Shift in Regulatory Paradigms of Indian Digital Competition Law: Ex-Ante vs. Ex-Post
Brief: The Digital Competition Bill presented by the Indian Ministry of Corporate Affairs in February 2023 would imply a paradigm shift in the regulation of the digital marketplace, away from an ex-post, reactive framework and toward an ex-ante, proactive framework. This ensures that anti-competitive practice cannot occur in the first place and reflects on the danger-specific challenges of digital markets. The paper delves into the differences between ex-ante and ex-post frameworks and how the Bill focuses much of its content on the regulation of SSDEs, as well as influence by the European Union’s own legislation under the Digital Markets Act.
Introduction
A rapidly changing digital marketplace requires alternative approaches to existing competition law regimes so as to adequately address emerging market dynamics. The Digital Competition Bill, which was unveiled by the Ministry of Corporate Affairs (MCA) in February 2023, aims to resolve these challenges by moving away from an ex-post framework — where action is taken after anti-competitive behaviour manifests — to an ex-ante mechanism that strives to prohibit such behaviours before they occur. This speaks to the heart of concerns about ex-post and ex-ante frameworks, why the Bill prefers the latter, and how this compares with global norms, particularly in the EU. This piece delves deeper into this — giving you a broad overview of the proposed change in regulation, Systemically significant digital enterprises (SSDEs), and a trickle-down effect on India’s digital economy.
Analysis: Ex-Ante vs. Ex-Post in Digital Competition Law.
- How is an ex-post framework different from an ex-ante framework?
- Why does the draft Bill encourage an ex-ante competition regulation?
- What framework does the European Union follow? What are systemically significant digital enterprises?
These are the questions that the article cited above attempts to answer comprehensively to provide deeper insights into the Digital Competition Bill that was introduced in February 2023. This was done by the Ministry of Corporate Affairs (MCA), which constituted a Committee on Digital Competition Law (CDCL) to examine the need for a separate law on competition in digital markets[1] which primarily focused on the ex-ante framework which would replace the ex-post framework approach that has been implemented on the present legislation of the Competition Act, 2002[2].
To address the first question, we must comprehend what ex-ante and ex-post frameworks mean;
Ex-Ante is a Latin term that means “before the event,” which is crucial for the determination of a financial analysis based on predictions. They are preemptive measures that ensure that to take action is before the happening of an event.
Ex Post is also a Latin term that means “after the event”, whose decisions are imposed after the occurrence of an event. The Competition Act of 2002[3] is based on this concept where the Competition Commission of India is only given the powers to intervene after an anti-competitive act has occurred.[4] This legislation aims towards the prevention of the adverse effects on Competition.
The Committee on Digital Competition Law (CDCL) finds the ex-post model to be excessively time-consuming, which may lead to several complications. Hence, they have advocated an ex-ante competition regulation which would also impact the Competition Commission of India. The Competition Commission of India would have broader enforcement powers that allow the body to pre-empt and take steps towards the prevention prior to the occurrence of digital enterprises indulging in activities resulting in anti-competitive practices resulting in adverse effects on the market.
Furthermore, the second question aims to understand the reasoning behind the implementation of the ex-ante frameworks in the new bill. This concept is not very common; however, it has been influenced by the European Union which is one of the only jurisdictions that practices an ex-ante competition framework which is comprehensive in nature. This can be witnessed under the Digital Markets Act 2022[5], which was adopted on 14th September 2022 by the European Parliament and resulted in the amendment of the European Union Directives. This approach has been taken positively by the Committee on Digital Competition Law (CDCL), which appreciates the unique characteristics of the digital markets. Hence, it can be understood that the draft Digital Competition Bill enumerates the intention towards regulating digital enterprises that hold market dominance. This dominance shall be based on the combination of qualitative and quantitative measures. This bill shall deal with the concept of market power and the potential for the abuse of dominance in the digital markets.
