Competition In E-Tail: Fair Or Unfair?

Context: An overview of the significance of e-commerce sector and concerns regarding recent policy changes.

Barriers to Entry:

1. One entrenched firm fully controls a key resource for which there is no close substitute;
2. When a single firm can supply a good or service to an entire market at lower unit-cost (total average cost) than two/more firms, creating a natural monopoly;
3. Government created entry barriers.

Significance of the e-commerce sector

• A life-saver during lockdown: Essential products including groceries, food, medicines, household and office supplies could be sourced online, in line with the need for social distancing.
• Expression of growing digitization of economy: Globally shopping preference of the customers is moving away from physical stores to e-stores.
  • According to Unicommerce, an e-commerce e-solutions firm, the sector grew 117% from February 2020 to June 2020.
• Platform for new sellers: Helped in recovery from lockdown- induced slump in retail.
• Support to MSME sector: By keeping demand and supply lines active.
• Support to gig economy: Livelihood options available even during pandemic.

Concerns with the e-commerce related Foreign Direct Investment (FDI) policy

• Increased compliance burden: By extending restrictions on foreign e-commerce marketplaces to their associates and related parties. (Attempt to level the playing field for domestic players).
• Regulatory barrier to competition: Barriers to entry are essentially structural or economic features of a market that prevent/deter a potential new entrant from entering the market.
  • In India, FDI is already restricted in the e-commerce inventory model.
  • Against the concept of competition: Enshrined in Indian Competition Act, which envisages consumer welfare by promoting competition in markets.
• Lack of assessment: No provision for a competition assessment of FDI policy for e-commerce.
• Spill-over-effect on FDI inflows: Unstable policy regimes that change constantly heighten the perception of regulatory and political risk in the minds of investors.