Understanding online marketplace from antitrust point of view
Online marketplace is an internet platform that allows third-party companies to sell their products alongside the products owned by the online market giant, who owns this marketplace. Many third-party sellers are willing to pay it a fee or percentage of their sales for access to a greater number of customers to this online marketplace. The best examples of large online marketplace, which operate analogous platforms, are few and diversified across the globe.
The are many benefits which online marketplace bestows to its consumers which include inter alia stimulating the demand by showcasing different products, reducing asymmetric information by revealing the prices of products online with its reviews, increasing the competition by lowering the transaction cost through avoidance of agents or intermediaries and minimizing inventory cost and marketing cost. At the same time, it might have possibilities of hurting consumers too. These online marketplace having data of wide ranges of customers in the market creates monopoly power through various means which include inter alia placing preferred products in front of customers thereby reducing indirectly their choice of selection and might have possibility of tendency to form a dominant price leader ultimately. The monopoly output is less than the competitive output, and the monopoly price is greater than the competitive price. Therefore, the market is not Pareto Optimal and thus there is deadweight loss to the economy.
Online marketplace creates a principal agent problem with the consumers in which they bargain with sellers on behalf of consumers. Since because of its monopoly, it has a much larger bargaining power than the individual consumer and because of information asymmetry between them and consumers, the full benefits of bargaining done by them may not be available to consumers, which was a clear possibility in free market scenario. Predatory pricing by this marketplace may affect the small-scale producers leading to their elimination and thus contribute to reduction of the consumer choices in future. They adopt different types of anticompetitive practices such as foreclosure which means refusing to sell a product unless a purchaser buys other products the firm is selling or involving bundling of products, imposing their standards and conditions on producers, which may stop their entry to marketplace. This may indirectly lead finally to incomplete information about products, as it may impose consumers to be visible only to selective products, without having detailed information of its quality assessment.
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