The European Union, which was one of the first jurisdictions to develop AI-specific regulation (through the AI Act, which is expected to come into force later this year), has also initiated a consultation process on competition in virtual worlds and generative AI. The UK competition authority published a technical update report in April, identifying principles to guide AI development and deployment while promoting competition. These include access to key inputs such as data and computing power, flexibility and interoperability, and fair dealing. Canada, France, Hungary, Portugal, and other jurisdictions are also in the process of conducting similar market studies.

Focusing the lens on competition issues

Currently, regulators perceive that a small number of enterprises control key inputs necessary for the development of AI. Key inputs include AI chips, data, technical know-how, and computing power. Where few companies control the production of chips or have comparatively significant computing power, they could engage in tying and bundling. For example, a chip manufacturer could provide its own AI development arm disproportionate discounts and better terms than those offered to other AI developers. The best way to address such concerns is, of course, through market forces (that is building up capacity through competition). The Indian government’s focus on investing in computing power is an example of this. However, in situations with entrenched market power, regulatory intervention may become necessary, and the market study should help identify if that is indeed the case.

Another emerging concern is that enterprises with access to large amounts of data could exercise market power and potentially abuse their dominance. However, it is important to note that data is replicable, easily available, and is not valuable in and of itself. Data sets are also substitutable in many cases. Thus, merely the ability to access data should not be seen as determinative of market power.

The use of AI also adds a layer of complexity to traditional collusion cases, and the market study is likely to explore these nuances.

How should India proceed?

The CCI’s market study is a welcome first step in AI regulation in India. However, given the various issues that AI raises, from anti-competitive conduct to data protection and even ethical dilemmas, a multi-disciplinary approach where there is co-ordination among different agencies is the need of the hour. In addition, it is critical that India does not simply ape the West and our policies should be specific to the unique realities of the Indian ecosystem.

Finally, with the CCI being burdened with the enforcement of anti-profiteering provisions under the goods and services tax law and the proposed Digital Competition Bill, there is an urgent need to substantially increase the funding and staffing at the commission so that they have the capacity and tools necessary to effectively and efficiently enforce the law.

This article was originally published in Financial Express on 13 July 2024 Co-written by: Naval Chopra, Partner; Yaman Verma, Partner; Sanjana LB, Associate. Click here for original article

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