Abuse of Dominant Position in Digital Markets

In the present ‘Go Virtual’ era, digitalization comes with its own set of pros and cons. The latter seems to weigh more than the former, as far as the digital markets are concerned. Put simply, digital markets can be considered to be a virtual marketplace where trade-related activities take place with the help of digital technologies. Activities ranging from financial transactions, shopping one-commerce platforms, communication in mobile devices, take place in virtual marketplace. ² Such dynamics raise concerns about the abuse of the position of dominant players in the digital market. When a single company or a small number of companies controls a sizable portion of the market and exerts considerable influence and power over a certain section of the digital economy, the same is referred to as having a dominating position in the digital market. ³ Manipulation of market functioning by dominant players will be detrimental for new companies to grow and develop amidst rising anti-competitive practices by such players. Furthermore, user data exploitation by dominant players resulting in the visibility of manipulative content responsible for shaping the user's perspective, is another challenge to be addressed.

What is ‘abuse of dominant position’ in digital markets?

Section 4 of the Competition Act 2002, defines ‘dominant position’ to mean independent domination of the market, affecting its competitors. While holding such a position is not wrong under the law, abuse of such position is. This is because a market cannot run with only a few players, resulting in a monopoly. Instead, it is supposed to give equal opportunity to every other player. Thus, abuse of a dominant position affects the competition in the market.

For example, the US tech giant Google was recently penalised with fines of USD 162 million and USD 113 million by the Competition Commission of India (CCI) for their anti-competitive practices and abuse of their dominant position in the Android operating system market, respectively. ⁴ The abuse was to distort the payment policy of Play Store. The CCI's actions against Google highlight the urgent need to levy punitive actions on companies taking unfair advantage of their dominant position in the digital market. Such actions were welcomed to counter arbitrary practices of tech giants that are detrimental to their rivals, competitors, and consumers, as well.

How is dominant position abused?

The scope of abuse of dominant position in digital markets is divergent and the same can take place in a variety of ways. The common methods of abuse of dominant position in the market have been elaborated hereunder.

1. Predatory pricing: Predatory pricing signifies dominant companies deliberately setting their prices below the market price so as to draw a higher rate of consumers. An extreme form of predatory pricing can also drive non-dominant players out of the market, making way for monopoly control in the market.
2. Tying and bundling: Tying, as the name suggests, is a deliberate attempt of the market player to make the customers buy another product with the one they actually want. Bundling, on the other hand, is an attempt by a company to make the consumers buy more products by offering them the same at a lower price than the market price.
3. Exclusive dealing: This type of abuse of dominant position entails making suppliers or customers deal only with the dominating business and forbidding them from doing the same with rivals. This may curtail rivals' access to resources or distribution channels.
4. Price discrimination: Price discrimination signifies charging different prices to different customers for the same product, affecting market stability. Such discrimination causes difficulties for small market players especially.
5. Refusal to deal: A classic example of misuse of dominant position is when dominant market players refuse to supply goods or services to their inferior rival companies. This creates a roadblock for such rival companies to successfully operate in the market, leading them to exit the same.
6. Limiting innovation: In order to maintain high prevailing prices in the market and a monopoly-induced environment, dominant players often limit innovation. Gross misuse of intellectual property rights such as patents, trademarks and copyrights by stronger players in the market, is the key to limiting intellectual creation and development in the market.

Applicable Law – India and Abroad

Many new competitive challenges have emerged with the rise of digital markets. As a result, in order to promote contestability and fair trade in digital marketplaces, key Organisation for Economic Co-operation and Development (OECD) nations are either debating on what laws to come up with or have already enacted regulation initiatives. Such measures are promising for OECD nations for long-term development. Articles 101 and 102 of the Treaty on the Functioning of the European Union governs abuse of dominance relatively well and in a comprehensive manner. The competencies of the European Commission are outlined in Regulation 1/2003, which supports the articlesin ensuring fair competition. ⁶

Unlike the Digital Markets Act, 2022 (DMA) of the European Union (EU) which ensures appropriate operation of the internal market through the establishment of ex-ante guidelines for contestability and equity in the digital industry, India lacks digital market regulation. In India, the Competition Commission of India, a statutory body created by the Competition Act of 2002, has broad jurisdiction to look into and make decisions regarding unfair acts in the digital market. Currently, the Competition Act of 2002 and the Competition (Amendment) Act of 2023 serves as the legal foundation governing the digital marketplaces in India. After determining that there is a plausible case of abuse of dominance, the CCI will order the Director General to conduct an investigation and provide a report. The Commission can order the Director General to conduct an investigation and carry out search and seizure. ⁷ Penalties for the contravention of orders of CCI include fine, which may extend to rupees one lakh for each day during which non-compliance occurs, subject to a maximum of rupees ten crores, as the Commission may determine. ⁸

Challenges in regulating competition in digital markets

While dealing with the digital market, challenges appear to be born on a frequent basis. When it comes to abuse of a dominant position in the digital market, some of the common challenges that arise have been discussed hereunder:

1. Personal data governance
   In the case of Matrimony v. Google, ⁹ the CCI, while acknowledging the potential for abuse of a monopolistic hold over consumer personal data, overlooked abuse of dominant position in relation to the same. It did not make an effort to order an investigation regarding the misuse of user’s personal data thereby raising privacy concerns at large.
2. Unfair expansion of business in the virtual market
   Dominant companies try acquiring app developers and organisations associated with it in order to be the master of more data and the market as a whole. For example, the European Commission has fined Google ¹⁰ significantly for abusing its dominating position by giving its own comparison-shopping service a prominent placement in its search results instead of rival services as well.
3. Problems of developing economies in regulating digital markets in continuity
   In an increasingly globalised economy, the majority of developing nations have relatively new, small competition companies with limited resources to handle complex competition disputes. To guarantee that local small and medium-sized businesses have equitable access to platforms with reasonable terms and conditions, e-commerce legislation and regulations must be implemented in such nations. An absence of the same counts as a challenge in digital markets.
4. Ambiguity in defining ‘adequate safety’ measures in regulating legislation
   What qualifies as ‘adequate safety’ and who implements it are two fundamental questions posing challenges to digital market regulations. For example, many untrusted applications purchased from the Google Play Store can result in hacking of information on our devices. Such information can include sensitive data, hacking of may lead to fraud or identity theft.

Conclusion

In order to safeguard domestic economies from the claws of concentrated globalisation, it is crucial to prioritise consumer welfare and enable free choice while opposing the digital monopolisation of data. Ethical concerns in this regard hold prime importance alongside economic issues. A multifaceted strategy including legislative changes, regulatory monitoring, industry self-regulation, and public awareness initiatives, is needed to address such worries. The objective therefore is to establish a digital environment that supports democratic principles in the digital era, protects user rights, fosters innovation, and harvests healthy competition, both at global and national levels.

Oishika Banerji ¹