There is at first glance little in common between three very different news stories over the past few weeks—but they are invisibly tied together by compelling questions about the nature of regulation in a digital economy.

First, there is the very public battle on surge pricing between taxi provider Uber and the Delhi government led by Arvind Kejriwal. Second, there is the inauguration of a new payments interface that will provide Indians with an opportunity to make mobile payments with greater ease than people in most other countries. Third, there is the new global positioning system developed by Indian scientists that will now be available to users after the successful launch of the seventh satellite for the navigational system.

What is common in all three developments is that they involve technology platforms, or what the French Nobel laureate economist Jean Tirole has described as two-sided markets. Such a market has two very different sets of customers or users. Think of a newspaper that sells content to readers on the one side and advertisements to companies on the other. Or a credit card company that markets its cards to users on the one side and restaurants on the other. The growth on one side of the platform adds to the growth of the other, through what economists describe as network effects.

There is a problem here. Companies that can harvest these network effects inevitably get market power that can be used to eventually reduce competition. Think of an online auction market. More buyers using its services will pull in more sellers to offer their products—and more products will in turn attract more buyers. Soon, other online markets cannot match the big boy in terms of reach. Businesses based on such network effects tend to grow into oligopolies, as a spate of recent regulatory moves against companies such as Google shows.

In an article published in The Economic Times last month, Nandan Nilekani and Viral Shah have used the Uber debate as an example to argue how Indian regulators must improve their skills if they are to regulate new service providers in the sharing economy without harming the culture of innovation that is so essential for progress. The two writers have argued that app services such as Uber should be more transparent about their surge pricing algorithms.

There is another issue here besides regulation. And that is where the two other technology platforms come into the debate—the payments infrastructure and the global positioning system. These two have been set up by government agencies rather than the private sector. The state has built its own technology platforms. In fact, they will be in direct competition with payments companies in the private sector as well as those that offer GPS. Aadhaar too can be thought about as a platform set up by the government.

Should a technology platform be owned by the government? This newspaper is generally against the idea that a government should be in the business of running companies. But what about technology platforms that involve network effects, externalities and tend towards market dominance? That is a far more interesting policy question than the populist tirades against surge pricing.

There are no easy answers here. It is fair to say that the world at large is still struggling to come to terms with new digital ways of doing things. Underlying it is an issue that was raised by the World Bank in its flagship World Development Report published in February: is the Internet, and by extension digital technology platforms, a type of private good, public good or club good?

Heavy handed regulation can kill innovation while turning away from the problem can potentially create monopolies. How Indian regulatory agencies balance these two objectives should be closely watched.

Meanwhile, the possibility of the government itself setting up technology platforms to support transactions adds a new dimension to an evolving debate.

Should the government get into the business of technology platforms? Tell us at views@livemint.com

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