Market Study on E-commerce: A Dynamic Approach Towards Fair Trade
Authors: Kirti Talreja & Abhishek Singh
The authors are students at the National Law University Odisha, Cuttack
The Competition Commission of India [hereinafter ‘CCI’] recently paved its way through the emerging sector of e-commerce by releasing the ‘Market Study on e-commerce’.[i]This report highlighted the key trends and also discussed the issues that may affect competition, either directly or indirectly, or which may have potential to hamper the pro-competitive usage of e-commerce. Based on its findings in the study, the CCI recommended the adoption of certain “self-regulatory guidelines” by the e-commerce enterprises with a goal to promote information symmetry and ensure larger transparency.
II. Self-Regulation & Transparency: A New Step in the E-commerce Sector
A. Data Regulation
The swiftly developing era of the digital space has witnessed a mammoth rise in the number of technological companies, new segments of e-commerce sector and tyro business models.
Data is the heart and soul of every digital ecosystem. Use of mobile phones and the various existing “real-time exchanges” for communication not only creates a dynamic profile of the user but also generates his/her financial details, physical location and consumer preferences.[ii]
This data can be used for purposes like credit worthiness assessments, targeted advertisements and precision marketing. The consumer’s browsing history allows sellers to know certain valuable information about the consumer preferences. This may also help them to estimate the latter’s “potential purchasing power”. With the help of this data, platforms have the capability of targeting customers by using their tailor-made marketing content.
Platforms having access to this data often gain access to several categories of data which include customer preferences, prices at which rivals products compete, and search rankings. This enables the platforms to wear dual hats and serve both as a marketplace as well as a competitor. This gives them a competitive advantage over other competitors.
The CCI stipulated that there should be a transparent policy for the regulation of consumer data. To implement this, the CCI suggested:
Setting up of a transparent and clear policy on the e-platform’s collected data.
Setting out the permitted usage of this data by the platform.
Setting policies on what data should be potentially and actually shared, with related entities or third parties.
B. Search Ranking Parameters
The CCI has been meticulous about the control of search rankings especially after it held Google in violation of section 4(2)(a)(i) of the Act for manipulating its search rankings.[iii]
As per the report and the subsequent findings of the CCI, the major parameters of search rankings on online platforms were not clear. Moreover, the mechanism was opaque and there was lack of clarity about the search ranking criteria among the service providers.[iv]
The CCI suggested the following remedies:
Descriptions of the major parameters of search ranking in an intelligible language and updating it regularly.
Setting out a description of the possibilities of the main parameters that influence the ranking against any remuneration aid by business users and the effect of such remuneration on the ranking.[v]
C. Rating & Review Mechanism by Users:
Fraud or misleading reviews impair the integrity of online reviews and consumer confidence, and are detrimental to consumers.[vi]
In this digital era, consumers have access to vast information via user reviews. Many consumers have become dependent on this information to mitigate the risks associated with purchasing in a virtual environment. These reviews claim to give them an insight about the product;assure them that what they see online reflects what will be eventually delivered to them; and provide confidence that the sellers are not deceitful.
However, some merchants choose to gain a competitive advantage by using deceptive tactics to manipulate e-commerce platforms, such as manipulating algorithms, fake product ratings and click farms (a ‘click farm’ refers to a scheme under which low-paid workers are paid to make false clicks on a site or product, providing the illusion that links have been visited by legitimate buyers).
An increase of a single star in ratings on some platforms correlates to a 26% surge in sales of that particular product, as per a recent analysis by e-commerce consulting firm.[vii] A European commission report indicates that fraudulent reviews by consumers serve as one major market-distorting factor in this digital sector.[viii]
In a market where consumers seek only trusted sellers with an established reputation, the degradation in the overall accuracy of ratings and reviews can reduce competition.[ix]Researchers have also found that some businesses routinely post fraudulent negative reviews with the aim to damage competitors and hijack the consumer.[x]
Consequently, the CCI directed the e-commerce platforms to take the following remedial steps:
Maintaining adequate transparency in publishing and sharing reviews with business users.
Publishing of reviews only for verified purchases.
Devising of mechanisms for preventing fraudulent reviews.
Ensuring published reviews meet the standards of the Draft National E-Commerce Policy provided.[xi]
D. Revision in Contract Terms
The clause of revising contract terms establishes that revision of contract terms should not be unilaterally decided by the online marketplaces.[xii]This was also discussed in a workshop conducted by the CCI where the restaurant industry argued that the contractual terms were altered by these platforms unilaterally or under coercion.[xiii] The imposition of ‘unfair’ contract terms is arbitrary for the business users and this is where the discontentment is brewing.
As a result, in order to protect the interests of all contracting parties, the CCI directed that the platforms discuss revised contract terms and give the business users concerned reasonable time to propose any clause of the contract which they find unreasonable, rather than unilaterally altering them.
E. Discounting Policies
In this era of digital e-commerce, consumer preferences are being affected by the metrics of discounting policies. An example of this may be predatory pricing.[xiv] Moreover, discounts can be anti-competitive if they effectively foreclose a large share of the relevant market[xv] and exclude rivals as a substantial impediment to expansion. This issue can be examined by the Commission under section 4(2) of the Act, which prohibits imposition of unfair condition by dominant enterprises.[xvi] The CCI explored this argument that these discounts can potentially harm competition in cases where they are used by dominant enterprises for the exclusion of other players in the market.
