App distribution platforms act as gatekeepers between end-users and the App economy and therefore, tend to control the economic destinies of the participants within this ecosystem. Apple's App Store and Google's Play Store are quite clearly the dominant App distribution platforms. The question thus arises - do their recent actions towards restricting the use of third-party payment processors by charging a staggering 30% of revenue generated by distributors of digital goods amount to an abuse of dominance under Section 4 of the Competition Act?
- ABUSE OF DOMINANCE
Any analysis to determine abuse of dominance must start with (i) a definition of the relevant market and (ii) determination of dominance within this market. Both Google and Apple, as one must expect, were found to be dominant in the market for distribution of mobile applications. Abuse, the next step in the analysis, must be evaluated on the grounds of (i) denial of market access; and (ii) leveraging of market power.
- Denial of Market Access
The Competition Act provides that if a dominant entity indulges in practices that result in denial of market access, it would amount to an abuse of dominance.1 The operative question would be whether the app distribution networks, by expressly prohibiting participants in the ecosystem from using third party payment processing systems are restricting other payment players from accessing the market for payment of digital goods. While any determination ought to depend on complicated questions of fact and evidence, any app distribution network that restricts such players from participating in any market may run the risk of violating Section 4(2)(c).
- Market Leveraging
Similarly, the tying of app-distribution services with payment processing services might fall afoul of sec. 4(2)(e) of the Act which prohibits leveraging of market power in one market to enter or protect another market. While theoretical debates abound in respect of the delineation of the secondary market, the simple fact that these entities have leveraged their dominance in one market to protect another market appears to be indisputable.
The Indian payments landscape faces multiple regulatory challenges – ranging from interventions by the RBI to a tendency to oligopoly. This oligopolistic market may shrink further if the larger players are given the freedom to use their dominance in platform ecosystems (like app distribution) to restrict the ability of players to offer payment services. An efficient approach to protecting and encouraging competition may involve mandating the establishment of open standards and prohibiting any exclusionary or abusive conduct by the gatekeepers.
1 Section 4(2)(c) of the Competition Act, 2002
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