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DIGITAL DOMINANCE: ANALYSIS OF CONTRADICTIONS BETWEEN ANTI-TRUST LAWS PROTECTING THE MARKET PARTICIPANTS AND THE PRICE FIXING PRACTICES BY E-COMMERCE

Publications, Research paper

The E-commerce platforms in the current era has tend to create a digital dominance in the market economy which in result has changed the entire dynamics of the conventional market practices along with it challenging the same. This paper tends to provide a critical analysis of the changing market dynamics of the countries after the emergence of the technological advancements around the world and its contradictions with the Anti-trust laws and its provisions which tends to regulate the unfair market practices. With a detail literature review and mixed methodical research this paper provides an overview of the current tussle between the two markets i.e., digital market and the conventional market.

This research paper also tends to shed some light on the Anti-Trust Laws for the three major markets of the world, initially the pioneer of the Anti-Trust Law i.e., the USA, further the United Kingdom and lastly India, the tussle between the markets, analysing the implication of digital dominance, the proposed changes in the provisions of the Anti-Trust laws around the world to combat the dominance of digital markets and potential suggestions to combat the same.

Keywords

Anti-Trust laws, Market monopoly, Amendments, E-commerce, Price Fixing, Digital Dominance

[2]Introduction

The Anti-Trust law or the Competition law is a legislation which deals with the unfair market practices such as market allocation, bid rigging, creation of cartels, price fixing and monopolies and as well protect the consumers against exploitative business and ensure fair prices for everyone and e-commerce is a virtual market place. USA was the first country which came up with this legislation, the three central anti-trust legislation of the USA are the Sherman Anti-trust Act 1980, The Federal Trade Commission Act 1914, and The Clayton Act 1914. In India the anti-trust legislation is known as The Competition Act 2002. And lastly in United Kingdom competition law is formed under two major legislations: The Competition Act, 1998 and The Enterprise Act, 2002.

The pandemic has contributed enough for the transpire of the dominance of E-commerce market upon the conventional market. During pandemic the restrictions on several aspects mainly upon the physical retail has allowed people to experience the comfort of shopping and availing services sitting at their houses and along with it having plenty of options before them to choose and most importantly the price factor. And with the same it has also raised few serious concerns about the market composition and the abuse of dominant market power by the E-commerce sectors even though technically, the E-commerce market and the physical retail market are considered to be two different sectors with no overlapping. And with this there arises a controversy around the anti-trust laws and its provisions which promises to protect the market participants and refrain firms from monopolistic practices. Such discussions also come with few concerns to address and scrutiny the unfair trade practices of the E-commerce and combat the same.

[3]Research Methodology

This research paper has been drafted elementally based on mixed methodical research i.e., from several authentic and credible journals, research papers, articles, news reports and few statistical data along with the reports of the same and lastly case laws.

[4]The three big markets USA, UK & INDIA

The Sherman Antitrust Act, 1980, The Clayton Act, 1914 and The Federal Trade Commission Act, 1914 are enforced by the Antitrust Division of the US Department of Justice. These legislations fundamentally state few restrictions upon the firms such as any anticompetitive practices or illegal mergers. The Sherman Antitrust Act, 1980 outlays the following “every contract, combination, or conspiracy in restraint of trade,” and any “monopolization, attempted monopolization, or conspiracy or combination to monopolize.” Long ago the Supreme Court has made it clear that antitrust laws does not restricts or prohibits every contract, mergers or practice of trade but rather only those which are ‘UNREASONABLE’. And at the end the summary of the Sherman Antitrust Act, 1980 is to benefit the consumers and the tax-payers by keeping the price reasonable and better quality. The Federal Trade Commission act “restricts the unfair methods of competition” and “deceptive acts or practices”. And lastly, the Clayton Act, 1914 was enacted to address the specific anticompetitive practices of the firms which all were not dealt under the Sherman Act, such as mergers and interlocking directorates. Section 7 of the Clayton Act clearly prohibits mergers and acquisitions which seems to have lesser competition post mergers or tend to create monopoly. Later in the year 1976 The Clayton Act, 1914 was amended by the Hart-Scott-Rodino Antitrust Improvements Act which stated that firms planning for larger mergers and acquisitions must inform the government in advance so that the constitutionality of the merger & acquisition could be examined. The penalties lastly could range from civil to criminal liabilities and fines up to $100 million dollars and 10 years of imprisonment.

