[Jubair Bhati is a corporate lawyer and Mayank Sen is a 5th year BBA LLB (Hons) student at the School of Law, Raffles University, Neemrana (Rajasthan)]
The Competition Commission of India (“CCI”) earlier this month published a report concluding its market study on the growing relevance of e-commerce in India. This report provides for various considerations that the stakeholders of e-commerce take into account while choosing a particular digital marketplace platform. The key findings and guidelines of the Indian Fair Trade Regulator for digital commerce are discussed below.
Platform Neutrality
In the Google Search case[1], the European Commission imposed a form of search neutrality upon Google requiring it to provide equal treatment to rival retailers. On the same lines, the CCI has recommended platform neutrality for marketplace platforms. The distinctive position of digital marketplace platforms provides them unbridled access to a pile of different categories of data including preferences of customers, search rankings and prices of competing products. It is the manipulation of these data by marketplace platforms which raises the issue of platform neutrality in a competitive landscape. The report raised the issue of private labels when the marketplace platforms assume the roles of marketplaces as well as retailers on the same platform through private labels on products and services.
Another concern of platform neutrality raised by the report is that of ‘preferred seller’ status. It is a situation where marketplace platforms provide ‘preferred seller’ status to certain retailers for additional commissions. The report acknowledges that the lack of transparency in commercial terms of the contract offered by platforms, black-box nature of algorithms, and search ranking criteria create an anti-competitive market condition for other retailers listed on the marketplace platforms. On the same lines, the report also recommends for platforms to strike a balance between ensuring transparency and minimizing risks of sharing information which may be used by thirds parties to game the ranking systems.
Platform-to-business Contract Terms
A predominant anti-competitive concern raised in the report is unfair conditions imposed upon the retailer unilaterally by the marketplace platforms. The unilateral revision of contractual terms by these platforms is also highlighted to be under the anti-competitive radar in the report. The practices of deep-discounting,[2] data masking of retailers’ data and bundling of services with listing on food delivery market platforms are termed as distortive for the competition in the market.[3] Thus, the report finds that such practices create an imbalance in the bargaining power between small retailers and large marketplace platforms. Such a position of retailers and marketplaces is an antithesis to the competition law of India.[4] Therefore, the report recommends that marketplace platforms must carve out the methods to protect the interests of all contracting parties by transparent negotiation of contractual terms, discount policies, penalties, and dispute resolution.
Platform Price Parity Clause
The price parity clauses in the contracts refer to such clauses that bar retailers from offering any better prices on competing platforms or their websites. The report highlights that the food delivery platforms and the online travel agencies bar retailers from offering any better prices through any other marketplace platforms. Such clauses eventually lead to anti-competitiveness in the market for the reasons that they create barriers to entry for other platforms and lower competition incentives for platforms in the market. However, on the flip side, the price parity clauses can also create efficiencies by preventing the ‘free-riding’ by retailer websites and promoting competition on non-price factors.
Thus, the report concludes that such clauses can constitute anticompetitive vertical agreements where the marketplace platform exercises substantial market powers and there are foreclosures of competition for rivals. The rivals may not have sufficient incentives to compete in the presence of such price parity clauses. It may also lead tactic coordination amongst platforms to block deviations from commission rates. However, owing to the pro-competitive effects of such clauses, the CCI advocates for case by case assessment of such practices.
Exclusive Agreements
Generally, the marketplace platforms execute exclusivity agreements for exclusively launching a product or for allowing the platform to list only one brand in a product category. These agreements, clubbed with the exclusionary tactic to bar the competition, can have a significant anti-trust impact in the market. Such agreements lead to reduced choices and increased prices for customers. However, these agreements are not per se anti-competitive as they promote efficiencies as well as competition amongst brands of various retailers. Thus, due to certain efficiencies created by exclusive agreements, the report concludes for case-specific analysis to arrive at conclusive findings in these cases.
Deep Discounts
The report highlights that the food delivery platforms and the online travel agencies have admitted to engaging in discounting their products. The deep discounting offered by these platforms raise the concerns of differential discounting structure leading to discrimination with retailers, ranking demotions, erosion of profitability, and brand equity loss. Thus, the report concludes that deep discounts for a limited period can be justified due to customer on-boarding and increased network effects. However, the report further reiterates that the longer duration of deep discounts can be subjected to a fact-intensive analysis as they may diminish the competitive efficacy in the market.
Based on the aforementioned observations, the report concludes that an imbalance in information asymmetry and the bargaining power can result in an anti-competitive distortion of the market. The similar superior bargaining concerns were also addressed in the competition regulatory framework in South Korea, Japan, and Germany. Accordingly, the marketplace platforms are directed in the report to self-regulate their affairs and adopt the following measures to ensure market transparency in the e-commerce sector:
Search Ranking Parameters
The marketplace platforms are directed to set out and disclose search ranking parameters in intelligible terms in their agreements including any impact of remuneration paid by retailers. However, manipulation of search results by any third party is not permissible.[5]
Data Regulation
The collection of data by marketplace platforms must be guided by a transparent policy that must provide for the detailed concerning the use of data and sharing of data with third parties. However, the report does not provide any comments for the obligation of platforms to share the data with their business partners.
User Review and Rating Mechanism
The marketplace platforms are directed to maintain clear transparency in the publication of user reviews and ratings. The platforms must ensure that the reviews are published for verified purchases and comply with the Draft National E-Commerce Policy.
Revision in Contract Terms
The marketplace platforms are direct to notify retailers of any proposed contractual changes in advance and provide reasonable time before the implementation of changed contractual terms.
Discounting
Amongst other things, the marketplace platforms are directed to adopt transparent policies for discounting of products. Such policies must provide for the basis of offered discount rates and the implications of not participating in the discounting schemes.
In conclusion, the report of the fair trade regulator appears to be comprehensive addressing the concerns of various stakeholders of the digital market ecosystem. The self-regulatory measures highlighted in the report are highly consequential and are formulated to balance the conflicting interests of various stakeholders in the e-commerce sector servicing diverse sectors. Given the uniqueness of digital market platforms, even the non-dominant players can raise anti-trust concerns. The abuse of dominance provision under section 4 and the vertical agreement’s provision under section 3(4) of the Competition Act, 2002 will be the guiding routes for the CCI investigations in the e-commerce market for the dominant and the non-dominant e-commerce platforms respectively. Thus, such an initiative of the CCI appears to serve as Magna Carta for future investigations in the e-commerce sector.
– Jubair Bhati & Mayank Sen
[1] European Commission Decision, AT.39740 Google Search (Shopping) (C (2017) 444, 27.6.2017.
[2] Ashish Ahuja v. Snapdeal, Case No. 14 of 2014 before the Competition Commission of India, decided on 19 May 2014.
[3] Federation of Hotel and Restaurant Associations of India (FHRAI), New Delhi v. MakeMyTrip India Private Limited (MMT), Haryana and others before Competition Commission of India decided on 28 October 2019.
[4] Sections 3 & 4, Competition Act, 2002.
[5] Matrimony.com v. Google, Case No. 07 & 30 of 2012 before the Competition Commission of India, Decided on 8 February 2018.