Amazon in a big dilemma

Pharma, telecom, financial services and e-commerce are just a few of the industry sectors where companies and business models have been either extinguished or supercharged due to regulatory decisions. A carry-over of this attitude while regulating technology companies can have disastrous consequences for innovation and conducting business. Death by compliance.

But could it be possible that India’s regulators may be at the forefront of devising regulations to check the uncontrolled growth and domination of “Big Tech”?

Could it be that Indian regulators already hold answers for their peers around the world on how best to control the unchecked dominance of tech giants such as Facebook, Google and Amazon?

Across the world, there has been a growing call to regulate big tech companies to protect citizens’ rights and competitiveness of markets. Many smart people have argued that the free hand given to tech companies in markets like the United States has resulted in them developing into behemoths, which has, in turn, led to deleterious effects, not just to economies but democracies around the world.

Sort of like an overfed, pampered and badly brought-up child growing up to be a bully as an adult.

So, if someone must discipline these bullies and teach them how to play by the rules, it won’t be their parent countries, but other countries in which they operate.

Indian regulators had, for the most part, taken a hands-off approach to the tech industry, similar to the US. This became one of the major factors that led to the growth of tech and Internet in India. “The fact that we have had a fairly lax regulatory environment, particularly around data, is itself quite a spur to a lot of innovative activities,” says Arghya Sengupta, Research Director at policy advisory group Vidhi Centre for Legal Policy.

But then things changed, as Indian regulators started hitting nails pretty accurately on their heads across different sectors.

Could India be the hero the world needs, even if not the one it deserves?

Forcing Amazon to choose

Amazon India is very different from Amazon US. In the US, its e-commerce operations are highly centralised as a corporate. Its control over every single component of its operations, by owning multiple related business lines, has led to it becoming one of the largest corporations in the world.

But in India, neither Amazon nor its arch-nemesis Flipkart (now owned by Walmart) has the kind of structural control over the e-commerce market like Amazon does in the United States. Why? One key reason is that Indian regulations explicitly forbid e-commerce players acting as both third-party marketplaces as well as their own stores. Thus, Amazon and Flipkart cannot sell their own products on their own websites. Under the FDI policy passed by the Department of Industrial Policy and Promotion, while 100% foreign investment is allowed for marketplace-based e-commerce, it is not allowed for retail-based e-commerce.

Jaideep Reddy, a Technology Lawyer at legal and tax consulting firm Nishith Desai Associates, says that the argument for not allowing these companies to sell their own products is to protect mom-and-pop stores; that these stores wouldn’t be able to afford the kind of deep discounting that the venture-backed companies can provide. He also says that there are those who make the argument that opening up foreign investment in the long-run could benefit the economy by, at the very least, increasing jobs.

Lina Khan, an antitrust scholar, in an article titled ‘Amazon’s Antitrust Paradox’, published in Yale Law Journal, makes a similar contention. She says that a company like Amazon has been able to grow to the extent that it has for two reasons—ability to sustain losses over a long period of time and presence in a range of related businesses.

The discussion around this topic so far has been on Flipkart and Amazon’s ability to sustain losses, but the latter plays out in a far more sophisticated manner to remove smaller sellers from the equation. This is already happening in the United States, where Amazon is said to be elbowing out smaller sellers from its platform. With access to information about the nature of the products that are sold, it is able to completely sideline these sellers by directly buying those products from the manufacturer.

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