The Competition Commission of India has called for greater transparency by e-commerce marketplaces and recommended self-regulation as the way out, reports Subir Ghosh

Bargaining power imbalance and information asymmetry between marketplace platforms and their business users are holding back the e-commerce sector in India. The Competition Commission of India (CCI) came to this conclusion in its report Market Study on E-commerce in India: Key Findings and Observations that was released on January 8.

But, even without a formal determination of violation of competition law, the CCI remarked, "improving transparency over certain areas of the platforms' functioning can reduce information asymmetry and have a positive influence on competition outcomes."

In fact, all the recommendations listed by the CCI in response to the findings of the study initiated by the commission in April 2019 with a view to better understand the functioning of e-commerce in India and its implications for markets and competition were about transparency. The commission has advocated self-regulation by e-commerce marketplace platforms, even as demands have been rising over the need for a regulatory body for the e-commerce sector in the country.

The study found a number of issues that, directly or indirectly, have a bearing on competition, or may hinder realisation of the full pro-competitive potential of e-commerce. "These include the issues of lack of platform neutrality, unfair platform-to-business contract terms, exclusive contracts between online marketplace platforms and sellers / service providers, platform price parity restrictions and deep discounts," the commission observed.

The findings corroborate allegations made by many stakeholders, including small-time traders, about the predatory and unfair practices being followed by big-time e-commerce players in the country.

The recommendations made by the CCI are also in tune with the Consumer Protection (e-Commerce) Rules, 2019 issued by the Union ministry of consumer affairs in November last year. The Rules had called for more fairplay on part of e-commerce platforms and made it incumbent on sellers to be transparent in displaying on online platforms all information ranging from delivery / shipment to returns and grievance redressal mechanisms.

Meanwhile, the National E-commerce Policy, a draft of which was released in February 2019, has been in the works for a while. It is likely to be in line with the CCI findings.

Market Realities

• India is the fastest growing market for the e-commerce sector. Revenue from the sector is expected to increase from $39 billion in 2017 to $120 billion in 2020, growing at an annual rate of 51 per cent,the highest in the world.

• E-commerce in India has attracted investors from across the world. Although funding in the e-commerce sector started in 2009, it gathered momentum in 2014 and maximum investment of around $3,500 million took place in 2017 in 124 funding rounds.

• Since 2009, the e-commerce sector has received around $13,338 million in 904 funding rounds. Due to the increase in investments in the e-commerce sector, new companies started to enter the market since 2009. Maximum number of new e-commerce companies i.e. 1,650 were formed in 2015. At present around 4,757 e-commerce start-ups are active in India.

• As of July 2018, the number of transactions in e-commerce retail was 1.2 million per day and on e-commerce platforms was around 60 million per month.

The Concerns

The concern regarding platform neutrality emanates from situations where the online platforms serve as both a marketplace and a competitor on that marketplace. Platforms essentially vertically integrate  when they operate in the products traded on it, which may be through manufacturing / selling of private labels or by having direct or indirect interest in retail or through operating their own cloud kitchen brands. Such vertical integration may create an incentive to improve the platform’s own / related entity’s market position relative to its competitors by engaging in preferential treatment on the platform.

Lack of transparency in the platforms' functioning and practices can on the one hand allow for possible distortion of competition on the platforms and on the other hand, consumer choice may not reflect consumer preference with perfect information. The three elements, which according to the business users of the platforms, are susceptible to manipulation / exploitation by platforms, are search results, sellers' /service providers' data and user review/rating mechanisms.

Imposition of unfair condition or price in sale or purchase of goods and services by dominant enterprises is prohibited under section 4 of the Act. Thus, the Commission can intervene on a case-by-case basis in matters where unfair conditions or price is imposed through contractual provisions, by an enterprise that is dominant in the relevant market.

Exclusive agreements are not per se anti-competitive. But, they raise potential competition concern when used as an exclusionary tactic to foreclose competition to rivals or to impede entry. Such concern would be pronounced when there is insufficient competition in either the platforms’ market or the market where sellers / service providers compete.

The Recommendations

Search ranking

• Set out in the platforms’ terms and conditions a general description of the main search ranking parameters, drafted in plain and intelligible language and keep that description up to date.

• Where the main parameters include the possibility to influence ranking against any direct or indirect remuneration paid by business users, set out a description of those possibilities and of the effects of such remuneration on ranking.

• Introduction of the above-mentioned features,however, should not entail, disclosure of algorithms or any such information that may enable or facilitate manipulation of search results by third parties.

Collection, use and sharing of data

• Set out a clear and transparent policy on data that is collected on the platform, the use of such data by the platform and also the potential and actual sharing of such data with third parties or related entities.

User review and rating mechanism

• Adequate transparency over user review and rating mechanisms is necessary for ensuring information symmetry, which is a prerequisite for fair competition. Adequate transparency to be maintained in publishing and sharing user reviews and ratings with the business users. Reviews for only verified purchases to be published and mechanisms to be devised to prevent fraudulent reviews / ratings.

Revision in contract terms

• Notify the business users concerned of any proposed changes in terms and conditions. The proposed changes not to be implemented before the expiry of a notice period, which is reasonable and proportionate to the nature and extent of the envisaged changes and to their consequences for the business user concerned.

Discount policy

• Bring out clear and transparent policies on discounts, including inter alia the basis of discount rates funded by platforms for different products / suppliers and the implications of participation /non-participation in discount schemes.