Can marketplaces restrict products during festive sales without violating competition law?

Festive sales, especially during major holidays or shopping events like Diwali in India or Black Friday globally, are often a significant driver for e-commerce platforms. These events are marked by deep discounts, exclusive deals, and, in some cases, limited-stock offerings. However, such sales strategies - such as restricting certain products or creating artificial scarcity could potentially lead to concerns regarding competition law. The question arises: can these platforms legally restrict products or create scarcity during festive sales, or could such actions be seen as anti-competitive practices under competition law?

When Can Product Restrictions Be Legally Allowed in Festive Sales?

• Limited Stock and Product Availability: Many e-commerce platforms use the strategy of limiting product availability during festive sales to generate excitement and urgency among consumers. This practice is common in flash sales or limited-time offers. From a competition law perspective, this is typically allowed as long as it does not create an unfair advantage or prevent market competitors from offering similar promotions. As long as the restrictions are transparent and the terms are clear, this strategy does not usually violate competition laws.
• Exclusive Promotions and Discounts: Offering exclusive promotions, such as "early access" for loyal customers or special discounts for specific groups, is another common practice during festive sales. While this might seem like price discrimination, it is generally not considered anti-competitive unless it unfairly excludes competitors or prevents consumers from accessing similar deals. For example, if a platform restricts promotions to certain regions or customer segments in a way that harms the broader market, this could raise competition law concerns.
• Product Bundling and Price Discrimination: Bundling products or offering discounts on specific combinations of items during festive sales can sometimes raise issues related to price discrimination or anti-competitive conduct, particularly if the platform has market dominance. For instance, if a dominant platform bundles products in such a way that it forces consumers to buy unwanted items to access discounts, it could be seen as an unfair practice. However, bundling itself is not inherently illegal if it’s done transparently and does not harm competition or consumer choice.
• Market Dominance and Abuse of Power: If an e-commerce platform holds a dominant position in the market (for example, controlling a significant share of e-commerce sales in a region) and uses festive sales to unfairly restrict access to certain products or limit consumer choice, this could be considered an abuse of market dominance. Under competition laws, businesses in a dominant position are prohibited from using their power to exploit consumers or stifle competition. For instance, if a platform intentionally restricts the availability of popular products in a way that harms smaller competitors, it may face legal scrutiny.

Potential Risks of Violating Competition Law During Festive Sales

• Price-Fixing and Collusion: One of the major concerns with restricted products during sales is the possibility of price-fixing or collusion between multiple marketplace sellers or even with manufacturers. For example, if a group of platforms agrees to limit the availability of certain products or raises prices artificially during a festive sale, this can violate anti-competitive laws. Such practices are prohibited under most competition laws worldwide because they distort the free market and harm consumers.
• Artificial Scarcity and Consumer Manipulation: Platforms may sometimes create artificial scarcity by limiting stock or promoting a "flash sale" mentality. While creating urgency and excitement in sales events is common, if done deceptively or in a way that misleads consumers into thinking products are rarer than they are, this could lead to legal challenges for unfair trade practices. For example, if a platform advertises that a product is in limited supply but continues to restock it at the same inflated price, this could be seen as manipulative behavior.
• Exclusionary Practices: If a platform’s sales strategy unfairly excludes competitors, for instance, by giving exclusive deals to certain sellers or blocking access to products for smaller competitors during a sale, this could be considered anti-competitive. Exclusionary practices that harm competition or consumer choice are scrutinized under competition laws, and platforms may be penalized if found guilty.

When Is Restricting Products Unlikely to Violate Competition Laws?

• Transparent Advertising and Fair Terms: Marketplaces are generally allowed to restrict product availability or offer limited-stock deals as long as they clearly communicate the terms to consumers. For example, if a platform clearly states that a product is available in limited quantities or for a limited time, and the restrictions are part of a fair sales strategy, it is unlikely to be seen as an anti-competitive practice.
• Level Playing Field for Competitors: As long as restrictions or promotions do not block competitors from offering similar products or promotions, the sale can be considered lawful. If the platform’s actions are within the bounds of fair competition and do not distort the marketplace by preventing other sellers from entering the market or offering competitive prices, such practices are typically accepted.
• Short-Term Sales Events: Temporary restrictions during festive or special sales events are generally allowed. E-commerce platforms often run these promotions to boost sales during high-demand periods like holidays or festivals. As long as the sales event is brief, transparent, and does not harm competition in the long run, it is typically not seen as violating competition law.

Competition Law Violations and Enforcement

• Investigations by Regulatory Authorities: If there is suspicion that a platform is engaging in anti-competitive behavior during festive sales (e.g., manipulating prices or unfairly limiting product availability to harm competitors), competition regulators (such as the Competition Commission of India (CCI) or the European Commission) may investigate. Regulators have the power to impose fines or mandate changes in sales practices if they find violations.
• Penalties for Anti-Competitive Practices: If a marketplace is found guilty of anti-competitive behavior, such as price-fixing, collusion, or abuse of market dominance, it can face substantial penalties. These can include hefty fines (up to 10% of global turnover under certain jurisdictions), forced changes to business practices, and even potential litigation from consumers or competitors.
• Consumer Protection Laws: Besides competition law, consumer protection regulations also prevent misleading or deceptive practices during sales events. If a platform engages in unfair conduct (like creating fake scarcity or misrepresenting product availability), it could face actions under consumer protection laws, in addition to competition law scrutiny.

Example

Scenario:

An e-commerce platform runs a festive sale where it restricts access to a popular mobile phone model, claiming only 100 units are available at a discounted price. However, the platform restocks the product repeatedly during the sale and advertises it as "limited edition," creating a sense of urgency. Competitors claim that the platform is manipulating the market by creating artificial scarcity to boost sales.

Steps the platform should take:

• Clear Communication: The platform should clearly communicate the limited stock or exclusivity of the product upfront, avoiding misleading language like "last chance" unless it is true.
• Ensure Fair Competition: The platform should ensure that its practices do not prevent other sellers from offering similar products at competitive prices during the festive season.
• Transparency and Legal Compliance: The platform should ensure that its pricing strategies and promotions comply with competition law and consumer protection regulations to avoid penalties or legal actions.

Conclusion

Marketplaces can restrict products during festive sales without violating competition law if they do so transparently and fairly, ensuring that no unfair advantage is created for themselves at the expense of consumers or competitors. However, practices such as artificial scarcity, price-fixing, or excluding competitors could lead to serious legal consequences. Platforms must balance their sales strategies with adherence to both competition law and consumer protection regulations to avoid legal pitfalls.