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Competition Law in e-Commerce

Competition Law in e-Commerce Sector

 
What is in store for consumers?
 
Once, only Harrods and a handful of others could claim that they could sell almost everything that a consumer wanted under the same roof. How the times have changed! With shopping on the Internet gaining acceptability, thousands of e-stores can now easily claim to do what once only the Harrods and the Walmarts of the world could. More so, they are a step ahead and deliver all at our doorsteps. Starting from travel and shows tickets to electronics and furniture, and even stocks and gold, almost everything is being sold online. The trend will only grow and this decade will likely go down in history as one that saw the emergence of e-commerce. 
Anupam Sanghi
 
This exponential growth of e-commerce has put several policymakers, especially those related to competition law, into thinking mode for many reasons. One reason is the whopping number of consumers who are buying online and another is the trend of digital giants acquiring small e-commerce entities. And hundreds of online start-ups continue to be launched daily. Since such competition cannot be ruled out in the world’s biggest marketplace, how is it going to affect the consumer? Will competition authorities be able to protect consumers’ fundamental right to chose without hampering the innovative forms and drivers of growth of the e-commerce industry? Let’s read on. 
 
Consumer is the Focus
Competition laws in India have enough clauses to ensure that competitive forces are free to operate in the fast-changing e-commerce environment, but at the same time they are restrained from doing any activity that could disturb the public as well as consumer-friendly environment. The law has been conceptualized to protect consumers from companies’ anti-competitive behaviour, unfair trade practices and forming cartels or lobbies that will be good neither for the competitive environment nor for the consumers.
 
The competitive authorities are also making efforts to ensure that consumers’ trust in the Internet environment is strengthened. Their endeavour is to implement enough laws so that an online vendor refrains from undesirables, unethical, opportunistic behaviour, such as unfair pricing, presenting inaccurate information, and distributing personal data and purchase activity without prior permission.
 
Things to Note
Ticketing is one of the biggest online businesses in India and there are many travel sites competing neck to neck for a share of this lucrative pie. Some popular online travel portals like Makemytrip, Cleartrip and Yatra coexist with IRCTC, which is a successful Indian Railways initiative. It would seem that this particular e-commerce segment does not have any conflict and serves enough choices for consumers. 
 
However, recently it was alleged that Booking.com and Expedia entered into separate arrangements with Inter Continental Group (IHG) that would allow these two to offer unmatched discounts on room bookings. The deal restricted the other online travel portals’ ability to reduce prices of rooms and consequently their packages looked costlier. On the other hand, consumers were left with barely two choices for cheaper rooms. Hence, the Office of Fair Trading, United Kingdom’s fair trade body, flung into action. It called the deal as infringement of competition law. It said that the deal’s nature was not only limiting the competition between online travel agents by increasing entry barriers, it was also limiting the options for consumers. As a result, the agreement’s terms were relaxed in consumers’ interest on the behest of the competition authority, who cited the terms of the competition law. 
 
Other e-commerce segments including jobs websites, real-estate listing portals, matrimony and yellow pages too come under the same regulations and any activity that restricts healthy competition or affects public and consumer interests is prohibited under various clauses in the competition law.
 
Anti-Competitive Aspects
 
Anti-Competitive Aspects – Some Points under Scrutiny 
 
Exploitation by a dominant player
With the advent of online sales culture, companies flush with funds can easily acquire a dominant position in the market through aggressive online marketing. There will always be the fear of collusion among competitors in order to inflate prices. 
 
Manipulated content 
Another concern is that ‘chat rooms’ may become the 21st-century equivalent of smoke-filled rooms with dominant players ‘influencing’ the content through fake/biased participants. As it is very difficult to monitor millions of discussion forums and market transparency, it can have an adverse impact on consumers’ decision making. 
 
For example, if a biscuit company hires a team of professionals who keep posting positive reviews on their biscuits across public forums, chat rooms and blogs, they might influence innocent consumers’ or potential buyers’ decisions. In this case, consumers need to be intelligent and vigilant to differentiate between a real review/praise and one from the company’s online mouthpiece. 
 
Supplier cartels
Supply chain of online retailers is the same as that of traditional retailers. Everybody is sourcing the same products of the same brands from the same old supply channels. Suppliers continue to impose restraints on retailers as they are the ones on whom retailers depend to meet their demand. Hence, if an online retailer commits 2 to 3 days’ delivery time, he makes this commitment on surety by the supplier. So, when Flipkart delays or fails, it may be because the supplier could not meet the commitment.
 
Fraud retailers
There have been instances where some fly-by-night online retailers collected orders on full advance payments and vanished. This affects not only consumers but also other retailers who lose potential customers and the industry as a whole as consumers lose trust in the medium. 
 
