New Delhi: Historically, economies that encouraged innovation by allowing the freedom to test new ideas and promote competition and cooperation through a market, flourished. A similar approach has to be instituted while devising rules for competition in the digital economy, according to a recently published report by the Esya Centre, a New Delhi-based tech policy think tank, titled—First Principles for Competition Regulation in the Digital Economy.
The report makes the case, digital markets are not vastly dissimilar from traditional markets. Like traditional markets, digital markets host interactions between people for trade and exchange. Therefore, the fundamental principles of economics still apply. However, there are certain peculiarities in digital markets which raise some concerns for competition regulators.
The ability of digital businesses to scale effectively, coupled with their ability to shape and guide socio-political discourse have raised concerns amidst decision-makers around the globe. As a result, nations across the world have sought to develop novel approaches to regulate competition in the digital economy.
One approach that has gained traction is the utilisation of ex-ante regulations that seeks to regulate conduct of digital businesses before anti-competitive practices materialise. For instance, the EU’s Digital Markets Act classifies certain large digital platforms as gatekeepers and imposes interoperability requirements. A recent executive order in the US empowers the Federal Trade Commission to establish rules that prohibit unfair methods of competition in digital markets. In India, the Consumer Protection (E-commerce) Rules, 2020 prohibit e-commerce entities from hosting unannounced sales.
The report, however, cautions that the adoption of an ex-ante approach can be problematic as the trajectory and development of technology markets is hard to predict. It advocates that digital competition governance be led by first principles that balance the need for oversight in digital markets with incentives for innovations.
It lays out the following first principles for competition regulation in the digital economy:
- Understanding competitive harms in digital markets requires the adoption of a holistic view that balances pro and anti-competitive effects while accounting for innovation and improvements in quality of service
- The creation of a level playing field must not be used an instrument to stifle novel business practices or hinder overall economic progress to benefit traditional incumbents.
- Regulations must not prioritise access to proprietary and valuable information at the cost of incentives to innovate. Caution must be exercised in treating digital businesses as utilities.
It argues, these principles can form the basis for effective competition governance that protects consumers welfare, boosts economic growth and promotes constant innovation and disruption.