Anti-trust framework calls for paradigm shift

Anti-trust framework calls for paradigm shift

Through out the history of anti-trust law, the overarching framework has applied the postulate that lesser firms means lesser competition

Representative Image. Credit: iStock Photo

In the recent years, questioning of the highest officials of the tech giants in the United States seems to have become a routine affair. There are adequately placed fears of excessive power getting concentrated in very few hands. We see Zuckerberg being questioned about Facebook eliminating its competition like Instagram and WhatsApp by buying them, Sunder Pichai answering questions about whether Google prioritises its own products in its search results, Tim Cook stammering while answering if Apple forcefully keeps its competitors’ apps out of the Apple store and Bezos trying to deflect the conversation when he’s asked about Amazon copying the products of its sellers and selling them on its own platform.

These alleged business practices focused towards achieving maximum pie of the market are not recent. Its origins can be traced back to the late seventeenth century when John D Rockefeller, who established Standard Oil in 1870 and which controlled some 90% of US refineries and pipelines by 1880s, was questioned for engaging in unethical business practices such as predatory pricing and vertical integration. The basic instinct of all these businesses to establish a monopoly and eliminate its competition is omnipresent. It is neither limited by time nor by geography. 

Through out the history of anti-trust law, the overarching framework has applied the postulate that lesser firms means lesser competition, which in turn implies lower consumer welfare, manifested in the form of higher prices and/or bad quality output. In short, market concentration is assumed to be bad. This, by all means, is a crude form of assessing consumer welfare. The archaic framework is now being challenged by the likes of Lina Khan, whose scholarly article titled Amazon’s Antitrust Paradox created quite a rage in the market, challenging the decades old anti-trust laws.

The existing framework in anti-trust needs an overhaul for more reasons than one. Firstly, the bigger players neither charge exorbitant prices nor provide bad quality output even though they can. The Indian Telecom sector is a glaring example. With just 3 major players in the market (Airtel, Jio and Vodafone-Idea controlling more than 88-89% of the market), the tariffs have come down from Rs 180 per GB in 2016 to Rs 6.98 per GB in 2019. Market concentration is not inherently bad, as echoed by this sector. Secondly, the framework gives undue emphasis on size of a firm, juxtaposed with little or no regard to structure of the firm, in terms of whether a company has control over its own suppliers, whether the platform gives fair access to all, whether the company owns the infrastructure it uses etc. While there may be no explicit threat to entry in most cases, however the very market structure of some firms can destroy the competitive process. The big four titled ‘GAFA’ (Google, Amazon, Facebook, Apple) are creating an anti-competitive landscape just out of their structure even without any predatory pricing.

Indian scenario

India’s Anti-trust watchdog, the Competition Commission of India (CCI), has already ordered an investigation into Google’s abuse of its dominant position in the country’s Smart TV market. Seven out of the 10 most sold smart TVs have an Android OS, which is owned by Google, and market share of Android TV OS is almost 90%. As mentioned earlier, it is not only the size of the company which is problematic, it is the structure of the company and its control over the whole ecosystem in conjunction with its dominant position that needs to be paid heed to. Google controls the manufactures of the TVs, it controls the preinstalled apps in the TVs, it controls the platform which is used to download other apps, it controls the search results in that platform and it also controls the advertisements in the apps. Clearly, this is not a conducive environment for any new entrant that dares and tries to venture into any of these verticals.

The long term consumer and producer welfare hinges on an array of things which include product quality, variety, price and innovation— factors which are best promoted through both a robust competitive process and open markets. While we are not advocating against consumer welfare approach, rather suggesting to supplement it with other aspects. However, imposing too many gratuitous costs on any firm/industry hinders or discourages innovation. A fine balance is therefore required. The CCI needs to follow a cautious approach to protect the free market while not stifling with industry’s quest for innovation. It is about time to reframe the rules of the game.

(Rohit Chawla is Deputy Director at the Ministry of Finance and Vivek Parashar is Consultant at the Ministry)

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