The technological advancements of recent decades have revolutionized market dynamics, most notably through the advent of what is known as e-commerce. The e-commerce market in India is expected to become the second largest in the world by 2034, and by 2027 the Indian’s market will be valued at 200 Billion Rupees as opposed to the 64 Billion Rupees valuation in 2020.[1] The rising significance of e-commerce raises several legal issues, most notably in the field of competition law. The Competition Commission of India (“CCI”) is the watchdog of competition law compliance in India, and has recently released a Market Study on e-Commerce, which analyzes the functioning of e-commerce in India and identifies the implications it would have on the markets and competition.[2] Further, the study also sheds light on the impediments to competition in light of the practices of e-commerce companies.[3] This study, which is a significant development in the field of competition law in India, was followed by the CCI’s order acknowledging the existence of prime facie evidence of anti-competitive practices on the part of Amazon and Flipkart, thereby launching an investigation into the same.[4] The investigation was to specifically address issues of deep discounting, among other issues such as exclusive agreements and preferential listings. This article aims to critically analyze the alleged Deep Discounting practices of e-commerce platforms and their legal implications.
Deep Discounting, refers to a practice wherein an e-commerce company offers a heavy discount on a good or service that is sold in high quantities.[5] Due to the immense purchasing capacity of the intermediary e-commerce platform, they can get discounts from manufacturers that other retailers are unlikely to procure, and such discounts are thus a product of exclusive agreements between the manufacturer and the intermediary.[6] It is widely believed that deep discounting underlies predatory pricing tactics, violating competition law for three significant reasons. First, due to the availability of funding from investors, e-commerce platforms can subsidize their products, creating high entry barriers for their competition. Second, from the perspective of the consumers, it often leads to the erosion of the value of goods and services in the mind of the consumer. This is due to the drastically lower prices offered by these sellers compared to the prices available in the market. This makes business unviable for other companies and thereby hampering fair competition.[7] Third, because of the ability of these e-commerce giants to offer discounts, retailers offering similar products are forced to heavily discount their own products as well as services in order to remain competitive. Owing to these reasons, deep discounting practices have created competition concerns in India. It is, therefore, essential to deconstruct the legality of the possible threats that deep discounting practices pose to fair competition in India.
Deep discounting is a phenomenon surrounded by immense legal uncertainties with respect to competition law in India. A prime facie statutory analysis of The Competition Act, 2002 (“Act”) would reveal that deep discounting is not in itself disallowed, but such practices can be investigated under allegations of abuse of dominance and anti-competitive behavior.[8] However, the CCI has not been consistent with its holdings and in Mohit Manglani v. Flipkart Internet Private Limited, it highlighted the benefits that accrue from exclusive agreements formed by e-commerce platforms, thus suggesting that deep discounting agreements do not pose a significant threat to competition.[9] On the contrary, in the Delhi Vyapar Mahasangh v. Flipkart Internet Private Limited, CCI took a contradictory stance noting that deep discounting can be anticompetitive in nature and must be investigated under §3(4) of the Act[10]. These decisions arise out of the alleged practices by Flipkart and Amazon to coerce sellers to incur the cost for a portion of the discount offered under the big sale events that are held by the two e-commerce companies. Further, CCI’s preliminary observations suggest the existence of deep discounts only through a selected list of “preferred sellers,” most prominently observed in the case of smartphone brands. It is in light of these allegations that the investigation has been launched.
The legality of deep discounting practices has been briefly addressed by the Karnataka High Court in its interim order in response to Amazon’s request.[11] The Karnataka High Court stayed the investigation of Amazon for these alleged practices. Although an interim order, it brings to light the complexities of linking deep discounting to exclusive agreements between buyers and sellers.[12] Additionally, it opens the possibility of denying the CCI any grounds to investigate deep discounting practices under the Act. This inconsistent approach arises because the CCI does not distinguish between the Mohit Manglani, where it held deep discounting to be a valid practice under competition law, and the Delhi Vyapar Mahasangh, where CCI expressed the need to analyse the legality of the practice under §3(4) of the Act.[13] There exists very little differentiation between the two cases in terms of any analysis and reasoning, and the contrary positions adopted by the CCI in prima facie similar cases would create further legal uncertainty for the Karnataka High Court.[14] In this scenario, there exists a possibility that the judgment of the Court may deny any investigation into allegations of deep discounting, thereby reinforcing the ambiguous stance of Indian law on Deep Discounting Practices.
In light of these developments, it is necessary to analyze the perplexities surrounding deep discounting through the lens of abuse of market dominance – as CCI had envisaged in Delhi Vyapar Mahasangh. The National Company Law Appellate Tribunal (Hereinafter, “NCLAT”) recently decided in favor of upholding an investigation by the CCI on Flipkart’s alleged unfair business practices abusing its dominant market position.[15] The issue of abusing market dominance of Flipkart and Amazon, has been previously addressed by the CCI[16]. However, these arguments have been dismissed on the ground that §4 of the Act does not contemplate such joint or collective dominance in a market, and the two companies do not have a dominant market share, individually. This prohibited an investigation by the CCI on the ground of abuse of market dominance. However, NCLAT’s recent decision brings to light the possibility of individually investigating both Amazon and Flipkart for abusing their market dominance. Such an investigation would uphold an analogous case – Uber India Systems Pvt.Ltd. v. Competition commission of India, wherein the Supreme Court did not solely consider market share to determine market dominance but also took into account other factors, like the use of pricing to eliminate competition.[17] This approach upheld the assessment of the dominant position based on the ability to offer discounts for which the customer base, funding and anti-competitive agreements with drivers were to be looked at, instead of solely the market share.[18] This marked a paradigm shift in how issues of market dominance were to be analyzed from the perspective of competition law. Similar principles can be applied in order to individually investigate Amazon and Flipkart’s abuse of their market dominance through the use of Deep Discounting.[19] In such a scenario, an investigation may be able to conclusively show that Flipkart uses its foreign funding, exclusive agreements, preferential treatment practices, inventory control, and influencing of market price to offer deep discounts for anti-competitive reasons, thereby violating principles of competition law.
