The Competition Commission of India (CCI) released a detailed report on January 8, 2020 concluding its study on the increasing relevance of e-commerce in India. The report was released in response to complaints from the Confederation of All India Traders (CAIT) and the National Restaurants Association of India (NRAI) that e-commerce giants like Amazon, Flipkart and Swiggy, Zomato participated in predatory pricing. Also, the CCI commenced a market study on e-commerce in April 2019, in order to better understand the functioning of electronic commerce in India and its implications for markets and competition. The objective was to identify impediments to competition, if any, arising from electronic commerce and to determine the Commission’s enforcement and defence priorities in light of the same.
We all know that transparency throughout the e-commerce supply chain has become a key component of corporate integrity, loyalty, and sustainability. So, by investing in a transparent product life cycle and by adapting the CCI’s report on e-commerce, the companies can improve their strategies in response to market forces, adapt to new regulatory or environmental conditions, optimize prices and compliance in real-time and inspire consumer confidence. In this article, we will discuss the key trends identified in the study and then, we will deal with various antitrust issues and their major takeaways. Therefore, we will discuss the need for transparency in the e-commerce sector.
1. KEY TRENDS IDENTIFIED IN THE STUDY-
The objective of CCI behind the Study was to engage with the industry and determine the Commission’s advocacy and enforcement priorities for e-commerce, with greater clarity on market developments and emerging impediments to competition. Some of the important highlights of this study are:
I. Growing trends in E-commerce:
The study in Chapter 2 reports that India is the fastest-growing market for the e-commerce sector. Based on the cited figures, e-commerce sector revenue is expected to rise from $ 39 billion in 2017 to $ 120 billion in 2020, growing at an annual rate of 51 percent, the highest in the world. Most of this growth is attributed to the increase in funds received from around the world since 2009 and also to the increased commitment to the consumer base due to the increased penetration of the internet and smartphones in India. Some of the categories that the Report recognizes as critical to growth in the e-commerce sector are food, online travel booking and the food technology industry.
II. Importance of e-commerce:
The study confirms that the growth of electronic commerce has been at an increasingly high rate and with a comfortable and adaptable environment, it would continue to increase at this rate. Also, the scope of electronic commerce in the digital economy is extremely varied among different sectors. While the retail sector treats e-commerce as a primary means of sales for only a few products and others rely on physical retail, but the online travel agencies (OTAs) and food services have considered, the importance of platforms as very high and they feel the need to expand their online presence.
III. Strategic response to the growth of electronic commerce:
while trying to capitalize on the various avenues of new opportunities, large players in all of the sectors have been preparing to meet the challenges of digitizing the economy. Retailers believe that expanding their online presence is essential to interact with their consumer base. Retailers have started launching their independent web stores or have increased reliance on market platforms. OTAs and food services have been renewed with the introduction of cloud cooking services. Also, the OTAs have lent their brand to smaller chains as a sign of quality assurance.
IV. Role of online market platforms:
According to the study, third-party market platforms have been responsible for the maximum number of digital retail in India. The shift from offline to online retail is a rapid escalation with the adaptation of networks and the technology will not slow down.
2. ANTITRUST ISSUES AND MAJOR TAKEAWAYS-
Seeing the growing concerns of electronic commerce, the CCI has strived to provide certain plausible solutions. In its list of priorities, CCI included ‘platform neutrality’ as its most important area to be addressed, in which it has suggested that a pro-competition approach could be achieved only when there is credibility and transparency progress in the search ranking, data collection, use and sharing, user review ratings and reduction in the asymmetric dissemination of information. The numerous areas which need to be addressed are as follows:
- Platform Neutrality:
Issues of Platform neutrality arise when marketplaces use the data on prices of competing products, consumer preferences, etc. to tilt the competitive landscape through manipulation of prices, search rankings, etc., in favour of the Private Labels (i.e. when operators function as both marketplaces and retailers) and Preferred Sellers (i.e. when certain retailers are given “preferred” status). In the Google Search case, the European Commission imposed a form of search neutrality on Google, requiring it to treat rival retailers in the same way. In the same vein, CCI has recommended platform neutrality for market platforms. The distinctive position of digital market platforms gives them unbridled access to a stack of different categories of data including customer preferences, search rankings and the prices of competing products. It is the manipulation of this data by marketplace platforms that raises the issue of platform neutrality in a competitive landscape. The report raised the issue of private labels when market platforms take on the roles of markets, as well as retailers on the same platform through private labels on products and services. Hence, the finding of the commission was that the lack of transparency in search-ranking criteria, the use of black-box algorithms and commercial terms offered by platforms, may disadvantage other retailers listed on the platforms.
