Regulating Algorithms and Market Power: The Legal Future of Tech Monopolies and State Influence

1.       Introduction

The emergence of digital markets in India has deeply changed the competitive landscape and posed new challenges to antitrust enforcement. The Competition Act, 2002, was enacted with the aim of prohibiting anti-competitive practices and to promote fair competition but as the digital platforms, AI-driven algorithms, and government-supported projects substantially influence competition dynamics, its effectiveness is coming under more pressure. In the traditional markets, anti-competitive practices like cartelization of the consumers, price-fixing, and abuse of dominance were easy identifiable. Yet in digital markets, the expression of collusion and monopolistic behaviour arises spontaneously without the necessity of any formal collusive. This complicates the regulatory intervention. In the context of emerging challenges, Indian competition law needs to evolve with the realities of digital markets. The big digital firms engage themselves in self-preferencing, high commissions, and algorithmic bias, which makes it difficult for Indian start-ups to exist. This article explains potential policy recommendations which include ex-ante regulation, better cross-border enforcement, and stricter supervision on AI-driven pricing models, to ensure competitiveness in India’s burgeoning digital economy.

2.      Hovering Antitrust Challenges

The changing scenario of the Indian markets gives rise to a number of challenges that are faced in enforcing the compliance with the antitrust laws in India. The major ones include ‘algorithmic manipulation’ which is an AI-driven ranking and pricing model by which the big players of the market ensure their dominance. The Indian startups fail to grow in the wake of the discriminatory practices like self-preferencing undertaken by the giants of the market. The re-entry of the public sector in the private sector dominated market poses several challenges alongside serving the motive of social welfare. Some of the challenges have been elucidated as follows:

2.1    Algorithmic Manipulation

Algorithmic Manipulation means the use of AI – governed decision-making systems to influence market dynamics, often enabling anti-competitive practices like price coordination, self- referencing and discriminatory pricing.  Platforms like Amazon, Google, Uber, Flipkart, and Zomato rely on these algorithms, which can distort competition and disadvantage smaller business.

In traditional cartel agreements, competitors explicitly agree to fix prices. In algorithmic pricing , AI analyses competitior prices , market conditions and consumer data to adjust prices automatically.  This can lead to price alignment without human collusion.  One of the best examples is Uber & Ola’s surge pricing model, which was challenged in the case of Samir Agrawal v. Competition Commission of India & Ors. The petitioner argued that algorithms acted like a hub & spoke cartel but Supreme Court dismissed it as drivers weren’t directly colluding. This highlights a gap in the law i.e.  AI- driven  collusion without intent remains unaddressed.

The other significant form of algorithmic manipulation is self- preferencing, where digital platforms promote their own products or services over competitors. Amazon has used seller data to promote private labels, and Google has favoured its services while imposing restrictive billing practices. In the Google Android Antitrust Case, the CCI fined Google ₹1,338 crore for restricting third-party payment options. In the year 2021, the Competition Commission of India (CCI) also initiated an investigation into Amazon & Flipkart, over allegations of preferential treatment given to certain sellers by offering them substantial discounts and better visibility. Unlike European Union’s Digital Markets Act (DMA), India lacks explicit rules against self- preferencing. AI-driven personalised pricing also raises consumer protection concerns. Platforms use purchase history, location, and browsing behaviour to set personalised prices, sometimes exploitatively. Examples include food delivery price variation by location and airlines charging more for repeat searches.

So, currently, Indian law has no precedent or clear rules on algorithmic pricing discrimination, leaving consumers unprotected. While the Draft Digital Competition Bill, 2024, addresses self-preferencing and data monopolisation, it omits AI-driven collusion and discriminatory pricing

2.2    India’s Start-Up Ecosystem v. Big Tech’s Market Dominance

In India, Start-ups are prospering in industries including banking, e-commerce, education, and AI, with rapid digital economy growth.  However, big tech companies like Google, Amazon, Facebook (Meta), and Microsoft dominate key digital services, including app stores, search engines, cloud computing, and payment gateways. They give their own products more advantages, set unfair prices, and use biased algorithms, making it tough for Indian start-ups to grow. As a result, many new businesses struggle to gain visibility, attract investors, and compete on a fair playing field. The Competition Commission of India (CCI), the primary regulatory authority, has attempted to intervene, but existing competition laws are insufficient to address the complexities of digital market dominance.

