Does E-commerce Destroy Competition Quite Literally?

E-commerce has impacted the way people engage in trade to a large extent. So much so, with the advent of e-commerce, the definitions of key concepts such as “markets” and “vendors” have changed. Ease of access, price transparency (or as it is perceived by the consumer) and scope for quick comparisons are the reasons given for the rapid growth of the e-market business model. The idea of a “one stop shop” is now a reality. While consumers have their reasons to rejoice, one class of traders, the traditional brick and mortar retail group, are very unhappy. This does not come as a surprise, given the fact that many small retailers have been forced to shut down their shops as tech giants are practically eating them up. Changes in free market economies have always been accompanied by old players resenting the entry of the new innovator. The e-commerce case, however, cannot be brushed off easily. Taking into consideration their dominance and more importantly their extensive knowledge of consumer preferences, one needs to see if e-retailers defy competition law.

Competition law aims to prevent any practices that interfere with the free nature of markets, in terms of how competitive sellers behave. The Competition Commission of India is entrusted with the task of monitoring the market for unhealthy competition. A substantial amount of the work is concerned with identifying and preventing enterprises from entering agreements that have an appreciable adverse effect on competition (AAEC). Cartels and collusive practices are to an extent difficult to sustain because of the lack of complete information on the market, preferences of the consumers and gauging how far each consumer is willing to go. E-commerce, however, manages to amass sufficient data on all these aspects, providing ample information for entities to engage in such activities.

E-commerce has reinvented the traditional business models. Therefore, there is a need to change competition policy and framework as well. As technology is constantly changing and will keep on changing the trade patterns, the competition law frameworks should be designed to cater to the changing dynamics of e-commerce. A concept that needs to be reviewed is “relevant market.” Relevant market can be defined as a market in which a particular product or service is sold. It is the intersection of a relevant product market and a relevant geographic market. The multi-sided nature of e-commerce and the use of their networks also need to be considered when defining the concept of relevant markets to assess their market power.

The current changes in policy by the Department of Industrial policy and Promotion in the sphere of Foreign Direct Investment (FDI) is a huge game changer. The reforms proposed in December 2018 bar online platforms that follow the market place model from tying up with any of the vendors. A market place model is simply an online platform service that provides an avenue to the sellers. Sites, therefore, will, from now on, provide a level playing field to all vendors. This means players like Amazon or Flipkart can no longer have in house private labels or exclusive tags on products. What does this mean for the consumer? This means that the deep discounts and cash back we all enjoy will no longer be available. In a market place model, the platform should be indifferent to sellers. Also, if a vendor sells more than 25% of his inventory through the e-commerce site then the latter would be deemed to function on the inventory model, a field in which FDI is not permitted.

This has created disappointment in the US market where companies like Walmart, that made a recent $16 billion dollar investment, have been blindsided. The new regulations definitely come as a blow to prospects of receiving foreign investment. No country can expect to be the go-to destination for investors without providing a transparent process and a degree of predictability in the formulation of policies that directly affect them.

Another class of traders see this as an opportunity to attract attention to their plight. This happens to be the collective of restaurants who want clarifications on whether these regulations would apply to food delivery apps like Zomato and Swiggy as well. These demands are reasonable enough since they too indulge in doling out excessive discounts. As per the regulations, these apps cannot give a flat 50% off for an entire month, saying “No cooking January,” and continue this practice throughout the year. Zomato has also engaged in listing restaurants as “zomato exclusive.” Swiggy has started their own in house kitchen. Since these practices are similar to the ones targeted in the new reforms, it would be reasonable to ask for an explanation. However, no comments have been made in this regard till date.

However, not all selling agreements are found to be non-compliant to competition law. For instance, a case was registered against the agreement between Snapdeal and SanDisk devices for engaging in anti-competitive practices. The informant had complained that SanDisk’s insistence that its storage devices be purchased by Flipkart only from specified authorised channels were preventing him from offering many competitive prices. The CCI, however, stated that this was not causing appreciable adverse effect on competition (AAEC) as Snapdeal only managed a web portal for sellers to sell products and did not by itself engage in purchase and sale of storage.

A similar judgement was given in favour of Flipkart when concern was raised over their agreement with a publishing house for the exclusive sale of a book. It was observed that such selling agreements do not pose any barriers to the new entrants. Additionally, products that are sold through such agreements are still subject to competitive constraints.

One need not necessarily assume that e-commerce sites flout all rules of competition by taking over traditional retailers. However, the laws must be looked with a perspective that understands how e-commerce redefines key concepts. A proper evaluation of the market power these entities possess would be necessary to see if they dictate pricing, manufacturing and selling decisions of other vendors. An online site that engages in direct procurement and selling cannot be evaluated by considering it as solely a marketplace model operator. As for traditional retailers, they need not necessarily be replaced by e-retailers. Companies like Alibaba have found “new retail” to help brick and mortar retailers to operate their stores effectively by integrating digital systems. This aims to combine the best of both worlds. While capitalist markets are characterised by disruptive change, it doesn’t necessitate the dominance of the incumbent.

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