Regulatory intervention in an innovation-centered dynamic economy

Posted on December 4, 2015  /  0 Comments

LIRNEasia Senior Research Fellow Payal Malik has written a thoughtful op-ed about how and when regulatory action is required in an economy that is does not assign centrality to static consumer surplus.

Shall the choice of competition rules in India be also guided by some ideological underpinnings or there are some bright line rules that can guide regulatory philosophy? The normative basis of regulating the digital economy will finally depend on what ideology the Indian regulatory governance subscribes to. If it considers concentrated markets, by their very nature, to be undesirable, then an interventionist approach would be adopted and competition rules would impose visions of an ideal market upon economic agents. But if the regulators ascribe to a dynamic view of competition, concentrated markets will have to be traded off for consumer benefit. One guiding principle that can perhaps be adopted is that only when there are clearly identified concerns to the consumer can an intervention be deemed to be an appropriate regulatory response—and even then only to a degree proportionate to the concern. Regulatory response should exclusively target objectionable activities that hurt consumers (and not protecting some competitors), leaving other pro-competitive conduct that benefits consumers unregulated. This may translate into: Watch, look for evidence of consumer harm, be ready for action. But do nothing till then. After all, regulators are the watchers upon the wall, the guardians of the realm of economic freedom; they may take no part in the battles of markets.

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