E-commerce, competition policy, and development

1. E-commerce, competition policy, and development Andrea Goldstein OECD Development Centre Workshop on Electronic Commerce Business Impacts Project (EBIP), Rome, 29-30 October 2001

2. Internet, the Great Equalizer? • makes the whole economic system, nationally and internationally, more competitive • prices of well-specified goods and services available on-line • buyers can shop for the best deal over a wide geographic area • sellers can reach a larger group of buyers • textbook model of perfect competition • large numbers of buyers and sellers • market with perfect information • lower profit margins • more efficient production • greater consumer satisfaction

3. Commissioner Monti’s Opinion The Internet is a wonderful enabling technology, which will in principle increase competition in many markets. Nevertheless, that does not mean that it is immune from competition problems. Can competition law that was designed to deal with bricks and mortars deal with clicks and portals?

4. General competition concerns • "gate-keeper" effects and vertical integration (between portals and sites/products, or ISPs and multimedia companies) --> ensure that control over telecom networks does not lead to distortions of competition • removal of geographical barriers to competition --> avoid speculative, discriminatory and abusive registration or management of Internet domain names

5. Does e-commerce create new markets for the purposes of competition policy? • The answer will differ from market to market • will partly depend on • whether and how firms in traditional channels become involved in B2C and B2B "e-marketplaces" • on-line deliverability of a product • In OECD countries it is more likely to be a new sales channel • in non-OECD countries, where traditional sales channels are less well-developed, e-commerce creates new markets (eg, car parts in India)

6. May product markets be made narrower as a result of increased scope for price discrimination? • e-commerce makes it easier to • quote different prices to different buyers • use information about consumer buying habits to identify those willing to pay higher prices • take advantage of the fact that higher income consumers, i.e. those with a greater ability to pay higher prices, place a higher value on time  evidence points to persistence of price dispersions across Internet markets

7. Will geographical mkts be widened? • Forces mitigating against there being a truly global market in many products • Language barriers • taxation quandaries • regulatory barriers (differences in national laws concerning things like discounts, comparative advertising, resale price maintenance and exclusive territories) • physical delivery problems • absence of secure payment systems • difficulties identifying actors and enforcing contractual rights

8. Lower entry barriers lower search and selection costs on the buyer side lower transaction costs reduced need for physical assets rapid mkt growth Higher entry barriers sunk costs of establishing customer loyalty (so-called “neural real estate”) network effects --> markets are “tippy,” especially when liquidity and proprietary SCMSs are important Assessing market power

9. Sunk costs customers’ ability to “port” their own database entries effective consumer protection legislation “Tippy” markets ability of mkt participants to monitor different marketplaces and to switch between them (see AOL 5.0 interoperability example) Reducing first-mover advantages

10. Business-to-Business trading systems • Will sensitive information be exchanged between competitors? • Can these systems be used to exclude individual companies from the most efficient virtual market place? • Can the concentration of buyer power be a cause for concern?

11. E-commerce and consumer policy • consumers’ minimum rights • previous information • obtain necessary documentation • resolve a contract

12. Guidelines for Consumer Protection in the Context of E-commerce • approved on 9 December 1999 after 18 months of discussion by the OECD CCP • help ensure that consumers are no less protected when shopping online than they are when they buy from store or order from a catalogue • reflect existing legal protection available to consumers in more traditional forms of commerce • encourage private sector initiatives that include participation by consumer representatives; • emphasise the need for co-operation among governments, businesses and consumers

13. A quote from John Vickers The growth of e-commerce can be hugely beneficial to consumers, businesses and the economy. It gives consumers the ability to shop around far more easily than in the past and so encourages price competition and innovation among suppliers. Part of our job is to help make it a more secure channel by ensuring suppliers fulfil their obligations. Implementation of the distance-selling regulations and our role in the creation of the TrustUK approvals body for e-commerce codes are just two ways we are doing this.

14. Unfortunately ... • only 44 percent of e-businesses complied with the basic requirements of the Data Protection Act of 1998 • Web sites inform visitors how information that visitors provide will be used • Web sites keep data secure and refrain from sharing it with third parties without permission • 52 percent of the 637 businesses visited by OFT failed to comply with the UK's Distance Selling Regulations • businesses must provide full disclosure of refund, exchange and order cancellation policies

15. Competition policy and e-commerce in non-OECD countries • State ownership • multi-industry conglomerates • large MNCs vs little SMEs • small markets • income and endowments inequality • institutional weakness • information asymmetries

16. Trade and Competition Policy • need for: • enhanced competition in telecoms to facilitate lower priced access to the Internet • greater competition in international parcel delivery services • streamlined customs procedures

17. Sources • Goldstein & O’Connor, E-commerce for development, OECD Dev’t Ctr, Oct 2000 • OECD, Competition Issues in Electronic Commerce, DAFFE/CLP(2000)32 • Office of Fair Trading, E-commerce and its implications for competition policy, Aug 2000