The Office of Fair Trading is responsible for the implementation and administration of The Competition law across the UK, that is The Competition Act, 1998 and The Enterprises Act, 2002. These legislations refrain and prohibit anti-competitive behaviour that effects the trade in UK. These two legislations fundamentally prohibit agreements between firms that intend to fix the prices to be charged for services/goods, limit productions, carve up markets, discrimination among consumers, formation of cartels and abuse of dominant market power. And the penalties for the same could be financial penalties, criminal liabilities, imprisonment ranging from 5 years to 15 years and unlimited fines.

In India, the Competition Commission of India is the concern authority for the implementation and administration of The Competition Act, 2002. The Indian competition law was crafted aiming at encouraging fair competition and protect the Indian markets and the consumers against the unfair market practices and monopoly. The act restricts anti-competitive agreements such as (cartelization/vertical agreement/horizontal agreements),  abuse of dominant market power and regulate market combinations such as (mergers/ acquisitions/amalgamations). The Competition Act, 2002 and the MRPT Act prescribes heavy penalties for the violations of the provisions the CCI may up to 10% of the average turn over of a firm for the past three financial years and also civil/criminal liabilities.

[5]The Tussle among Two Markets

The primary objective of this dichotomy is encircling the affair between the e-commerce market and the physical retail market. The shift in the mode of commerce is very evident since past one decade and is equally very unprecedented in the history of our world economy. Currently this shift in the mode of commerce is turning out to be a serious issue which needs to be addressed by the government to help and assure the physical retail market to shape once again and curb its pliant phase. The sudden pop up of this ‘new economy’ has menaced the 100 years old antitrust law. The real reason for this could be many such as exceptional lowering of prices, ample of choices, consumer friendly policies, engaging offers etc. According to the FTC’s article, Amazon.com within 3 years of first selling its stock to the public has a stock market higher value than two of the physical retail giants (Borders and Barnes & Noble) of the USA which has thousand of stores around USA. Further according to a statistic by the FTC, combined all internet revenue exceed $500 billion in 1999 where the e-commerce accounts for 35-40% of that total, with that employment also increased over 400,000 new e-commerce related jobs in 1999, secondly according to a statistics of the Indian Law Journal and Technology, India’s e-commerce sector’s revenue is expected to rise from USD 39 billion in 2017 to USD 200 billion in 2026, at an annual rate of 51%, which is the highest in the world, further according to the statistics of the International Trade Administration, UK to have an average e-commerce growth rate of 12.6% by 2025 and e-commerce revenue is estimated to increase by $285.60 billion dollars in 2025 lastly in 2022, UK’s online sales saw its highest annual growth since 2007 with sales increasing by 36%. The primary reason for the e-commerce market to flourish is because of consumer friendly approach that it has even though it contradicts the antitrust provisions towards the physical retail market. If we trace back the term ‘antitrust’, it is known from the popular battle against the trusts (monopolistic holding firms) that arose after the Civil war to control the key industries. Hence, the same happening we can see here due to the maximum dependence of the vendors and distributors upon the e-commerce platforms which is resulting in vertical restrains upon the distributors by the e-commerce sectors in the form of various kind of restrictions. However, in the case of RUBTUB SOLUTIONS (P) LTD. V.S. MAKEMYTRIP INDIA (P) LTD., the CCI held that e-commerce platforms were different from regular retail market and potentially these markets are two complete different markets and hence, no overlapping of antitrust issues. Even though we can see a clear tussle between the two markets i.e., physical retail market and the e-commerce market where the latter one seems to be the evident conqueror but still due to the complex business models of the e-commerce the traditional antitrust laws around the world are not enough equipped till now to resolve the tussle in a fair manner for the markets.  

