The disruptive case of the e-commerce sector and the antithesis we have to it

Pierre Nanterme, the former CEO of Accenture, pointed out that “the digital shift” is the main reason for the disappearance of half of the Fortune 500 companies since the year 2000.

The economy of the 21st century differs from the traditional economy because of the massive adoption of technology and the resulting innovation in products and the means to reach consumers.

During the pandemic, Bangladesh’s e-commerce industry, which numbered around 2,000 companies, achieved a turnover of Tk 3 billion.

The reason behind such a boom is that e-commerce platforms now offer consumers lower prices, better choices and more information about products or services.

On the other hand, the platforms benefit from a wider geographic reach and more efficient distribution. As a result, businesses can no longer ignore digital platforms, commonly known as e-commerce platforms.

Nevertheless, companies constantly complain about the anti-competitive behavior of e-commerce platforms.

The accusations against them are quite model: significant discounts, self-preference, manipulation in the ranking of searches, misuse of consumer data, etc.

While the claims may not be true all the time, e-commerce platforms are still subject to competition law violations, risking massive fines from the Bangladesh Competition Commission.

The Commission met with major e-commerce platforms in Bangladesh: BoomBoom, BabyneedsBD, Aladiner Prodip, Daraz Bangladesh Ltd., ltd., Chaldal ltd., Redex and many more on September 21, 2021.

The meeting aimed to inform these platforms of the various current practices in the digital market, which risk infringing competition law.

In such a situation, e-commerce platforms should be cautious of anti-competitive behavior and hire lawyers to verify their offers on the platforms before launching them. This article describes anti-competitive disruptive behavior and / or actions of e-commerce platforms under Bangladesh’s competition law regime.

Predatory pricing and significant discounts

One of the main attractions of e-commerce platforms is that they offer products or services at lower prices. Businesses and ecommerce platforms offer cheaper prices to enter and capture a market.

Initially, the lower price of the products or services seems pro-consumer. However, as soon as companies drive out all competitors in the market, they exploit their monopoly in the market by raising the price of products and / or services. This is where competition law comes in.

The Competition Act of 2012, in accordance with Article 16 (2) (a), prohibits the sale of goods or the provision of services at a price lower than the cost of producing the goods or providing services to reduce or eliminate competition in the relevant market.

According to the same law, section 20 (a) (ii), the Commission can penalize an e-commerce platform for predatory pricing up to 10% of the average turnover of the last three financial years.

Thus, the caveat for e-commerce platforms and the business entities therein is to ensure that the selling price of the products or services is not lower than the cost of production.

In particular, the availability of products or services at a lower price cannot always be considered predatory. Because the reason behind cheaper products could be vendors’ exemption from marketing costs and greater market access on the digital platform.

However, the e-commerce platform giants enjoy such massive sales that they can sometimes offer big discounts, causing the price of the product to drop below the apparent cost of manufacture.

Such large discounts can be seen as predatory pricing when they are intended to drive competitors out of the market. The Competition Commission of India, in its latest study on the e-commerce sector, titled “India e-commerce market study”, found that large discounts are seriously problematic and should be watched with caution.

The Bangladesh Competition Commission has been inadequate and slow to monitor Bangladesh’s e-commerce sector. The recent disaster in the e-commerce industry including, but not limited to the Evaly scam, will hopefully make them more proactive.

It is expected that with the recent recruitment of staff, the Bangladesh Competition Commission will thoroughly prepare and monitor e-commerce platforms to ensure a competitive online marketplace.

Retargeting Ads

E-commerce platforms allow consumers to put a product they like into virtual “shopping carts” and allow consumers to make the purchase later instead of making the purchase immediately. Carts register items for subsequent orders.

However, nowadays we all face the common phenomenon that once we put something on these virtual carts, advertisements of the same products appear on our social media feeds and platforms enticing us to buy that product.

These marketing tactics aim to drive a possible lead towards the sale of a product or service. While such marketing practices are great for increasing sales, they end up restricting access to other similar products in a similar market for the consumer.

The practice of marketing in accordance with competition law would have included similar products from other manufacturers in these advertisements allowing consumers to choose from alternatives. E-commerce platform algorithms should be designed to incorporate these alternatives.

Rating and platform neutrality

E-commerce platforms can play both the role of a marketplace and a competitor in a marketplace. These dual characteristics of these platforms have both advantages and disadvantages.

These e-commerce platforms control three important characteristics of a possible sale and purchase of a product or service: the search result, the seller / service provider data and, finally, the user reviews.

As a result, platform products will / could benefit from increased visibility, and consumer choice may not reflect consumer preferences. But a transparent business ecosystem should have facilitated a pro-competitive marketplace for sellers.

Ecommerce platforms generate huge revenue with their SEO services by placing certain products of specific companies higher in search results.

Big companies don’t mind paying such subscription fees to get their product listed above everyone else. In practice, we see that large companies buy all the top positions for all products and that small and medium-sized companies are left behind.

Therefore, these small and medium enterprises fail to compete in the market. This is where the Competition Commission is empowered to intervene and regulate the business ecosystem by ensuring the transparency of the system through specific directives and guidelines.

The Competition Act of 2012 empowered the Bangladesh Competition Commission to prevent e-commerce platforms from distorting the market through abuse of dominant market position under section 16 (2).

Platform parity clauses

E-commerce platforms in their contracts with suppliers often include a price parity clause. A price parity clause requires the supplier not to offer products or services at a lower price or on better terms on other ecommerce platforms or sometimes even on their own websites.

Examples of such clauses are typically found in online travel agency markets, online food ordering apps, and delivery markets.

These parity clauses may be subject to scrutiny by the Bangladesh Competition Commission if they have adverse effects on competition.

Because, firstly, from a business point of view, sellers may have different incentives from different platforms to deliver products at different prices.

An established ecommerce platform may not be willing to charge less than a newly created ecommerce platform and, therefore, the vendor may wish to reap the rewards of economies of scale and network effects. .

Due to a broad parity clause, end users might have to pay higher prices. Second, from a legal point of view, Section 15 (1) of the 2012 Competition Act prohibits such exclusive supply and distribution agreements when they harm competition.

If the e-commerce platform is dominant in the market, such clauses can also be prosecuted under Article 16 of the Competition Law of 2012.

Md Azhar Uddin Bhuiyan is a consultant at AS & Associates and a lecturer in the Law Department of the Bangladesh Professionals University.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.