The phenomenon of “killer acquisitions” further undermines competitiveness. Big tech companies buy emerging start-ups to eliminate future rivals. For example, Facebook invested in Jio Platforms, and Walmart acquired Flipkart. These deals often bypass CCI scrutiny because Indian competition laws focus on revenue size rather than market impact. As a result, smaller acquisitions that cumulatively enhance monopolistic power remain unregulated.

Data localization is another critical component. Mandating that corporations keep and process Indian user data within the country might curtail the monopolistic benefits of Big Tech. However, data protection regulations fall outside the CCI’s jurisdiction, highlighting the need for coordination between regulatory bodies. India should implement ex-ante restrictions like to the EU’s DMA to pre-empt monopolistic conduct. Currently, the CCI operates on an ex-post framework, addressing anti-competitive practices only after they have harmed the market. A proactive approach can help prevent Big Tech from misusing its power.

Another emerging challenge is algorithmic collusion, where AI-driven pricing models create anti-competitive effects without explicit coordination. Ride-hailing apps like Uber and Ola use surge pricing that may manipulate prices. India’s existing legal framework inadequately addresses AI-induced market distortions, necessitating revisions to competition legislation.

So, while India’s start-up ecosystem has great potential, Big Tech’s dominance hinders fair competition. Current laws don’t fully address self-preferencing, unfair pricing, or monopolistic takeovers. The Digital Competition Bill, 2024 aims to modernize rules, but success needs proactive enforcement, technical capacity, and global cooperation. Without strong Digital Bharat reforms, global giants will dominate.

2.3    Government as a market player

The Indian economy being a mixed economy relies on the cooperative participation of both the public and private sector. The New Economic Policy of 1991, which included liberalization, privatization, and globalization, aimed at reducing the role of public sector and the encouragement of the private player to step in the market. Over the decades, the private players have stepped in and established their positions in their respective markets. Since the government discharges the function of public welfare, it has now come up with alternatives that provides for a fair and equitable market. The customers get the option of choosing from a wide variety of options rather than just accepting what was being offered by the dominant private entities.

Government initiative like Open Network for Digital Commerce (ONDC) is the recent example of the endeavour of the government in this direction. Although such initiatives aim at public welfare, on the flip side, they pose a striking threat to the enforcement of antitrust legislation in India as the government acts as a market player as well as regulator. The looming challenges can be categorised as follows:

(i)    Competitive neutrality

When the government enters any market, it is able to offer the similar products or services to the public at comparatively lower prices as compared to the private companies. The government operates for the public welfare and hence, is capable of offering lower prices in lieu of lower margins of profits. The same is not viable for the private players except by incurring losses at their ends. In this way, such public sector entities distort the market structure by setting artificially and unrealistically low prices which cannot be matched by the private parties and they are forced to exit the market.

Unlike the private ‘for-profit’ businesses that are constantly at the mercy of shareholders and tight profitability constraints, those under government backing, frequently, enjoy subsidies and governmental aid against financial bankruptcy. Thus, the public sector enterprises are able to freely function with full financial and managerial backing. A prime example of this situation is the raising of telecom tariffs by the private player like Vodafone Idea and Reliance Jio to recover 5G investment costs, on the other hand, BSNL, a public sector telecom company, received spectrum allocation and revival packages by the government.

