Imposing Ex-ante Rules on Digital Platforms

Why in news?

Recently, the European Union adopted the Digital Markets Act (DMA), which seeks to impose ex-ante structural limitations on the practices of large technology platforms.

What is ex-ante regulation?

• The Latin word “ex-ante,” means “before the event”.
• Ex-ante regulations aim at identifying issues in the market beforehand and shape stakeholder behaviour and responses through regulatory intervention.
• Ex ante regimes tell business precisely how to behave, or what to do.
• In Ex ante, the regulator predict such events beforehand and therefore prone to any bias harboured by the regulators.
• Traditionally, ex-ante regulation has been deployed in utility markets, such as electricity distribution.
• Ex-ante obligations in utilities aims for non-discriminatory treatment, interconnection and price regulation.

Ex post actions

• The regulatory action that takes place once a market failure or distortion arises is ex post.
• Ex post actions always take place on information available.
• Conventional tools of anti-trust operates at ex-post level.

What is the Digital Markets Act of EU?

• The Digital Markets Act aims to ensure that these platforms behave in a fair way online.
• Together with the Digital Services Act, the Digital Markets Act is one of the centrepieces of the European digital strategy.
• Under the DMA, the European Commission will designate certain providers of core platform services as "gatekeepers" that fulfil a number of criteria.
• After the specific gatekeepers are designated, they will have 6 months to comply with the DMA obligations.

What is the issue with ex ante regulations on digital services?

• A poorly designed and executed ex ante regulation is proven to
  • stifle the innovation outputs in an economy
  • reduce its ability to catch up with its global competitors

Problems with ex ante regulations on digital services

• Digital services as utility - Treating the content and application layer of the internet as a utility (as opposed to the infrastructure layer) is an inappropriate comparison.
• Lack of evidence - The imposition of ex-ante regulations without any evidence of anti-competitive effects represents a return to a structure-based antitrust approach.
• Solely depending on this form can be counterproductive to innovation and consumer welfare.
• Effect on regulators - Ex-ante frameworks tend to confine regulators and reduce their regulatory agility.
• One-size-fits-all approach - Operational models for technology platforms vary significantly and the risks associated with such models also differ.
• A one-size-fits-all approach may benefit certain players at the cost of others.

What about the ante regulations in India?

• The Competition Commission of India (CCI) is studying the relevance and feasibility of introducing ex-ante regulations to deal with digital markets in the Indian context.
• Standing Committee on Finance headed by Jayant Sinha has already identified anti-competitive practices by big tech and is likely to recommend an ex-ante framework for digital markets.

What lies ahead?

• There is a need to ensure that the markets serve consumers with the best products and prices and meet evolving demand.
• Focusing instead on protecting competitors can prove counterproductive in the long run, insulating Indian consumers from innovation, competition, and consumer choice.
• Rushing into “plug-and-play” solutions from other jurisdictions could prove detrimental to India’s own ambition of creating an inclusive, efficient and robust digital economy.

References

1. The Hindu Businessline│ Imposing ex-ante rules on digital platforms
2. The Hindu Businessline│ CCI’s study on ex-ante regulations in India
3. ECPIE│ Economic Costs of Ex ante Regulations
4. European Commission│ The Digital Markets Act