By Pradeep S Mehta & Sidharth Narayan
Large e-commerce companies have launched their annual festival sales, luring consumers with hefty discounts. It has been estimated that e-commerce companies will garner sales of around $12 billion in the festive season. These may make up ~20% of their total annual sales. Such staggering discount-driven sales are portrayed to be benefitting consumers and small online sellers. However, there is more than what meets the eye—preferential treatment of select large sellers, predatory pricing to drive away competition, selling sub-standard and counterfeit products, etc. Time has come to effectively rein in such unfair business practices.
Amazon launched the Great Indian Festival Sale, while Flipkart has launched the Big Dussehra Sale. Regulators and consumers need to watch out for e-commerce companies indulging in anti-competitive and anti-consumer practices.
First, deep discounting and predatory pricing. Offline traders and trade associations have accused foreign e-commerce giants of selling electronic goods at rates 15-20% lower than the price at which retailers purchased them from the manufacturers. Such discounts appear to be funded by their deep pockets, to stifle competition in the long term by bearing short term losses to attract consumers.
The plan is working well for e-commerce companies. The Confederation of All India Traders (CAIT) has claimed that over 1.5 lakh small shops, mostly engaged in the mobile phone business, have been forced to shut down till date, due to such unethical and anti-competitive business practices. This may not be credible, but small businesses certainly have been adversely affected. E-commerce companies claim they do not fix prices of products sold on their platforms, and being intermediaries, merely provide a platform to sellers to sell their products at prices fixed by sellers themselves. This brings us to the second anti-competitive practice adopted by e-commerce companies—preferential treatment to select sellers.
For example, Amazon has had direct or indirect stake in leading sellers on its platform, like Appario Retail. It has been accused of cherry-picking such alpha sellers, and provide them various kinds of support, including help in securing exclusive partnerships with top brands, giving discounts in commissions, exercising significant control over their inventory, among other preferences over other sellers. As per a Reuters Special Report, Amazon had over four lakh sellers on its platform in 2019. However, worryingly, only 35 sellers accounted for about two-third of the value of all products sold on its platform.
The third issue pertains to e-commerce companies promoting their own brands/ products on their platforms. Amazon has been accused of using data of products listed by other sellers on its platform, and their consumers, to promote its own products by manipulating search results of its platform. Such discriminatory practices can have adverse implications on small online sellers, as well as offline traders, and MSMEs. Safe to say that the ‘Great’ Festival Sales are usually ‘great’ only for e-commerce companies.
Taking note of such alleged malpractices, the Competition Commission of India (CCI) had raided offices of e-commerce companies earlier this year, as a part of their investigations. Notably, the CCI had also undertaken a market study on e-commerce in 2020. The Competition Act is in the process of being amended, and the Parliamentary Standing Committee on Finance recently summoned Amazon executives while examining various aspects of competition in the online marketplace.
There are many other concerns in online shopping which consumers need to be cautious of. A survey conducted in 2018 had shown that nearly 1 in 5 Indian consumers had received a counterfeit product from an e-commerce platform in the first half of 2018. Flipkart is currently under fire for delivering fake iPhones, and cancelling many orders of discounted products, during their ongoing festive sale. Grievance redress for the same has been criticised for being slow and poor.
Also, the Central Consumer Protection Authority (CCPA) imposed fines on Amazon and Flipkart recently, for allowing sale of sub-standard products on their platforms. The products did not conform with relevant Quality Control Orders (QCOs) and ISI standards. CCPA’s decision is in sync with the views of the report by the Parliamentary Standing Committee on Commerce (Parliamentary Committee) that puts the onus on e-commerce platforms to act as intermediaries in the resolution of complaints pertaining to sub-standard and counterfeit products sold on their platforms. Notably, India through the draft Consumer Protection (E-Commerce) (Amendment) Rules, 2021, is deliberating on imposing fallback liability and liability in case of mis-selling, on e-commerce companies. The department of consumer affairs (DoCA) should finalise the draft appropriately soon.
It becomes imperative for the government to take urgent steps to protect the interests of consumers, as well as small sellers. This requires a ‘whole of government’ approach. Harmonisation between the country’s regulatory framework on competition, consumer protection, and FDI is the need of the hour. Accordingly, the department for promotion of industry and internal trade must bring out a revised draft of the National E-Commerce Policy at the earliest. Regulation of the sector should be done by CCI, to balance both producer and consumer interests.
Lastly, it is laudable that the government has started to take steps to democratise e-commerce, through the Open Network for Digital Commerce (ONDC). It will help mitigate risks of few companies monopolising e-commerce, by helping small retailers expand their business, and providing more choice to consumers. The government must continue the ongoing stakeholder engagement to improve ONDC’s trust amongst different stakeholders, especially consumers.
(The author work for CUTS International. Views expressed are personal)