Competition issues in India's online economy
Competition issues in India's online economy, Smriti Parsheera, Ajay Shah and Avirup Bose. March 2017.
The world of high technology companies is seen as a dynamic area with a rapid pace of creative destruction. There is, however, a class of industries where there are strong network effects, where the market tends to collapse into a narrow set of players. After one burst of innovation where a new online business is born, there is the possibility of entrenched market power with the extraction of consumer surplus.
Many firms, global and Indian, have resorted to the strategy of making large losses by subsidising users, as a way to obtain those network effects. This has created a new class of concerns about predatory pricing, with unprecedented negative profit margins on a sustained basis, being supported by equity capital infusions. In the short run, discounts are popular, but recoupment is inevitable and market power will adversely affect consumers in the future.
We argue that the existing competition law regime in India needs to be fine tuned, for technology-enabled markets with significant network effects, to address the possibility of new kinds of abusive conduct. We offer a series of tangible proposals through which the Competition Commission of India can better handle these emerging situations. We also look into the role and responsibilities of the investors who back these online businesses and the impact of their conduct on competition in the underlying markets.
- Building blocks of Jio's predatory pricing analysis by Smriti Parsheera, on Ajay Shah's blog, 27rdApril 2017.
- Predatory pricing and the telecom sector by Ajay Shah, on Ajay Shah's blog, 3rdApril 2017.
- Market power in the new economy by Ajay Shah on Business Standard, 2nd April 2017.
- Competition issues in India's online economy by Smriti Parsheera, Ajay Shah and Avirup Bose, on Ajay Shah's blog, 31st March 2017.