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Australian watchdog highlights key competition concerns in e-commerce

e-commerce

Lack of transparency in how products are displayed, varying terms and conditions for sellers, and improper data collection and use are among the key concerns affecting buyers and sellers on e-commerce marketplaces, the Australian Competition and Consumer Commission (ACCC) identified in its fourth interim report in the Digital Platform Services Inquiry, which began in 2020 and is set to conclude in 2025.

While the report focuses on the Australian e-commerce landscape, the concerns and recommendations laid out in the report apply just as well to India and can be of value to our policymakers, who are currently drawing up amendments to the country’s e-commerce regulation, and to our regulators, who are currently investigating Amazon and Flipkart.


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What are the issues arising for consumers on e-commerce marketplaces?

  1. Transparency in how products are displayed to consumers: Online marketplaces play an important role in enabling consumers to find and purchase a product. Tools that reduce a consumer’s burden to find goods include search algorithms which determine the products relevant to a consumer’s search query, the order in which those products are displayed and what products are highlighted to consumers. For example, the majority of purchases on the Amazon platform were offers that Amazon featured on the Buy Box, ACCC found. However, the report states that it was not clear to consumers on online marketplaces why particular products are being shown to them in prominent positions in search results or highlighted in other ways. “This is a particular concern in the case of hybrid marketplaces, where the online marketplace sells both third-party products and its own products,” ACCC noted.
    • Recommendation: Given the importance of how products are displayed, ACCC considers that online marketplaces should be more transparent about the factors that influence how prominently products are displayed, particularly for products that might be shown for reasons that appear less relevant to a consumer.
  2. Platforms’ responsibility to consumers: Since online marketplaces facilitate transactions between consumers and sellers, it has become more difficult for consumers to identify and exercise their rights when things go wrong, ACCC observed. “The involvement and control which an online marketplace has over transactions on their platform has made the marketplace’s role in consumer protection (and dispute resolution) important.  Protections for consumers purchasing on online marketplaces should reflect this important intermediary role, which consumers are increasingly relying upon,” ACCC noted.
    • Recommendation: Among other consumer protections, ACCC is advocating for the introduction of an economy-wide prohibition on unfair trading practices, to cover harmful conduct that is currently not expressly captured by existing provisions of the Australian Consumer Law. Another consumer protection tool is the introduction of a general safety provision. Such a provision would effectively require businesses to supply safe products to the Australian market as it is not presently illegal for unsafe products to be supplied in Australia, ACCC noted.
  3. Dispute resolution process: Because of the distance between seller and consumer in an online marketplace, consumers face the barrier of working out who they have purchased from, and how to effectively engage with that seller to resolve their dispute. “Effective dispute resolution is critical for consumers (and sellers) to ensure they can exercise their rights and builds trust in the digital economy. The ACCC also considers that consumers must have adequate access to avenues for redress from harmful products,” ACCC noted.
    • Recommendation: The ACCC submitted that it continues to support the internal dispute resolution mechanisms and ombudsman scheme recommended in its earlier report and considers that such mechanisms should apply to online marketplaces as well as other digital platform services previously identified in ACCC reports.
  4. Data collection and use: “Consumer data is a valuable input for online marketplaces, enabling marketplaces to better tailor the products displayed to buyers. While consumers can benefit from the use of their data in this way, extensive data collection practices can result in harm when consumers do not have adequate information and control about what data is being collected and how it is being used,” ACCC explained. “The ACCC is concerned that certain data practices of online marketplaces may not align with consumer preferences, including the purposes for which consumer data is used.”
    • Recommendation: ACCC submitted that consumers should be given both sufficient information and adequate control to allow them to make informed choices about what data is collected and used by the digital platform. In Australia, the Attorney General is currently undertaking a review of the Privacy Act 1988 to this effect.

What are the issues arising for sellers on e-commerce marketplaces?

