India: Abuse Of Dominant Position In Digital Era

Determination of Relevant Market and Abuse of Dominance in Digital regime

As stated by the Chairman of the Competition Commission of India, “Digital markets are epicentres of technological innovation but lately they have become zones of entrenched and unchecked dominance”. Digital platforms are the online businesses that facilitate the interactions between distinct user groups through applications or websites and are becoming ubiquitous in modern consumer economies. The digital world is not merely an extension to brick and mortar now but itself is a separate market. Given the size of the digital firms and gaining prominence due to the pandemic, one of the arising issues is to delineate the “type of relevant market” in digital markets.

The principle “big is not bad” is established in India's competition regulation. In digital markets, a firm's size determines the result of innovation, a novel business and efficient operations. The reward of the size and aggressive competition is consumer benefit and economic productivity. The competition policies have identified such strategies that can be used by dominant firms to enhance or protect the market power.   

The India's competition authority i.e., Competition Commission of India observed the challenges of competition enforcement in digital markets before it was barely finding its feet in 2009. Lacking its own jurisprudence, the CCI leaned on the literal words of Indian Competition Act, 2002 and precedents from EU, US and other mature jurisdictions in developing reasoning in its own pronouncements. Competition law has established legal and economic frameworks for evaluating abuse of dominance which might not be capable to address every digital policy concern. Other policy tools such as merger control might be useful in such cases. 

The article primarily seeks to illustrate how relevant market in a digital regime can be defined with the help of available resources. The first section discusses the definition and importance of determining the relevant market; the second section examines relevant market in the technological-driven era in India as well as other jurisdictions and the third section explores the closure of cases in a prima facie review. Secondarily, the article, in its fourth section determines how abuse of dominance has evolved in the digital markets along with the practices that might violate Section 4 of the act and the fifth section paves a way ahead before concluding the discussion.

Determination of Relevant market in Digital regime

The CCI dealt with 38 cases involving digital platforms between 2014 and mid-2021, 35 of these cases include allegations of abuse of dominance under Section 4 of the Competition Act. As digital platforms become pervasive, such cases will only become more frequent. The impact is possible on massive platforms as well as small digital ecosystems. Therefore, it becomes essential to assess whether the jurisprudence and decisional procedures can be used to address the anti-competitive effects posed. This section shall assess the jurisprudence in various countries based on the used approaches and discuss the trend adopted by the CCI.

Single market vs. Multi-sided market

The prominent question that needs to be determined is whether the digital market involves a one-sided or multi-sided analysis. In simpler words, the respective authorities have to determine whether the different aspects of a market participate in interrelated markets or single market. Single market refers to an interaction with one specified group of users. Multi-sided markets enable interactions between two or more groups of users in a manner that generates values for at least one of the user groups. Therefore, it may lead in multiple relevant markets being defined, as different sides of the platform consider different services. In particular, transaction-matching platforms such as online hotel booking services or cab aggregators mostly operate in a single market, given that they provide a similar type of service to different groups of consumers. On the other hand, the situation is more complex in attention-providing platforms such as video streaming services, given the externalities, it shall be better to consider important relationships between different sides of the platform.

In single markets, the ‘Small but Significant Non-Transitory Increase in Price' (SSNIP) test determines the substitutability of the product. It assesses whether consumers would move away from the product due to a price increase, which is only possible if substitutes are available. Applying the test to multi-sided markets is fraught with complications as a price increase on one side can impact demand on the other. A hike in the commission rate charged by the cab aggregator may reduce willingness of the drivers to provide their services, which in turn may lead to reduced number of customers. The German CA recommended qualitative factors such as product quality, to assess relevant market in multi-sided digital markets.

The approach was used by the US in Ohio vs. Amex, wherein the Supreme Court was asked to determine charging reduced transaction fees by credit card banks as anti-competitive. The contention was denied on the basis that both sides i.e., customers and banks constitute a single market and that the harm needed must affect both sides. It is evident that no harm is caused to the user and hence, it cannot be anti-competitive. However, the US scholars opined that this distinction should not be the sole basis for relevant market determination.

The typology was also used by the UK competition authority to assess the merger between Just Eat and Hungryhouse. It was observed if a platform does not facilitate transactions, it would be sensible to define distinct relevant markets as each side faces varied constraints.    

Matching vs. Advertising platforms

The German Competition Authority also recognized platform typology but with a difference. The authority sorted the platforms into matching and advertising. A matching platform helps the users on both sides to find their perfect match without always using transactions. Simultaneously, advertising platforms do not aim to create matches but focus on serving the audience with the advertisements they host. Therefore, matching platforms pertain to single market whereas advertising platforms perform in separate markets.

