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

Pierre Nanterme, the former CEO of Accenture, pointed out that 'the turn towards digital' is the main reason behind the disappearance of half of the companies on the Fortune 500 since the year 2000. 

The 21st-century economy is distinguished from the traditional economy due to the massive adoption of technology and resulting innovation in products and ways of reaching out to consumers. 

During the pandemic, the e-commerce industry of Bangladesh, which consisted of approximately 2,000 companies, made a business of Tk3 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 enjoy wider geographic reach and more efficient distribution. Thus, businesses now cannot ignore digital platforms- popularly known as e-commerce platforms. 

Nonetheless, businesses are constantly complaining about the anti-competitive behaviours of e-commerce platforms. 

The accusations against them are quite templatic: deep-discounting, self-preferencing, manipulation in search ranking, mal-use of consumer data, etc. 

While the allegations may not be true all the time, the e-commerce platforms are always prone to violation of competition law risking massive fines by the Competition Commission of Bangladesh. 

The Commission met the leading e-commerce platforms in Bangladesh: BoomBoom, BabyneedsBD, Aladiner Prodip, Daraz Bangladesh Ltd., Priyoshop.com ltd., Chaldal ltd., Redex and many others on 21 September 2021. 

The meet aimed to brief these platforms about different current practices in the digital marketplace, risking a breach of competition law. 

In such a situation, e-commerce platforms need to be cautious about anti-competitive behaviours and engage lawyers to vet their offers on the platforms before launching them. This article delineates the anti-competitive disruptive behaviours and/or actions of e-commerce platforms under the Bangladeshi competition law regime.

Predatory pricing and deep discounting

A major attraction of e-commerce platforms is that they offer products or services at cheaper rates. The businesses and e-commerce platforms offer cheaper prices to enter and capture a market. 

Initially, the cheaper rate of products or services sounds pro-consumer. However, as soon as the businesses drive out all the competitors in the market, they exploit their monopoly in the market by increasing the price of the products and/or services. This is where the competition law intervenes.  

The Competition Act 2012, according to section 16(2)(a), prohibits the sale of goods or provision of services at a price that is below the cost of production of the goods or provision of services that aims at reducing or eliminating competition in the relevant market. 

According to the same act, section 20(a)(ii), the Commission may penalise an e-commerce platform for predatory pricing up to 10 percent of the average of turnover for the last three preceding financial years. 

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

Notably, the availability of products or services at a cheaper rate cannot always be considered predatory pricing. Because the reason behind cheaper products might be the exemption of the sellers from the cost of marketing and wider market access in the digital platform. 

However, the giants in e-commerce platforms enjoy such massive amounts of sales that they can, at times, offer deep discounts causing the product price to fall below the apparent manufacturing cost. 

Such deep discounts may amount to predatory pricing when it is aimed at driving out competitors in the market. The Competition Commission of India in their latest study on the e-commerce sector, titled 'Market Study on E-Commerce in India,' found that deep discounting is gravely problematic and needs to be cautiously monitored. 

The Competition Commission of Bangladesh has been inadequate and slow in monitoring the e-commerce sector of Bangladesh. The recent catastrophe in the e-commerce sector, including but not limited to the Evaly scam, hopefully will make them more proactive. 

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

Retargeting advertisements

The e-commerce platforms allow consumers to put a product they like in the virtual "shopping carts" and allows consumers to make the purchase later instead of immediately making the purchase. The carts save the items for later orders. 

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

These marketing tactics are aimed at driving a possible lead to a 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 competition law compliant marketing practice would have included similar products of other manufacturers in those advertisements allowing consumers alternatives to choose from. The algorithms of the e-commerce platforms should be designed in a way to incorporate those alternatives.

Listing and neutrality of the platforms

The e-commerce platforms may play the role of both marketplace and a competitor in a marketplace. Such dual characteristics of these platforms provide both benefits and drawbacks. 

These e-commerce platforms possess control over three important features of a possible sale and procurement of a product or service: search result, seller's/service provider's data and, finally, user review. 

As a result, the products of the platforms shall/might enjoy increased visibility, and the consumers' choice might fail to mirror consumer preference. But a transparent business ecosystem should have facilitated a pro-competitive market for the sellers. 

E-commerce platforms generate huge revenue with their listing services by placing some products of specific companies higher in the search results. 

The big companies do not mind paying for such subscription fees to list their product above everyone else. In practice, it is found that the big corporations purchase all the top positions for all products and the small and medium enterprises are left dry. 

Therefore, these small and medium enterprises fail to competitively perform in the marketplace. This is where the Competition Commission is authorised to intervene and regulate the business ecosystem by ensuring transparency in the system by occasional directives and guidelines.

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

Platform parity clauses

The e-commerce platforms in their contracts with the suppliers often include a price parity clause. A price parity clause demands from the supplier not to offer products or services at a cheaper rate or better terms in other e-commerce platforms or at times even on their own websites. 

Instances of such clauses are usually found in the online travel agency markets, online food ordering apps and delivery markets. 

These parity clauses may come under the scrutiny of the Competition Commission of Bangladesh once they have adverse effects on competition. 

Because, firstly, from a business perspective, the sellers might have different incentives to from different platforms for supplying products at different rates. 

An established e-commerce platform might not be willing to charge lower than a newly established e-commerce platform and thus the supplier might like to enjoy the fruits of scale economies and network effects. 

As a consequence of a wide parity clause, the end-users might need to pay higher prices. Secondly, from a legal standpoint, the Competition Act 2012, section 15(1) prohibits such exclusive supply and distribution agreements when they hurt competition.

If the e-commerce platform is dominant in the market, then such clauses may be prosecuted under section 16 of the Competition Act 2012 as well. 

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

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.