Furthermore, two unique features have been highlighted through the impact of the bill which are economies of scale and economies of scope. This phenomenon allows the rapid comparison of the digital markets as compared to the traditional markets. The network effects aid towards the amplification of growth due to the utility of digital platforms that increases with the increase of the number of users. This essentially helps in enhancing the value of services and attracting more users which further accelerates the growth. The factors can lead to network effects wherein the value of a service increases with the increase in users, and the markets become susceptible to tipping. Market tipping occurs when the dominance rapidly shifts to incumbents, leaving the new competitors at a huge disadvantage. The new bill proposes to adopt a preventive framework where the regulators can be addressed before the potentially anti-competitive practices result in the causation of complete materialisation, which ensures the safeguarding of time-effective intervention that can positively impact competitive market conditions.
As we already understand, the first part of the third question is regarding why the European Union follows ex-ante practices. The draft bill follows the European Markets Digital Act and does not intend to regulate every digital enterprise. It only aims towards regulating the dominant digital market segments. The bill also sets ten core digital services, for example, social networking services, and video-sharing platform services, among other things.
We move on towards the second part which discusses the systemically significant digital enterprises. The draft bill also prescribes quantitative standards for the Competition Commission of India for the identification of the dominant digital enterprises. This quantitative standard relies on a significant financial strength test that examines the financial parameters and the significant spread test based on India’s user base. If digital enterprises fail to meet the quantitative standards that have been assigned, then the Competition Commission of India may designate an entity as a “systemically significant digital enterprise (SSDE)” based on qualitative standards. They are required to operate in a systematic manner that is fair, transparent, and not discriminatory. Moreover, the “systemically significant digital enterprises are barred from indulging in anti-competitive practices and cross-utilising data of one service for another and from using non-public user data to unfairly advantage their services.[6]
This bill has had several overriding sentiments of opposition. The proposal to implement an ex-ante framework of regulation stemming from the European Union fails to recognise the distinctions between the two jurisdictions and the lack of evidence supporting its success. This can also further negatively impact start-ups, which may avoid scaling up to prevent crossing the thresholds presented by regulatory bodies. There have been studies that also highlight the restrictions on tying and bundling and data usage would harm the MSMEs that have relied on big techs to relieve the operational costs and expand on the consumer’s reach.
Nonetheless, there has been a group of Indian start-ups who are in support of the draft bill as it could help in controlling monopoly in the digital markets. However, they also suggest revising the financial and user-based thresholds that cite the concerns that it may lead to domestic start-ups being brought within the regulatory net.
Conclusion
To conclude, the proposal of the Digital Competition Bill to bring in an ex-ante framework emphasises a paradigm shift in regulating digital markets in India. A more proactive effort to prevent anti-competitive conduct from becoming entrenched, particularly among systemically significant digital enterprises, is vital here and is mirrored in the design of the Digital Markets Act contemplated by the European Union. Although the Bill has seen prospects of averting monopolistic practices, apprehensions still surround it, particularly about financial thresholds, restrictions on data usage, and possible dampeners on start-ups and even smaller enterprises. Considering this new regulatory landscape, India must manage the fine line between ensuring fair competition, facilitating innovation and expanding growth in its increasingly digital economy.
[1] Government panel includes lawyers to assess need for separate law on competition in digital markets. https://www.legaleraonline.com/news/government-panel-includes-lawyers-to-assess-need-for-separate-law-on-competition-in-digital-markets-852134
[2] The Competition Act, 2002. No. 12 OF 2003.
[3] Ibid
[4] Mehra, A. (2024, March 22). The Indian government and ex-ante regulation. MediaNama. https://www.medianama.com/2024/03/223-why-are-industry-bodies-supporting-ex-ante-regulations-in-india/
[5] The Digital Markets Act (“DMA”), Regulation (EU) 2022/1925
[6] Committee on Digital Competition Law, **Report of the Committee on Digital Competition Law**, (Mar. 12, 2024), https://prsindia.org/files/parliamentry-announcement/2024-04-15/CDCL-Report-20240312.pdf.
Author: Deveshi Bose, 9 BBA LLB, School of Law, CHRIST (Deemed to be University), Pune Lavasa Campus