Therefore, there is a trend of substituting the SSNIP test with qualitative factors in determining the relevant market in digital regime.

The CCI's Approach

The determination of relevant market is required in cases alleging abuse of dominance and anti-competitive merger or combination. The studies have analysed two distinct patterns in the decisions of CCI. The first shows an inconsistency on whether online and offline markets are different or different channels in the same market. Another concluded that the authority has failed to consider the multi-sided aspect of digital markets. Primarily, CCI has usually used one-sided logic based on which party has complained. For instance, in FHRAI vs. MakeMyTrip and Others, the case was related to the hoteliers and hence, their perspective was used to determine the market. However, in Lifestyle Equities CV vs. Amazon, the authority considered the network effects on e-commerce and telecom and hence, multi-sided markets. Therefore, in this case, a distinction was made.

As far as assessment of substitutability is concerned, CCI hardly used the SSNIP test. Instead, it has relied on the functionalities, the use of which is also not uniform across the decisions. In Meru Travel Solutions vs. Uber India Pvt Systems Ltd., the CCI focused on the functionalities like convenience and time saving at the initial stage to differentiate between radio taxis and other forms of traditional taxis. But then, the authority noted that in Kolkata, the consumers highly relied on the yellow taxis and thus, the relevant market must also include yellow cabs. This shows CCI's nuanced approach because it relied on consumer behaviour and not the features. However, in Harshita Chawla case, the CCI defined relevant market as the ‘market for UPI enabled digital payment applications' stating that based on the functionalities, there are evident differences between digital and traditional approaches. Therefore, the lack of a uniform and principled approach towards relevant market determination may have legal and economic consequences. The CCI's approach is not in consonance with those of other authorities such as in the US and the UK, which take into account the consumer behaviour as well while making a distinction based on the functionalities. Hence, the rule of law now requires certainty and inexcessive discretion by quasi-judicial bodies. The companies planning to enter into any combination also consider such legal certainty and predictability costs.

CCI's Premature closing of cases

The Indian competition law framework allows investigation only if the authority finds prima facie merit in the case during the preliminary review. One of the surprising aspects in the CCI's decisions is that the authority dismisses the cases at the preliminary stage because it did not want to intervene with in the innovative markets. In furtherance of its objectives, it has closed cases even when the authority did not have sufficient evidence to dissect the market. The classic example of premature closing by CCI is RKG Hospitalities Pvt. Ltd. vs. Oravel Stays Pvt. Ltd., wherein the abuse of dominance by Oyo through imposition of unfair terms was to be assessed but the CCI ultimately held that Oyo was not dominant in the market but only had a “significant share”. The authority also noted that franchising for budget hotels is an untapped market, which evidently shows that the aim was to secure the innovation. CCI could use factors provided in Section 19(4) of the act to assess abuse of dominance but it did not. The strong network effects of Oyo could have also acted as a prime factor of abuse of dominance. The CCI must take a more flexible approach in assessing the abuse of dominance factors at the preliminary stage and it might be prudent to order an investigation, when in doubt. It is true that digital markets are at the centre of the contemporary world but some kind of intervention as well as antimonopoly strategies are now obvious, to enhance their reactions to consumer welfare.

Suggestions and Conclusion

Delineating relevant market has been a crucial step in the process of assessing abuse of dominance and discrepancies in mergers and acquisitions. Evidently, the process is complicated in the case of digital markets because of its multi-sided nature. It requires the authorities to escape the traditional approaches like SSNIP test. The approach of CCI, though is in all directions at this point, can be made more predictable and certain by legal and regulatory interventions. However, before codification and amendments related to digital markets, the authority can take certain steps in order to prevent any further harm due to anti-competitive practices. The first step is to evaluate the basic structure of multi-sided markets. The typology of the platform can play a crucial role. The second step is to determine the competitive constraints that affect either side of the market. The product substitutability, other non-price factors and geographic location must be considered. The last step is to carefully determine the interdependence between both sides. The strength of each group and indirect network effects between the two have to be assessed. The strength of network effects defines whether the market is based on single side or multiple sides. Following a defined path shall assure consistency in CCI's pronouncements. Additionally, like the competition authorities in the United Kingdom suggested formation an entity to specifically deal with digital markets, India can also take such a step by adding a division to CCI. Digital markets are likely to pose threats in future and our country needs to prepare for the same.  

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