CCI flags concern over e-commerce deep discounts, bats for self-regulation

The Competition Commission of India (CCI) said in a study, released Wednesday, that marketplace platforms should adopt self-regulatory measures such as clearly stating the parameters of search ranking, setting out a transparent policy on data collected by them, among others. 

Releasing the findings and its observations, the CCI said marketplace platforms should bring out a clear policy on discounts. This would include the basis of discount rates funded by platforms for different products or suppliers and the implications of participation or non-participation in such schemes.

The CCI flagged concerns around deep discounting on goods and services offered by large online retailers, particularly in the case of mobile phones and electrical appliances. “Discounting is a common business strategy, but where the design of the discounting schemes is misaligned with the rational business practices of the service providers, the use of such discounts as a competitive strategy comes into question.” 

The anti-trust watchdog said issues identified in the study could have a bearing on competition, or might hinder the realisation of the full pro-competitive potential of e-commerce. “Some of the issues in specific circumstances may have a potential to contravene the provisions of the Competition Act, 2002, which shall be the subject matter of case-by-case determination by the Commission.”

The CCI also suggested that e-commerce platforms set out main parameters for search ranking and include the possibility to influence ranking against any direct or indirect remuneration paid by business users. They should set out a description of those possibilities and of the effects of such remuneration on ranking.

This, however, should not entail disclosure of algorithms that may enable manipulation of search results by third parties. “The study records averments from various stakeholders and brings out the Commission’s enforcement and advocacy priorities in the backdrop of the interplay between data, market power and competition law,” Avaantika Kakkar, Partner & Head Competition Law, Cyril Amarchand Mangaldas.

In line with the draft national e-commerce policy by the Department for Promotion of Industry and Internal Trade, CCI called for transparency over user review and rating mechanisms to ensure 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 and ratings,” the CCI report said.

The CCI also said e-commerce platforms should notify business users 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,” it said.

It found that bargaining power imbalance and information asymmetry between platforms and their business users is at the core of many issues highlighted in the study.

“An interesting recommendation is that business contract terms and conditions that are revised should be in accordance with the expiry of notice period and this period should be proportionate to the nature and extent of changes sought to be made,” Kakkar added.