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CCI’s Market Study on E-commerce

January 16, 2020

The Competition Commission of India (CCI) on January 08, 2020 released its Report on “Market Study on E-commerce in India”. The Study was commenced by CCI in April, 209 with a view to better understand the functioning of e-commerce in India and its implications on markets and competition. CCI’s objective behind the Study is to engage with industry and ascertain the Commission’s enforcement and advocacy priorities in relation to e-commerce, with greater clarity on market developments and emerging impediments to competition.

CCI’s Report can be accessed here.

The three areas which have been focused in the Study are:

  1. Key market trends and main features of ecommerce
  2. Key competition issues that have emerged from the study.
  • The observations of the Commission based on the findings

Growing Trends of E-Commerce

The Study in Chapter 2 reports India as the fastest growing market for the e-commerce sector. According to quoted figures, the revenue from the e-commerce sector is expected to increase from USD 39 billion in 2017 to USD 120 billion in 2020, growing at an annual rate of 51 percent, the highest in the world. Most of this growth is credited to the increasing funding received from across the world since 2009 and also to the higher engagement with the consumer base on account of increase in internet and smartphone penetration in India.

Some of the categories which the Report recognizes instrumental in growth in the E-commerce sector are food, online travel bookings and food tech industry.

Importance of E-Commerce

The study confirms that the growth of e-commerce has been at an increasingly high rate and with a comfortable and adapting environment would continue to increase this rate. The scope of E-commerce a\the digital economy although is extremely varied among the three different sectors. While the retail sector treats e-commerce as a primary means of sales only for a few products with others relying on physical retail, online travel agencies (OTA) and food services have considered the importance of platforms to be very high and feel the need for expanding their online presence.

Strategic Response to E-Commerce Growth

The big players in all of these sectors have been gearing up to tackle the challenges of the digitization of economy head on while attempting to capitalize on the various avenues of new opportunities. Retailers believe it is essential to expand upon their online presence in order to engage with their consumer base. Retailers have started either launching their standalone web stores or have increased reliance on marketplace platforms. OTAs and food services have both been revamped with the introduction of cloud kitchen services and OTAs lending their brand name to smaller chains as a sign of quality assurance.

Role of Online Marketplace Platforms

According to the study third party marketplace platforms have been responsible for 64% of digital retail trade in India. The shift in retail from offline to online is a rapid escalation which with the adapting of networking and technology will not slow down.

Anti-Trust Issues Identified in the Study

Chapter 3 of the Report identifies competition related issues in the E-commerce sector.

  1. Platform Neutrality

The competition issue recognized herein is that e-commerce sites, when they serve as both a marketplace and a competitor on that marketplace, have the incentive to leverage their control over the platform in favour of their preferred vendors or private label products to the disadvantage of other sellers/. The Report states that the access that platforms have to both consumers and price data have enabled a strategic stronghold on the retail market with various platforms entering the market with their private labels.

  1. Platform to Business Contracts

The report states that the imposition of arbitrary terms in contracts by big platforms creates a situation where the business of a retailer is at the mercy of the big platform players and their unilateral revision of terms as was observed by the CCI in FHRAI v MakeMyTrip & Go-Ibibo, wherein the Commission acknowledged the dominant position of the OTAs and initiated investigation into the abuse of dominance.

  1. Price Parity Clauses

Price parity clauses, which require that retailers don’t offer better prices on other marketplace platforms and/or on their own website, were identified as potentially distortive. This reduces inter-platform competition and encourages oligopolistic coordination between platforms to control the competitiveness of the market.

  1. Exclusive Agreements

Exclusive agreements are along the lines of platform-bundling where a product will only be launched on specific platform or where a platform would only list products of a certain brand in a category.

  1. Deep Discounts

In a market where consumers have a tendency to flock towards discounts, the extremely discriminatory discount policies of platforms has been identified as an anti-competitive factor by the CCI. Forcing prices to be lower than costs have led to erosion of profitability while non-participation in discount policies has led to demotion in search rankings which is discriminatory in nature.

The Report while recognizing the competition related issues in the e-commerce market also suggests measures for ensuring free market and avoid market distortion which inter alia includes increased transparency in parameters of search, increase transparency for discounting, data regulation.

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