[6]Implications of Digital Dominance

The few evident implications of the digital dominance are multifaceted such as abuse of dominant market power, anticompetitive issues, privacy issues of the consumers, cartelization, price fixing, manipulative content algorithms which shape the consumer preferences and indirectly these practices lead to monopolization of the e-commerce sector over the conventional market participants. The significant implication of the digital dominance upon the market participants is that, the latter ones are forced to lower the prices of their products to compete with the e-commerce sector because of the price fixing practices or the process of cartelization by the giant e-commerce firms which, indirectly increase the competitor’s cost and adversely effect the competitor as a result which leads to severe losses of the market participants. These practices are surely anti-competitive and per se illegal under the Enterprise and Regulatory Refer Act, 2013. Abuse of the dominant market power by the e-commerce firms are enough evident as the concern firms enjoy an economic strength in the market which enables it to prevent effective competition in the relevant market by providing itself a power, to behave up to an appreciable extent INDEPENDENTLY of its competitor (mainly the market participants), and the customers. Further, the most serious implications of the digital dominance are the formations of cartels by the e-commerce firms and sideline the market participants which is a serious form of anti-competitive agreement dealing with the conduct among the competing e-commerce firms relating to price, discounting schemes, credit turns or in respect of customers or territory and as cartels are mainly formed informally hence, it is very difficult to trace the same. Few common forms of cartels that we can see in the e-commerce sectors are as follows:

  • Increasing/decreasing prices by some amount around the same time;
  • Offering same discounts or identical discount structures;
  • Quoting or offering identical prices;
  • Refusal of supply on the basis of locations.

Certain common types of cartels that we can see in the e-commerce sectors are as follows:

  • Price fixing among competitors;
  • Output control i.e., controlling production or supply;
  • Market sharing among competitors.

The another adverse implication of the digital dominance are the Data Privacy and Security issues, where it was found that many e-commerce firms tends to gather the data of its consumers and use the same to manipulate consumer’s search algorithm and preferences and prioritize its own products and restrict the consumers to have an unbiased opinion, along with it many concerns such as who has the access to these data, how the privacy of the users are protected, how the data are used and lastly the misuse or breach of data must addressed.

In the case of, ALL INDIA ONLINE VENDOR’S ASSOCIATION v. FLIPKART INDIA PVT. LTD., the Supreme Court held that Algorithmic Transparency and Bias are Algorithms used by dominant platforms has significant impacts on what consumers see and choice of products that they want and are exposed to. Lack of transparency and potential biases in these algorithms can raise concerns about the fairness and accountability of the firms.

In the case of MOHIT MANGLANI V.S. FLIPKART, the Competition Commission of India (CCI) held that any single product does not, by itself, constitute a distinct relevant market.

[7]Literature Review

In last one and half decade, one of the contemporary issues in the field of antitrust law is the dominance of the digital market and how the physical retail market participants must be protected. This literature review analyses the emergence of the digital dominance, its tussle with the market participants and potential threats to the consumers lastly suggestions to address the same.

Scholars such as Smith (2017) and Jones et al. (2019) has profoundly delved the implications of digital dominance upon the conventional global economy and the shift in commerce for the consumers. The one major way to address the same is to firstly understand the complex business models of the e-commerce and accordingly amend the provisions of the antitrust laws around the world.

Secondly, the study of digital ecosystem was done by Brown (2018) and Garcia and Wang (2020) which dealt with the creation of new business model in the digital ecosystem which tends to shape the preferences of consumers relating to the purchase of goods/services along with it manipulating the search algorithms of the consumers which lead to biased preferences.

Further, Turner (2020) and Patel and Li (2022) has researched upon as to how the regulatory frameworks are being violated, antitrust issues are increasing, challenges regarding the data privacy and security breach of the consumers and how the government and policy makers must amend the provisions of the existing antitrust laws to combat the same.

