Competition between Marketplaces and marketplace sellers
The evolution of uses and the digitalization of consumption channels have led to the emergence of marketplaces. Thus redistributing the roles of merchant websites. The marketplace is a commercial intermediation service regulated by a legal field. Involving banking operations and payment services in return for remuneration or economic benefit. More generally, it is a multi-seller e-commerce website and not a single seller.
In the beginning, the marketplace was not aimed at the general public, but at B2B. And was mainly used to respond to calls for tender. With the democratization of purchases by individuals on the web, the term marketplace has evolved. To include sales by professionals to individuals or even between individuals. You will find a more precise definition of this term here.
Increasing price competition
A large number of marketplaces were initially “simple” e-commerce websites (Amazon, Fnac, Cdiscount, etc.). Then, because of the popularity of the phenomenon, they decided to integrate third-party sellers into their platform to offer their products. This is the opposite of websites like eBay or PriceMinister which have always been only marketplaces, without ever selling their own products.
So if you sell on Amazon, Fnac, etc., this is what can happen:
– The website identifies the best sales of its marketplaces sellers.
– The website then checks (via its purchasing team) if it sells these products itself.
– If not, the site contacts its suppliers to also distribute these products that seem to be selling well via the marketplace.
The risk for you, as a marketplace seller, is that a new competitor will arrive, namely the marketplace itself. Which will charge the lowest price and whose reputation will reassure the customer more.
Unfair competition: the case of Amazon
Accused of ruining local commerce, generating heavy road traffic, and mistreating its employees. Amazon is also the subject of two investigations by the European Commission. Last 10 November, Brussels informed the American online retail giant that it had “infringed EU rules on anti-competitive practices by distorting competition in online retail markets.
The two investigations have the merit of exposing the relationship between the company and the third-party sellers. To whom it offers its marketplace services, which account for a significant and growing part of its turnover.
The clauses of the contract between the marketplace and the seller
The judgment is particularly interesting in that it details Amazon’s practices concerning third-party sellers. They are the source of 80% of the goods sold on its site. These third-party sellers do not negotiate contracts with Amazon: the intermediation platforms have automated procedures to offer consumers identical terms, conditions, and services for all products.
However, the clauses remain significantly unbalanced to the detriment of sellers. They reveal the discretionary power of the platform. Which can modify the contract. Including essential elements such as the amount of commission to be paid by the seller. Suspend it, terminate it, prohibit or restrict access to any Amazon site, delay a sale or refuse it.
In each case, Amazon reserves the right to act at its discretion. Without prior notice or individual notification to the seller concerned, and without providing reasons for its decision.
The European Regulation 2019/1150
These clauses are censured by the judge as creating a significant imbalance in the rights and obligations of the parties. They will no longer be possible in the future. The European Regulation 2019/1150 of 20 June 2019, aimed at promoting fairness and transparency for businesses using online intermediation services, now requires that decisions be reasoned, notified individually to each seller and that they respect a notice period (minimum 15 days).
This requirement puts an end to Amazon’s practice of simply informing users via the “central seller” interface, which they were supposed to consult regularly to be informed of contractual changes.
Amazon’s argument, which consisted of hiding behind the necessary automation of a marketplace guaranteeing the homogeneity of services to manage 170,000 sellers. Was therefore swept aside by the court. The European Court found that if Amazon can send an email to millions of consumers. To tell them that their order has been processed and that their account will be debited. It must be possible to do the same for third-party sellers!
Performance drivers
Another area of contention is the clauses on performance factors. These factors (rate of defective orders, rate of cancellation of orders before processing, rate of late shipments) have a direct impact on the seller’s account: if his performance index falls, his account will be suspended and he will not be able to sell for the whole period of the suspension and his funds will be blocked for the proceeds of his past sales, for up to 90 days.
However, not only are the performance indicators not included in the contract but their criteria are considered imprecise, unstable and their evolution totally discretionary.
A to Z guarantee
Finally, the “A to Z guarantee” clause is also censured: it allows the third-party seller’s customers to return their products. And be reimbursed for the price of their purchase in various situations (non-compliant product, defective, delivered out of time, etc.). The third-party seller is debited on its account for the reimbursement made by Amazon. Even if, after investigation, the complaint is considered unjustified and even if the product is not returned. Yet Amazon, for its own products in direct competition with those of third-party sellers. Only refunds the consumer if the product is returned.
The Regulation will have little effect here except in the form of individual notification of any decision to restrict or suspend the provision of online intermediation services to a user undertaking. The platform will have to “make reference to the specific facts or circumstances, including the content of third party notices”.
Article 5
Article 5 of the EU Regulation on ranking merely requires that the main parameters and the reasons justifying the relative importance of these main parameters compared to the other parameters be set out in the general terms and conditions and whether it can be influenced by direct or indirect remuneration paid by user undertakings and if so describe these possibilities and their effects. The European Commission should issue guidelines on transparency requirements.
Article 7
Article 7 of the Differential Treatment Regulation refers to the case where the platform itself offers goods and services in direct competition with third-party sellers, which is the case with Amazon. In this case, the risk is that it takes advantage of its position to provide technical or economic advantages to its own offerings. Which it could deny to competing user businesses.
This is exactly what the European Commission’s abuse of dominance investigation is about. Brussels accuses Amazon of using non-public commercial data of third-party sellers (number of units of products ordered and shipped, revenues of sellers on the marketplace, number of visits to sellers’ offers, data on shipments, past performance of sellers) to build its own offer and make it more attractive to the detriment of third-party sellers. But the regulation does not prohibit these practices, it merely requires transparency.
A step forward for third-party vendors
In the end, the court, after having assessed the overall imbalance, ordered Amazon to pay a civil fine of 4 million euros. The court rejected the American giant’s logic, which was that all the services offered to sellers offset the disputed clauses. It highlights that, while Amazon’s services are indeed effective, they also cost sellers money.
The judge also stated that “some of the breaches, in particular those relating to commercial performance indicators, are such as to allow Amazon to use a stipulation. In order, after having tested a new product launched by a third-party seller on a market. To favor the sale of its own product to the detriment of the third-party seller’s product. After having aligned its price.”
Applaud the work of the national judges
In the end, the hard work of the national judges is to be commended. Despite a fine that is ridiculously high concerning Amazon’s financial standing. The new Regulation is a step forward for third-party sellers, but it is far from being a form of regulation of the platforms’ business model.
It would seem that the Treaty on the Functioning of the EU and its Article 102 on abuse of dominant position is much more effective. But the time factor works against it, as the duration of an investigation depends on the complexity of the case. The degree of cooperation of the companies involved with the Commission, and the exercise of the rights of defense.
Finally
Even if the marketplaces remain a good way to make yourself known and to sell your products. It is easy to see that your dreams of success can be swept aside by a certain giant.
This is why, before launching yourself on marketplaces, it is better to be informed. And know what you are getting into. Be aware of your rights and the laws that exist to protect third-party sellers.
At Powerlab, we are connected to some 30 marketplaces around the world. We know the rights of sellers and we always make sure that these are respected.
Want to know more? Please contact us! We’ll be happy to talk to you. You can also leave us a comment.
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