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CCI formally announces market survey on e-commerce; hotels, retailers, payment and e-commerce cos to be part of survey

The Competition Commission of India has formally announced its e-commerce market study, a development we made public last month. The commission said the study will help it better understand e-commerce and its implications for markets and competition in the country. Studying e-commerce is necessary, it says, given “novel issues and challenges that digital markets bring forth for competition regulation”. Preliminary findings will be presented at the end of August, stakeholders will be invited to share views, and the final study will be published in Q3 2019.

Apart from e-commerce firms, the CCI’s questionnaire will be sent to manufacturers, wholesalers and retailers, hotels, restaurants, and payment systems. “The focus areas of the study include the emerging trends in business models and distribution mechanisms, market structure and business practices including contractual provisions and vertical restraints.” Its stated objectives are:

  1. to study market trends with a particular focus on emerging distribution methods and strategies in response to ecommerce
  2. to understand business practices and contractual provisions in ecommerce, their underlying rationale and implications for competition.
  3. to identify impediments to competition, if any, relating to ecommerce.
  4. to ascertain enforcement and advocacy priorities for the CCI in e-commerce

As we know from before, the CCI’s study seeks details on how inventory-based models work, including pricing of products and control over prices. The commission’s questions, sent to all major e-commerce firms, asks for details on inventory management, pricing (factors impacting pricing and who decides pricing), on exclusivity and contractual agreements, private labels, and B2B services.

What the CCI’s study seeks details on

1. Inquiry into inventory management: Note that the ruling in a case from November 2018 between luxury fashion brand Christian Louboutin and a marketplace Darveys.com had identified certain benchmarks for determining whether a marketplace can claim to merely be an intermediary or not. The survey seeks more information on the following:

  • Storage and product listing: The study seeks details on whether the ecommerce product marketplace provides storage or warehousing services, and the factors which impact product listing (advertising, click-through rates, marketplace private labels) on the marketplace.
  • Counterfeit products, unauthorised sales and reporting mechanisms: They study seeks more details on reporting of unauthorised sales counterfeit products being sold on the platform, especially about whether customers and rights owners can report suspicious listings. Counterfeit products masquerading as authentic have been a cause for concern on even the most popular e-commerce platforms, becoming problematic for both customers and manufacturers/brands. The draft ecommerce policy seeks to provide trademark owners control over product listings on the platform.

2. On Pricing: Deep discounting has, for long, been a concern among brand owners. GOQii has recently taken Flipkart to court over deep discounting of its fitness wearables. If marketplaces determine product pricing, are they just marketplaces or do they have control over inventory? According to the draft e-commerce bill, deep discounts offered by online retailers will no longer be available, and they will have to make new business models to continue business in India. The study seeks information on:

  • Who decides the pricing? Who can change it? Whether the price of a particular product on a marketplace solely decided by the seller, or the marketplace also intervenes and participates in the pricing of a product.
  • What factors impact pricing? E-commerce entities are also asked about the factors that are responsible for likely changes in the list pricing of products. The factors laid out in the document are: intra-marketplace competition from other sellers, inter-marketplace competition, special sale seasons, and mega bumper sale days on marketplace. It also enquires about the frequency with which prices are changed on their marketplace.

3. On exclusivity and contractual agreements: While the new FDI policy for e-commerce prohibits marketplaces from mandating exclusive contracts with sellers, e-commerce marketplaces can put in contractual restrictions that might impact or even participation in other marketplaces. The study seeks to determine:

  • Types of contracts: whether contracts are negotiated, standard contracts or exclusive contracts, and in what ratio.
  • Clauses in the contract: The study also asks participants to highlight the clauses that are most likely to be there in a contractual agreement with a retailer, including the lowest price of a product being consistent across marketplaces, or the lowest at the marketplace in question; terms of sale being the same as on the retailers website, etc.

4. On Private label: Marketplaces often have their own private labels (for example, Amazon Basics) and the study seeks more information on the percentage of total sales that private labels make up. According to a Business Standard report, private labels remain big business for e-commerce marketplaces, comprising of almost 15 per cent of the total business of such firms. The study seeks more information on who the sellers of these private labels are, where the products are procured from, and whether there is exclusivity for them on the marketplace.

5. On B2B services: The study also inquires about the amount of FDI their B2B sellers of marketplaces attract, and the categories in which the marketplaces deal in B2B. Most importantly, it asks about what percentage of sales of the marketplace that the B2B service contributes, to what kinds of entities it sells, including whether it sells to other marketplaces, and its gross merchandise value.

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