By Phoebe Seers ( January 9, 2020, 09:18 GMT | Insight) -- A report from India’s competition regulator recommending wholesale changes to the way online platforms operate could have implications for the likes of Amazon and Walmart-owned Flipkart. While no platforms were named, the Competition Commission of India criticized the practice of deep discounting and raised questions about “preferred sellers” who appear to enjoy preferential treatment from the “two major platforms.” A report from India's competition regulator recommending wholesale changes to the way online platforms operate could have implications for the likes of Amazon and Walmart-owned Flipkart.
While no platforms were named, the Competition Commission of India, or CCI, criticized the practice of deep discounting and raised questions about "preferred sellers" who appear to enjoy preferential treatment from the "two major platforms."
"The discounting practices of large online platforms have emerged as a major point of contention in the study," the CCI said.
The regulator recommend that e-commerce businesses self-regulate: they should set out search ranking parameters, publish a policy on data collection and usage, improve transparency over user review and ranking, standardize key contract terms and bring out a clear policy on discounts (see here).
The report also sets the stage for further investigations: "many of these issues would lend themselves to a case-by-case examination by the commission under the relevant provisions of the [Competition Act]," the CCI said.
The report comes at a time of increased tension for Amazon and Flipkart in India. India has restricted the way foreign-owned e-commerce players can operate, forcing both businesses to restructure. They also face legal action from the Confederation of All India Traders, or CAIT, which represents sellers who allege they are engaged in predatory pricing and deep discounting.
The e-commerce study was launched in April 2019. It covered three broad categories of e-commerce: hotels, restaurants and consumer goods — particularly smartphones and electronics. It identified issues across the board in the three categories, including unfair contract terms, price parity clauses and exclusivity agreements. Search ranking and user review and rating also suffer from a lack of transparency, the CCI said.
In the report's consumer goods category, sellers raised concerns about platform neutrality, with "preferred sellers" enjoying preferential treatment. It found search ranking generated by a platform's algorithm gave rise to concerns of ranking bias, where the platforms' private labels were reportedly shown as "bestsellers" to customers.
The lack of transparency in search ranking criteria was also raised as an issue, as was the lack of transparency and credibility issues around the user review and rating policy, the CCI said.
Most problematic, however, was the practice of deep discounting, or "below cost pricing." Smartphones emerged as a particular bone of contention: 40 percent are sold online. However, they usually launch exclusively on one of the two major platforms, often at a lower price than they can be obtained by brick-and-mortar stores.
Following the introduction of the new restriction on foreign owned e-commerce companies, Amazon and Flipkart are only allowed to operate the marketplace model of e-commerce: they can facilitate transactions between buyers and sellers and handle logistics, deliveries and returns, but they cannot own their own inventory and directly sell to consumers. They are also not allowed to influence the prices of products on their sites.
Amazon and Flipkart have denied any direct role in pricing or discounts and say third party sellers offer discounts, but the CCI has left open questions about exactly how independent some "preferred sellers" really are.
In particular, the CCI queried why preferred sellers would only operate on one of the two platforms — when surely "the same seller should be able to replicate commercial success on a rival marketplace platform" — and it described as "perplexing" the nature of the trade-off derived by sellers limited to a single marketplace platform.
"There is an apprehension among sellers/service providers that platforms use discounts as a discriminatory device," the CCI said.
Opening the door for a detailed probe into the issue, the regulator said that "the issue of preferential treatment by platforms to its own products or to its own/related entities, including factual establishment of the same and its effect on competition, is thus a matter of case-by-case determination by the Commission."...