The problems of regulating digital markets

Author: Vikram Sinha

This article was first published in Hindustan Times on June 12, 2019. The views are of the individual authors. 

In his recent call to break up Facebook, co-founder Chris Hughes argued that Mark Zuckerberg couldn’t fix the company, but the government can. He is part of a growing chorus. Big tech’s long honeymoon period is winding down. The European Union (EU) has been less than sanguine about tech giants’ market dominance and practices for some years now. The US Federal Trade Commission and Justice Department, markedly more forgiving than their European counterparts, are also divvying up competition investigations into the tech giants. Calibrating competition policy to regulate digital markets will be a tricky business. But there are opportunities here, particularly for India, where such policy is still a relatively greenfield area.

US judge Robert Bork’s 1978 work, The Antitrust Paradox, redefined competition regulation. He argued for economic efficiency: regulators should protect competition and the consumer, not competitors. Focusing on the latter can prevent companies from achieving economies of scale and benefiting consumers via lower prices. This made intuitive sense. It had the added attraction of bringing economic rigour to the delicate business of regulating markets. Bork influenced multiple jurisdictions, not just the US. The EU had its own imperatives — market integration, for one — but the consumer welfare standard is foregrounded in India’s Competition Act, 2002. As the Supreme Court put it in Excel Crop Care vs. CCI, “The ultimate goal of competition policy is to enhance consumer well-being.”

But something is lost in translation when applying the consumer welfare standard to digital markets. Products like Google’s search engine or Facebook operate in zero-price markets. The user benefits are immense and obvious. And in the absence of a price, there is no quantifiable user harm by the lights of conventional competition logic. Focusing on price, however, ignores what law professor, Daniel Solove, has dubbed “architectural harms” — long term, non-monetary drops in consumer well-being in markets where they surrender excessive data and attention in return for a free product.

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