The other day, one of us came across a discussion on Twitter about a new brand of products being sold on an e-commerce platform. The brand in itself was owned by the e-commerce platform. The next moment, there was a debate after a tweet by one of the authors about this violating antitrust legislation and being unethical.
However, many were quick to point out that most retailers do push products under their own brand or with simple packaging at a discount. The issue of existing e-commerce platforms having their own brand seemed like a problem, which was subsequently discussed by both the authors. This column is a culmination of that.
We view e-commerce platforms as marketplaces—that is, they serve as a place where multiple buyers come together and interact with numerous sellers. In fact, online multi-brand platforms serve as an excellent example of near-perfect markets in reality as there is perfect information, real-time price-matching and an interaction of multiple buyers and sellers. The only issue is that unlike conventional markets, online platforms and the rules of trade on it are dependent on the policies of the platform itself.
These policies may not necessarily be different from the laws governing trade and commerce in any particular country; however, there may be other technical rules in excess of the laws that may apply while participating through these platforms. For example, a finders’ fee levied by the marketplace may not be regulated and can also be arbitrarily determined. More so when these marketplaces are owned by a few conglomerates, thereby limiting competition and choice for the consumers and producers. In many ways, we have gone from having free markets to a situation where we now have oligopolistic markets with competitive firms trying to push their products. The question really is whether oligopolistic markets will function just as well as free markets. We know that oligarchs tend to extract rent as compared to competitive firms, so why should oligopolistic markets be any different?
There is a fundamental difference if a retail store pushes for their own products in their stores as we are dealing with an individual establishment there. However, e-commerce is different in terms of the sizable scale of its operation. That is, such platforms have humongous reach and flow of data, which enables them to adequately forecast the demand for any particular item being sold during a given period. Given their scale of operations, they can launch a simple product under their own brand name, procure it from a factory across the world in bulk and distribute it across their network. The problem here is not that they will replace middlemen, but that they can augment their platforms against other producers with the objective of monopolising even production, not just distribution or trade, of commodities. Moreover, the use of information for such purposes automatically puts the sellers on the platform at a disadvantage.
This is precisely why there is a need to revisit whether such e-commerce platforms should be allowed to have their own brands in the first place. Moreover, there is also a need to discuss the use of proprietary information and evaluate the rules governing the same, including their dissemination. This should ideally be included in the proposed data protection regulations as well as the new rules concerning e-commerce. Further, there should be a serious enquiry regarding antitrust issues along with a revisiting of existing trade rules to bring them up to date with the digital world.
We must remember that the essence of capitalism was in competition and free markets were supposed to create that. Online marketplaces were a great enabler for connecting buyers with sellers; however, they no longer serve as an example of what a free market should look like. Releasing products under their own brand, along with promoting them on their platform by itself, is a violation of the free market as it in effect puts a huge entry barrier for many. Then there is the issue of de-platforming sellers with the intention of benefiting one particular company—again, an unethical practice.
That these practices exist is well known, as is the fact that e-commerce does provide us with utility and convenience. The question that we face is how to combine the best of both worlds, that is, how to extract the benefits of efficient e-commerce while preserving the free nature of our markets.
Given that these platforms essentially provide us with a public good, there is a case for more proactive regulation in this space. Moreover, pushing for more such e-commerce platforms to create greater competition will also help as markets will themselves discipline all participants. However, given the capital-intensive nature of the sector, there is limited space for fresh entrants. Therefore, we may have to bite the bullet here and work with regulation, restrictions on unfair trade practices and an expanded set of voluntary disclosures to create a level playing field.
New York-based policy researcher
Delhi-based legal researcher