Regulating Search Engines in India: Lessons from the EU’s Digital Markets Act

Written by Amitesh Neogi the author is law student currently pursuing B.A. LL.B. student at West Bengal National University of Juridical, Sciences, Kolkata.

Introduction

The Committee on Digital Competition Law (“CDCL”) was constituted by the Ministry of Corporate Affairs to examine the challenges brought by the emergence of digital markets in the Indian competition law framework. CDCL proposed the  Digital Competition Bill, 2024 (‘DCB’), which aims to regulate digital services in India to ensure greater competition in the Digital Markets.

The DCB aims to regulate the functioning of Systematically Significant Digital Enterprises (“SSDE”) in ‘core digital services’. SSDEs are companies which have a dominant presence in the digital markets. They are designated by the Competition Commission of India (“CCI”) on the basis of financial and user volume thresholds. It proposes the regulation of companies on the basis of an ex-ante framework for the first time in the Indian competition law framework. 

One such core digital service is ‘online search engines’, which include digital services that allow users to input queries in order to perform searches of the internet and return results in which information related to the requested content can be found. The search engine markets severely lack competition. A single entity, i.e. Google, has captured 80% of all desktop searches and 90% of mobile searches. This pattern has been observed globally, and in recent years, there has been an active effort by the regulators to promote more competition in the functioning of such search engines. 

This blog piece aims to analyse one such regulation, specifically the EU policy framework for regulating search engines, which is one of the first and most significant ex-ante policy frameworks dealing with competition in digital markets and highlights the anti-competitive effects of implementing such policy in India. The piece also refers extensively to the ongoing case of United States v. Google LLC (2020) (“Google case”), which found Google to be violating it dominant position in the search engine markets. 

In Part I of this blog, the author explains why there is a natural tendency for dominance of a single search engine. In Part II of the blog, the author explains the policy measures adopted by the EU to regulate competition in search engine markets. Further, in Part III, the author discusses how competition from specialised vertical platforms and differences in regulatory treatment can create unintended competitive imbalances, and suggests caution for Indian policymakers when implementing the same. 

PART I: Network effects: Reason behind the lack of competition in the Search Engine Markets

Search engines, including Google, operate through algorithms which constantly register user interaction and improve their search results on the back of such user interaction. Various features of a search engine, which determine its quality, such as result ranking, data indexing, data personalisation, etc., are constantly improved by the algorithm on the basis of the interaction of the user with the search engine. Thus, the quantity of data interaction of a search engine is directly proportional to its quality. Now, when the quality of a search engine improves, its users and advertisers also increase as users get more accurate results and advertisers get to advertise to a more targeted audience. This increase in traffic further allows the search engine to improve its quality. This leads to the creation of a cycle, which results in a single search gaining continuous dominance in the search engine markets. The Google case illustrated how this cycle fuels anti-competitive effects in search engine markets.  Here, it is important to remember that gaining a dominant position due to the superior product quality is not what bothers regulators. However, the fact that it is structurally impossible for smaller search engines to attain similar product quality due to a lack of access to user data is what concerns regulators. Without any regulation, the dominant search engine will inevitably continue to grow its dominant position, making the market uncompetitive, which is the situation in Indian markets currently.

Part II: Asymmetric Data Sharing Obligations

The EU introduced the Digital Markets Act (‘DMA’), to deal with competition in digital markets. With regard to the search engine markets, it introduced asymmetric data-sharing obligations. Under the DMA, the dominant search engines, which are designated as ‘gatekeepers’ (similar to SSDE under the DCB), are required to share ranking, query, click and view data in relation to free and paid search generated by end users on fair, reasonable and non-discriminatory (FRAND) terms with other search engine service providers. Such data sharing ensures that the dominant search engine is not always better in quality compared to other smaller search engines on the basis of its user data. The data-sharing obligations have received considerable support from policy circles, considering that the pro-competitive benefits of data-sharing obligations on search engines have been empirically proven. 

However, the data sharing obligations have also been found to be detrimental to the process of improving the quality of search engines, thus impeding consumer welfare. Bertin Mertens has empirically proved that while the asymmetric data sharing obligations have been able to promote competition, they result in the fragmentation of the user data pool, which is essential for welfare-enhancing network effects. He argues that the current policy framework in the DMA does not address the loss of efficiency of search engines caused due to asymmetric data sharing obligations. He recommends symmetric data sharing obligations as a method to balance the tension between competition and consumer welfare, as it would prevent data fragmentation caused by asymmetric data sharing obligations. 

The author further builds on the work of Mertens by highlighting a key factor that is unfairly detrimental to the commercial opportunity of search engines. 

Part III: SVPs – Competitors to Search Engines

While Google faces little competition from other search engines, it faces significant competition from Special Vertical Providers (‘SPVs’) in various advertising markets. SVPs are platforms that respond to queries centered on a particular subject matter. These include sites like Amazon, Booking.com, etc. To understand how these SVPs are a competition to Google in the competition law framework, it is important to first understand how markets are delineated in an antitrust framework. 

The first step in investigating the abuse of dominance by an entity is the process of delineating the various product markets in which the business is functioning. A product market is delineated according to the principles of product substitutability. Each product market represents a particular application of a product. In the Google case, the court reasoned that the businesses of search engines can be delineated into product markets of general search services, search advertising markets and general text ads markets. These are not an exhaustive set of markets for search engines, as regulators may further delineate markets according to the commercial application of the search engine services. Thus, when considering the competition of search engines, one needs to consider all the players in these product markets. 

In the Google case the court found that while there is a lack of competition in some of the search engine markets, the same is not the case for all markets for search engines. Google has faced intense competition from such SVPs in key markets, like the search advertising market. Advertisers take their advertisements to SVPs as they cater to specific user needs, and thus provide for more targeted advertising than a search engine. Thus, any search engine faces competition not only from other search engines but also from SVPs. Any measure regulating competition in search engines should take this into account to prevent an unfair anti-competitive effect against them. This is exactly what the DMA misses. 

The DMA also regulates SVPs, which are designated as gatekeepers. It provides for measures which ensure that an SVP (like Amazon) does not exploit their position against sellers and customers on their platform. However, these SVPs are not mandated to share their data with businesses which provide similar services. They can still use the user data collected to improve their algorithm. This will allow them to constantly improve the user experience on their platform. Due to the better and improving quality of search results on an SVP, more users would use an SVP over a search engine which is not able to improve the user experience at the same pace. Asymmetric data-sharing obligations can therefore put dominant search engines at an unfair disadvantage compared to businesses offering different services but competing in the same market. 

Conclusion

While the Indian DCB does not propose any particular ex-ante regulation against search engines, globally, regulators are increasingly turning to such obligations to break entrenched dominance in digital markets. One would expect that the Indian regulator would propose specific policy measures to regulate the lack of competition in search engine markets. In doing so, the Indian regulator must be careful not to choose a policy measure which results in unfair anti-competitive effects or is against consumer welfare. The policy framework under the DMA is an archetype for ex-ante regulations like the one proposed under the DCB. We would do well to learn from the shortcomings of the DMA and look for alternative policies which better serve our markets.