E-commerce policy risks putting cart before horse

By Kalyani Singh, Chandhiok & Mahajan
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On 24 February 2019, the Department for Promotion of Industry and Internal Trade published the draft National E-commerce Policy (ECP), which sets out a proposed framework for the sector. While the ECP states that it aims to fill in the regulatory gaps, it also highlights several competition issues.

Market structure

Kalyani Singh
Partner
Chandhiok & Mahajan

Data is the main premise around which the ECP structured. It seems to suggest that data implies market power and monopoly. It notes that access to data can give rise to market distortions and that businesses would find that once it scales beyond a certain point, it makes entry into that area by a second comer next to impossible. According to the ECP, all of this results in barriers to market entry.

However, it does not identify any specific market, which is typically a starting point to assess any competition issue. The ECP broadly defines e-commerce to include buying, selling, marketing or distribution of goods, including digital products, and services through an electronic network. Despite this definition, it seems to include social media networks and search engines within the ambit of e-commerce. Such a consolidated definition of a market is contradictory to competition law jurisprudence.

The general assumption that the entire digital sector will always experience network effects seems overarching. Network effects have been considered as a characteristic of some markets, specifically multi-sided platforms. However, this on its own does not imply an anti-competitive effect.

Notably, India’s antitrust regulator the Competition Commission of India (CCI) has assessed online platforms. For example, its decision while assessing the conduct of Uber and Ola is an excellent example of how markets with network effects are not antithetical to a competitive landscape.

Data as an essential facility

The ECP concludes that lack of access to data for Indian companies would stop them from creating high-value digital products. This conclusion seems to be based on the premise that access to data is essential to operating in the digital market, which is not supported by any substantive study.

More importantly, the conclusion appears to assume that data is exclusionary. However, facts present a contradictory structure. For instance, users can be on several social media applications at the same time, which means that a user’s data is accessible to several enterprises at once. In the absence of any actual evidence of exclusion, these conclusions are likely to result in a fallacious assessment of the market.

Anticompetitive conduct

The ECP also lists out specific conduct as anti-competitive, such as predatory behavior, identified as large-scale capital dumping by enterprises with deep pockets to finance sustained losses; and high rates charged for advertising by social media platforms and search engines.

Both predatory and excessive pricing require demonstrative economic evidence to be identified as anti-competitive conduct, which the ECP currently lacks.

Remedies

The ECP is centered on providing remedies that appear to enhance the welfare of the competitors in the market. For example, the ECP states that data should be provided to Indian entities so that they can compete. It also lauds the latest foreign direct investment policy that prohibits foreign-owned online marketplaces from adopting an inventory-based model.

The ECP expressly states that the e-commerce sector has increased consumer welfare through the benefits of a larger variety of products and increased competition by way of lower prices. The ECP also recognized the increased innovation in the sector. However, it does not address the need to balance this increased consumer welfare with any possible steps in regulating the sector.

The ECP, at best, can be described as a starting point for identifying issues that need to be discussed and assessed. Any regulation, based on this policy, without a detailed assessment of the harm and benefits to all stakeholders, may actually reduce competition in the sector. One important aspect that it needs to consider is coordination with the CCI. The competition legislation specifically provides for reference to be made to the CCI to assess competition issues.

Notably, the CCI is also, in parallel, analyzing some online markets for possible anti-competitive behavior. More importantly, the government has constituted a competition law review committee to review the present legislation. Any policy or action, without considering the foregoing dynamics will likely exacerbate market distortions and create regulatory inconsistencies.

Kalyani Singh is a partner at Chandhiok & Mahajan.


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