Singaporean growing ecommerce may entail potential risks - study

An established online marketplace, for example, may stifle the growth of a newcomer by requiring retailers to list products exclusively on its website, or to always offer the lowest price on its marketplace in comparison to new online marketplaces, according to a study issued by DotEcon research company and commissioned by the commission of Competition Commission of Singapore (CCS), SingaporeBusinessReview reports.

The market may “tip” towards a few established ecommerce platforms. New entrants might find it difficult to make headways in a space that rewards already-successful online platforms. The availability of product prices online might also facilitate collusion. For instance, companies may use sophisticated systems to monitor competitors’ online prices to ensure that they do not undercut rivals. This could lead to customers paying higher prices and diluting the benefits of scoping for competitive prices online.

Further, online vertical agreements, such as price parity clauses, have the potential to be harmful to competition and businesses may enjoy benefits such as brand protection and enhanced platform value that come with these agreements, but the possibility of dampened price competition looms.

For instance, Singapore’s Competition Act exempts vertical agreements from the section 34 prohibition of the Act: this may be problematic in relation to ecommerce, especially if the upstream platform provides a service to a downstream seller while at the same time competing with the downstream seller.

With Singapore’s ecommerce activity growth set to skyrocket to USD 4.4 billion by the end of 2015 alone, the need to mitigate these potential risks rises. Fortunately, the study declared that CCS’s current assessment frameworks and competition laws were “well-suited” to coping with these issues. For now, there is reportedly little need for an interventionist approach that might only create market distortion.