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    Here are the top 10 terms you need to know to understand the discourse around digital competition

    In March this year, the Ministry of Corporate Affairs released the draft Digital Competition Bill, 2024. While we have covered the bill and the comments made on it by industry bodies, here are some of the terms that you need to know to understand those stories better:

    1. Ex-ante and ex-post regulation

    Ex-ante regulation, as proposed by the draft Digital Competition Bill aims to prevent anti-competitive conduct from occurring by setting up restrictions on the behavior of larger players in the market. This differs from ex-post regulation, which is, what is, currently in force in India under the Competition Act 2002. The current Competition Act has an ex-post regulatory regime, wherein the Competition Commission of India (CCI) intervenes after anti-competitive behavior occurs. 

    2. Self-preferencing

    When a platform directly or indirectly favors its own products and services, it is called self-preferencing. For instance, if you’re using an e-commerce platform called ‘A’ and look up earphones on it and the first product that shows up on top is ‘A brand’ earphones, that would be self-preferencing. 

    In the past online sellers and trade bodies have flagged that Amazon engages in unfair and discriminatory conduct by prioritising its own private label products like AmazonBasics and preferred sellers like Cloudtail and Appario in search results. The same was also confirmed to be true after a Reuters investigation, following which Amazon ended its partnership with Cloudtail in May 2022 and announced that it would shut down Appario by November 2023. 

    3. Anti-steering

    When a digital platform restricts business users operating on it from directing users to their own or third-party services, this practice is called anti-steering. Anti-steering policies became a major topic of discussion when in November 2020, Google announced that the use of the in-app billing system is mandatory for all apps. This billing system required developers to pay Google a 10-30% commission for in-app purchases. By restricting developers to its billing system, Google was preventing them from directing users to external web pages containing an alternative payment option.

    Indian startups immediately rebuked it and filed a complaint with the Competition Commission of India (CCI). In its 2022 order, CCI stated that making the Google Play Billing System (GPBS) mandatory constitutes an imposition of unfair conditions on app developers. The CCI also ordered that Google could not impose any anti-steering provisions on app developers and not restrict them from communicating with their users to promote their apps and offerings, in any manner. CCI has undertaken a similar investigation into Apple’s billing policies. If the verdict of this, goes anything like the verdict against Google Play, Apple could be expected to make major changes to its policies. 

    4. Exclusive deals

    These are restrictions imposed by a seller on a merchant or a customer restricting them from acquiring or selling goods/services other than those of the seller. So for instance, if a merchant sells the products/services of Company B, and their contract with Company B restricts them from selling the products of Company C, that would be considered an exclusive deal. For instance, in a 2020 investigation into Flipkart and Amazon, the CCI noted that there appeared to be a tie-up between smartphone manufacturers and the e-commerce platforms for the exclusive launch of smartphone brands. 

    5. Tying and bundling

    When a platform clubs together a bunch of its services and requires users to buy not just the service that they want but also the other services clubbed together, then that is called “tying and bundling”. Let’s say you want to buy a phone from platform ‘A’, if platform A only allows you to do so through its own payment service, then that would be called tying the two services together. Alternatively, if two services come clubbed like a phone that has a pre-installed search engine, and app store, that would be considered a bundle. 

    In 2023, the US Department of Justice filed an anti-trust lawsuit against Google alleging that the company used a range of anti-competitive practices to maintain its search dominance. This included the forced preinstallation of Google Search in prime locations on Android devices as part of a bundle of core apps and making these apps undeletable. Google’s bundling practices have also been questioned by the European Commission. As per a 2018 order by the commission, Google’s bundling reduced the ability of rivals to compete effectively.

    6. Data usage

    Platforms tend to have information about the merchants and end customers using their services. They can use this data to customize their offerings or offer cheaper alternatives to merchants’ products. 

    In its 2021 complaint against Swiggy and Zomato, The National Restaurant Association of India (NRAI) alleged that the two platforms engaged in the practice of data masking, by not providing restaurant partners with information about the end consumers despite being held accountable when something goes wrong with the order. The association had said that the platforms use the collected data to their own advantage, especially for the creation of their private labels. 

    7. Private Labels

    These are products owned by a digital platform and sold alongside competing products.

    Similar to the situation around Swiggy and Zomato, an issue of private label creation with data from third-party sellers has also been brought up against Amazon in the past. As per the Reuters investigation into these private labels, the company has systematically copied top-selling products using data that is not available to other sellers.

    8. Search neutrality

    This principle says that search engines should have no editorial policies and should rank products/services exclusively based on relevance. 

    In the case of both Swiggy and Zomato, the question of search neutrality was brought up with NRAI arguing that the parameter used for ranking the restaurants on its platform is “not transparent or consistent”. The association had said that both the digital platforms operated their own cloud kitchens which created an incentive for them to divert more leads or traffic in favor of such cloud kitchens. 

    9. Network effects

    This means that as a product or service begins being used by more people its value for the user increases. Think of it this way, you use a particular digital platform, say, WhatsApp, to call and message your friends and colleagues. Now, since everyone you need to contact is using that platform, you would be less inclined to switch to a competing digital platforms.

    When the UK’s Competition and Markets Authority (CMA) began looking into Microsoft’s acquisition of the gaming company Activision Blizzard in 2022, one of the concerns raised was the strong network effects existing in the gaming console market. The authority mentioned that console providers like Microsoft compete to attract users who want to play high-quality games, often with friends, as well as, high-quality content from game developers, who want to make games for consoles with a large user base. Consoles with a lot of gamers attract better content, which in turn attracts more gamers to that console. This self-reinforcing mechanism makes it more difficult for new entrants without a large user base or good pre-existing gaming content to enter and grow in the market

    10. Deep discounting

    Unusual price deductions are called deep discounts. This was another practice that NRAI accused Swiggy and Zomato of in its 2021 complaint, it said that the digital platforms were initially funding the discounts by themselves, but they later asked restaurants to bear the cost of the discount. If restaurants refused to do so, they would no longer be eligible for proper listing on the two platforms. 

    Deep discounts, especially those that are done in favor of specific merchants, while beneficial in the short run for customers can cause problems later. Exceptionally low prices can drive competing businesses out of the market and create a situation where one player becomes dominant, allowing it to raise prices or charge supra-competitive prices.

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