How many of us in recent years have reminisced about digital commerce platforms like Amazon or Flipkart on occasion whenever we had to buy any commodity? A majority of us have vouched for such e-commerce platforms. And why not? Over the past decade, the world has witnessed a sui generis rise in digital commerce platforms. The rise was accentuated by the COVID-19 pandemic when the entire physical commerce market had to face the brunt of unprecedented lockdowns. This, in turn, was the inception point where e-commerce grew at a phenomenal rate and percolated in almost every sphere of world commerce. Let us try to unravel these gigantic numbers of e-commerce transactions vis-à-vis the global economy.
The United Nations Conference on Trade and Development statistics show that global e-commerce will reach a massive $26.7 trillion in 2021. However, have we ever ruminated that the e-commerce industry will boom at such a pace that it will have long-term ramifications for global economics? We all perceive that a fine balance has to be maintained between innovation and regulation. So is this groundbreaking elevation of digital e-commerce platforms impeding free market interplay? The pertinent question is about the possibility of e-commerce platforms abusing their dominant position in the market and going about carrying out anti-competitive practices. The moot question this article tries to demystify is, “Are e-commerce platforms a Frankenstein monster in the making”?
e-Commerce in the 21st Century
It goes without a single ounce of doubt that the world is undergoing an unparalleled level of digitalization. The expansion of mobile phones and the deep penetration of the internet across the globe have metamorphosed the quintessential commerce practices. The concept of e-commerce per se is unconventional and has opened up fresh and multi-faceted avenues for digital commerce. E-commerce, or electronic commerce, is a dynamic term that encompasses the commerce of diverse goods and services through electronic means. E-commerce is termed a new method of carrying out business practices with the aid of the Internet. The fundamental essence of e-commerce is its ability to transcend borders and foster consumer welfare. Its potential to make a humongous diversity of goods and services accessible to consumers all across the globe provides these digital markets with this kind of unmatched acclamation and acceptability.
It is indeed fascinating to see the outstanding numbers of the growth of e-commerce platforms from 39 billion dollars in 2017 to 120 billion dollars in 2020, which makes the growth rate approximately 150%, thereby making it the fastest-growing avenue in the Indian economy. E-commerce giants such as Alibaba from China and Amazon from the USA are two of the most dominant players in the e-commerce market. Competitiveness in the commerce industry and better availability of consumer goods and services have beefed up owing to these digital markets mushrooming rapidly in the past decade. The recent forecast of the global e-commerce growth rate is pegged at an impressive 8.9%, making global sales $5.9 trillion. The 2024 growth magnitude is also 9.4%, which is emblematic of the unabated acceleration of global economic dependence on these e-commerce platforms. E-commerce is often seen as a harbinger of inclusivity in the business realm, which provides a level playing field for all businesses to interact with consumers from across the globe.
Burgeoning Power Dynamics of the e-Commerce Platforms
Entrepreneurs and other small businesses are now more interconnected and interlined with the advent of digital markets and have spawned massive foreign direct investments owing to their presence in the digital realm. However, this favorable trend comes with umpteen challenges of its own. The heavy dependence of the commerce industry on these e-commerce platforms has stoked apprehensions about the potential abuse of their dominant position. The e-commerce digital market platforms boast a gigantic 19% market share in retail sales globally. A slew of factors, including minimal requirements for logistics, door-to-door goods, and service delivery, economics in terms of money and time, and an unmatched level of diversity of goods, tilt the balance in favor of these digital markets. Diverse business types available on e-commerce platforms, such as business-to-business, business-to-consumer, and business-to-government, further streamline the entire trajectory of trade practice.
Therefore, the burgeoning digital economy has further acted as a catalyst for the transformation of the traditional market and distribution system. It is a well-accepted fact that this newfound inclusivity of digital markets has spurred growth and innovation. However, considering the impactful sphere of influence that these digital platforms exert, legitimate concerns are raised about these giants leveraging their influential position, which can negatively impact economic prospects, consumer welfare, and fair and transparent market practices. In India itself, once this nascent industry was valued at $45–50 billion, as per economic predictions, the e-commerce market is all set to touch a massive $188 billion by 2025 and $350 billion by 2030. The percolation of smartphones and easy accessibility of internet facilities (5G rollout) at an unprecedented rate, and finally the economically growing middle class, are a few of the primary reasons for the boom in the e-commerce industry that India is witnessing at present.
