Creating a Level Playing Field through Customized Regulation

Ravneet Kaur, Chairperson of the Competition Commission of India (CCI), participated in a panel discussion on 'Future of Regulation: Balancing Innovation and Risk' at the Global Economic Policy Forum 2024, organized by the Ministry of Finance & CII. Following are the key insights.

Understanding the dynamics of a market is a critical starting point for creating a level playing field in any market. The relevant market is then identified as the boundaries within which competition occurs. These boundaries could be related to product, geography, or consumer preferences. This provides a view of what the competitive environment looks like from the ground up that can set the stage for further analysis.

Consequently, regulators consider the market share of each player and the level of concentration to see if any of the market participants is in an outsized position. Various metrics used to measure market concentration show the degree of their dominance in the market and the potential for anti-competitive behavior. However, it does not give the complete picture, and concentration alone is insufficient. Regulators also look at competitiveness factors including when it is easy to enter the market, the extent of barriers to entry, or the power of buyers to bargain with the firm. These factors, when working together, determine if the market structure fosters fair competition or if some players get an undue advantage.    

The Case-by-Case Approach

Markets are intrinsically diverse and a one-size-fits-all regulatory template is seldom appropriate. Many regulators have in fact adopted a case-based approach to assess competition concerns, a move which recognises this. It is an approach to examining each situation on its own and coming up with tailor-made solutions for the market dynamics in question.

It is especially important in multi-sided markets where different stakeholders have different priorities. For instance, in digital platforms, affordability and convenience can be more important for consumers, and startups and smaller businesses may have a requirement for support in standing up against the established giants. The creation of a fair market environment is dependent upon balancing these interests.

A case-specific approach also offers the flexibility to regulators to respond to challenges that arise out of unique market conditions. Take, for instance, markets that are heavily technologically integrated that evolve more quickly than traditional industries and require adaptive, innovative regulatory solutions. Regulators can also analyze each case independently, and thus, their interventions remain precise and effective.

Timeliness: A Catalyst for Innovation

In today’s fast-moving economy, decisive action is mandatory. Regulatory approvals may take too long for mergers, acquisitions, or other transactions, which can stifle innovation and upset the market pace. This is understood, and there is a tendency in the regulatory framework to place increasing emphasis on the importance of establishing streamlined processes to avoid unnecessary bottlenecks.

For example, some jurisdictions have also passed provisions for deemed approvals wherein transactions would take effect automatically if regulatory authorities do not take any decision within a stipulated time period. Similarly, trust-based regulations permit transactions to proceed without delay under some circumstances, thereby freeing up clearances for businesses without compromising oversight.

This focus on timeliness is especially important in industries where innovation drives business. They need rapid decision-making to scale their operations, launch new products, and raise funding through mergers and acquisitions. Regulators do not only help businesses grow by making clear and timely rulings, but by doing so they also create an environment that promotes innovation.

Addressing Emerging Challenges in Technology

Regulators have faced a host of new challenges in a world of technology-driven markets. One of these types of challenges is killer acquisitions, where dominant firms buy smaller competitors to finish off threats before they mature. Typically, these transactions are not scrutinized under traditional regulatory thresholds based on turnover or asset value.

Consequently, some jurisdictions are beginning to implement deal value thresholds to evaluate transactions based on their economic effect, rather than conventional metrics. This is because doing this also helps regulators pick up acquisitions that might otherwise not be spotted, especially in the digital and technology sectors, where many business models are based on intangible assets.

A second issue is the ubiquity of zero-priced business models in digital platforms and online services. These models make money indirectly, by means of advertising, rather than by consumers themselves. New tools and frameworks are needed to assess these entities because traditional methods of assessing market power may not work.

Additionally, regulators now turn to concerns around the dynamics of the workforce in the technology sector. Other practices, such as poaching talent from smaller firms or startups, have troubled entrepreneurs because they kill competition by taking a crop of expertise away from emerging companies. Such issues are more widely discussed in places like the United States and the European Union, but they underscore the necessity of international regulatory bodies to respond to the special problems brought on by technology.  

Customizing Solutions for Local Contexts

Global regulatory practices are useful to learn, but cannot be directly applied to all markets. The solutions need to be customized to each economy in its own special circumstances. For example, the European Union is writing regulations, such as the Digital Markets Act that target gatekeepers in established markets, whereas India is focusing on its startup ecosystem, with its regulatory framework. India has the third largest startup ecosystem in the world and hence focuses on innovation and entrepreneurship, tailoring its competition policy accordingly.

Customization is also applied to how mergers and acquisitions are treated. Some jurisdictions opt for the restrictive approach and block deals that they regard as anti-competitive, while some others, like India, favor structural and behavioral remedies. Structural remedies are used to ensure the market remains competitive, and they are imposed to control how businesses operate post-merger. This is a way to achieve market consolidation without stifling competition.

Modern markets pose a multifaceted challenge to establishing a level playing field, and regulators need to be vigilant, adaptive, and innovative. They can create an environment that encourages competition if they understand market dynamics, take a case-by-case flexible approach, prioritize timely decisions, and address emerging technology challenges.