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Why the CCI is cautious about tech intervention

LiveMint logoLiveMint 05-04-2017 R. Shyam Khemani

India is one of the largest and fastest growing economies in the world and has a rapidly developing technology sector. With over 130 million Indian consumers making online purchases in 2016 alone—more than the entire population of Japan and a 76% growth over the previous year—the potential benefit of using technology and innovation to reach India’s consumers is simply enormous. In recent years, both domestic and international firms have found technology and e-commerce to be a valuable path for entering Indian markets to provide new products and services.

Against this background, the question is how Indian regulators can take a dynamic approach to competition regulation in the tech sector to ensure that the benefits of innovation spread to Indian consumers. While this question is not easy to answer, the prevailing view at the Competition Commission of India (CCI) seems to be that flexible regulation is necessary to preserve the benefits of competition and innovation that India currently enjoys. I recently had the privilege of attending an International Conference on Competition Regulation and Competitiveness organized by the Indian Institute of Management, Kashipur. There, CCI chairperson D.K. Sikri and CCI member S.L. Bunker noted that although tech firms are not immune from scrutiny, competition authorities must apply competition principles cautiously. Both Sikri and Bunker noted that harm could result from premature intervention by government regulators to remedy non-existent competitive injuries to both other tech firms and more traditional brick-and-mortar incumbents. Such intervention can impede innovative efforts by technology firms struggling to compete in the marketplace and reduce the choices available to everyday Indian consumers.

But can regulators applying a flexible approach to competition law in technology industries still protect Indian consumers from undue exercises of monopoly power? To some, the mere existence of a few well-known technology giants is enough reason to claim that monopoly power has already become entrenched in the technology sector. Adherents of this viewpoint often argue that even firms offering free services, in fact, compete in terms of the data privacy policies or other forms of non-price competition that are implicitly charged to consumers.

While no one argues that the tech sector should be immune from competition regulation, proponents of aggressive intervention potentially ignore how technology markets differ from more traditional markets. For example, the mere existence of large tech firms hardly means that a flexible, cautious approach to intervention by competition regulators is insufficient to protect consumers. On the contrary, technology companies require a cautious approach precisely because of the intensity of the competition in technology- and innovation-driven markets.

First, overly interventionist policies risk impairing innovation in a highly dynamic technology sector. Indeed, the very tech giants that are often seen as targets for competition law are themselves only recent entrants in their respective markets. Facebook, for example, was founded only in 2004; Flipkart was started in 2007; Uber started in 2009. In other words, the giants of today are the obsolete firms of tomorrow; the giants of tomorrow are only ideas in the minds of bright young entrepreneurs today. Premature government intervention might stifle this process.

Second, concerns about the perceived scale advantages of tech giants are often misplaced. For example, while tech firms compete in terms of data privacy policies, data itself has critical differences from the traditional arenas of price or quality competition. Data is abundant and non-rivalrous—humanity generates five exabytes (five million terabytes) every single day, and data cannot be used up in the same way that resources like oil can. The so-called data-rich companies did not have data reservoirs until recently. Data also becomes stale, meaning any collection of such information has a time-limited value and is subject to significant diminishing returns. In other words, while technology firms may compete along the parameter of data, it is critical to recognize that gathering large amounts of data does not itself confer competitive advantages in the same way that more traditional inputs might.

Third, even large tech companies face significant competition that prevent them from exercising market power. This is demonstrated by the fact that so many tech firms spend so much investing in innovation. Uber’s development of self-driving cars, for example, suggests that they need to continue to innovate or they will lose in the marketplace. Thus, the fact that we see firms engage in rapid and sometimes disruptive innovation is evidence that those firms are under competitive pressures from different sources. These innovations ultimately benefit consumers, who can buy better products and services at lower prices.

For these reasons, premature or improper enforcement of the competition law against technology firms in India risks hurting the dynamic and competitive environment in India’s growing tech sector. Exercising regulatory caution is not granting immunity. It means identifying clear competitive harm—supported by economic evidence—that warrants remedy, before intervening. This is essential to preserve the market energy and dynamism that competition law is intended to protect and promote.

As Sikri noted, market dominance or power is not an antitrust concern so long as digital players behave competitively. Even where large firms may start with a competitive advantage such as in data, agencies must have the flexibility to understand the market dynamics that render those advantages temporary and fleeting. Premature intervention by competition regulators would seem to threaten the very innovation that is necessary to maintain a competitive economy.

R. Shyam Khemani is a former adviser on competition policy at the World Bank and served as an adviser to the Raghavan committee on competition law policy.

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