The National Restaurant Association of India complained about platforms giving discounts without the consent of restaurant owners, resulting inloss of image and goodwill. As per the service providers “Deep discounts can lead to permanent value erosion of products thus undermining their market position”.[xvii] Furthermore, in view of the authors, for a competitive landscape, it is crucial that all participants productively compete.
Accordingly, the CCI instructed online marketplaces to disclose their discounting policies and also explain the basis of the funding of such discount rates, and with the implications of participation or non-participation in those schemes.
III. Analysis & Suggestions: The Way Forward
Taking everything into account, the authors believe that the report was fairly detailed and exhaustively encompassed the point of views of various stakeholders including e-commerce companies that supply services to diverse sectors like hospitality, food and travel etc. The key market trends and the important characteristics of the online space were accurately and comprehensibly highlighted.Additionally, the major issues in competition were also brought up.
The strategy of self-regulation was the most momentous aspect of this report. It was formulated with due consideration and a holistic approach thus achieving its goal to assuage and integrate the incongruous interests of the various stakeholders. However, the strategy did not seem to satisfy the offline mobile phone trade associations such as the Confederation of All India Traders [CAIT] and the All-India Mobile Retailers Association [AIMRA] who were disappointed by the soft view taken by the CCI and contended that if the companies really wanted to self-regulate, they would not have indulged in such practices, in the first place.
Furthermore, the non-binding nature of the guidelines was yet another concern for them as there is no private right of action for a violation of these guidelines. Therefore, the retailers demanded that the Government implement the CCI recommendations as law.
But, it is also pertinent to note that though these guidelines are non-binding in nature, however, at the same time, if a case is brought before the Commission for violation of the provisions of competition law, the non-compliance of these guidelines may influence the outcome during the time of analysis by the CCI. On the aspect of enforcement of these guidelines, the Chairman of CCI, Mr. Ashok Kumar Gupta, pointed out that:
Enforcement can be done on a case to case basis. We are nudging the e-commerce platform. Moreover, if tomorrow, this issue is agitated by some player before the Commission, then it becomes an altogether issue in terms of enforcement.
The study provided a detailed analysis of the e-commerce sector and the Commission also strongly affirmed that it can and will come forward to review practices like predatory pricing and deep discounting, adopted by the e-commerce service providers over the due course of time. Moreover, the Commission, a statutory body, also holds the power to investigate and to scrutinise contract terms between the sellers and the e-commerce enterprises. Soon after the release of the report, a probe had also been initiated by the Commission against the well-known e-commerce players Flipkart and Amazon.[xviii]
Thus, it appears that the CCI has recognized the pace at which technology and big data is transforming the economic landscape. But, for realizing the potential of the e-commerce industry, it is indispensable for India to develop a robust legal, administrative and regulatory framework for competition.
Nonetheless, this excellent report assuredly will serve as the “Magna Carta” for all further scrutiny in the digital sector. Whatever may the outcome be, this first step of the CCI in this new era of competition is like a ray of hope in the E-commerce regime and definitely deserves praise.
[i]Market Study On E-Commerce In India Key Findings And Observations, https://www.cci.gov.in/sites/default/files/whats_newdocument/Market-study-on-e-Commerce-in-India.pdf(last visited May. 7, 2020) [hereinafter Market Study].
[ii]Draft National e-Commerce Policy India’s Data for India’s Development, https://dipp.gov.in/sites/default/files/DraftNational_e-commerce_Policy_23February2019.pdf (last visited May. 10, 2020) p 12. [hereinafterNational Ecommerce Policy].
[iii]Matrimony.com Ltd v. Google LLC and Ors, Case No. 07/2012 (CCI) 2018, ¶ 394(India). https://www.cci.gov.in/sites/default/files/07%20&%20%2030%20of%202012.pdf
[vii]SapnaMaheshwari, When Is a Star Not Always a Star? When It’s an Online Review, N.Y Times (Nov. 28, 2019),https://www.nytimes.com/2019/11/28/business/online-reviews-fake.html.[viii]Evidence-based consumer policy, https://ec.europa.eu/info/policies/consumers/consumerprotection/evidence-based-consumer-policy_en (last visited Apr. 6 2020).
[ix]J. Malbon, Taking Fake Online Consumer Reviews Seriously, Journal of Consumer Policy149 (2013).
[x]Promotional Reviews: An Empirical Investigation Of Online Review Manipulation,https://www.nber.org/papers/w18340.pdf(last visited Apr. 8, 2020).[xi]National e-Commerce Policy, supra note 2,¶ 3.21, 3.22.
[xii]Market Study,supra note 1, ¶ 90, 91.
[xiii]Changing Competition Landscape in India, https://www.cci.gov.in/sites/default/files/whats_newdocument/E-Commerce.pdf (last visited May 10, 2020) [xiv]Faull &Nikpay: The EU Law Of Competition (Jonathan Faull et al. eds. Oxford Univ. Press 3d ed. 2014). [xv]Case C-280/08 P, Deutsche Telecom AG v. Comm’n 2010 E.C.R. I-000 (EU).http://curia.europa.eu/juris/liste.jsf?language=en&jur=C,T,F&num=c-280/08&td=ALL [xvi]Market Study, supra note 1, ¶104. [xvii]Market Study,supra note 1, ¶ 80. [xviii]In Re: Delhi VyaparMahasangh v. Flipkart Internet Private Limited and Ors, Case No. 40/2019 (CCI) 2019 (India). https://www.cci.gov.in/sites/default/files/40-of-2019.pdf.