(ii)   Exemption from the scope of the Competition Act, 2002

The Section 54 of the Act empowers the Central government to grant exemption from the application of the Act to any enterprises that discharge sovereign functions of the state, when it is necessary to do so in public interest or in accordance to any treaty, convention or agreement with other nations. It recognizes the status of certain state run entities that perform certain essential functions like national defence, public health and currency regulation. This exemption from the scrutiny of the provision of the Act gives the enterprises an unsaid privilege of acting as per their will in the market. The lack of robust checks on these exemptions could result in unfair market exemptions for the public sector enterprises, in guise of public interest, over the private ones. As noted by the OECD, unqualified exemption provisions risk distorting markets and undermining regulatory confidence.

Understanding the actual need and usefulness of this exemption, as an alternative, the government must adopt certain principles for the grant of exemption, such as on limited-time basis with a mandatory “sunset” clause and provisions for periodic review based on analysis of their impact on economic efficiency and consumer welfare and that exemptions should be generic in nature, relating to types of economic activities or arrangements, and be less industry- or sector-specific.

(iii) Non-applicability of Section 4 of the Act

The fixing of a lower price by the government entities cannot be brought under the purview of the predatory pricing as given in Section 4. Since the applicability of this Section depends on the presence of ‘dominant position’ in the relevant market, the government aided enterprises that have not still grabbed the dominant position but is still engaged in predatory pricing escapes the radar of the regulatory agencies that are responsible for the adherence to the provisions of the legislation. This leaves a regulatory gap where an early stage anticompetitive conduct of a state-owned enterprise is unchecked because it does not, yet, meet the legal threshold of ‘dominance’. These state backed enterprises are capable of working at a loss for a long time, collapsing prices to a level private competition cannot sustain. These entities, in practical considerations, become free to exercise anti-competitive behaviour without being punished or penalised for the same till they acquire ‘dominant position’ in the market. By the time a regulatory action becomes possible as per the existing thresholds, the damage has been done in the competitive dimension of the market place and many private players would have either exited or been significantly weakened. Thus, the legislation overemphasis the market share to take an enterprise under its ambit and by the time the enterprise reaches the stated market share, it has already established its dominance, wiped out competitors and created consumer dependency.

Way Forward

The inclusion of the government enterprises and their pricing policies directly within the scrutiny of the Competition Act, 2002 will be monumental in ensuring fair competition in the market. The scrutiny must be irrespective of whether the enterprise has attained a dominant position in the relevant market. The exemption from the provisions of the legislation must be based on certain concrete principles and not otherwise for the purposes of evading the applicability of the legislation.

3.      Conclusion

The Competition Act, 2002 was introduced to promote fair competition, curb monopolistic practices, and to protect the interests of the consumers. However, with the explosive growth of online marketplaces, the conventional view of anti-competitive activity has changed. Problems including algorithmic bias, self-preferencing, discriminatory pricing, and killer acquisitions are still far from effectively regulated under existing law. Government-backed platforms like UPI, Aadhaar, and ONDC compete against private actors but enjoy policy advantages and regulatory immunities. Private players, thus, face the threat of antitrust scrutiny, while state-backed firms are allowed to operate freely in the marketplace.

In order to address these pressing concerns, the future regulatory strategies must involve three key elements: stricter surveillance of AI-driven pricing models, stronger cross-border collaboration for effective enforcement, and preventive (ex-ante) rather than reactive (ex-post) measures. The Digital Competition Bill, 2024, is a step in right direction but it needs to include robust measures to tackle collusion driven by AI, self-preferencing and consolidation of data monopolisation. A multi-pronged approach is necessary to ensure a fair competition in India’s digital economy, which encompasses the fields of market innovation, consumer protection and regulatory enforcement. Through revamping of its antitrust framework, in addition to implementing lessons learned from the best practices harnessed globally, India will be able to mitigate monopolistic tendencies, usher competitive practices promoting a level playing field between local start-ups and international tech behemoths.

[*Subham is a third-year student at the National University of  Study and Research in Law, Ranchi.

Asmi is a fourth-year student at the Army Institute of Law, Mohali.]