The world of elevated firms is considered a dynamic environment characterized by a rapid technological change rate. However, there is a subset of sectors with strong network effects, in which the market tends to collapse into a small number of players. There is the possibility of entrenched market power with the extraction of consumer surplus after one burst of innovation where a new online business is born. Many companies, both global and Indian, have resorted to incurring huge losses by subsidizing users to obtain those network effects. With unprecedented negative profit margins consistently, this has sparked a new wave of concerns about predatory pricing (1).
The cost of running the marketplace has fallen to near-zero levels thanks to modern technology. Craigslist, an online classifieds site, claims to have around 40 employees who manage a network that receives over 80 million classified ads per month. A transaction’s marginal cost has dropped to near-zero levels. This creates a specific set of challenges in which cost-cutting technological innovation cannot be used to dethrone an incumbent. For example, in 2016, the international cab company ‘Uber’ lost 1.27 billion dollars worldwide. Uber’s actions impact the Indian economy because it has used financial capital as a competitive lever in India. In a similar vein, in March 2015, the Indian taxi company ‘Ola‘ reported a net loss of 7.96 billion. The company’s financial records for the subsequent periods are not yet available, but the losses are likely to have been substantially higher due to the increased driver incentives. In India, it is estimated that the two taxi firms, Uber and Ola, have burned through about 130 billion dollars in the last two years (2).
This raises concerns that the market will ultimately favor the player who, while not necessarily having the most innovative product or service, successfully gains more capital and entices more users in the early days through subsidies. While these practices appear to benefit consumers in the short term, they raise concerns about competition due to the creation of market power and higher prices for consumers in the years after losses are recouped.
In a few recent cases, the Competition Commission of India (CCI) has noticed these issues. The CCI issued a prima facie order in April 2015, recommending a thorough investigation into the allegation that Ola had engaged in abusive market practices to gain greater market power in Bengaluru, armed with considerable funding from various investors. After the CCI refused to investigate Uber’s dominance in the market for radio taxi services in the National Capital Region (NCR) of Delhi, the Competition Appellate Tribunal (COMPAT) ordered the Director-General of the CCI to launch a similar investigation (3).
Introducing a TRAI-style regulator
Domestic retailer associations sought the regulator for the e-commerce sector, such as the Indian Telecom Regulatory Authority and the Indian Securities and Exchange Board, pushing for the stronger press note of 2018 models that stipulate that the stock of a seller should be considered to be managed on the market if more than 25 percent of the seller’s purchases come from the mark In a meeting on Wednesday with the Department of Industry Promotion and the Internal Commerce, the Confederation of All India Traders and the Indian Retailers Association and others also sought clear sanctions for those who breach the legal rules (4)
According to officials, the meeting was a session on international direct investment policy in e-commerce, and two more conferences on the subject are planned for March 19 with trade chambers and March 25 with e-commerce companies.
“This was only a consultation, and the suggestions we listened to were put forward,”
stated the official authorities,
including that the schedule for changing the press release includes several more than six associations participating in the assembly and related consultations for Friday and the following week. In addition to strict resolutions on companies, CAIT secretary general Praveen Khandelwal has urged the latest Press Note to be launched directly.
“Not only them, but their associates should be prohibited, whether in equity or economic interest, to level the playing field for certain parties. To oversee and manage the e-commerce operations in India, a regulatory body such as TRAI or SEBI is required,”
he stated.
The DPIIT is working on issuing clarifications through a Press Note that includes provisions that prohibit them from holding an oblique stake in a vendor by its father or mother, as there are concerns that some ecommerce companies aren’t adhering to the principles and are holding oblique stakes in associates. Under current regulations, the marketplace entity or its group firms cannot manage stock under the FDI guidelines (5).
“Not only them, but their associates should be prohibited, whether in equity or economic interest, to level the playing field for certain parties. To oversee and manage the e-commerce operations in India, a regulatory body such as TRAI or SEBI is required,”
he stated.
The DPIIT is working on issuing clarifications through a Press Note that includes provisions that prohibit them from holding an oblique stake in a vendor by its father or mother. There are concerns that some ecommerce companies aren’t adhering to the principles and are holding oblique stakes in associates. Under current regulations, the marketplace entity or its group firms cannot manage stock under the FDI guidelines.
It also requires the federal government to ensure that Indian-owned, Indian-managed retail businesses, including start-ups, are competitive by allowing them access to funds. Officials had previously stated that the division would conduct market consultations with all stakeholders before issuing the clarification, especially because the 25 percent definition is ineffective and readability must be provided (6).
Why a TRAI alike regulatory?
Our telecom regulatory framework is designed differently from other industries, not immediately apparent to the layperson. The pre-independence legislation that governs the industry, which was once used to regulate telegraphs but has since been forced-fitted to apply to modern technology, is one of the many reasons for this distinction. The government regulates entities that operate communication infrastructure, establish, maintain, and work the telegraphs due to how the law is written. It does not apply to the rest of us who communicate through the telecom infrastructure. This is why we have unrestricted access to telephones and internet communication devices, but service providers who connect our phones must first receive a government license (7).
This is the guiding principle behind India’s telecom sector regulation, which applies to both businesses and people. It’s why e-commerce and fintech companies, whose entire business model relies on delivering goods and services over the internet, can operate freely in India and why services like Skype and WhatsApp don’t require a license. This reveals how the regulator wants to expand its authority to regions where it does not have statutory authority to regulate. The regulator is attempting to break off the energy that all manufacturers and over-the-top operators need to operate by exercising its authority over private operators, forcing them to follow if they want to continue to access the Indian market. A legal principle states that you cannot do anything indirectly that you are forbidden from doing directly. It appears that the government is exempt from its application.