Lastly, Anderson (2018) and Wang et al. (2021) has examined the specific challenges to the market participants due to the digital dominance such as price fixing, cartels, abuse of dominant market powers etc.

This paper aims at pointing out the specific areas of tussle between the two markets, the recent provisions by the countries to address the same concern and few suggestions to this problem statement along with an assertive conclusion.

[8]Proposed Changes In The Antitrust laws by Countries and Suggestions

The recent proposed changes in the antitrust laws by the countries could be seen emerging as this dominance of the e-commerce is a serious issue which if not addressed or controlled right now can show up as a significant threat to the healthy conventional market system. The few proposed changes made around the countries are as follows:

  • USA- The US Department of Justice and The US Federal Trade Commission has collectively revised the intensity of scrutiny upon the digital services and technological companies with a philosophy that ‘BIG IS BAD’. The antitrust agencies of the USA are also in a attempt to develop a MULTIDIMENSIONAL approach to combat the anti-competitive practices by the digital ecosystem. As a result one of the key development in this sphere was the antitrust agency’s joint announcement to revise the ‘ Horizontal and Vertical Merger Guidelines (the Merger Guidelines)’.And all together there is total 7 bills pending before the two houses which is anticipated to address the digital dominance issue.
  • UK- A government bill has been introduced in The House of Commons on 25th April, 2023 which is known as, The Digital Markets, Competition and Consumers Bill (Bill 294 of 2022-23). This bill’s provisions are extended to the whole of UK. This bills aims at the reforms on digital markets, competition and consumer protection. This bill was introduced with the philosophy that the digital markets needs an comparatively ‘new approach’ to regulate it, in the year 2020 the Government of UK asked the Competition and Markets Authority (the UK’s main competition regulator) to advise, protect and promote competition in digital market.
  • INDIA- The Corporate Affairs Ministry (MCA) on November 7th, 2023 instituted a Committee on Digital Competition Law (CDCL), for an report of the Parliamentary Standing Committee on Finance that had recommended a Digital Competition Act. The Competition Commission of India has set up a Digital Markets Unit to address the antitrust practices by technology firms. The main objective of this act is to address and regulate the issues between the digital firms and the market participants and over all to combat the antitrust issues of digital dominance.

Suggestions –

  • The administration or the concern authority must initially try to understand the complex nature of business of the digital markets and along with it the specific reason of collision between the two markets and address the same.
  • Set up specific committees that deals with fair competition in the digital markets.
  • Bring amendments to the existing antitrust laws around the world which specifies the rules and regulations between the digital market and the physical retail markets and  ensure peaceful co-existence of the same.
  • Strengthen the Data privacy guidelines for the digital platforms which has the access to user data.
  • Introduce provisions in the antitrust laws that ascertains digital markets to be transparent with their algorithms.
  • Consider revising the guidelines of merger & acquisitions so that there is no accumulation of market power or abuse of dominant market power by the e-commerce.
  • Regular scrutiny of price fixing and cartelization practices by the e-commerce firms.

[9]Conclusion

The digital ecosystem is a vast concept to understand and address in a short time, hence the countries will definitely need a significant amount of time to profoundly understand the same. In fact every technological advancements comes with merits and demerits same goes with the concept of e-commerce as well. For instance, the merits of this virtual market place is that consumers can avail services and make purchases sitting at their home, availing discounts and offers, mostly paying less for the services/goods compared to the physical markets, easy return policies etc. But the demerits are mostly for the market participants where the market participants needs to deal with exceptional high competition. Hence, we need an elaborate and clear set of legislation which promote the digital innovations as well as protect the market participants benefitting the consumers at the end. The goal here should be healthy space for the growth of digital landscape as well as the conventional market participants and supporting a healthy competition among the two, safeguard the rights of consumers, encourage innovations for both the markets and uphold democratic values.  

[10]Citations

https://www.trade.gov/country-commercial-guides/united-kingdom-ecommerce.
https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/antitrust-laws.

BIPASHA DEB

B.M.S COLLEGE OF LAW, BENGALURU