The Competition Commission of India has recently released its Market Study On E-Commerce In India report. At the centre of the debate are new-age digital markets. These two-sided platforms may share attributes with traditional businesses, but have altered the interplay of market forces.
Multi-sided platforms such as Amazon, Zomato, MakeMyTrip, and Uber have acquired the ability to pass on benefits to consumers as they entice a huge network of suppliers to their platforms. With their networks becoming larger, the benefits of being there goes up both for the user in terms of value, and for suppliers in terms of revenue. This generates a “network effect” that results in a winner-takes-all scenario, and only a few platforms survive in the market, allowing them much elbowroom to determine prices. Armed with data on consumer choices, their dominance is assured.
Prices and earnings in multi-sided markets will always remain a cause of concern, as every player is competing for a share of the pie. Two practices, deep-discounting and vertical arrangements, are a particular cause of heartburn among participants. The e-platforms follow a “growth over profit” model of business, and as such many small offline players that ride on these platforms are now feeling the “heat”. Discounts have eroded the value of their products, making it difficult for them to sustain their businesses. There are also allegations by offline players that these platforms are transforming themselves into suppliers and giving preference to their own brands over unattached sellers. They also have consumption data to tilt the scales in their favour. This dual role is leading to conflicts of interest and breaking the trust of those who helped these platforms become successful.
Many vendors and retailers have made representations to the government and approached the Indian competition authority for justice. The problem sought to be addressed is the “trust” that these platforms have allegedly breached, since they have the ability to drive prices, even as they look at these transactions as contractual. Some sections even advocate banning or restricting foreign platforms from operating in India, but that could turn away foreign investment.
Competition agencies are taking a nuanced approach on antitrust problems in network markets, as antitrust enforcement is “effect-based” and thus depends on economic evidence that establishes a “theory of harm”. Moreover, “rule of reason” principles are to be tested judicially, and this could be a long winding process, by which time the “harm” would already have been done.
Two-sided platform markets have drawn the attention of regulators across the world. The EU has imposed a huge fine on a leading multinational for its alleged search engine bias; US antitrust agencies, the department of justice and federal trade commission have launched probes against the country’s big four tech giants. The US supreme court has dealt with the nature of an antitrust relationship in a two-sided market in an American Express case. The brief point was whether the payment platform could pass on benefits to customers and not merchants. The US courts decided by a thin majority that economic harm needs to be proven on both sides of the markets, cardholders as customers and merchants as suppliers. However, clear principles are yet to be established, as there are strong arguments that the relationship of a supplier and a platform should be examined independently from an antitrust perspective. In India, these principles are yet to be judicially tested. However, our prevailing socioeconomic conditions may require the problems to be seen contextually.
In the Indian context, network markets are communities that have brought various market players together that can leverage huge economies of scale by enlisting themselves. Online platforms have opened up opportunities for drivers, small entrepreneurs, restaurant owners, hoteliers, travel agents and artisans to tap a vast market. Their products and services are not under the same regulatory supervision as traditional suppliers. Nevertheless, these budding entrepreneurs ought to be provided fair access and opportunities on platform networks.
Platform networks can bring these communities closer and act as connectors and collaborators, rather than competitors. Communities thrive on trust. They set up their own rules, identify bottlenecks, and invest in capacity creation for better delivery. Thus, platforms need to have “open access” and maintain “neutrality” and “interoperability” to provide a fair and level playing field for all participants. This would help specific sectors grow and also assure a more equal distribution of wealth. Regulators can then penalize those violating such rules.
This approach is akin to the Gandhian model of trusteeship, where surplus wealth is held in a trust for the welfare of all stakeholders. Such a strategy adopted by platform communities could be economically viable as well as ethical, ensuring sustainable livelihoods for all. The moot point is whether corporate boardrooms will change their strategy for such a win-win situation, or be subservient to the financial objectives of their investors. Prime Minister Narendra Modi has nudged everyone to subscribe to Gandhian ways to solve problems in tribute to the father of the nation on his 150th birth anniversary. A move from antitrust to trust would help fulfil that wish.
Manish Mohan Govil is adviser (law) and head, combination division, Competition Commission of India. These are the author’s personal views
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