Discounts, Algorithm And Commission: CCI Finds Issues Maligning Ecommerce

As ecommerce continues to be the basic building block of the growing digitalisation in the country, an interim study by the Competition Commission of India (CCI) in the sector has made some interesting observations based on initial findings.

The study started in June to gather qualitative information and insights from market participants in ecommerce ecosystem. It aimed to understand shift in strategies, competition landscape and issues.

The study included sectors like mobile, grocery, food, electronics or electrical appliances, lifestyle, and hotels. The CCI had identified retailers, manufacturers, online payment systems, ecommerce marketplaces and service providers as the stakeholders.

In simple terms, from Zomato and Swiggy to Flipkart and Amazon to MakeMyTrip and ixigo, everything made to the CCI scanner.

Key Issues In Ecommerce Marketplaces

The stakeholders across sectors have identified discounts, commission, and algorithm issues as its concerns. Vendors or sellers said that ecommerce platforms give preferential treatment to certain sellers; there is a high search ranking for preferred sellers and feel compelled to participate in discounts.

At the same time, ecommerce marketplace players have said that the sellers are independent third party players as sellers participate in deals at their own discretion and search ranking of sellers is based on algorithms. They also said that there is a mechanism in place to deal with unauthorised vendors selling counterfeit products.

The study found that mobile phones and accessories constitute the largest share of e-tailing, followed by lifestyle goods. It also highlighted the emergence of online-only sellers and marketplaces developing their own private labels.

Key Issues In Hotel Industry

In the hotel industry, players said that they are forced to set unviable rates because of discounts by online travel operators. They also informed the CCI that they see unilateral increase in commissions by online tour operators and the search ranking algorithm is opaque.

The CCI study found that respondent hotels were listed on at least five online travel agencies. However, direct and corporate sales accounted for the highest source of their revenue. It was also found that large hotels offer less than 20% of their total room inventory on online portals, whereas small and mid-sized hotels offered over 20%.

Online tour operators said that prices are determined by hotels and they offer discounts on the listed room price.

Key Issues In Food Industry

In the food sector, restaurants have said that deep discounts by online platforms are “cannibalising dine in” and the burden of discounts is shifting to restaurants. They have also noted that online food platforms arbitrarily increase commissions and compelled them to use their manpower.

Meanwhile, online food platforms said that restaurants participate in discount schemes at their own discretion and commissions are decided based on mutual negotiations and there is no restriction on the use of manpower.

The CCI also found that restaurants earned around 28% of their revenue through online platforms.  Further, online platforms are expanding and setting up their own cloud kitchens and are also furthering their B2B presence such as supply of food ingredients.

The CCI has sought views of all stakeholders by September 30 as the study is still on.