The Economics of Online Markets [1] continues to puzzle the Competition Commission of India ( CCI ) even after releasing their market study findings [2] of the E-commerce sector in India on January 8, 2020. This e-commerce market study report presents the key trends showing procompetitive potential and anti-competitive issues requiring a case-by-case examination by the Commission. However, CCI fails to arrive at a qualitative or quantitative criterion for tech giants being classified as ‘gatekeepers’.

The new quest at CCI is to look into the high commissions charged by platforms.

The CCI is investigating the market power being enjoyed by Tech Giants like Amazon, Apple and Google due to their grip over their platform ecosystem resulting in ‘allegedly’ high commission fees of up to 30%.

Back in 2019, the hoteliers lobby had got upset with the price war between MMT and OYO. The Hoteliers allegations – indiscriminate discounting offered by online portals that adversely impacted their business. Moreover, on the discounted rates, a 35% commission was being charged from the hotel owners by OTAs like Makemytrip (MMT) and Goibibo. The hoteliers were losing on revenues and finding the business model unsustainable. OTAs may have to consider beyond travel and restructure their business model. On the allegations of predatory pricing made against OYO by the Federation of Hotel and Restaurant Associations of India (FHRAI), OYO spokesperson is reported to have said that the hotel lobby’s stand of boycotting depicts cartelization by small groups of people ( who may not necessarily be franchisees and lessors associated with OYO Hotels) with vested interests, which is not in the best interest of the consumers.

The principle of predatory pricing is a mixed question of facts and law, requires economic and cost analysis to establish sacrificial pricing for foregoing profits in short term so as to foreclose actual or potential competitors with a view to maintaining / strengthening market power that ultimately harms consumers.

The potency of barriers to entry is crucial to a debate on market power that can cause competition concerns for market regulators to take cognizance. Whether there are some strategic entry barriers caused by Online platforms or whether the hotel’s lobby, distributors lobby using collective boycotting tactics to threaten the OTAs / FMCG companies, is a matter of factual finding based on the ground realities and the business arrangements.

Since the entry of the B2B E-commerce platforms, deep discounts have pinched the traditional businesses or the retailers (against Flipkart and other online marketplaces), the taxi operators (against OLA & UBER), chemists ( against e-pharmacies). However, the debate of ‘Digital versus Brick-and-Mortar’ is not yet settled by the government, legislature, judiciary or regulatory authorities.

The market regulator – Competition Commission of India ( CCI ) – has dealt with several complaints by retailers association ( CAIT / All India Online Vendors Association) against online market platforms like Flipkart & Others on predatory pricing and platform neutrality issues.

The CCI recently instituted a probe against e-commerce giants Flipkart and Amazon due to stifling of competition by way of preferential treatment of their own verticals. CCI may consider the essential facilities doctrine (EFD) that is being used by other jurisdiction US, EU under the abuse of dominance provisions of antitrust/competition law, to ensure fair and non-discriminatory access to infrastructures.

These countries are also examining the potential of ex-ante regulations to regulate digital platforms. Similarly the EU, China, and the United Kingdom amongst others have proposed sectoral regulations of powerful digital platforms. Sectors like social networking, and interpersonal communications have significant impact on the digital market or “gatekeeper ”henceforth EU’s Digital Markets Act seeks to regulate these platforms.

The digital market, being an unfamiliar terrain to the regulatory authorities or the courts, are being treated with skepticism. As a result, they are constantly facing litigation before the courts asking for banning them, battling with regulatory hurdles and prejudices despite the growing customer base that has opted to switch their choices in favour of the online market.

The e-commerce companies have two options. The first option is to face many years of litigation and regulatory risks, until they are able to operate legally. The second, preferable option, is to proactively plan how to deal with the regulatory risk areas – starting by making this an important agenda in boardroom discussions as well as an important point of diligence when scouting for investment opportunities in India.

The stakeholders also need to sensitize concerned authorities like Competition Commission of India (CCI), Department of Industrial Policy and Promotion (DIPP), other government departments to urgently address these issues due to the huge investments involved. In some cases, particularly the online hotel bookings, they may be losing cash every day.

Legislative changes- introduction of the draft competition amendment bill is pending before parliament for a while now. The bill reserves certain power for CCI to introduce new thresholds for merger control assessments enabling provision to expand its jurisdiction on mergers that exceed a particular deal value, further CCI enhancing review over the digital market.

On the merger control side the world legislature are considering assessing combinations based on deal value thresholds as it has  allowed many digital mergers to slip past antitrust regulators. the German and Austrian competition authorities have amended the respective provisions on pre-merger notification to include transaction value thresholds.

In April 2017, The European Commission (“The Commission”) published a report on “online hotel booking sector” (“Report”). For the preparation of the Report, the Commission has sent an electronic survey in July and August of 2016 to 1,61,000 hotels in 10 Member States, 20 online travel agents, 11 metasearch websites and 19 large hotel chains and reviewed the room price lists of hotels.

With travel bookings, pharmacies, cabs, retail and other traditional businesses now on the online platform, it is imperative that the CCI publishes much more robust market studies in each of these digital markets and makes sophisticated reports available for the stakeholders as a blueprint to get clarity on the practices that are considered anti-competitive and/or abusive. A robust report would certainly help the online players to refer to it as a compliance tool so that their emerging businesses do not face sudden intervention. The report containing such market analysis could also be relied upon by courts for a deeper look into this new economic environment.

The environment today, calls for sustainable policies and regulatory regime that foresee market changes in the future and can work with minimal regulatory risks.