Competition Issues in India's Online Economy

NIPFP Working Paper No. 194, 2017

51 Pages Posted: 12 Apr 2019

See all articles by Smriti Parsheera

Smriti Parsheera

Independent

Ajay Shah

National Institute of Public Finance and Policy

Avirup Bose

O. P. Jindal Global University - Jindal Global Law School (JGLS)

Date Written: March 31, 2017

Abstract

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.

Keywords: competition, online, new economy, network effects, predatory pricing, dominance, startups, investors

Suggested Citation

Parsheera, Smriti and Shah, Ajay and Bose, Avirup, Competition Issues in India's Online Economy (March 31, 2017). NIPFP Working Paper No. 194, 2017, Available at SSRN: https://ssrn.com/abstract=3045810 or http://dx.doi.org/10.2139/ssrn.3045810

Smriti Parsheera (Contact Author)

Independent

New Delhi
India

Ajay Shah

National Institute of Public Finance and Policy

18/2, Satsang Vihar Marg
New Delhi, 110067
India

Avirup Bose

O. P. Jindal Global University - Jindal Global Law School (JGLS) ( email )

Jindal Centre 12 Bhi12 Bhikaiji Cama Place
Near Jagdishpur Village
New Delhi, Uttar Pradesh/Haryana 110 066
India

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