Tough to determine if e-commerce giant breaking rules, says lawyer

 

Shopee is said to be offering incentives to sellers to close down shops on Lazada. (Bernama pic)

PETALING JAYA: A lawyer specialising in trade competition says it is not easy to establish whether an e-commerce player is breaking the law by offering vouchers to sellers to dump its competitors.

Shanthi Kandiah was commenting on a report that online shopping market Shopee is alleged to have offered RM3,000 in vouchers to entice sellers to ditch its principal competitor, Lazada.

The offer was contained in an alleged WhatsApp conversation between a seller and Shopee, which recently surfaced on tech portal Tech in Asia. Shopee appeared to be poaching sellers from their biggest competitor by offering them incentives to close their Lazada store.

“Shopee is looking to sponsor RM3,000 (worth of) vouchers to selected sellers. The only condition is to shut down your Lazada store for 9/9 (a popular Lazada sale),” reads the WhatsApp text, which was supposedly sent to a Shopee seller last year.

Section 10 of the Competition Act prohibits abuse of a dominant position, and an enterprise is prohibited from engaging, whether independently or collectively, in any conduct which amounts to an abuse of a dominant position in any market for goods or services.

Shanthi Kandiah.

Shanthi said that for a claim of abuse of dominance, one would have to establish that a company is dominant in the market.

She said the definition of “the market” could not be limited to cover other e-commerce players but also other online marketplaces and potentially even brick and mortar stores.

“Arguably, they all compete with each other which, if so, the market definition would be broader,” she said.

However, she said, there is a tendency in most countries for the competition authorities to define markets in a narrow way to assess the conduct.

“On that basis, it would be important to determine what Shopee’s market share is and whether it would cross the threshold of dominance.”

She said the Malaysia Competition Commission (MyCC) has flagged a 60% market share as one of the indicators of potential dominance in the market.

Shanthi said there are many factors that would need to be looked at in a “robust economic analysis” to see if a company is dominant, such as the presence of barriers to entry.

“The second part relates to whether the exclusivity clause constitutes abuse. It could be abusive if it is exclusionary conduct intended to drive competitors out of the market,” she said.

“Exclusivity clauses themselves are not deemed anti-competitive. The scope and duration of an exclusivity clause are relevant considerations for a finding of abuse.

“For example, it would be difficult to argue that a one-day exclusivity clause that customers can opt out of is a type of conduct that would drive their competitors out of the market.”

While FMT has been unable to obtain information about Shopee or Lazada’s revenue or profits to determine whether either is in a position of “dominance”, Shopee is the most visited e-commerce platform according to data from iPrice Group, an online shopping aggregator platform.

Shopee racked up 47.3 million visitors in the last quarter of 2020 while Lazada recorded 14.8 million visitors. However, this does not include visits through mobile applications.

While another source said the WhatsApp message looks to have an “antitrust element”, he agreed that for Shopee to have infringed Section 10, it is “very important that it is first established that they enjoy a dominant position”.

“Just having an exclusivity clause per say does not infringe Section 10,” the competition expert said.

“Shopee might say, ‘We do not enjoy a dominant position, so it’s not an infringement of the law’.”

The expert noted that the WhatsApp message may just be an allegation, but the fact that Shoppe has not come out to deny it “speaks volumes”.

Lazada declined to comment on the report, but a source familiar with the company said it does not ask merchants to shut down stores on other platforms, and it supports the sellers’ rights and freedom to choose what is the best for their business.

The source also said Lazada welcomes sellers to join and enjoy seller packages that will benefit them, while also selling on other platforms. - FMT