India’s Tryst with Web3

The technological landscape in India and globally is undergoing a paradigm shift with revolutionizing technologies such as block chain, artificial intelligence, Internet of Things (IoT), big data, among others finding their applications in different industries in myriad manifestations of industry 4.0. Amidst this technological cacophony, few industry 4.0 applications are finding their ground as an extension of the commerce use case scenario of the internet. The application and use of the internet has evolved from passive interaction through readable information posted to active participation by stakeholders such as users, buyers and sellers on both sides of the platform thereby leading to a more equitable access to the internet, broadly referred to as Web 1.0 and Web 2.0.

In the spirit of this development, Web3 is the third generation of the World Wide Web, primarily providing a decentralized, interoperable (ability of different networks or devices to function in harmony by complementing each other), cryptographically secure and an open platform for the internet. The foundation of Web3 is on block chain technology (an immutable digital ledger which secures information and transactions through cryptography) which ensures that there is decentralized use by participants and secure communication through encryption. Unlike certain centralized big technology platforms, end users have more control and autonomy over the content generated and the nature of the interactions. 

In the Indian context, as highlighted by the 53rd Report of the Parliamentary Standing Committee on “Anti-Competitive Practices by Big Tech Companies”, (PSC Report), India’s consumer digital economy is headed for a US$ 1 trillion market by 2030 attributed primarily to the growth of electronic commerce transactions and education technologies. Therefore, a holistic adoption of Web3 into the Indian electronic commerce scenario is inevitable considering the technologically innovative business models of incumbent startups and being ushered in through digital ecosystem of the country.

Moreover, competition law becomes more significant considering Web3’s future adoption into electronic commerce platforms having characteristics such as high network effects (increasing utility of a product or service based on wide adoption by customers) and quick scaling by such platforms. Further, electronic commerce transactions executed through block chain based Web3 infrastructure would also ensure they are executed through smart contracts as it is widely documented that they are self-executing contracts based on block chain technology. This therefore necessitates a careful consideration of potential pro-competitive and anti-competitive effects.

It is settled jurisprudence that competition law, or antitrust law as developed in US, is industry agnostic and is relevant for both pro-competitive and anti-competitive effects in an industry. Accordingly, Web3 and its application to electronic commerce is not an exception to the same. With regards to the pro-competitive effects, it can be said that on account of features such as decentralization, interoperability and open protocols, there is autonomy with the end users, which in turn can compel companies to innovate and increase the ambit of choices given to consumers, thereby perpetuating healthy market competition. Such a phenomenon can percolate to different levels of electronic commerce such as Business to Business (B2B), Business to Consumer (B2C), Business to Government (B2G), among others. For instance, if a customer purchases a product from a B2C platform, where because of Web3 adoption, the prices negotiated between buyer and seller is accessible to other customers and competitors, there shall be price and information symmetry and lack of centralized control by the platform, consequently leading to healthy competition.

At the same time, it is critical to account the potential anti-competitive effects of Web3. Under Web3 infrastructure, there is extensive reliance on data, decentralization, interoperability, peer to peer connectivity secured through cryptography based communication, all contributing to end user autonomy. Data, however, offers immense scope to incumbent market players to engage in anti-competitive practices. For instance, big technology companies constitute repositories of customer and business data which gives them incentive to generate entry barriers for newer market entrants. Consequently, such conduct can also curtail choices for consumers. As an illustration, if a consumer engages in a transaction, an incumbent player utilizing the data collected from the said transaction and from correlated data about the same customer can provide better services and take advantage of entry barriers to prolong its market predominance.

Another possible scenario can occur when there is potential to engage in self-preferencing and exclusionary behaviour going hand in hand. For instance, if a big technology company creates its own metaverse (a shared virtual space with virtual identities for stakeholders to interact and engage in commercial transactions) through which it provides B2C electronic commerce services for purchase of Virtual Reality (VR) hardware to participate in the metaverse, restrictions can be imposed upon other B2C companies so their metaverse may not be interoperable with the former leading to exclusionary behaviour by the former company. Further, in the same scenario, customers who are already engaging in B2C transactions in the first metaverse can be faced with a compulsion to use their payment gateways for purchasing VR hardware, leading to self-preferencing behaviour. Thus, market power in one market can be used to influence competition in a negative manner in another market.

A third scenario where there is scope for anti-competitive behaviour is acquisition of small start-ups by the big technology incumbents thereby extending market predominance into digital markets. These scenarios are merely illustrative in nature as there can be myriad ways in which anti-competitive conduct can take centre stage in Web3.

In the fast evolving web3 ecosystem and considering the pace it is entering into discussions for industrial application, regulatory framework needs to be agile and nimble to deal with the intricacies arising out of the market realities of Web3 adoption. 

Bidyadhar Majhi is an Economic Adviser, Competition Commission of India (CCI), K D Singh is a Director, CCI and Amrit Subhadarsi is an Assistant Professor at School of Law, KIIT.