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Retailers Rally Around Regulations for Online Competitors

· March 24, 2021

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Continuing a trend from last year, large retail companies are once again pushing a proposal to increase regulations on their online competitors.  In previous years, these companies have used “consumer protection” as a red herring to rationalize additional regulations for competitors, particularly when those rivals are Internet-enabled.  Recent bills that would require online marketplaces to gather and disclose personal, financial, and contact information about their third-party sellers are another example of this phenomenon.

On March 23, the “Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act” (INFORM Consumers Act; S. 936), was reintroduced in the Senate.  Last Congress, similar legislation drew support from Home Depot and Walgreens, and on Tuesday sponsors again cited support from large retail interests, all of whom are unlikely to be affected by the legislation, but compete against e-commerce providers who would.  In fact, industry proponents of the bill have publicly acknowledged their desire to target e-commerce competitors.

S. 936 would require online marketplaces to annually collect information from “high volume” sellers.  “High volume” sellers are defined as those who annually have more than 200 transactions totaling more than $5,000, a definition that would sweep in many small businesses that use online marketplaces.  The information required would include sellers’ government-issued photo identification, tax ID number, bank account information, and contact information.  In addition, online marketplaces would be required to publicly reveal sellers’ name, address, phone, and email, as well as the sellers’ means of acquiring what goods it sells (e.g., manufacture, import, resale). 

If revealing supplier information to the public would promote consumer protection, however, then that principle should extend to whether consumers shop online or offline.  Why mandate the publication of personal information for online sellers, but not offline sellers?  If the hypothetical scenario that the bill aims to address is that stolen retail goods are resold in “high volume” to unsuspecting buyers, those goods can just as easily be resold offline.  

Indeed, the retail industry’s own research notes that a popular strategy for laundering stolen cargo is to return it to the very retailer it was stolen from in exchange for gift cards.  None of this occurs online.  Other stolen goods may be sold to retailers who don’t ask enough questions, via classified ads, flea markets, or other means.  Yet, under the current bill, the burden of collecting, verifying, and revealing all this sensitive information is only imposed on online marketplaces.  If the goal were removing stolen and counterfeit goods from commerce, then the bill would ensure all retailers verify and reveal information about up-chain sellers, regardless of whether retailers used online or offline channels.  It doesn’t.  

Whether or not it affects retail theft, legislative efforts like S. 936 will create a competitive advantage for retailers.  By forcing online competitors to disclose information about their supply chains — some of which may be trade secrets — and generally raising online rivals’ compliance costs, physical retailers can impede competing e-commerce to their own benefit.

As a result, small businesses who sell their products online could suffer.  A particularly onerous provision in the bill requires sellers be suspended from conducting business if they are unable to gather the materials required by the legislation within 24 hours.  Even a single day of lost sales due to bureaucratic compliance will be costly to new entrepreneurs striving to establish themselves online.  Problems like these will be more acutely felt now, as many small firms have turned to digital channels to replicate income lost during the COVID-19 pandemic.  

Too often, disrupted incumbents seek to regain lost market share by conscripting the policymaking process into hobbling their rivals in the name of consumer protection.  At least since horse-related industries campaigned against early motor vehicles, U.S. lawmakers and regulators have been lobbied to embrace policy solutions that will undermine a constituency’s competitors.  S. 936 continues this unfortunate tradition.  To the extent that retail crime requires a federal legislative response, it should not be one that exempts prominent retailers from its consumer protection obligations.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.