By Hilmy Prilliadi, Research Associate at the Economic Research Institute for ASEAN and East Asia
Indonesia’s digital economy has experienced significant growth, emerging as the largest market in Southeast Asia. The implementation of the ASEAN Digital Economy Framework Agreement (DEFA) holds the potential to further boost this expansion, adding value to the entire ASEAN region. This growth is attributed to increased internet usage, widespread smartphone adoption, and heightened e-commerce activities. While these advancements have revolutionised business operations and consumer interactions, they have also introduced challenges related to ensuring fair competition and safeguarding consumer interests within the digital economy sector.
Traditional competition policies focused on pricing struggle to address challenges like data monopolies, digital conglomerates, and the two-sided model of digital platforms. A narrow focus on consumer welfare overlooks broader impacts such as market concentration and data accumulation. Adapting requires competition authorities to broaden market definitions and include considerations of data and privacy protection alongside traditional indicators like prices.
The COVID-19 pandemic has accelerated the need for a digital competition framework, especially as businesses, including micro, small and medium-sized enterprise (MSME)s and tech startups, shift online, causing disruptions in demand and supply. Policymakers intervene to maintain market functionality, recognising the importance for crisis management and a resilient, inclusive economic recovery. This prompts a re-evaluation of traditional analytical frameworks within competition policy to balance efficiency and resilience, addressing concerns about the misuse of sensitive data.
Ensuring long-term economic sustainability in high-tech digital markets requires a dynamic approach to resource allocation without distorting competition and innovation. The disruptive nature of technology in these markets highlights the significance of innovation in both competition policy theory and practice. While healthy business competition fosters market innovation, barriers in non-competitive markets distort the market and hinder technological development.
The evolution and challenges of competition policy regulations in Indonesia
Indonesia has proactively addressed competition policy challenges through legislative measures, notably enacting Law No. 5 of 1999 on Anti-Monopoly and Unfair Business Practices. The establishment of the Indonesia Competition Commission (KPPU) further solidifies the commitment to enforce competition law and uphold fair market practices. Subsequent refinements, such as KPPU Chairman Regulation 4/2022 on the Relevant Market Guideline, showcase the ongoing efforts to adapt to the evolving digital landscape, including the incorporation of multi-sided and digital market definitions.
A study by the KPPU on market structures in the digital and platform economy highlighted the inadequacy of conventional competition enforcement in addressing emerging issues. Notably, the KPPU responded with significant updates in March 2023, introducing new merger notification rules, revising processes, and altering asset calculation criteria to focus exclusively on Indonesian assets. The revised merger analysis guidelines now prioritise innovation as a key factor during assessments, particularly when merging parties claim a focus on technology development or product innovation.
Despite advocacy for amendments to Law No. 5 of 1999, implementation has faced obstacles due to political factors. The KPPU has actively pushed for enhancements, acknowledging the need for a more robust institutional position, expanded law enforcement authority, and improved monitoring of mergers and business activities. However, the lack of authority to initiate legislative changes necessitates ongoing efforts to lobby with the government and legislature for amendments to fortify the effectiveness of the KPPU’s work. The importance of coordination in tech policy, emphasised by the Tech For Good Institute’s report, underscores the need for a responsive regulatory environment.
Key Recommendations for Competition Policy Improvement:
- Prioritise building the capacity of the KPPU to address challenges and facilitate collaboration with regulatory agencies.
- Collaborate with ASEAN authorities and competition agencies to share information, build capacity, and coordinate enforcement on digital competition issues.
- Expand coordination with stakeholders like National Research and Innovation Agency (BRIN), research agencies, universities, and the private sector to comprehend key trends and challenges, enhancing synergies between regulators and the KPPU in specific sectors.
- Clearly define the jurisdiction of each regulatory agency or centralise the application of competition law under the KPPU.
- Review and, if necessary, revise existing digital competition regulations to ensure consistency with DEFA’s framework, including areas like competition assessments, merger control, and unfair business practices. Consider initiating amendments through Law No. 5 of 1999 for harmonisation.
- Integrate data science into the KPPU, establishing specialised units and a data science toolkit for analysing digital platform data, considering non-price aspects like quality, innovation, or privacy. Include these non-price factors in cases of alleged competition violations and the assessment of merger and acquisition transactions.
- Transition M&A reporting prerequisites towards a multi-dimensional framework to adapt to the dynamics of the digital economy.
- Promote data cooperatives to strengthen data accumulation for MSMEs, fostering greater competition in the markets.
- Enhance the assessment of market dominance on digital platforms, especially with the growing reliance of MSMEs on these platforms.
- Provide special attention to tech startups and MSMEs, implementing sectoral or company-specific measures to effectively combat anticompetitive practices and encourage innovation in this context.
In fortifying Indonesia’s standing within the digital economy, a comprehensive strategy is imperative to navigate the complexities inherent in this dynamic landscape. The urgent need for a resilient digital competition framework has prompted policymakers to reevaluate conventional analytical approaches in competition policy. While Indonesia has demonstrated proactivity, challenges endure in the effective implementation of amendments and the facilitation of collaboration among regulatory entities and KPPU. The key to success lies in building institutional capacities, refining regulatory frameworks, and cultivating an environment that promotes not only fair competition but also innovation. Through these concerted efforts, Indonesia is poised to establish itself as a formidable player in the ever-evolving digital economy competition arena.
The views and recommendations expressed in this article are solely of the author/s and do not necessarily reflect the views and position of the Tech for Good Institute.
About the writer
Hilmy Prilliadi is a Research Associate at the ERIA (Economic Research Institute for ASEAN and East Asia). As a Research Associate, he is currently working on research on Digital Integration Framework, Digital Economy Roadmap, and Digital Transformation in ASEAN, among other things.
