CURIOUS CASE OF GOOGLE PAY: STUMBLING BLOCK FOR CCI?
Updated: Jul 30, 2020
[Palak Dwivedi - A second-year student at the National Law University, Jodhpur]
Google has been under the scrutiny of numerous competition watchdogs in different jurisdictions. The recurring theme of these allegations remain the unfair use of Google’s dominant position in the market to provide a biased choice to consumers. Recently, Google faced yet another antitrust allegation in India i.e. ‘unfair promotion of Google Pay’. This is another blow to Google by the Competition Commission of India (CCI) and seems to be a prima facie case of abusive conduct. Notably, Google Pay has emerged as the king of Unified Payments Interface (UPI) payments in India, with annualised transaction value worth $110 billion as of September 2019 and has reported 67 million monthly active users.
A complaint against Google was lodged in February 2020 that alleges it's leveraging the dominant position in the Android market to promote the app. Further, the report also alleges Google for promoting its payment app through search manipulation. Interestingly, this complaint is similar to one Google faced in the European Union (EU), where it was fined $5 billion for forcing manufacturers to pre-install its apps on Android devices. However, the CCI has still not given its final verdict on this matter. Notably, Section 4 of the Competition Act, 2002 (The Act) prohibits the abuse of a dominant position.
The prohibitions can be narrowed down to, the first which relates to actions taken by an incumbent firm to exploit its position of dominance by charging higher prices, restricting quantities; and the second which relates to actions by an incumbent in a dominant position to protect its dominance by making it difficult for potential entrants and competitors to survive in the market. It is pertinent to first establish the dominance of Google Pay in the market for digital transactions to determine the validity of the claim. The current definition of ‘dominant position’ does not consider market share as the sole determinant of dominance.
Ascertaining the Relevant Market
Evidently, the dominance appertains to the ‘relevant market’ and hence becomes the first step in ascertaining abuse. The incumbent enterprise is independent of the competitive forces prevailing in the market, which indicates that the enterprise is dominant as there are no competitive constraints on the enterprise. Furthermore, the position shall put it in a stronger position than its competitors. Notably, digital platforms like Google Pay are determined by network effects, economies of scale and switching costs, and most importantly, data control.
The ecosystem “encompasses hardware manufacturers, operating system developers, application developers, data brokers, coupon and loyalty card program administrators, payment card networks, telecommunication providers, advertising companies, brands and end merchants”. This set-up constitutes to relevant market for provisions of payment processing and other outsourced services to banks and financial institutions in India. It has already been established that Google is a part of the web search advertising services market.
Abuse of Market Power Assessment
The two-fold test is based on the case of Brands Company v. Commission of the European Communities, wherein a dominant position has been referred to the position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors and customers. The relevant markets recognized in the present situation are:
· Payment processing and other outsourced services to banks and financial institutions.
· Web search advertising services market.
It is imperative to note that Google Pay has nearly 60% market share in the fintech market, as market share is an important determinant under section 19(4) of the Act. Interestingly, market power runs parallel to abusive dominance where control over data plays a crucial role. Mammoth digital platforms like Google, Amazon challenge the neoclassical theory of profit-maximisation and have business models growth over profits and are given leeway to incur losses by investors. Google Pay has more access to user information which helps it build loyalty. On January 26, 2020, Google Pay announced its plans to offer loans to small- and medium-sized businesses in partnership with financial institutions which means vertical integration that will enable them to capture the market with the help of network effects.
The notion that each user’s perception of the value of the product or service depends on the quantity of users. However, the merchants would be reluctant to offer the same service to the consumer base that already signed up and are eager to use the product. (cross-network effect). Notably, Google puts significant entry barriers like high cost, technology, network effects, minimum scale requirements, and bestow substantial economic power to place it at a major advantage. The allegation in current complaint accuses Google of more prominently showcasing its Google Pay app inside its Android app store in India, giving it an unfair advantage over apps of competitors which hinders fair competition. The second facet of determining dominance involves enabling consumer in its favour, by providing cash backs, and lottery money that weaponises its position in the relevant market.
The predicament arising here is whether Google is using its dominance in search ads to promote its app or not. Notably, studies suggest that companies with more than 1,000 employees store, on average, over 235 terabytes of data which is more data than in the entire US Library of Congress. Bigger the corporate, bigger the data advantage. Another allegation in a plea accused Google of defying UPI interoperability rules that are in violation of National Payments Corporation of India guidelines on interoperability as UPI payment platforms need to give a choice to users to transact using their existing IDs. This coercion is not in the public interest. Low-cost utilities are driven by scale efficiencies and delivered only by enterprises that can afford such scale. As a result, consumers will have fewer switching options, sub-optimal pricing because of low product differentiation. This will induce a threat in new entrants as incumbent firms have customer acquisition cost advantage. This will take a toll on the consumer welfare scheme.
Way Ahead: Suggestions and Concluding Remarks
Abuse of dominance has the potential to disrupt the market structure in any relevant market. Imperatively, if the accusations in this matter are found to be true, CCI’s decision in this matter can be a curbing method for the future malpractices. In addition to this, mandatory interoperability can be implemented to relax the entry barriers created by big-tech companies, and allow a fairer distribution of power and would open door to other comparable services. Further, Special Responsibility on big firms could be imposed i.e., owing duty of care and not indulging into discrimination and exploitation, this is an EU standard extended to India in the Pharma Major Roche order. There shall be data protection legislation, to protect consumers from third-party trackers, cyber-security laws must be in place to avoid such violation. It is not the first time Google has been at logger-heads with CCI.
Online dominance can be strengthened based on access to and control over different categories of data. Dominance per se under the act is not wrong but its abuse is. Zero Merchant Discount rate might lead to collapse because of which the data of transactions becomes more valuable, even than the transaction itself. Google is facing allegation for various unfair trade practices like lottery-promotion and violation of interoperability guidelines. It is also observed that zero pricing results in a price war creating an unfair barrier to entry. This jeopardizes consumer’s liberty to choose. Taking into consideration all these factors, investigation under Section 26(1) of the Act would be the most feasible way to avoid such practices and lay a precedent curtailing big firms to abuse its dominance.