Deep discounting is an extremely complicated phenomenon which has several impacts on the economy of the country. Some of these impacts are positive, such as the ability to offer lower prices to consumers. However, deep discounting also poses a threat to the existence of fair competition in India. This threat has been contemplated and analyzed in the Market Study on e-Commerce and has been a source of legal controversy for the CCI. In order to resolve this issue, Deep Discounting practices by Amazon and Flipkart must be looked at from the lens of abuse of their market dominance.
This article has been authored by Sahaj Mathur, Second year student, The West Bengal National University of Juridical Sciences(WBNUJS), Kolkata.
[1] India Brand Equity Foundation, Indian E-commerce Industry Analysis, April 10, 2020, Available at https://www.ibef.org/industry/ecommerce-presentation.
[2] Competition Commission of India, Market Study on E-commerce in India: Key Findings and Observations(2020).
[3] Competition Commission of India, Market Study on E-commerce in India: Key Findings and Observations(2020).
[4] In Re: Delhi Vyapar Mahasangh v. Flipkart Internet Private Limited and its affiliated entities, Competition Commission of India Case No. 40(2019).
[5] Competition Commission of India, Market Study on E-commerce in India: Key Findings and Observations(2020).
[6] Competition Commission of India, Market Study on E-commerce in India: Key Findings and Observations(2020).
[7] Indian Competition Act 2002, §4.
[8] In Re: Mr. Mohit Manglani v. Flipkart Internet Private Limited and its affiliated entities,Competition Commission of India Case No. 80(2014).
[9] In Re: Delhi Vyapar Mahasangh v. Flipkart Internet Private Limited and its affiliated entities, Competition Commission of India Case No. 40(2019).
[10] In Re: Delhi Vyapar Mahasangh v. Flipkart Internet Private Limited and its affiliated entities, Competition Commission of India Case No. 40(2019).
[11] Sharan Poovanna, Amazon wins stay against CCI probe, LiveMint, 14 Feb, 2020, available at https://www.livemint.com/industry/retail/relief-for-amazon-flipkart-as-karnataka-hc-stays-cci-probe-11581672860152.html.
[12] Sharan Poovanna, Amazon wins stay against CCI probe, LiveMint, 14 Feb, 2020, available at https://www.livemint.com/industry/retail/relief-for-amazon-flipkart-as-karnataka-hc-stays-cci-probe-11581672860152.html.
[13] Akanshha Agrawal, Competition Law and the Deep Discounting Conundrum, Kluwer Competition Law blog, Available at http://competitionlawblog.kluwercompetitionlaw.com/2020/02/28/the-deep-discounting-conundrum/
[14] Sharan Poovanna, Amazon wins stay against CCI probe, LiveMint, 14 Feb, 2020, available at https://www.livemint.com/industry/retail/relief-for-amazon-flipkart-as-karnataka-hc-stays-cci-probe-11581672860152.html.
[15] Sandeep Soni, Trouble for Flipkart continues as NCLAT issues probe for alleged abuse of dominant market position, Financial Express, 4 March, 2020, available at https://www.financialexpress.com/industry/sme/trouble-for-flipkart-continues-as-nclat-issues-probe-for-alleged-abuse-of-dominant-market-position/1888498/.
[16] In Re: Mr. Mohit Manglani v. Flipkart Internet Private Limited and its affiliated entities,Competition Commission of India Case No. 80(2014); In Re: Delhi Vyapar Mahasangh v. Flipkart Internet Private Limited and its affiliated entities, Competition Commission of India Case No. 40(2019).
[17] Uber India Systems Pvt.Ltd. v. Competition commission of India, Civil Appeal No. 7012(2019); Akanshha Agrawal, Competition Law and the Deep Discounting Conundrum, Kluwer Competition Law blog, Available at http://competitionlawblog.kluwercompetitionlaw.com/2020/02/28/the-deep-discounting-conundrum/
[18] Ganesh Khemka and Madhavi Singh, Uber versus CCI: the end of deep discounting in India, Global Competition Review, available at https://globalcompetitionreview.com/article/1197633/uber-versus-cci-the-end-of-deep-discounting-in-india?utm_source=LinkedIn&utm_medium=social-media&utm_campaign.
[19] Akanshha Agrawal, Competition Law and the Deep Discounting Conundrum, Kluwer Competition Law blog, Available at http://competitionlawblog.kluwercompetitionlaw.com/2020/02/28/the-deep-discounting-conundrum/
The Deep Discounting Conundrum
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