From UPSC perspective, the following things are important :
Prelims level : Nothing much
Mains level : Web platforms and role of competition
Competition law is struggling to come to grips with the internet-based platforms who pursue growth over profits.
How web platforms work
- They operate on the basis that long-term customer lock-in is more important than the short-term benefits of quarterly profits. Thus they keep the prices very low so as to maximize customer growth.
- The price of a product or service is “predatory” or not depends on whether it is being sold below cost.
- Internet businesses offer unprecedented economies of scale and savings on overheads. So it is difficult to establish whether their price is predatory.
- Some internet platforms are fast becoming part of the critical infrastructure of the internet.
- Due to this, platform businesses have access to unprecedented volumes of data in excess of what their competitors will ever possess and can understand consumer behavior.
- Thus they can tailor their services more accurately than before and offer an unprecedented quality of user experience.
- They understand what sells and can take advantage of the feedback loops based on rankings, user reviews, and shopping carts. This data gives them an advantage over traditional advertisers as to who they should aim their advertisements.
- It is this data advantage that internet platforms use to establish authority over their competition.
- As data platforms acquire more and more customers, their understanding of user behavior improves exponentially, making it possible for them to deliver services more directly relevant to the needs of their individual customers.
- If the purpose of competition regulation is to ensure diversity of market access and prevent the concentration of market power in the hands of a few, regulators should do something to address the distortion brought by internet platforms.
- Restricting the manner in which digital platforms function will end up denying consumers these advantages.
- Many smaller businesses have rolled themselves into larger platforms to leverage the scale and data advantage of the combined business.
- This consolidation also progressively robs customers of choice and users will eventually have no option but to use one single dominant platform for all their needs.
If we want to regulate competition on the internet, we will need to come up with something new. The remedies that have served us so well for all these years are just not useful in the same way when it comes to internet platforms.