Self-preferencing

Topic: Market Structures, Market Failure and Competition · NCERT: Beyond NCERT

Meaning

Self-preferencing is when a dominant platform gives its own products, or the products of related group firms, better treatment than the products of rival businesses that must use the same platform to reach customers. For example, it may place its own goods higher in search rankings or marketplace listings.

It matters because the platform is both the referee (it sets the rules and the rankings) and a player (it sells in the same market). So rivals can lose even when they offer a better product. India's draft Digital Competition Bill bans it for the largest digital firms [2][3].

Explanation

How it works

• The platform has two roles.
• It runs a marketplace, app store or search engine that other businesses depend on.

• It also sells its own products or services on that same platform.

• It uses its control over the platform to help its own products. Common methods:

• showing its own product at the top of search results or marketplace listings;
• giving its own product a better display, such as a "recommended" badge or a default setting;

• making rival products harder to find, or placing them lower on the page.

• The chain of harm:

• Rival sellers lose visibility, so they lose customers.
• They cannot leave the platform, because that is where the buyers are.
• The platform's own product gains share because it controls the rankings, not because it is better.

Why digital markets make it easy

• Network effects (a product becomes more valuable to each user as more people use it). They pull most users onto one platform. Business users then have no real choice except to sell there.
• Two-sided markets (a platform that serves two separate user groups, such as buyers and sellers). The platform stands between the two groups, so it can shape what buyers see.
• Switching costs and data lock-in. Sellers would lose their reviews, ratings and customer base if they moved. So they put up with unfair treatment.
• Tipping (the point at which a market turns decisively towards one firm). Once a market has tipped, rivals cannot recover, even if the conduct is later stopped.

What makes it more or less harmful

• More harmful when:
• the platform is dominant (few other ways to reach buyers);
• the platform can also see business users' non-public data, such as their sales and prices, and uses it to design and price its own competing products;

• the ranking system is hidden, so sellers cannot see or prove the bias.

• Less harmful when:

• buyers can easily switch to other platforms;
• rules keep the "owner" and "seller" roles apart;

• the market is open to all (interoperable), so sellers can reach buyers through many apps.

• The defence platforms give: their own products may truly be cheaper or better, and building them into the platform can be convenient for users. Regulators have to separate fair competition on merit from abuse of the platform's gatekeeping role.

In India

• Competition Act, 2002 (ex-post route). Self-preferencing by a dominant firm can be challenged as abuse of dominant position under Section 4.
• Ex-post enforcement means the regulator acts only after the harm has happened.

• It is slow. The Google Android case took roughly 3 years at the Competition Commission of India (CCI), followed by appeals. By then the market may already have tipped.

• Standing Committee on Finance, 53rd report (December 2022). The report is titled "Anti-Competitive Practices by Big Tech Companies". It listed self-preferencing among ten anti-competitive practices and recommended an ex-ante law (rules set in advance, before harm happens) [1][2].

• Committee on Digital Competition Law (CDCL) and the draft Digital Competition Bill.
• The Ministry of Corporate Affairs set up the committee in February 2023. It was chaired by the Secretary, MCA [1].
• The report and the draft bill were released on 12 March 2024 [1][2].
• The bill takes an ex-ante approach that focuses on preventing anti-competitive conduct [2].
• A Systemically Significant Digital Enterprise (SSDE) is a large firm that provides a core digital service, such as a search engine, social network, operating system or web browser [2][3].
• Tests for SSDE status:
  • Financial test: India turnover ≥ ₹4,000 crore, or global market capitalisation ≥ US$75 billion [3].
  • User test: ≥ 1 crore end users, or ≥ 10,000 business users in India [2].
  • Qualitative test: if the numbers are not enough, the regulator can also look at the firm's resources and the volume of data it holds [3].
• Obligation: an SSDE must not favour its own products or those of related parties [2][3]. Group companies that provide core digital services are designated along with the SSDE as Associate Digital Enterprises (ADEs), so a platform cannot simply move the favoured product into a sister company [3].
• Penalty: up to 10% of global turnover. It is a civil penalty, not a criminal one [3].

• Status: reported in 2025 to be on hold pending a market study (verify current).

• FDI policy, Press Note 2 (2018). Foreign-owned e-commerce firms may run only a marketplace. They may not hold their own inventory, and they cannot control sellers' prices. This keeps the platform from being both the marketplace owner and a seller on it, which is the basic setting for self-preferencing.

• ONDC (Open Network for Digital Commerce). It separates buyer apps from seller apps. Sellers can reach buyers on any app, so no single platform controls both the shop window and the shelf.

Don't confuse with

• Anti-steering: platform rules that stop business users from pointing customers to cheaper offers or to payment channels outside the platform, such as app-store billing rules. Self-preferencing is the platform favouring itself. Anti-steering is the platform gagging rivals.
• Tying / bundling: forcing users of one service to also use another service. Self-preferencing is about ranking and display. Tying is about forced joint use. The draft bill lists them as separate SSDE obligations [2][3].
• Predatory pricing / deep discounting: selling below cost, paid for with investor money, to drive rivals out and raise prices later. That is a price strategy. Self-preferencing works through control of the platform, not through low prices.
• Search and ranking preferencing: the 53rd report (December 2022) lists this as a separate item from self-preferencing among its ten practices [1][2]. In an exam, count them as two practices, not one.

Prelims Hooks

• Self-preferencing = a dominant platform favouring its own or related parties' products over those of rival business users. It is banned as an SSDE obligation under the draft Digital Competition Bill [2][3].
• The 53rd report of the Standing Committee on Finance (December 2022) listed ten practices, including self-preferencing, and recommended an ex-ante law [1][2].
• The CDCL was set up by the Ministry of Corporate Affairs, not MeitY. Its report and the draft bill were released on 12 March 2024 [1].
• Trap: "gatekeeper" is the EU Digital Markets Act (DMA) term. India's draft bill uses SSDE. DMA obligations have applied since March 2024.
• SSDE user test: ≥ 1 crore end users or ≥ 10,000 business users in India [2]. Maximum penalty: 10% of global turnover, and it is civil, not criminal [3].
• Under the present Competition Act, 2002, self-preferencing is handled ex-post as abuse of dominant position (Section 4), not under Section 3 (anti-competitive agreements).

Mains Points

• Ex-ante vs ex-post regulation:
• For ex-ante rules: CCI cases are slow, as the roughly 3-year Google Android case shows. Markets tip before an order comes, and competition cannot be brought back. A clear advance ban on self-preferencing for SSDEs protects MSME sellers and app developers.

• Against: strict early rules may slow innovation, raise compliance costs for Indian start-ups, and copy the EU model without Indian evidence. This is why the bill was put on hold pending a market study [3][4].

• Using market design, not only law: India also limits self-preferencing through how markets are built. Press Note 2 (2018) separates marketplace owner from seller, and ONDC separates buyer apps from seller apps. These tools reduce lock-in and add to CCI enforcement. This is a GS-III theme: digital public infrastructure used as competition policy.

• Static vs dynamic efficiency: a platform's own products may give consumers lower prices and more convenience today (static efficiency). But if rival sellers are pushed out, choice and innovation may fall tomorrow (dynamic efficiency). A good policy stops misuse of the platform's referee role without banning fair competition on merit.

Related concepts

• Network effects
• Two-sided market
• Switching costs
• Winner-takes-all market
• Gatekeeper platform
• Anti-steering
• Deep discounting
• Killer acquisition

Read more

• Digital markets and platform competition