Competition Commission Asks E-commerce or Online Market Players to Bring Transparent Policies on Discounts, User Reviews & Ratings, Search Ranking and Data Sharing
The Competition Commission of India (CCI), in a report released on Wednesday, has suggested that e-commerce players or online marketplaces like Flipkart and Amazon, among others, should come up with clear and transparent policies on discounts provided on products on their platforms, collection, use and sharing of data, user review and rating mechanism and search ranking.
The Commission, in its report, 'Market Study on E-Commerce in India', says, "...bargaining power imbalance and information asymmetry between e-commerce marketplace platforms and their business users are at the core of many issues that have come up in the market study. Thus, without a formal determination of violation of competition law, improving transparency over certain areas of the platforms’ functioning can reduce information asymmetry and can have a positive influence on competition outcomes."
The report highlights key trends identified by CCI and also discusses the issues that may, 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 or service providers, platform price parity restrictions and deep discounts.
India is the fastest growing market for the e-commerce sector. Revenues from the sector is expected to increase to $120 billion in 2020 from $39 billion in 2017, growing at an annual rate of 51%, the highest in the world.
Consumers benefit from ecommerce for the convenience of accessing it anytime and from anywhere with internet access. The mobile phone subscriber base in India has increased to 1173.75 million in September 2019 from 904.51 million in March 2014. The number of internet users has increased to 665.31 million in 2019 from 445.96 million in 2017 and is expected to increase to 829 million in 2021.
Besides the growth in smartphone penetration and access to internet, the growth of e-commerce has been enabled through introduction of cash on delivery at a time when Indians were still adapting to digital payments. Discounts and deals offered by the marketplaces, faster deliveries including one-day delivery and access to a large product range, especially in tier II and tier III cities where choices were limited, revolutionised retail as well as service delivery.
The results of the CCI study confirm that online commerce is gaining importance across the sectors studied. Within the broad category of consumer goods, the study covered the goods most sold online in India, namely, mobile phones, electrical and electronic appliances, lifestyle related goods, and also included grocery where online commerce is still nascent in the country.
In the goods category, the findings reveal that the share of online distribution and its relative importance as a sales channel vis-à-vis the offline channels varies significantly across products. For instance, in case of mobile phones, online sales reportedly account for around 40% of total sales in India, with smartphones selling online more than feature phones.
Latest models of mobile phones are often launched exclusively on e-commerce platforms. On the other hand, for electronic and electrical appliances and lifestyle related products including apparels, shoes, accessories and fashion products, the respondents considered online as more of a supplementary channel, and brick and mortar sales being the predominant mode of sales.
Nature of goods and the extent of price-differential between sales channels were among the factors cited by stakeholders that explain the variation in the online-offline split of sales between products. This divergence constrains construction of a unified narrative on retail as a whole and points to the need for product-specific assessment of markets and competition dynamics, the study from CCI says.
For the respondent hotels, online bookings as a proportion of total bookings has been rising, though bookings via offline travel agents, corporate tie-ups and walk-in customers remain significant. Hotels in the budget and mid-market segments, as per the study, now consider distribution through online travel agencies (OTAs) to be a necessary and increasingly important access route to consumers.
In the food service category, 83% of the respondent restaurants reported to have an online presence with online sales accounting for on an average nearly 29% of the respondent restaurants’ revenue. About 69% of these restaurants have gone online between 2016 and 2018. The casual dining and quick service restaurants in particular were found to be considering e-commerce significant for their survival and growth.
Confirming what is expected of online trade, the study points to an increased intensity of price competition across the categories studied. Online trade has led to greater price transparency. As per the study, majority of the respondent hoteliers and retailers track competitors’ prices and adjust price levels in response. The frequency of price change was found to be high. In case of goods, most of the respondent retailers were found to change the price several times in a day, while some reported price revisions on a weekly basis and during promotional events. Majority of the hoteliers reported to undertake price revision on a daily basis. In the food service segment, only few respondent restaurants were found to track competitors’ prices, the study points out.
CCI says, "While the idea of dynamic pricing strategy is not new, e-commerce has transformed the way price information is disseminated. 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 competitors’ prices on a real-time basis and use the same as an input in setting their own prices."
The CCI says it is of the view that many of these issues would lend themselves to a case-by-case examination by the CCI under the relevant provisions of the Competition Act, 2002.
Especially expressing concern over discounts offered on online markets, the Commission asks e-commerce players to "Bring out clear and transparent policies on discounts, including inter alia the basis of discount rates funded by platforms for different products and suppliers and the implications of participation or non-participation in discount schemes".
The suggestion gains significance as discounts on online platforms have been a long disputed matter among both conventional offline traders and the e-commerce majors.
Traders of brick and mortar shops have been protesting under the aegis of the Confederation of All India Traders (CAIT) against what they call "deep" discounts on e-commerce platforms, more so, during the sales seasons
which these platforms organise.
According to the traders' body, the discounts on the online platforms such as Amazon and Flipkart are predatory in nature and the government should ensure price parity in online and offline markets.
Regarding data privacy of customers, the anti-trust body asked the online platforms to bring out a transparent policy on data collected. "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," the report said.
The commission also said that adequate transparency over user review and rating mechanisms is necessary for ensuring information symmetry, which is a prerequisite for fair competition.
It says, "Adequate transparency should be maintained in publishing and sharing user reviews and ratings with the business users and reviews for only verified purchases are to be published and mechanisms to be devised to prevent fraudulent reviews and ratings, as per the commission findings."
Further, it also asked the players to notify the business users about any proposed changes in terms and conditions and said that the proposed changes should not 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.
Here are the transparency measures suggested by CCI to online market players...
i. 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.
ii. 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.
iii. 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
i. 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
i. 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
i. 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.
i. 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.