Market Study On E-commerce In India

  • On 8th January, 2020, the Competition Commission of India (CCI) released a Report under the title-Market Study on E-commerce in India.
  • The study was initiated by the CCI in April 2019 with a view to better understand the functioning of e-commerce in India and its implications for markets and competition.
  • The study covered the three broad categories of e-commerce in consumer goods (mobiles, lifestyle, electrical & electronic appliances, and grocery), accommodation services and food services.

Objective

  • To study market trends with a particular focus on emerging distribution methods and strategies in response to ecommerce
  • To understand business practices and contractual provisions in ecommerce, their underlying rationale and implications for competition
  • To identify impediments to competition, if any, relating to ecommerce
  • To ascertain enforcement and advocacy priorities for the Commission in e-commerce

Key Findings

Growing E-commerce Sector

  • India is the fastest growing market for the e-commerce sector growing at an annual rate of 51 percent, the highest in the world.
  • E-commerce in India has attracted investors from across the world.

Increasing Price Competition

  • The study points to an increased intensity of price competition across the categories studied.
  • On the one hand, consumers enjoy increased price transparency and the consequent ease of price-comparison, on the other hand it enables sellers to monitor competitor’s prices on a real-time basis and use the same as an input in setting their own prices.

Strategic Response to e-Commerce

  • Businesses across sectors and at the various levels of supply chains were found to be gearing up to avail the opportunities of e-commerce while also equipping themselves to address the attendant challenges.

Role of Online Marketplace Platforms

  • The study reveals that third-party online marketplaces play a central role in e-commerce in India. An estimated 64% of digital retail trade in India is through online platforms.
  • While large brands/retailers own and manage popular stand alone websites, online commerce in India is driven largely bythird party platforms.

Competition Issues

Deep Discounts

  • Discounts can harm competition when used as an exclusionary device by enterprises with market power.
  • The concern raised by sellers/service providers with respect to discounts offered on/by marketplace platforms is threefold - i) discounts are discriminatory ii) discounts imposed by platforms in exercise of their superior bargaining power adversely affects the business models of the service providers iii) discounts push prices to below-cost levels in certain product categories and impair the offline small retailer’s ability to compete.

Exclusive Agreements

  • Exclusive agreements raise potential competition concern when used as an exclusionary tactic to foreclose competition torivals or to impede entry.
  • Exclusive agreements may make rival platforms incur significant additional cost to induce the brands/service providers to give up the exclusive contract with the major platform.

Platform Parity Restrictions

  • Platform parity clauses imposed by incumbent platforms may serve as a barrier to entry by such low-cost platforms.
  • A review of the anti-trust literature on price parity clauses show that these restrictions can give rise to competition concerns.

Lack of Platform Neutrality

  • Lack of transparency in the platform’s 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,seller’s/service provider’s data and user review/rating mechanisms.

Unfair Platform-to-Business Contract Terms

  • The study has also found that online platforms exercised superior bargaining position by imposing unfair contract terms on sellers, which led to growing unease and tensionin platform-business relations.

Recommended Transparency Measures

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.

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.

Significance

  • The study has helped gather useful insights and information on the key features of e-commerce in India, the different business models of e-commerce players, and the various aspects of commercial arrangements between market participants involved in e-commerce.
  • In addition, it also provides an opportunity to learn from business enterprises on how they are responding to the advent of digital trade and has helped gauge the key parameters of competition in digital commerce.

Competition Commission of India (CCI)

CCI was established on 14 October, 2003, under the Competition Act, 2002 for the administration, implementation and enforcement of the Act, and was duly constituted in March 2009.

Objectives

  • To prevent practices having adverse effect on competition.
  • To promote and sustain competition in markets.
  • To protect the interests of consumers.
  • To ensure freedom of trade.

 

Source : Civil Services Chronicle Online, January, 2020