It’s unclear if exceptional markets call for special rules
4 min read . Updated: 17 Jan 2023, 09:47 PM IST
PremiumIndia should exercise caution before placing Big Tech firms under ex ante regulation as a special case
India’s Parliamentary Standing Committee on Finance recently released a report on anti-competitive practices by Big Tech companies. It recommends ex-ante regulation and the formulation of a Digital Competition Act to ensure fair, contestable and transparent digital markets in India. It also favours more regulation of “systemically important digital intermediaries" (SIDIs), a move conceptually similar to the enhanced oversight of ‘gatekeepers’ or large platforms under the EU’s Digital Markets Act.
The report is only the latest call for tighter digital market competition rules in India. Lawmakers, academics and members of the Competition Commission of India (CCI) have written extensively in support of the idea that large companies should be subject to greater compliance. It relies on two central arguments in favour of ex-ante regulation: the exceptional nature of digital markets vis-a-vis physical counterparts; and the limitations of ex-post remedies in such ‘winner-takes-all’ markets. While the differences between digital and physical are self-evident, it’s unclear whether digital market failures warrant exceptional remedies.
Policymakers must pre-empt negative externalities linked to extraordinary policy prescriptions for digital markets, particularly in areas such as user privacy and security. For instance, the panel observed that large digital players often restrict access to the installation or operation of competing third-party applications. So it recommended that SIDIs enable the interoperability of third-party software apps with their operating systems. However, mandating interoperability could do more harm than good. For instance, requiring end-to-end encrypted messaging apps such as Signal and WhatsApp to inter-operate with others that do not encrypt messages in a similar manner could compromise user privacy. Applications that use end-to-end encryption prevent third parties from reading or modifying information meant only for intended recipients. But mandatory interoperability would require them to open up to competitors that may employ different standards of encryption. It would undermine the privacy of such apps, and lead to a lowest common denominator approach to product design, bereft of unique user-benefits and features.
Similarly, a recent CCI order which prohibits Google from restricting side-loaded apps on Android devices “in any manner", may inadvertently undermine user security. Currently, Google allows users to install apps from the open internet (‘side-loading’), but with warnings about potential security risks associated with downloads from an unknown source. However, the CCI opined that such prompts discourage users from side-loading due to apprehensions over device security, as well as the large number of steps required in the process. Such a remedy raises a few questions. Are users better off without any warnings? Do platforms have a vantage point on security which is of value to users? What level of technical proficiency of users should regulations assume?
The committee report also delved into the importance of ‘platform neutrality’ when an entity plays a “dual role" of providing a platform as well as competing on it, as Google does in the case of Android. The committee maintains that SIDIs must not favour themselves while mediating access to supply markets. But, an unqualified application of this principle can lead to absurd, consumer welfare decreasing outcomes that will stretch law enforcement capacities.
Consider another facet of the above-mentioned CCI order, which also prescribes that Google must not restrict original equipment manufacturers’ (OEMs) ability to manufacture, distribute, or market devices based on “Android forks". Forks are modified versions of software—of the Android Open Source Project code in this case. However, they must have a baseline level of compatibility with the original version, so that different devices using diverse Google apps offer users equal security. If policymakers allow fragmentation at the mobile operating system level, it can lead to security risks linked to incompatibility of Google’s own apps with forked versions of the Android OS. Incompatibility related vulnerabilities in software are among the most common causes of digital insecurity and a reason why we are advised to keep our OS versions updated and also the software riding atop them.
There are better ways to implement good ideas like platform neutrality. There’s a clue in the mechanics of analogous neutrality requirements imposed on the network layer of the internet via ‘network neutrality’ rules on internet service providers (ISPs). Such rules aim to ensure that ISPs treat all traffic equally. They are outcome-based and don’t prescribe specific technical changes in the functioning of ISPs to achieve net neutrality. Even so, they constrain an ISP from deviating from data transmission protocols, so that all applications and content can be accessed without any discrimination. This has resulted in greater openness and internet access in India. Similarly, even though Europe has taken aggressive antitrust actions on Big Tech, it has limited the scope of its remedies to penalties and more general principles-based prescriptions.
The Indian committee acknowledged that regulating digital markets is complex and requires weighing several competing considerations. Our policymakers must examine the multidimensional nature of competition issues in digital markets more closely. These are indeed as unique as they get.
Vivan Sharan & Shweta Venkatesan are technology policy experts at Koan Advisory Group.
These are the authors’ personal views.
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