E-commerce: Fulminations, Fears, Facts

Given the deep pockets, technological supremacy, and giant size of the multinational e commerce platforms there is a justifiable need to be wary of their anti competitive, anti regulatory practices; else they are likely to prey upon small, unorganised offline retail. — KK Srivastava

Recently Piyush Goyal criticized the business practices of global e-commerce giants like Amazon. He questioned them on their following of Indian rules; moreover he accused them of taking recourse to predatory pricing. Predatory pricing involves selling at below cost prices, deliberately absorbing huge losses, but with a view to establish eventual market dominance by killing competition – or at least offer low prices at the expense of small retailers who cannot afford to match these low prices. The discounted rates are especially relevant in apparels and consumers electronics, especially mobiles. According to Goyal due to such predatory practices, more than 1 crore small vending stores and nearly 10 crore mom and pop stores are likely to be put in peril. Initially he seemed to have voted against large e-commerce platforms, especially the large ones with deep pockets, but later tampered his statements by qualifying that e-commerce was not bad per se, since it offers huge benefits to the consumers (competitive pricing, ease of buying, wide selection, accessibility); what he was lamenting about was the absence of fair play. According to Goyal, all the multinationals, especially these e-commerce giants come to India due to very attractive sized market; they aint here really to help small and medium business to sell their products.

E-commerce is a tech platform that aggregates buyers and sellers on one platform; it is not, technically speaking, a seller but only an enabler. It is different from the model in America where Walmart and Amazon sell products directly owned by them on these platforms. Indian laws do not allow the latter practice – the so called inventory driven model; Amazon and Flipkart (with substantial stake of Walmart) in India cannot directly sell; they can only offer marketplace. This regulation was introduced to prevent these large platforms from enjoying monopolistic power of large seller who potentially can force the vast unorganized (and therefore tiny) vendor without any clout out of market. Notably in 2020 the Competition Commission of India had initiated an investigation against these giants over allegations of deep discounting and the practice of preferred sellers. Allegations of predatory pricing were also levied against some (Ola, Shopee); but these were dismissed as having no basis. 

Predatory pricing is an anti competitive practice that certainly works to the disadvantage of the firm’s existing small competitors. Besides, it dissuades prospective new entrants from entering; this reduces competition, and therefore, denies consumers the benefits of competitive practices (quality product, sustaining low prices, wider choice). While consumers seems to benefit in the short term via lower prices, the long term outcome is less competition, less options for the buyers, and (most dangerous of all) the very real probability of the dominant firm later changing monopolistic prices to the detriment of the consumers. 

While e-commerce platforms cannot directly offer discounts to buyers (since they don’t sell directly, at least legally), they host deep discount events and flash sales where sellers after humungous discounts. Most glaring example of this are the Great India festival, Big Billion Days, Independence Day sale … indeed, such occasions for sale are increasing. While it may be argued that deep discounting benefits consumers and, thus, should be allowed as a practice, if we look deeply then we realize that there is a real risk of eliminating of brick and mortar retailers; this clearly creates distortions in the supply side of business. CCI has, that is why, passed an order which recognized deep discounting as an anti competitive factor.

To be sure, there does exist a rule that one vendor cannot sell more than a quarter of total sales on a single platform. Similarly participation of marketplaces in any selling is disallowed even through any group companies. The inventory of a vendor is deemed to be controlled by an e-commerce platform if more than 25 percent of purchases of such vendor are from the platform/group companies. Then, no seller can sell its productions exclusively on one platform. All vendors are expected to be treated fairly and equitably by a platform – no discrimination in providing services like financing, payment, advertisement, warehousing, etc.

And yet online retailers continue to show deep discounts on their balance sheet, while attempting to pass off these as being provided by the sellers. That’s why, Goyal says, Amazon and its ilk post huge losses in their account books. To be sure, while e-commerce is indeed growing at a fast pace, it comprised only 8 percent of total retail sales in 2022. Around 1.76 million retail enterprises take part in e-commerce activity in India. But the issue here is to assess the gains and losses objectively. On the positive side are consumer convenience, aggregation efficiencies, generous discounts, and market access to the vendors. But it is, on the flipside, not clear if the jobs lost in offline retail are compensated by e-commerce, or whether the latter is a bigger job creator. This, and other issues, remain unsettled as of now due to lack of concrete evidence either way.

The biggest issue is the absence of a regulatory and institutional set up to oversee a large market. For instance it is hard to more on a predatory pricing, if the competition regulator fails to act in this regard. The e-commerce market in India is a fast growing segment. With more and more consumers and businesses on boarding such platforms, the Competition Commission of India (CCI) has to ensure that firms do not indulge in unfair practices. It should ensure fair play and a level playing field. There should be greater transparency in pricing and less information asymmetry. Policy should be guided by the objective of safeguarding competition. Anti competitive actions, such as e-commerce sites pushing their own products instead of (strictly) being only aggregators of seller and buyers, need to be investigated. Data production needs to be resolved with the early implementation of data protection laws. Incidentally, the draft policy on e-commerce, prepared about four years ago, seems to be nowhere near deliberated upon. It is time this draft is dusted our, discussed. And then a coherent policy is put out. It is better than making public statements (by influential people) that only go to unsettle the stakeholders, without really clearing the government stand. Till then the government’s unease with the growth model of these giants will remain, given their financial heft, deep pockets, and technological prowess.                 

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