OFT study on e-commerce and competition

Amelia Fletcher, Simon Gaysford and Adele Oliveri of Frontier Economics say in the paper that e-commerce is unlikely to develop entirely new forms of anti-competitive behaviour that cannot be dealt with under existing competition law. But they conclude that a number of areas will require careful monitoring and that in some cases detailed application of competition law may require some adjustment.

The OFT says the paper has been published to stimulate discussion.

Among Frontier's conclusions and recommendations are:

• Many of the characteristics of e-commerce and associated patterns of behaviour will tend to lower barriers to entry into both B2C and B2B e-commerce, reducing the potential for players to secure and exploit market power.
• There are certain characteristics of e-commerce which may tend to raise barriers to entry such as sunk costs of establishing consumer loyalty - reputation, branding and customer loyalty will become increasingly importantand may create significant first-mover advantages. These could be reduced if customers were able to 'port' their own database entries from site to site.
• Increased buyer power will tend to limit the extent to which high market shares and barriers to entry will confer market power.

John Bridgeman, Director General of Fair Trading, said:

"Competition authorities worldwide are facing the challenge of ensuring that e-commerce flourishes in a competitive environment. The balance to be struck is that of protecting consumers without stifling innovation.

"Many characteristics of e-commerce should increase competition because buyers will have access to a global marketplace and the ability to easily compare price and product features. Conversely e-commerce may also enable business to become more efficient at damaging competition.

"Whether existing competition law is up to the task of dealing with this new and constantly evolving marketplace is an issue being considered by many competition authorities. This paper is intended as a platform for discussion and debate amongst practitioners and interested parties."