its partners. The CCI held that OYO was not acting in violation of the Competition Act. As in the Ola-Uber case, CCI appears to have exercised some restraint on account of the nascent phase of evolution that the ‘relevant market’ was passing through.
WhatsApp under scanner
An interesting set of antitrust cases involves WhatsApp – the instant messaging application owned by Meta. In 2016, CCI was approached with the WhatsApp privacy update case for the first time. It was argued that data privacy was an essential non-price element that determined competition in the relevant market. However, CCI refused to interfere in the matter for two reasons. Firstly, CCI opined that data and privacy-related issues under the Information Technology Act, 2000, did not fall into its jurisdiction. Secondly, there was an option to opt-out of the privacy update for the consumers. However, in the intervening time came the 2018 Bharat Matrimony and Google case, setting a different tone.
Since then, the matter has passed through multiple rounds of litigation and is currently being heard by a division bench of the Delhi High Court. Yet another case involving WhatsApp is the WhatsApp Pay case. It was alleged that WhatsApp was abusing its dominance by bundling its messaging application with a payments option to disrupt the UPI-enabled digital payments market.
While examining the anti-competitive effect of WhatsApp Pay, CCI defined the ‘relevant market’ to be of over-the-top messaging services for smartphones in India. CCI was of the prima facie view that WhatsApp is dominant in the said market. However, it was observed that the UPI payments market was a separate product market independent in itself. The CCI also noted that users were not constrained from using the instant messaging services of WhatsApp if they chose not to use WhatsApp Pay (the tied product).
Further, the KYC requirements disincentivise new customers to shift seamlessly. In the e-commerce industry, since 2015, Flipkart and Amazon have been under the close scrutiny of CCI. In the 2015 Flipkart-Amazon case, it was alleged that the e-commerce giants were contravening Section 4 of the Act by engaging in exclusive agreements to sell certain products excluding the product’s availability in the physical markets.
It was contended that such exclusivity allowed the e-commerce portal to determine availability, sale price, terms of payment, and other sale parameters. Further, it was also argued that exclusivity of sale also allowed e-commerce portals to create artificial scarcity in supply. In the 2015 decision, CCI rejected the argument and highlighted the benefits of e-commerce platforms. CCI noted that online e-commerce platforms allowed consumers to compare aspects such as the price and quality of all the competing products.
Further, there was increased business efficiency on account of the elimination of intermediaries. Hence, CCI held that exclusive agreements between e-commerce platforms and sellers/distributors of goods and services did not cause appreciable adverse effects on competition. However, things took a U-turn in 2019, when a similar case was brought against Flipkart and Amazon.
This time, it was alleged that there were several vertical agreements in violation of Section 3 of the Act between Flipkart and Amazon and their respective preferred sellers. It was also alleged that the preferred sellers were controlled by the e-commerce giants directly or indirectly and that the preferred sellers indulged in deep discounting. Hence, the informant contended that the preferred sellers had a heavy influence on the prices.
The CCI opined that a prima facie case of anti-competitive agreements under Section 3 was made out against the e-commerce giants which required further investigation. Accordingly, an investigation was ordered under the provisions of Section 26 of the Act by CCI in the matter. The matter passed through multiple appeals before reaching the Supreme Court which refused to interfere with CCI’s order for investigation.
A quick conspectus of the above cases highlights how CCI is cognizant of the prevalence of disruptive innovation in the markets. CCI has shifted from a price and commodity-centric approach to dealing with broader antitrust issues that emerge in cases involving non-tangible assets and non-price factors. One such factor is the use of consumer data.
The approach adopted by CCI appears to be to allow the nascent markets to develop under close supervision. CCI recognises that when the digital market and the jurisprudence around it is evolving, regulatory interventions can potentially stifle innovation, which is essential for the growth of technology and sustenance of the pace of growth in the economy.
In many decisions, CCI has acknowledged how disruptive innovation removes inefficiencies in the traditional markets and may even cause knee-jerk reactions in conventional markets. While deciding on the anti-competitive effects, the antitrust watchdog places heavy reliance on the segregation of ‘relevant markets’.
However, as market boundaries get diffused further with the development of a digital ecosystem, it becomes important to rethink the regulatory approach to deal with the emerging challenges in the competition law ecosystem. The regulatory enforcement for emerging forms of business must strike a fine balance between preventing anti-competitive effects and allowing businesses to flourish for the long-term efficiency that arises from innovation.
The authors are advocates at Phoenix Legal, a law firm