Introduction
The market today is bigger than it has ever been. It contains numerous sectors and offers an abundance of opportunities. One of those markets is the digital market. This market space is huge, open to potentially innovative and disruptive platforms.[1] Until two decades back or so, the internet market, or the digital market was not a major concern for competition law authorities. However, as of today, the competition authorities have started to monitor the related sectors of this market in a more careful manner.[2] The EU, German, French, as well as certain other European competition authorities have begun to look into strategies and policies to monitor this market. No certain tools, however, have been devised till date. On a similar note, the debate of digital economy and competition persists in Indian Competition Law Regime.
It is important to note in this regard, the features of Internet markets which make them unique. Competition law is an economic law, and its application depends on economic considerations to a large extent. So it is important to know the principles which relate to the online world.
Features of Internet economy
Multi-sided markets, is a very important feature of the internet economy. These markets exist when a platform caters to multiple relevant markets at the same time. For instance, Google, caters to users as a search engine, while acting as an advertiser for another set of users. Typical two sided markets here, are media markets where the publishers earn most of their revenue through advertising spaces, while focusing on increasing the number of other set of users, thereby increasing the value of their advertisements. The two-sided markets function on the interaction between the different set of users, thereby leading to network effects.
Network effects are mainly of direct and indirect nature. Direct network effects occur when the more customers use the same service, the more users are attracted to use it. Whatsapp, for example, is subject to direct network effects. Indirect network effects, on the other hand, arise when attractiveness of a platform on one side, increases with more users on the other. For example, the more users access Google as a search engine, the more advertises would attract to invest in GoogleAds’ ad spaces. The network effects gradually rise the ‘lock-in’ effect of a platform. The user tends to stay on a platform, as long as the network effects on that platform are on a rise. The major existence of multi-sided platforms is seen in the area of online advertising. Platforms like Google, Facebook and Amazon, have since years, been serving two sides of the market to generate revenue by advertising on one side, and providing free search or social networking services on the other. These effects, however, are subject to switching costs and multi homing.
Switching costs and multi-homing allow a user to switch from one platform to another, or to access multiple similar platforms at the same time. It is considered that as long as the switching costs are low, and multi-homing is likely, there is less tendency of concerted practices in the internet market.[3]
Advertising and data collection
Advertising is the most common source of revenue for numerous Internet Service Providers. It can be seen in various forms, pop-ups, banners, and search advertising are some examples.[4] Google’s is a form of search advertising. This form of advertising functions by showing ads as per the keywords searched by a user.[5] This form of ads is popular due to their efficient targeting and placement of advertisements. The methods of online advertising include behavioural advertising as well as data analytics. These methods function by collection of consumers’ behavioural data by the online entities, which include the websites people visit, purchases made online among others. This collected information is matched with other data and used to export targeted advertisements.[6] Social networks use similar tools to provide targeted advertisements, as well as indulge in other modes of advertising like sponsored stories, product pages etc. In this regard, no legal distinction exists in the modes of advertising used. Consequently, all modes of advertising, be it behavioral ads, sponsored stories on facebook or Instagram, or even the traditional billboards on the edge of the highway, are considered by competition authorities under the same market of advertising.[7] The focus here remains on behavioral form of advertising and whether this mode of advertising requires competition authorities to take extra care when adjudicating upon any information filed against firms engaged in collection of personal data along their main line of function.
Competition authorities mainly work in three areas, concerted practices, abuse of market power, and merger control.[8] Firms in the internet market, when adjudicated upon in these areas, are taken through traditional market analysis that is based upon numbers and figures, however the digital market functions on the first mover advantages as well as innovation.[9] Although this nature of internet markets is widely known, the question remains, as to whether certain aspects of this economy are ignored. Is there an attribute of the digital economy which needs consideration by competition authorities?
19 of the Indian Competition Act provides the steps for conducting analysis of market for the Competition Commission. This section further provides, that when inquiring whether an enterprise enjoys a dominant position under §4 of the act, the commission shall pay due regard to market shares, size of enterprise, resources of the enterprise etc. The question here arises whether the personal data being collected by internet based platforms shall tantamount to a resource of that platform? This debate has persisted for quite some time now, and numerous competition authorities like that of France and Germany have tried to look into this aspect.[10] This analysis shall try to take an overview of the same.
The analysis will be continued in the second part of this blog series. Stay tuned.
The post has been authored by Aryan Mohindroo a second year student of the West Bengal National University of Juridical Sciences.
[1] Geeta Gouri, Big Data firms are not immune to disruption, livemint (Mar. 23, 2017), http://www.livemint.com/Opinion/0CjXgKqlfYdWd1sHOBZYNJ/Big-Data-firms-are-not-immune-to-disruption.html
[2] European Commission, Information Communication technologies, overview, http://ec.europa.eu/ competition/sectors/ICT/overview_en.html
[3] Justus Haucap & Ulrich Heimeshoff, Google, Facebook, Amazon, eBay: Is the Internet driving competition or market monopolization, 11 Int. Econ. Econ. Policy 49 (2014).
[4] Kagan in Microsoft/Yahoo! Search Business, Case No COMP/M.5727 (Feb. 18, 2010) (European Commission)
[5] BJ Jensen, Sponsored search: An overview of the concept, history, and technology, Int. J. Electronic Business 6(2).
[6] David S. Evans, The Online Advertising Industry: Economics, Evolution, and Privacy, J. Econ. Perspect. 23(3) (2009).
[7] Google/DoubleClick, Case No. Comp/M.4731 (Mar. 11, 2008) (European Commission); Microsoft/Yahoo! Search Business, Case No COMP/M.5727 (Feb. 18, 2010) (European Commission)
[8] Richard Whish & David Bailey, Competition Law (7th ed. 2012).
[9] Adam Thierer, The Rule Of Three: The Nature of Competition In The Digital Economy, Forbes (Jun. 29, 2012), https://www.forbes.com/sites/adamthierer/2012/06/29/the-rule-of-three-the-nature-of-competition-in-the-digital-economy/#6775ebd27a04.
[10] Competition Law and Data, Autorié de la Concurrence and the Bundeskartellamt, 10 May 2016, http://www.bundeskartellamt.de/SharedDocs/Publikati on/DE/Berichte/Big%20Data%20Papier.pdf?__blob=p ublicationFile&v=2.
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