Technological innovation and the legislative fulcrum to implement the same constitute the core of seamless integration of technology into the industrial framework. At a time when a global debate is raging about emerging technologies with widespread industrial applications and the consequent need for a holistic and robust regulatory framework, discussions on the metaverse (a shared virtual immersive space for social, transactional and recreational purposes, based on user decentralisation, product interoperability and open protocols) and its potential use-case scenarios through industrial applications has gathered traction as technology companies remain heavily invested in building the shared virtual immersive space to thrive and compete. In this context, it is imperative to elaborate upon its importance from both the Indian consumer perspective and the profitability quotient of such companies from a regulatory standpoint.
To fully grasp the utility of metaverse, the importance of Web3 has to be acknowledged as it is the proposed generation of the World Wide Web after Web1.0 and Web2.0. Based upon block chain technology (immutable digital ledger to facilitate information exchange and recording transactions through cryptography techniques), Web3 is based upon decentralisation, interoperability, open protocols and cryptography-based secure communication to aid end users through more autonomy over their access to the internet.
For instance, at present, a Business to Consumer (B2C) electronic commerce platform gives choices to consumers of different products occasionally at deep discounting prices based on their data repositories functionality, which impacts certain sellers on the platform more than others. Similarly, there are instances of self-preferencing behaviour (in which preference is given to one’s own products or services) that occur on concentrated platforms on account of information asymmetry among platforms, sellers and customers. If such scenarios occur through Web3, then all participants have equitable access to real-time data and sellers and customers do not necessarily have to be present on the same platform to transact, thereby heralding a democratised and competitive era of the internet, wherein the aforesaid behaviours can be reigned in. The metaverse is an offshoot and practical illustration of Web3’s industrial application, backed by high network effects (value of the product or service increases with the rise in the number of users), also contributing to greater economies of scale in a short span of time.
From an ordinary consumer’s perspective, the immersive shared virtual space offers avenues for him to interact in different ways such as gaming, electronic commerce, shared virtual workspace, among others. This inevitably means that a wide variety of companies, including big technology companies, are uniquely placed to provide diverse services to a curious consumer who is willing to explore the vastness of the metaverse. Such a trend is easy to discern from industry research and the recent Parliamentary Standing Committee Report (PSC Report) on ‘Anti-Competitive Practices by Big Tech Companies’. As to the former, industry bodies such as Nasscom estimate that 51 per cent of Indian Web3 startups are Business to Business (B2B), leaving the remaining 49 per cent to B2C. The PSC Report also highlights that India is slated to have 907 million internet users by 2023, and a stupendous rise in the consumer digital economy.
Given these facts, it need not be emphasised that consumer demand in the digital economy has to be adequately met by a diverse category of technology-based companies. This is where competition law and metaverse intersect, as the challenge is to strike a balance between potential anti-competitive conducts in the metaverse and seemingly pro-competitive justifications.
As discussed previously, block chain technology constitutes the core architecture of Web3, and the metaverse, being a derivative industrial application of Web3, incorporates block chain technology into it. In this context, the friction between block chain and competition law raises important questions at three levels: horizontal agreements such as cartels, abuse of dominance and vertical restraints, and lastly, business combinations (M&As).
As to the first category, there can arise a scenario where in order to ensure interoperability among metaverses, some information may be exchanged among the players. Hence, the real question can be about maintaining a balance between such information-based interoperability and detecting cartels based on the content of the information exchanged. Further, usage of algorithms might create a situation of tacit collusion.
Regarding the second category, there can be situations when enterprises with greater market share may influence business operations of other legitimate metaverse incumbent players by entering into exclusive supply agreements. Here, determination of the relevant market in such a scenario will be crucial to determine exclusionary abuse. It is pertinent to mention that exploitative abuse scenarios can also emerge. For instance, a particular incumbent market player with a dominant position in the metaverse can compel a downstream company, which trains enterprises about metaverse accessibility, to provide data on consumer patterns without reasonable justifications. In such situations, the challenge for competition agencies may lie in appropriately accounting efficiency justifications in determining abuse of dominance.
The third category, namely, business combinations (M&As), particularly, metaverse related acquisitions may raise potential antitrust questions. For instance, a metaverse platform having a significant market share can decide to acquire a VR based payment application. Here, the acquirer company may create strategic entry barriers by preventing other similar VR applications from being accessible to end consumers. Further, if the acquirer has developed its own payment applications, questions on self-preferencing based exclusionary behaviour cannot be ruled out.
In sum, considering the evolving technological paradigm, a dynamic approach in assessing relevant markets, consideration of efficiency justifications, may be required. It is heartening that the Government of India has set up in a timely manner a Committee for the Digital Competition Law (CDCL), to examine the need for an ex-ante regulatory mechanism for digital markets and to draft a Digital Competition Act. This will go a long way in preparing the regulatory landscape for dealing with new age markets.
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K D Singh is Director, Competition Commission of India, and Amrit Subhadarsi is Assistant Professor (Law) at School of Law, KIIT. Views are personal
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