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An optimal way to usher small businesses into the digital age
Live Mint, April 26, 2019


By Pradeep S Mehta

A nuanced policy would enable small enterprises to deal with large online platforms on fair terms

Globally, the role of digital platforms in the internet economy is increasingly coming under scrutiny. Key concerns relate to exploitation of consumer data and behaviour by platforms without appropriate consent and privacy protocols. Another set of concerns relate to misinformation, surveillance, accountability and the disproportionate size and influence of platforms. All these primarily focus on the user side of the equation. But often overlooked is how they deal with service providers.

Increasingly, micro, small and medium enterprises (MSMEs) are hopping onto the internet bandwagon, primarily led by popular digital platforms, to offer their goods and services to a larger consumer segment. The importance of MSMEs for economies like India, especially their role in job creation, innovation and productivity, does not need any reiteration here.

Despite playing an important role in sustainable growth, the interaction between dominant platforms and MSMEs has failed to get adequate attention from regulatory agencies. The main issues involved in this interaction include: the possible adoption of discriminatory practices by platforms to favour specific service providers; unreasonable pricing that deters small service providers; lack of transparency in the listing of goods and services; changes in terms and conditions by platforms without prior notice; and unilateral delisting/suspension of accounts, among others. While the Competition Commission of India has dealt with some of these issues on a case-to-case basis, a holistic review remains elusive.

However, this is not the case in other jurisdictions. The Australian Competition and Consumer Commission, for example, released a preliminary report on its Digital Platforms Inquiry in December 2018. It recognizes the critical role of popular platforms in enabling businesses and also the lack of clarity on how platforms determine the order of appearance of the content of various service providers.

In early April 2019, the European Commission released a report on competition policy for the digital era. It argues that platforms play a kind of regulatory role as they determine the rules by which their users—including business users and providers of complementary services—interact; and if they happen to be dominant also have a responsibility to ensure that competition on their platforms is fair, unbiased and pro-consumer. It recommends case-by-case scrutiny of the power of platforms to influence the prices of goods and services offered by service providers on their and other platforms.

The report also recommends that dominant platforms should have a responsibility to ensure that their rules do not impede free, undistorted and vigorous competition without objective justification. They should ensure a level-playing field in the marketplace and must not use their rule-setting power to determine the outcome of the competition. To this end, recognizing the role of competition law in guiding the evolution of the platform economy, the report suggests that platform-to-business (P2B) regulations can help in protecting competition.

It appears that Europe is ready to take this recommendation to its logical conclusion. It is on the verge of adopting new and comprehensive P2B rules to promote fairness and transparency for business users of online intermediation services. The scope of regulation is fairly wide and includes online e-commerce marketplaces, online software application stores and online social media.

Other advanced jurisdictions are also witnessing calls to break up dominant digital platforms and let their intermediary role be performed as a public utility. Measures such as interoperability among different platforms let MSMEs linked to a platform reach out to consumers linked with others. This can help maintain healthy competition, not only in the market, but also among different platforms.

In India, the draft National eCommerce Policy also talks about social media and other online intermediaries, but only in the context of regulation of data. It is largely silent on P2B regulation, except reiterating those in India’s FDI rules. The draft policy largely fails to address the important issue of competition “on" marketplace platforms.

We need to cautiously review developments in other jurisdictions. While acknowledging the need to rein in big digital platforms, the opportunities they offer and economic benefits they create, especially in the developing world, cannot be lost sight of. Equally important is the need to offer adequate opportunity to MSMEs, as they have a huge role in sustainable development and job creation. There are no clear answers on what balanced measures could promote competition on platforms most effectively.

Nuanced principles to enable small enterprises to negotiate effectively with digital platforms in accordance with market forces will need to be thought through. A dynamic national competition policy that takes these developments into account should pave the way for a level-playing field among MSMEs and platforms without any loss of the benefits they offer.

Ujjwal Kumar and Amol Kulkarni of CUTS contributed to this column

Pradeep S. Mehta is secretary general of CUTS International.
 

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