What impact has the rapidly changing digital market had on competition in your jurisdiction, and how have legislators and competition authorities responded?

The ever-expanding digital market has recently established a solid footing in Pakistan, which has seen a growth in digital businesses, including:

  • home-based cooking services;
  • plumbing services;
  • grocery and vegetable stores;
  • cinema ticket services;
  • shopping sites selling various luxury brands;
  • household items; and
  • transport hiring platforms.

While all new businesses have an online presence, bricks-and-mortar businesses have only started to realise the importance of having an online presence in the digital market and are moving towards establishing their presence in the digital economy. Operating a bricks-and-mortar business in a traditional market is costly, but new retailers rely on online channels to avoid business costs. Entry into the online market and advertising online creates a larger potential market. While this may increase competition, the limited online presence and large costs incurred by bricks-and-mortar businesses may result in them losing their market share.

There have been no changes to competition law to include the digital economy. However, recent Competition Commission decisions have underlined that the online presence of businesses and the information provided on such websites are considered when gathering information. During a recent enquiry conducted into Kaymu (which provides an online shopping platform) for deceptive marketing practices, the competition authorities relied on guidelines issued by:

  • the New Zealand Commerce Commission for buying and selling online; and
  • the US Federal Trade Commission.

The Competition Commission's enquiry report underlined that:

  • when using an online forum, buyers must also explore the platform's guidelines and requirements and fully comprehend the information available on the website before making any commitment; and
  • service providers must make clear and conspicuous disclosures of the terms and conditions and other necessary information that could impact a buyer's decision-making process.

In terms of market definition, are online services considered to be in the same market as traditional services in your jurisdiction? What impact has this had on competition?

Under the Competition Act 2010, the term 'relevant market' is defined as:

"the market which shall be determined by the Commission with reference to a product market and a geographic market and a product market comprises all those products or services which are regarded as interchangeable or substitutable by the consumer by reason of the products' characteristics, prices and intended uses. A geographic market comprises the area in which the undertakings concerned are involved in the supply of products or services and in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring geographic areas because, in particular, the conditions of competition are appreciably different in those areas."

As stated in the commission's guidelines, when defining markets, the commission will consider direct or indirect information as well as data and facts relevant to the case at hand. However, market definition is only an analytical tool and not an end in itself.

The definition of 'relevant market' or any references to a 'market' in competition law does not create a distinction between digital and traditional markets. As seen from various Competition Commission decisions regarding deceptive marketing practices by undertakings through digital and traditional means, the principles applied to a traditional market are often extended by the competition authorities to digital markets. However, as mentioned above, the recently issued report following the enquiry conducted into Kaymu drew on guidelines issued by the New Zealand Commerce Commission and US Federal Trade Commission when considering digital advertising and marketing. In the absence of specific legislation, the commission may rely on guidelines issued by other competition authorities if the need to create a distinction between online and traditional services arises.

What types of conduct constitute abuse of dominance in the online space and what practices are most likely to catch out unwary online players?

In the absence of specific legislation regarding the abuse of dominance in the online space, the principles set out under the Competition Act 2010 are applied by the competition authorities.

The abuse of a dominant position by an undertaking is prohibited under Section 3 of the act and will be deemed to have been brought about, maintained or continued if it consists of practices that prevent, restrict, reduce or distort competition in the relevant market. Such practices include, but are not limited to:

  • limiting the production, sale and unreasonable increases in price or other unfair trading conditions;
  • price discrimination by charging different prices for the same goods or services from different customers in the absence of objective justifications that may justify different prices;
  • tie-ins, where the sale of goods or services is made conditional on the purchase of other goods or services;
  • concluding contracts subject to acceptance by the other parties of supplementary obligations, which by their nature or according to commercial use have no connection with the contracts;
  • applying dissimilar conditions to equivalent transactions on other parties, placing them at a competitive disadvantage;
  • predatory pricing driving competitors out of a market, preventing new entry and monopolisation of the market;
  • boycotting or excluding another undertaking from the production, distribution or sale of goods or the provision of services; or
  • refusing to deal.

As set out in the Guidelines for the Abuse of a Dominant Position, the commission conducts a detailed assessment of the relevant market and the effect of the undertaking's conduct on competition, while also evaluating the alleged abuse of dominance. The commission applies a step-wise approach to assess whether an undertaking's conduct is anti-competitive under Section 3 of the act, which includes:

  • defining the undertaking concerned;
  • defining the relevant market;
  • assessing whether the undertaking is dominant in the relevant market; and
  • assessing whether it is abusing its dominant position.

What steps are competition authorities in your jurisdiction taking to prevent online retailers and service providers from free riding on the investments of bricks-and-mortar retailers and service providers?

At present, the competition authorities have not taken any specific steps to prevent online retailers and service providers from free riding on the investment of bricks-and-mortar retailers and service providers. However, the Competition Commission has undertaken to create awareness of anti-competitive behaviour and deceptive marking practices through press releases, seminars and workshops, advocacy initiatives and publications such as 'The Guidance on Competition Compliance and Ceteris Paribus, its bi-annual newsletter. Further, in November 2016 the Competition Commission launched its Competition Advocacy Academia Drive campaign in leading universities across Pakistan, which aims to promote awareness of competition law among university students and faculty members. The campaign introduced a 16-week module on economics and competition law, which was developed by the commission in collaboration with King's College London. The commission hopes that various universities will adopt these modules as part of their curriculum. The Competition Commission also has the power to take suo motu (ie, on its own motion) notice of matters and is vigilant in ensuring that anti-competitive behaviour and deceptive marking practices are curtailed.

How can competition authorities best ensure that these steps do not hinder innovation or consumer choice and promote the continued evolution of online services?

As the Competition Commission has taken no specific action concerning free riding and deceptive marketing practices adopted by online retailers and service providers, it is difficult to say how and to what extent the Competition Commission would ensure the promotion of innovation and consumer choice while preserving competition with regard to online services. However, when dealing with the traditional market, the Competition Commission has been successful in striking a balance between preserving healthy competition and promoting consumer choice. As a first step, the commission should consider issuing guidelines for online advertising and businesses for both retailers and consumers to ensure that:

  • online retailers and service providers do not unfairly trade on the goodwill of, and investments made by, bricks-and-mortar retailers and service providers;
  • consumer choice is not restricted; and
  • online businesses continue to grow.

For further information on this topic please contact Sanaya F Vachha or Ferzeen E Bhadha at Vellani & Vellani by telephone (+92 21 3580 1000) or email ([email protected] or [email protected]). The Vellani & Vellani website can be accessed at www.vellani.com.