In 1776, Scottish philosopher and political economist Adam Smith published, ‘An Inquiry into the Nature and Causes of the Wealth of Nations’ which became a foundational study for history of economics. The empirical summary of this book details how people should strive towards their interests with limited interference from the government. Economics, in its simplest form, is a study of choices that people make to overcome the dilemma of limited resources and unlimited wants. The other discipline discussed in this article is ‘law’, which is a definite system to regulate human conduct, used to condemn what is considered wrong and incentivise those which are thought just. The intersection of the two disciplines realises the empowerment of the people foremost often leading to enactment of legislations.
These two philosophies are not complementary due to chance. The point at which these two parallels converge is where we understand that economics is not just the ‘study of money’ but the ‘study of the world’. While law is one of the totem functions of the world. Therefore, we can say that economics is the idea, while law is the application thereof.
The nexus between law and economics has been evolving since centuries. Notably, the Nobel laureates in economics - Ronald Harry Coase and Gary Stanley Becker created the foundational work on the intersection of economics and law.
The economic analysis of law substantially relies upon the principles of microeconomic theory. It applies the concepts of microeconomics such as rational decision making under scarcity, cost–benefit analysis and market behaviour, to analyse legal rules. It examines how individuals and firms can make choices within legal constraints and how legal rules can be designed to promote economic efficiency.
The economic analysis of law has been the crux of multiple commercial and fiscal laws and also extended to more conventional laws such as property, contracts, torts and criminal law.
In this article, we shall examine the genesis of the competition law from the lens of economic reasoning and its role in manifesting the corresponding legislations. We shall also deliberate on the economic theory behind the data privacy laws. The former emerged decades ago while the latter has more recently evolved.
The concept of “competition” began developing from earlier centuries. It was considered beneficial to have competition for social and economic progress.
Economic thinking has been the premise of the development of competition laws globally. It is vital that there is competition in the market to create free enterprise and a better-performing market economy.
Economic analysis of competition displays that perfect competition, as a theoretical benchmark, drives markets most efficiently and benefits consumers. A market equilibrium - where demand is equal to supply - can also be achieved through a free market economy, whereas competition tends to promote maximum efficiency in the allocation of a country’s scarce resources, unlike monopolies, which distort the balance.
The bedrock of competition laws was formed to achieve multiple objectives – focus on enhancing productivity, ensuring cost competitiveness, augmenting the eco–system for innovation, concentration on skill development, emphasizing on quality improvisation - all aimed at improvement of economic performance and all of this being means to collaboratively achieving the ultimate objective of consumer welfare.
The roots of competition laws lie in 19th-century North America with the enactment of the Sherman Antitrust Act, 1890. The theories slowly grew during the early 20th century. The foundations for global development of competition laws occurred between 1950 and1975, followed by rapid transformation from 1975 till date, due to the complexity of the nature of markets across borders.
The Indian context:
The Monopoly and Restrictive Trade Practices Act, 1969 (“MRTP Act”) dealt with concepts of monopolistic, restrictive and unfair trade practices. However, the MRTP Act started becoming obsolete due to economic development within India, and beyond, which necessitated a new legal regime focusing on promoting competition rather than simply curbing monopoly. The MRTP Act was replaced by the Competition Act, which was enacted in the year 2002. The Competition Act, 2002, inter alia, brings within its ambit the prohibition of anti–competitive agreements, abuse of dominant position and regulation of combinations to prevent appreciable adverse effect on competition. The Competition Act establishes the Competition Commission of India as a statutory regulatory body and empowers the same with various powers, including investigating into anti–competitive agreements, imposing penalties and issuing cease and desist orders. The Competition Act has extraterritorial application and also promotes competition advocacy.
The Competition Act aims to establish the virtuous cycle of achieving the multiple objectives, as abovementioned, consequently leading to economic performance enhancement and accomplishing the final objective of consumer welfare.
The critical nexus between economics and law has perhaps best transpired in the making of competition laws globally and spanning centuries.
