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India's competition watchdog calls for more transparency on discounts by e-commerce platforms

Dipak Mondal     January 9, 2020

The Competition Commission of India (CCI) has called for clear and transparent policies on discounts by e-commerce platforms, the basis of discount rates and the implications of participation/non-participation in such discount schemes.

In its report titled "Market Study on E-commerce in India", the anti-trust regulator has said that their study could not identify sources of cost savings that may fully explain the deep discounts. It says: "Discounts benefit consumers in the form of lower prices, and can help platforms create network. However, if the same is not a reflection of efficiency gains or cost savings and at the same time it creates distortionary effects on the supply side of the markets, the central question that arises is whether price competition of this form can be seen as competition on the merits."

It further says that the competitive assessment of discounts will have to be a fact-intensive exercise done on a case-by-case basis.

The report says that discounts could be considered distortionary if the e-commerce platforms are using them for forging exclusive contracts with the retailers and curbing the retailers from having tie-ups with multiple platforms.

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On the issue of exclusive agreements, the report says that exclusive agreements are not anti-competitive per se but they raise potential competition concerns when used as an exclusionary tactic to foreclose competition to rivals or to impede entry.

"A platform with market power, by forging exclusive contracts, may be able to prevent the market from being more competitive. Thus, the benefits accruing from competitive markets such as lower prices, better products or more choices may be lost. Exclusive agreements may make rival platforms incur significant additional cost to induce the brands/service providers to give up the exclusive contract with the major platform," says the report.

On the issue of the contract terms between e-commerce platforms and businesses, the report says that unilateral revision in contract terms and imposition of 'unfair' contract terms by the major platforms have led to growing unease and tension in platform-business relations. Such an environment of conflict and mistrust may not be conducive for realising the full potential of digital commerce, which promises myriad benefits to consumers, businesses and the economy. Thus, it says that the CCI can intervene, on a case-by-case basis, in matters where unfair conditions or price is imposed through contractual provisions, by an enterprise that is dominant in the relevant market.

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The report says that bargaining power imbalance and information asymmetry between e-commerce marketplace platforms and their business users are at the core of many issues and that transparency over certain areas of the platforms' functioning can reduce information asymmetry and can have a positive influence on competition outcomes.

Avaantika Kakkar, Partner & Head-Competition Law with law firm Cyril Amarchand Mangaldas, says: "The Commission (CCI) has registered concerns against practices of e-commerce platforms such as discounting, exclusivity, price parity clauses, and conflict issue in platform neutrality, but at the same time, the Commission notes that there may be efficiencies and consumer benefits associated with each of these seemingly restrictive arrangements."

She says that the CCI has not run an investigation and in various paragraphs of the study, it has stated that the commission may examine certain issues on a case-by-case basis.

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