Competition vs. Regulation – Asymmetrical Balance
In the year 1991, India adopted the LPG policy, i.e., liberalization, privatization, and globalization. This turned out to be a watershed moment in the economic trajectory of India. With several multinational companies bringing in their resources to India, the government devised policies that were no longer protectionist to Indian companies and ditched the inward-looking approach. This outward posture of India augured well and made a perfect breeding ground for innovation and economic prosperity. Subsequently, technological advancements carved out a coveted niche for digital retail markets, which had an ominous impact on the quintessential brick-and-mortar businesses. These developments have not boded well in a true economic and social sense. It is often observed that big digital e-commerce giants engage in unfair trade practices by unilaterally revamping market prices.
To understand it better, let us put this case scenario into perspective: when a major e-commerce organization lowers the standard market price, it significantly impacts the profitability of other retailers in the market. These arbitrary changes reduce the stiff competition in the market, thereby allowing the e-commerce platform to establish its monopoly. Governments across the globe have legal and regulatory quagmires to solve and deter any lacunae from being exploited by the e-commerce giants. The ultimate aim is to make laws and regulations that sustain and stimulate consumer-friendly, equitable, and transparent business practices.
Legal Frameworks and Anti-Competitive Practices
What is a “dominant position”? And in Indian jurisdiction, how are the grey areas of the regulatory and anti-competitive frameworks exploited by these digital market players? In simpler terms, an enterprise is said to be a dominant market player when it can independently manipulate the free market forces of supply and demand to its advantage. This is as per Section 4 of the Competition Act, 2002. This section prescribes any exclusionary practices by the e-commerce players, thereby eliminating the scope in which any entity can abuse its dominant position. The regulatory authorities take into consideration a slew of factors as prescribed under Section 19(4) of the Competition Act of 2002 while evaluating an entity’s dominant position in the market, such as market share, size of the enterprise, commercial prowess, competitors in the market, consumer share, etc. The primary legal authority dealing with both physical and digital market spaces and keeping in tandem the purview of innovation vis-à-vis regulatory frameworks is the Competition Act, enacted in the year 2002. This legislative measure replaces the erstwhile Monopolies and Restrictive Trade Practices Act of 1969.
The Competition Commission of India was established to thwart any activities that lead to adverse impacts on the market mechanism and deprive all commercial players of equal opportunity. The CCI has come a long way in encouraging fair and transparent practices. When it comes to the e-commerce realm, Ashish Ahuja v. Snapdeal and others were the first of its kind in which the CCI demarcated the nuanced difference between physical retail markets and that of e-commerce platforms that play the role of a conduit between sellers and potential buyers.
The real problem lies in manipulating and abusing the dominant position held by the enterprise and not merely holding the dominant position; the same was upheld in Lifestyle Equities v. Amazon Seller Services Pvt. Ltd. The competition regulator in India looks for activities executed by digital commerce players that might, on the face of it, look innocuous but have an adverse impact on fair market practices. Precarious practices such as predatory pricing, exclusive agreements, and deep discounting, in the long run, eliminate or distort the competitive equilibrium in the market. Various exclusionary agreements concerning production, supply, distribution, storage, acquisition or control of goods, or provision of services between enterprises are null and void as per the law. In the famous judgment of Re Delhi Mahavyapar Sangh vs. Flipkart Internet Pvt. Ltd, the Competition Commission of India (CCI) posited that in cases of preferential treatment rendered to a few sellers, market competition is negated. Ergo, any exclusive tie-ups or preferential listings of the sellers came at the altar of other non-preferential sellers.
