Marketplace model of e-commerce

Indian Economy glossary

Topic: Industrial Policy, Public Sector, MSMEs and Disinvestment · NCERT: Beyond NCERT

Meaning

In the marketplace model of e-commerce, a firm runs a digital platform that connects buyers with independent sellers. The platform does not own the goods. It earns from fees and services such as payments and delivery. Under Press Note 3/2016, India allows 100% FDI in this model through the automatic route, meaning without prior government approval. It is the only e-commerce model open to FDI.

Press Note 2/2018 added three rules for such platforms:

  • they may not control the sellers' inventory;
  • they may not make exclusive deals with sellers;
  • a seller may buy at most 25% of its purchases from the marketplace's group companies.

Example

On Amazon India or Flipkart, thousands of independent sellers list their products, and the platform handles listing, payment and delivery. Because the platform does not own the goods, it can take foreign investment.

Don't confuse with

  • Inventory model of e-commerce: In the inventory model the platform owns and sells its own stock, and FDI is not permitted.
  • ONDC (2022): ONDC is not a platform. It is public digital infrastructure that lets small sellers reach buyers on any app.

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