Why in the news? 

In February 2023, the Ministry of Corporate Affairs (MCA) established a Committee on Digital Competition Law (CDCL) to assess the necessity for distinct legislation concerning competition within digital markets.

What is an ex-post framework?

• An ex-post framework refers to a regulatory approach where authorities intervene and enforce regulations after potentially harmful activities or behaviors have already occurred.
• In the context of competition law, it means that enforcement actions are taken against anti-competitive practices only after they have been observed or reported.

How is an ex-post framework different from an ex-ante framework?

Timing of Intervention:

• Ex-post framework: Intervenes after anti-competitive conduct has occurred and its effects are observed. It relies on retrospective enforcement based on complaints or identified issues.
• Ex-ante framework: Proactively sets rules and obligations before anti-competitive behavior happens, aiming to prevent market distortions and protect competition from potential harms.

Nature of Regulation:

• Ex-post framework: Reactive in nature, focusing on remedial measures and enforcement actions against established instances of anti-competitive behavior.
• Ex-ante framework: Proactive in nature, establishing upfront rules and obligations to guide behavior and prevent market abuses by dominant players before they occur.

Focus and Objectives:

• Ex-post framework: Focuses on addressing past harms to competition, ensuring fair market practices, and correcting market distortions post-occurrence.
• Ex-ante framework: Focuses on maintaining competitive markets, promoting innovation, and protecting consumer choice by setting clear rules and preventing anti-competitive behavior from developing in the first place.

Why does the draft Bill encourage an ex-ante competition regulation?

• Proactive Prevention: Digital markets exhibit characteristics such as rapid growth, network effects, and economies of scale that can lead to quick and irreversible market dominance. An ex-ante framework allows regulatory authorities to preemptively set rules and obligations to prevent anti-competitive practices before they occur, thereby maintaining market competition and ensuring consumer choice.
• Timely Intervention: The existing ex-post framework under the Competition Act, 2002 is considered inadequate for digital markets, where traditional enforcement mechanisms may be too slow to effectively address evolving market dynamics and prevent potential harms to competition. An ex-ante approach enables timely intervention and regulatory oversight to curb monopolistic tendencies and promote a level playing field for all market participants.

What framework does the European Union follow?

• The European Union follows an ex-ante competition framework under the Digital Markets Act (DMA). It regulates large digital platforms identified as gatekeepers, imposing specific obligations to ensure fair competition.
• Objectives: To promote competition, innovation, and consumer choice in digital markets by proactively addressing potential market distortions caused by dominant players.

What are systemically significant digital enterprises (SSDEs)?

• SSDEs are digital enterprises identified as dominant in specific digital market segments under the draft Digital Competition Bill.Identified through quantitative tests based on financial strength and user reach in India, or qualitatively based on significant influence and market impact.
• SSDEs are required to operate transparently, refrain from anti-competitive practices like self-preferencing and data misuse, and ensure fair access to their platforms for other businesses.

Conclusion: Ensure that the criteria used to designate SSDEs are well-defined and balanced. Conduct periodic reviews to adjust these criteria based on market dynamics and technological advancements to accurately capture entities with significant market power without overly burdening smaller players.

Mains PYQ: 

Q Examine the impact of liberalization on companies owned by Indians. Are they competing with the MNCs satisfactorily? Discuss. (UPSC IAS/2013)

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