If a biscuit company hires a team of professionals who keep posting positive reviews on their biscuits across public forums, chat rooms and blogs, they might influence innocent consumers’ decisions. In this case, consumers need to be vigilant to differentiate between a real review/praise and one from the company’s online mouthpiece.
 
e-Commerce Popularity – a Development to Watch 
 
An interesting development around e-commerce is that old retailers are feeling a bit insecure and have started to move online through tie-ups with major e-commerce portals. 
 
In December 2013, some brick-and-mortar (traditional) retailers in Bangalore wrote to the Competition Commission of India, alleging that e-commerce companies were engaging in predatory pricing in India.
 
Hari Rastogi, who started the campaign, told the media that he was not against e-commerce, but against the pricing policies of a few big online retailers who were selling at a loss or allowing others to use their platforms without charging any commission in order to capture the market. Rastogi said that while he had a conventional shop, he also sold online through his own website called Laptopwale.com. However, his site could not match the prices of Flipkart or Snapdeal as these portals had wholesalers and distributors and other local retailers selling directly without having to pay any commission. For example, if Laptopwale was selling a variant of Lenovo at XYZ price, four retailers could be selling the same device via Flipkart at much lower rates. 
 
In such a case, who is to blame or who is wrong? The seller or the marketplace? Flipkart, for example, is not responsible for pricing in this case, except that it can get special deals from sellers or offer a marketing discount. In these circumstances, the public and the consumer has been benefitting so far, hence Competition Commission is probably not enthusiastic to alter the clauses for such practices. 
 
Also, India only has a maximum retail price in place to avoid exploitation of consumers by ensuring that retailers do not hike the prices in case of more demand. On the one hand, customers are free to negotiate on this MRP, and on the other hand retailers are free to offer discounts on products. The same rule applies to online retailers and therefore you see so many price points for the same product. As such there is no concept of ‘minimum’ retail price and if somebody is selling at a loss, without any visible/understood ‘loss’ to the industry or fair competition, he is allowed to do so.
 
Competition law vis-á-vis consumer law – they complement each other to keep consumer interests above all 
 
Competition is now universally acknowledged as the best means of ensuring that consumers have access to the broadest range of services at the most competitive prices. The report of the high-level committee on competition policy and law, popularly known as the Raghavan Committee, explains that often consumer interest and public interest are considered synonymous, but they are not, and need to be distinguished. In the name of public interest, many governmental policies are formulated which are either anti- competitive in nature or which manifest themselves in anti-competitive behaviour. If the consumer is at the fulcrum, consumer interest and consumer welfare should have primacy in all governmental policy formulations.
 
Consumer is a member of a broad class of people who purchase, use, maintain and dispose of products and services. Consumers are affected by pricing policies, financing practices, quality of goods and services, and various trade practices. They are clearly distinguishable from manufacturers, who produce goods, and wholesalers or retailers, who sell goods.
 
Public interest, on the other hand, is something in which society as a whole has some interest, not fully captured by a competitive market. It is an externality. However, there is a justifiable apprehension that in the name of ‘public interest’ governmental policies may be fashioned and introduced which may not be in the ultimate interest of the consumers.
 
The asymmetry arises from the fact that all producers are consumers but most are producers as well. What is desirable for them in one capacity may be inimical in the other capacity. A simple example will make the point clear. A farmer wants the price of goods he consumes to be as cheap as possible but wants the highest price for their produce. A government wishing to encourage agriculture for self-sufficiency in food as a national security measure faces this conflict: should it support high prices to encourage production or low prices to protect the consumer? This is a characteristic ‘public interest versus consumer interest’ conflict. In general, it can be stated that buyers want competition and sellers want monopoly. 
 
The 11th Planning Commission report states that promotion of consumer welfare is the common goal of consumer protection and competition policy. At the root of both is the recognition of an unequal relationship between consumers and producers. There is strong commonality between competition policy and law on the one hand and consumer protection policy and law on the other. An effective competition policy lowers entry and exit barriers and makes the environment conducive to promoting entrepreneurship, which also provides space for the growth of small and medium enterprises and consequent employment expansion.
Competition and consumer policies aim at increasing consumer welfare in the total welfare equation, by protecting consumers’ economic interests. When the two policies are applied properly, they have a complementary effect because they reinforce one another despite the fact that they deploy different approaches in regulating conducts of markets.
 
Thus, the end objectives of both the policies are essentially the same. However, competition policy is more of a proactive policy that, inter alia, attempts to promote consumer interest in the marketplace, whereas consumer protection policy puts forward mainly a reactive agenda to protect the interests of the consumers, and provide access to redressal against abuses. Of course, consumer protection policy also has some proactive elements. In this regard there is strong complementarity between the two policies in that consumer welfare is a common goal.
 
–Anupam Sanghi is founder and managing partner, Anupam Sanghi & Associates, a New Delhi-based legal and regulatory practice. She is also an empanelled advocate at Competition Commission of India.