Mint Explainer: Why is the CCI worried about the impact of artificial intelligence on competition?

It has started the process of commissioning an external body to study recent developments and provide insights that will help it develop a comprehensive understanding of the evolving landscape of AI and the application of AI in markets in India. Such inputs will shape the Commission’s strategies aimed at fostering innovation and fair competition.

The regulator is concerned that AI could become a key source of competitive advantage for a wide range of sectors, fundamentally reshaping how firms make decisions, in particular by generating predictive analytics, automating decision-making and optimising business processes. “The growing use of AI across industries has given rise to novel questions around its implications for competitive dynamics in markets," the regulator said in the tender document inviting agencies to compete for the mandate to undertake the study.

Also Read: CCI to study AI impact on competition

The Commission noted that while the transformative capabilities of AI have significant pro-competitive potential, there may be concerns about potential competition risks stemming from its use. It has said that the proposed study will be a knowledge-building exercise to develop an in-depth understanding of the emerging competition dynamics in the development ecosystems of AI systems and implications of AI applications for competition, efficiency and innovation in key user industries, it said in the bid document.

Earlier this year, the European Commission called on stakeholders to share their experience and provide feedback on the impact of AI tools on competition and how competition law needs to respond. The Organisation for Economic Cooperation and Development (OECD) has also turned focus on the impact of AI on competition in recent years. 

Mint takes a look at the concerns of the competition regulator over the rising deployment of AI.

What will be the focus of the study?

The bid document released by the CCI stated that the study will focus on all aspects related to competition within the AI ecosystems (including generative AI ecosystems) and the potential impact of application of AI on competition, efficiency and innovation in key user industries. This includes gaining an understanding of the role AI plays in shaping consumer behaviour and demand-side factors and how AI technologies influence the entry and exit barriers, market concentration, innovation incentives and market power of businesses.

What does the CCI hope to achieve from the study?

The CCI expects the study to help it understand key AI systems and their ecosystem, including the stakeholders, essential inputs/resources, value chains, market structures and parameters of competition. The study is expected to examine the scope and nature of AI applications and assess associated opportunities, risks and ramifications from a competition standpoint. 

The CCI hopes the study will help it ascertain what should be its enforcement and advocacy priorities with respect to AI and its applications in markets, and also help it understand the existing and evolving regulatory/legal frameworks governing AI systems and applications in India and other major jurisdictions.

How can AI affect competition?

AI can be used by companies to effectively collude to maximise profits or to aggressively compete. The OECD Business and Finance Outlook 2021 which focussed on AI in business and finance noted that the use of AI to support and automate business decisions may “usher in a new age for competitive dynamics in markets. With this new age may come competition harms stemming from collusion, abusive conduct on the part of dominant firms, or mergers".

Collusion refers to any form of co-ordination or agreement among competing firms with the objective of raising profits to a level higher than those when they are rivals. While collusion on prices is quite common in many sectors, agreements can involve the allocation of different segments of a market among competitors, on product quality or total output, and even harmonising the terms and conditions to be offered to consumers. For instance, in the cement market, manufacturers may collectively agree to raise prices when demand is strong or they may decide to carve out markets in such a manner that is mutually beneficial.

With AI deployed, it is feared that not only would instances of collusion among large companies that operate in multiple markets rise but also become more rewarding for them. This is because AI can quickly detect deviations from a collusive agreement and implement algorithms to take action on adherence to the agreement. Companies need to communicate with each other to implement collusive agreements but can use price signals.

Cartelisation and collusive agreements had become difficult for companies when regulators kept a hawk-eye on markets and industry associations. They would be wary of communications linked to collusive agreements for fear of being caught by the regulator and being penalised.

E-commerce companies have benefitted from large-scale deployment of AI – they are able to quickly respond to changes in markets and adjust their prices to competitors.

For consumers, the deployment of AI by companies can prove to be a mixed bag. Increased competition among firms can fetch consumers good bargains but collusion will often mean higher prices and/or limited choice.

Does India regulate the use of AI?

The ministry of electronics and information technology issued a revised advisory on regulating the use of AI on 15 March 2024. The original one kicked up a controversy over requirements such as seeking government permission for the deployment of untested generative AI tools. The revised advisory dropped this requirement but directed companies to appropriately label AI-generated content. The advisory lists measures to be observed by companies deploying AI and for curbing the creation of deepfakes and misinformation.