New e-commerce landscape: the implications of regulating the platform economy

First and foremost, the administrative and financial burden will increase. Online platforms will be required to integrate with government information systems (the Federal Tax Service, the Federal Service for Accreditation, and the Honest Sign product-labeling system) and verify the legality of sellers and goods in real time. This will require substantial investment in IT infrastructure. In addition, the law formalizes how commissions, discounts, and product-ranking algorithms can be changed, limiting platforms’ operational flexibility. Business models will also change. For sellers, the main risk will shift from the level of commissions to the stringency of compliance requirements. Trading in counterfeit and falsified goods, unmarked products, products without valid certificates, or unregistered dietary supplements will become impossible. Marketplaces will be forced to block large numbers of product listings that fail automated checks, potentially causing sellers financial losses.

Marketplaces will face new types of risk. For example, technical failures may occur when interacting with government registries. Errors or delays in updating data could lead to the mass blocking of legitimate products, preventing customers from buying the goods they need. One positive outcome is greater transparency in the terms of trade on platforms: platforms will have to notify their partners of changes to the terms in advance. This will undoubtedly reduce the risk of small and medium-sized businesses—the largest group in the platform economy—being caught off guard by sudden changes to the rules of the game.

How will the law affect consumers? First, product safety and quality should improve. Buyers will have assurance that goods have the required certificates and that sellers are legally registered. The share of counterfeit and falsified goods is expected to fall substantially, which is especially important in categories such as children’s products, perfumes, electronics, and medicines. Information will also become more transparent. The law requires platforms to disclose complete information about sellers, the country of origin of goods, and whether mandatory labeling is present. But there are also downsides. Prices may—and most likely will—rise as sellers’ costs for certification, labeling, and taxes increase. These additional business costs will most likely be reflected in product prices. Experts estimate that some products could become more expensive. Temporary shortages of particular goods may also occur because of mass listing blocks caused by technical errors in registry integration or because legitimate sellers have not had time to obtain the necessary documents.

Continuing the discussion of the law’s effects on consumers, it is worth mentioning the problem of “consumer extremism.” The law does not address abuse of the right to return goods—for example, attempts by buyers to return seasonal products after their period of use has ended. Sellers will continue to factor these logistical risks, which can sometimes account for as much as 90% of revenue from returns, into prices for conscientious buyers.

Overall, consumer demand is expected to benefit as consumer confidence grows: the fear of buying a counterfeit or unsafe product will diminish. Consumers will be more willing to make higher-value purchases online, such as complex electronics and medical devices, knowing that their rights are protected and the goods are legal. In the short term, however, demand in the low-price segment may decline. As prices rise, some buyers will switch to cheaper alternatives at independent brick-and-mortar retailers or turn to imports through alternative channels. Temporary product shortages caused by blocked listings may also lead consumers to postpone purchases.

In the long term—one to two years after the law takes effect—growth in both supply and demand is quite likely, but it will probably be accompanied by qualitative changes in the market, including the exit of unscrupulous and financially unsustainable players. In other words, the market may undergo a process that some experts call “cleansing.” This could happen for the following reasons:

• Clear rules of the game will attract new large and medium-sized sellers to platforms. Previously, some avoided marketplaces because of opaque competition with counterfeit sellers and price undercutting by “gray” importers. Better terms and greater transparency will make legitimate businesses more willing to list their products on platforms;
• Greater consumer confidence will shift demand from offline to online channels for higher-priced product categories. Consumers will begin buying online more often products that previously required an in-person inspection and a check of the documentation;
• The law establishes transparent rules for interaction, which may reduce the number of disputes and speed up order processing, making the purchasing process more predictable.

One more important point: clear regulation will make the industry more attractive for long-term investment in infrastructure (fulfillment centers, distribution networks, and more), helping marketplaces increase their physical capacity. Nevertheless, a temporary downturn is possible in the short term—the first three to six months. A reduced product range as many players leave the market, combined with rising prices, could lead to stagnation or a slight decline in unit sales. In monetary terms, however, the market will most likely continue to grow as the average price per item increases.

Author: Marina Borisovna Medvedeva, Doctor of Economics and Professor in the Department of World Economy and International Finance at the Financial University under the Government of the Russian Federation.