Monetisation of data, directly or indirectly, has become an intrinsic part of the global economy, especially prompted by the increase of the digital economy. The remarkable escalation of data proliferation has necessitated its careful management to obstruct its misuse and harness its gargantuan economic and social benefits. This demanded the corollary of having specific laws for regulating and simultaneously maximising data propagation, usage and its financial exploitation.
The three economic characteristics of data that can have market implications are:
- Data is non-rivalrous: Data can be used by many; the more widely shared it is, the more users can utilise the same for enhancing efficiency and innovation. If data is hoarded by a few entities excluding others, it stifles competition.
- Data involves externalities: In the collection, sharing and processing of personal data, one agent may gain a commercial advantage at the cost of the data subject’s privacy and also larger economic and social welfare.
- Data is partially excludable: controlling access to data requires continuous investment to ensure the same is protected from breach, misuse and other violations.
It is well settled that data can contribute to economic growth and efficiency provided the above and other related economic factors are sufficiently addressed by the lawmakers so that concerns like market opacity, concentration and market power, financial instability and international fragmentation are dealt with.
The European Union (“EU”) adopted the General Data Protection Regulation (“GDPR”) in 2016. Apart from being applicable in the EU itself, it imposes obligations globally if entities beyond the EU aim or collect data related to individuals in the EU. The fines for violating the GDPR are astronomical. The GDPR covers vital aspects of protecting the privacy of personal data. It, inter alia, defines data processing, data subject, data controller and data processor. It lays down data protection principles, including lawfulness, fairness and transparency; purpose limitation; data minimisation; accuracy; storage limitation; integrity, confidentiality and accountability. Actions such as ensuring maximum data security, data protection by design and default and a procedure for legal processing of data mandating unambiguous consent of the data subject and also appointment of Data Protection Officer in certain conditions are prescribed by the GDPR.
The GDPR recognises multiple privacy rights for data subjects, such as the right to be informed, the right of access, the right to rectification, the right to erasure, the right to restrict processing, the right to data portability, the right to object, and rights in relation to automated decision making and profiling.
The Indian context:
The conversation about having Indian data protection policy and law began around 2012 and upon journeying through the judgment of the Hon’ble Supreme Court of India upholding the ‘Right to Privacy’ as a fundamental right (Justice K S Puttaswamy (Retd.) - vs – Union of India & others; AIR 2017 SC 4161), the Justice B N Srikrishna Committee, and Parliamentary debates; the Digital Personal Data Protection Act, 2023 (“DPDP Act”) came into existence. Though the DPDP Act has been inspired largely by the EU GDPR, it has been tailored to the Indian context. The draft Digital Personal Data Protection Rules, 2025, have been framed as well. However, it is yet to be notified.
It can be clearly observed that the evolution of the data privacy laws is strongly nudged by the economics of data and motivated by the economic empowerment and social welfare, which data proliferation and its maximal and ethical use can achieve if regulated in a structured manner.
It may be pertinent to mention that India is contemplating a statute on Digital Competition which seeks to curb anti–competitive practice in the digital space. The necessity for this has been felt as rapidly developing technologies and the integration of artificial intelligence in market practices have generated new challenges, which can hinder market fairness and thwart competition. This is a relevant example of how economics and law come together to address dynamic market concerns catalysed by novel developments.
Economics has been playing an enormously critical role in necessitating, creating, implementing, improvising, replacing and also antiquating laws due to the increasing complexities of economic life, enhanced globalisation, difficult geo–politics, rapid technological progress, shifts in social norms and growing intricacies of human psychology.
Thus, the interdisciplinary application of economics and law is perhaps the most compelling mode of ensuring better, impactful, pragmatic and fruitful policies and legislations. This conjoint application of the two disciplines has evolved over centuries and is still developing while navigating the changing times. As change is the only constant and complexities of life are at an ascent, we are envisioning further and deeper interaction between the two subjects, emphasizing their critical nexus.
About the authors: Sucharita Basu is the Founder and Managing Partner of AQUILAW.
Aadidev Basu is a student of The Doon School, Dehradun (S Form/Class 11).
Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.
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