CCI Publishes Final E-Commerce Sector Report
The Competition Commission of India (CCI), on 8 January 2020, released a market study on e-commerce (Study) in India to fill a much need information gap in the e-commerce sector in India. Discussed in the context of a growing importance of digital commerce in the country and an increased price competition coupled with a detailed analysis of the market structure, the CCI makes some key findings which may prove to be of consequence for the ever increasingly complex competition concerns in the sector. This concludes a 9-month investigation into challenges posed by the e-commerce sector in India, which is presently the fastest growing market for e-commerce in the world, at a growth rate of 51% from 2017 to 2020.
The Study is a result of detailed research, stakeholder consultations and market research on behalf of the CCI. Enterprises looked at include manufacturers, wholesaler, retailers, hotels, restaurants, payment systems and e-commerce platforms. Akin to its approach of seeking self-regulation (e.g. notification of the green-channel), the CCI suggests various methods of self-regulation to the identified sectors in the Study.
The CCI identifies several competition considerations in the e-commerce sector. These are:
platform neutrality: the CCI highlights a necessity for case-by-case determination of preferential treatment by online platforms to products/sellers owing to vertical integration, and the economic benefits arising thereof. Further, the sharing of information regarding search ranking criteria, use of customer data etc. would reduce the possibility of anti-competitive conduct by e-commerce platform operators and promote the interests of businesses selling through these platforms. The CCI also recognizes the dangers of requiring complete transparency in information sharing, leaving it to the stakeholders to determine an appropriate balance.
platform to business contract terms: e-commerce platform operators are likely to leverage their bargaining positions over businesses selling on their platforms, on occasion requiring them to enter into exclusivity arrangements and other potentially anticompetitive conduct. The CCI suggests that stakeholders develop a framework for contract negotiation and a review of their discount policies, and mentions that it will review exclusionary conduct under s 3(4) of the Competition Act 2002.
platform parity clauses: considering likely pro-competitive (prevention of free-riding) and anti-competitive effects of platform parity clauses (barrier to entry for new e-commerce platform operators and likelihood of tacit collusion), the CCI will review platform-parity issues by a rule of reason standard, considering the factors in Section 19(3) of the Competition Act 2002 relating to anti-competitive agreements.
exclusivity agreements: the CCI notes that exclusivity agreements are likely to cause competition law concerns owing to prominent e-commerce platforms patronizing one brand to the exclusion of their competitors. The same will be reviewed under a rule of reason standard, owing to possible pro-competitive effects as well.
deep discounting: the CCI identifies three problems here: (i) that discounts are discriminatory (IRCCL note: the Editors do not agree with that statement in an unqualified form) (ii) platforms with superior bargaining power are likely to leverage it to the detriment of small businesses and (iii) discounts push prices to below cost levels. These three issues are closely interlinked. However, on the demand side, discounting attracts consumers and has several benefits; the CCI advocates a case-by-case review of each individual situation, and a need to study the relation between discounting and the improvement of scale and demand efficiencies.
The CCI, as noted above, advises self-regulation by stakeholders. At the same time, it sets a low threshold for triggering investigation by the regulator owing to the often-extensive effects from an individual’s actions due to the economics of the e-commerce market. The CCI also highlights the need for transparency in providing data and search engine results in order to improve competition and reduce information asymmetry. The following solutions are highlighted:
search rankings: to publish, in plain language, an explanation as to how search rankings are prioritized and the parameters involved, as well as an explanation as to the extent of influencing the rankings through remuneration or other incentives. The CCI explains that this obligation does not extend to the disclosure of the algorithms being used, in order to protect proprietary rights and prevent third parties from manipulating the search engine.
data sharing: set out a transparent policy to facilitate data sharing.
user ratings and reviews: set out transparent policies to share user ratings and reviews of products and services with businesses selling such products/offering services and with other consumers;
revision of contract terms: inform businesses of proposed changes in contract terms and enforcing those changes in a reasonable and proportionate manner.
discount policies: make clear the policies on discounting.