- Platform for Commercial Contracts:
A predominant concern was the unilateral imposition of “unfair” conditions on retailers and the unilateral revision of contractual terms by platform. In an attempt to curb the discriminatory and unfair terms being incorporated in commercial contract terms, the commission has put forth a mechanism to review the exclusionary conducts in the contracts entered into by the stakeholders.
- Price Parity Clauses:
The price parity clauses, which have a pre-requisite to dissuade the small-scale retailers from offering lower prices on other e-commerce portals & on their independent websites, were stated to be essentially distortive and discriminatory in nature, as this reduces competition between platforms and encourages oligopolistic coordination between platforms to control market competitiveness. Therefore, the report concludes that such clauses can constitute vertical anti-competitive agreements in which the market platform exercises substantial market powers and there are competing foreclosures for its rivals. Rivals may not have sufficient incentives to compete in the presence of such price parity clauses. It can also drive tactical coordination between platforms to block deviations from commission rates. However, due to the pro-competitive effects of such clauses, the CCI advocates the case-by-case evaluation of such practices.
- Exclusive Agreements:
Exclusive deals are similar to grouping platforms where a product is only launched on a specific platform or where a platform only lists products from a certain brand in a category. The report concluded that in order to arrive at a conclusive finding in such cases, a case-specific analysis would be required.
- Deep Discounts:
In a market where consumers tend to flock to discounts, the platforms’ extremely discriminatory discount policy has been identified as an anti-competitive factor by the CCI. Forcing prices to be lower than costs have led to the erosion of profitability, while non-participation in discount policies has led to degradation in search rankings, which is discriminatory in nature. Therefore, the finding was that while discounting for a limited period might be justifiable, longer durations would be subjected to a fact-intensive analysis.
The Report concluded that the imbalance in bargaining power and information asymmetry would lead to market distortion, and therefore it strives to achieve the highest levels of ‘self-regulation’ in an attempt to reach the pedestal of fair competitive practices and, therefore, facilitate sustainable economic relations, simultaneously striving to lower regulatory thresholds to put a particular stakeholder under the research network. Consequently, measures such as search ranking, data regulation, user review, discount, etc. are directly aimed at improving market transparency in the electronic commerce sector.
3. THE NEED OF TRANSPERENCY IN THE E-COMMERECE SECTOR-
Throughout the supply chain from the manufacturer to the distributor, the retailer and the end consumer, the connections between each party are increasingly remote. At such a time when ingredients, manufacturers and end consumers may be present on different continents, maintaining control and visibility across the network or the transparency of e-commerce is more important now than ever. There is increasing market pressure for transparency. Companies that convey honesty and openness attract more customers, distributors, and retailers in favour of reputable brands and the manufacturers also want to establish a stable and ethical supply chains. But in e-commerce, visibility across the network isn’t just about market convenience, but it’s also about controlling the life cycle of a product from manufacturing to the final consumer and every step in between.
Regardless of the motivation, transparency throughout the e-commerce supply chain has become a key component of corporate integrity, loyalty, and sustainability. By investing in a transparent product life cycle and by adapting the CCI’s report on e-commerce, the companies can improve their strategies in response to market forces, adapt to new regulatory or environmental conditions, optimize prices and compliance in real-time and inspire consumer confidence.
ABOUT THE AUTHORS
Alankrita Singh is a third-year B.A.LLB (Hons.) student at National University of Study and Research in Law, Ranchi. She has also participated in different National Moot Court Competitions based on different laws and her team was among the top-ranked teams. Her area of interest includes General Corporate and Criminal Law. She can be reached at firstname.lastname@example.org.
Nishant Tiwari is a third-year B.A. LL.B. (Hons.) student of NUSRL, Ranchi aspiring to make a career in the field of corporate law. He has interned in different top-tiered law firms dealing with the matters of Companies Act, SEBI Regulations, Indian Contract Act, Copyright Act, RERA Act, Arbitration and Conciliation Act, Insolvency and Bankruptcy Code, Industrial Disputes Act, Indian Evidence Act, Hindu Succession Act, etc. He has also participated in different National Moot Court Competitions based on different laws such as- Competition Law, Contract Act, Family Law, etc where his team was among the top-ranked teams and his team has also bagged two best memorial awards. He can be reached at email@example.com.