Introduction
The booming of Generative Artificial Intelligence (‘AI’) across borders has caught the attention of competition regulators from Hungary to the US FTC. The Competition Commission of India (‘CCI’) has also recognised the need for a market study to analyse the effects of AI on Competition. On April 22, 2024, the CCI invited proposals for the conducting of an exhaustive market study on AI and Competition in India. Consequently, a Request for Proposal (‘RFP’) was also released to delegate an agency to overlook the market study. Finally, on September 13, 2024, the CCI engaged the Gurgaon-based Management Development Institute Society (‘MDIS’) to manage the market study. This article examines the CCI initiative by analysing recent Market Studies from Hungary and the EU, alongside insights from other jurisdictions, such as Portugal, France, and the UK. Further, it explores the critical issue of algorithmic bias, examining its implications for market dynamics and the broader regulatory considerations for the Indian Competition Regime.
The Hungarian Market Study on AI & Competition – A Need for Intervention
The Hungarian Competition Authority (‘GVH’), one of the first EU Competition Authorities to launch such a market study recently in October 2024, completed its market analysis, and the findings are quite concerning. It has concluded that Small and Medium Enterprises (‘SMEs’) are at a high competitive disadvantage if they do not start adopting AI-based technologies. On the other hand, the GVH has, in its findings, provided that such a usage of AI will lead to increased productivity and could become a substantial factor in both product and service markets. The study has provided recommendations, including transparency for consumers when using AI, amping up knowledge for SMEs, and a complete revamp of the national AI strategy. Coming back to the CCI’s Market Study, the main objectives of the study, as per the press release dated September 9, 2024, include:
- Understanding the existing and evolving regulatory/legal frameworks governing AI systems and applications in India and other major jurisdictions.
- To study the risks, opportunities, and potential competition issues arising out of AI usage.
- To understand the key stakeholders, market structures, value chains, trends, and a comprehensive analysis of the AI ecosystem.
These objectives are quite similar to the ones by the GVH, including the prospect of AI technologies distorting competition and leading to consumer vulnerability. Similarly, in January 2024, the European Commission (‘EC’) launched a call for contributions on “Competition in the Virtual World and Generative AI” to understand how Competition law can help to make such markets competitive and the effect such transformative technologies can have on Competition in general. Pursuant to such a call, a Policy Brief published by September 2024 has revealed that Generative AI systems, including Cloud Capacity, AI accelerator chips, etc, depending on their economic context, may qualify as a potential barrier to market entry, comprising an anti-competitive practice. To combat such an outcome, the Policy Brief has vouched for stronger merger control and the enforcement of the EU Digital Markets Act (‘DMA’).
The EU Market Study as a Guide for the CCI
The methodology used by the GVH in conducting the Market Study included an exhaustive analysis of the history of AI. Further, the use of detailed questionnaires to major tech companies and prominent developers of Generative AI was conducted. It also consulted domestic developers and businesses using AI-based technologies and held several rounds of consultations with domestic research institutions, universities, and public and non-profit organisations (‘NPTs’). The CCI has, in its RFP, also recognised the need for using Surveys, Interviews, and Group Discussions with key stakeholders. It also comprises a collation of existing secondary data, the use of quantitative and qualitative information, and the construction of a database of all the major players. The CCI Market Study could also benefit from such wide consultations ranging from national stakeholders to international tech companies and AI developers. Another significant approach the GVH took was to target mainly 2 priority markets – the Banking and Telecommunications markets. Such a narrower approach may benefit the CCI’s Market Study to have a focused outcome-based result. The CCI, in its findings, could also deal with the aspect of algorithmic bias due to AI models and its implications on a particular market.
The Invisible Hand Scenario – Manipulation of Markets
There is an ideation that an AI developer can independently manipulate the market in an anti-competitive manner by various means, including raising prices and using consumer information for nefarious purposes. Therefore, an ‘invisible hand’ is present in the case of an AI system, which the end user might not be able to perceive. An example of the same is the retail giant Amazon, which uses computer algorithms to automatically adjust prices rather than having it supervised manually. Thus, it is the need of the hour for Competition authorities as well as governments to use “digitised hands” to counter such an invisible entity. The CCI has clearly emphasised in its RFP in what manner can bias in AI algorithms impact competition, and what measures can be taken to ensure fairness and transparency and to prevent discriminatory outcomes in AI-driven markets, thereby anticipating such possibilities in advance.
A Bird’s Eye View of Market Studies in Other Jurisdictions
Apart from Hungary, quite a few countries have begun a preliminary review of the intersection between AI and Competition, including the UK’s Competition and Markets Authority (‘CMA’), which conducted an initial review of AI foundation models (‘FM’) (large machine learning models trained on vast amounts of data). The CMA, in its report, cautioned that such models could affect competition adversely by exploiting their positions in consumer or business-facing markets to distort choice in FM services and thereby restrict competition. At the same time, the UK’s CMA proposes ‘AI principles’, some of which include the addition of more open-sourced FM’s that can help reduce entry barriers, flexibility for consumers to switch between such AI-driven services easily, transparency of information about the risks and limitations of such technologies, so the average consumer can make an informed decision.
The Portuguese Competition Authority (‘AdC’) published an issues paper in November 2023 that stated that there are risks of competitor exclusion strategies (practices that prevent competitors from accessing a market) in cloud computing, hardware, and generative AI model markets, for instance, a developer of Generative AI may demand unfair trading conditions from firms and users to access their service that can lead to distorted Competition. The AdC has also vociferously expressed that it will intervene to guarantee the maintenance of competition in Portugal and will ultimately ensure consumer safety. The French Competition Authority (‘FCA’) also launched inquiries and public consultations in February 2024, where its main objectives include the examination of strategies employed by prominent digital players in the Generative AI market. Surprisingly, the FCA is in preparation for exploring the possibility of developing AI-based tools to facilitate work in its own procedures. The CCI’s Market Study could also benefit from such a prospect with sufficient safeguards in place.
Conclusion
The CCI has taken a step in the right direction by launching the Market Study on Competition and AI, a recent Deloitte survey has revealed that over 93% of students, as well as 83% of employees, actively use Generative AI, showing the need for a comprehensive study into the possible anti-competitive and pro-competitive effects such technologies can have on the Indian market. The CCI can effectively make use of strategies adopted by EU Countries, including Hungary, France, etc., such as the inclusion of a historical analysis of AI and consultation of stakeholders having a mix of both the domestic players and international tech giants. The Market Study will provide for an insight into how the Indian Competition regulator will look through such new emerging markets in the near future.
This blog is written by Pathmanabhan Sooraj, 3rd Year student at the National University of Advanced Legal Studies (NUALS).