Government measures on Digital Market Regulation for e-Commerce
In a historic step, the government of India enacted the Information and Technology Act of 2000, which was primarily focused on regulating the e-commerce market. The same is true for the policies of e-commerce and fostering the e-governance model. Under Section 84A of the IT Act, the onus was on the Union government to promote and bolster the e-commerce ecosystem in the country. In a bid to further secure consumer privacy on e-commerce platforms, Section 66A of the IT Act imposes penalties in the form of imprisonment and fines in cases involving data theft. In the recent Information Technology (Guidelines for Intermediaries and Digital Media Ethics Code) Rules, 2021, the government further strengthened the laws vis-à-vis consumer privacy and data protection. Another principal legislative step is Section 94 of the Consumer Protection Act, 2019, which is seen as a bulwark against any unfair practices on e-commerce platforms that jeopardize the rights and interests of consumers.
The Department of Consumer Affairs released the Draft Consumer Protection E-Commerce (Amendment) Rules, 2021, which brought to the fore umpteenth measures to regulate the functioning of the ballooning e-commerce market in India. Digital markets like Amazon and Flipkart are now instructed to put “country of origin” on products available on such platforms. These guidelines also underlined the liability of e-commerce platforms to not indulge in manipulating results on their platforms or any anti-competitive or anti-consumer practices. We often have discourses on establishing constitutional democracy and allied philosophies that, in the true sense, percolate egalitarianism in society.
However, one crucial aspect that is foregone is that of “economic democracy”, and in furtherance of this ideology, the government of India has unveiled an ambitious project, the Open Network for Digital Commerce (ONDC). In India, the two major e-commerce giants, Amazon and Flipkart, control a humongous market share of about 80% in the digital market. The non-profit platform revolves around the principle of being an intermediary wherein buyers and sellers interact. The step is a significant overhaul to truly democratize the dynamic field of e-commerce in India. This inclusionary step is aimed at benefiting the MSME sector in India and foregoing the impediments of logistics and other physical infrastructure. The ostensible objective of this policy is to emancipate the Indian digital markets from the hegemony of a handful of global e-commerce giants.
Challenges and Prospects for E-Commerce Platforms
The crux derived throughout the analysis is that the competent regulatory authorities look for cases where the affirmative is not merely dominant but there is an “abuse of dominance”. One of the major impediments to the efficient implementation of anti-competitive laws across jurisdictions is the difference in parameters for measuring a “dominant entity” in the digital market. In South African jurisdiction, any entity that controls 45 percent of the market share is considered dominant, whereas the same is true in Israel. In the USA, a “safe harbour” clause is applicable, which renders immunity to enterprises that are not above a specified threshold.
It is pertinent to understand that across jurisdictions, policies and regulatory measures adopted to curb abuse of dominance are contingent on legal, historical, and constitutional ideologies. Along with that stark contrast, some countries are approaching cases where entities breach the specific threshold and practice anti-competitive activities. On the other hand, some countries look for plausible repercussions of the practices of dominant digital enterprises, such as economic, competitive, and consumer harm. Thereby, the subject of e-commerce should not be circumscribed to merely a national priority but a global one. The e-commerce realm not only involves bolstering global economic growth but is deeply intertwined with consumer protection and welfare.
The Way Forward
One of the fundamental ideologies that this e-commerce conundrum puts to the fore is that economic parity is not a utopian ideal but a moral imperative that we must actively pursue. Why can’t governments across jurisdictions collaborate to instill economic parity between e-commerce retailers and physical retailers? It might be baffling to fathom that platforms that were created to spur inclusivity, growth, egalitarianism, and transparency have now become tools to propel anti-market and anti-welfarist practices across the globe and thereby push the world into an unprecedented crisis. Innovation and competition are the two most indispensable avenues for igniting global growth, development, and prosperity.
India, which is the world’s fastest-growing economy and plausibly the finest jurisdiction in the burgeoning e-commerce sphere, is, unfortunately, grappling with significant lacunae in the e-commerce regulation framework. Adopting and implementing policies that balance innovation, regulation, and consumer welfare in the e-commerce realm is a sine qua non.