  1. Differential terms and conditions, and fees: Online marketplaces set the terms and conditions for sellers using their marketplace and charge various fees. But the issue is different kinds of sellers may receive different terms and conditions. “The ACCC understands that large Australian sellers are often better able to negotiate terms with online marketplaces; in contrast, smaller sellers are typically required to accept whatever terms allow them to access the consumers on the marketplace,” the report stated. This can affect the ability of sellers to compete effectively, particularly if the conditions are applied in an arbitrary or opaque way and the seller finds the marketplace a necessary gateway to reach their target customers, ACCC noted. The Commission also noted that there are pricing restrictions, particularly price parity clauses, which would prevent a seller from discounting on rival platforms and could potentially impede competition between rival online marketplaces.
    • Recommendation: “Given the reliance of sellers on large marketplaces, the ACCC considers it particularly important that the level of fees charged is transparent and that advance notice is given of any changes to these fees,” the report stated.
  2. The importance of marketplace display for sellers: Just the way the display and rank of products have an important effect on what consumers ultimately purchase, they also have a significant effect on a seller’s business, ACCC noted.”Opacity of algorithms or processes that determine when and how a product is seen, makes it harder for sellers to improve their product offerings. Further, if a hybrid marketplace advantages its own products above those of rival products sold by third-party sellers, many sellers will find it harder to compete on their merits to reach consumers,” ACCC reported.
    • Recommendation: ACCC acknowledged the importance of ensuring sellers are unable to ‘game’ the marketplaces but recommended that online marketplaces are transparent about which factors influence how prominently products are displayed.
  3. Access to consumer data: Online marketplaces collect large amounts of data, including search and purchasing data from consumers on their platform, and use it to better tailor their services and offerings to consumers. But this data is not necessarily shared with sellers who are typically reliant on online marketplaces for any intelligence about consumers, ACCC observed. “This disparity prevents many sellers from tailoring their product offering in response to consumers, and is a critical factor in increasing sellers’ reliance on online marketplaces to reach the relevant consumers,” ACCC noted.
  4. Dispute resolution processes for sellers: The disconnect between sellers and consumers is also an issue for sellers when things go wrong or disputes arise, ACCC noted.
    • Recommendation: The ACCC recommended that dispute resolution should be available to sellers as well and processes should be in place to ensure sellers have the ability to challenge or amend, decisions. Sellers must also be able to seek redressal from disputes with the marketplace itself, ACCC opined.

What are the concerns with platforms that function as marketplaces and as sellers?

  • What are hybrid marketplaces? Hybrid marketplaces are online marketplaces which sell their own products in addition to acting as an intermediary between third-party sellers and buyers.
  • Competing incentives: While hybrid marketplaces create benefits for consumers by providing them with additional choices and benefits for the marketplace by expanding the potential purchasers of their products, when an online marketplace sells its own goods in competition with the third-party sellers, the marketplace faces competing incentives, creating concerns for both third-party sellers and consumers, ACCC noted.
  • Preferential treatment: A key concern with hybrid marketplaces is whether preferential treatment is provided by the marketplace to its own products at the expense of third-party sellers through algorithms, policies, etc. For example, preferential treatment in the order of products may harm other sellers, ACCC remarked. “This type of preferential treatment may raise significant competition concerns where a hybrid marketplace has a substantial degree of market power and they have the ability and incentive to prevent, or inhibit, third-party sellers from competing on their merits,” ACCC noted.
  • Using data to develop competing products: Since hybrid marketplaces have access to data that third-party sellers don’t, the same can be used by the marketplace to inform its own product development, pricing or marketing strategy. This can give rise to significant competition concerns if engaged in by a dominant provider.

The hybrid marketplace scenario in India: In India, online marketplaces that receive Foreign Direct Investment (FDI) such as Amazon and Flipkart are not allowed to be sellers on their own platforms, but there are multiple allegations by retailer bodies that these platforms are side-stepping this regulation through complex corporate structures. Regardless, e-commerce marketplaces also have their own private label products that are sold by third-party sellers. All the concerns raised by ACCC above apply to India as well. Amazon and Flipkart have been repeatedly accused of favouring a select few sellers in whom the platforms have an ownership stake and of using data collected to build competing products. These allegations are being looked into by the Competition Commission of India (CCI) as part of its investigation into Amazon and Flipkart.

Recommendation: ACCC is not opposed to hybrid e-commerce marketplaces, but recommends that they fully inform consumers and third-party sellers when favourable treatment is being provided to an online marketplace’s own products.

This post is released under a CC-BY-SA 4.0 license. Please feel free to republish on your site, with attribution and a link. Adaptation and rewriting, though allowed, should be true to the original.

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