INTRODUCTION
India’s antitrust watchdog, the Competition Commission of India(‘CCI’), vide order dated 13.01.2020,[1] has directed the Director General (‘DG’) to investigate into the alleged violation of competition law principles by Flipkart Internet Private Limited (‘Flipkart’) and Amazon Seller Services Private Limited (‘Amazon’), the parties together referred as ‘OPs’. It was alleged that the OPs were involved in certain anti-competitive practices like exclusive agreements, deep-discounting and preferential listing of certain sellers on their respective platforms which were in contravention of section 3(4) read with section 3(1) of the Competition Act, 2002(‘the Act’). Also, it was alleged that such practices were covertly used as an exclusionary tactic to foreclose competition, and thereby resulting in an Appreciable Adverse Effect on Competition (‘AAEC’).
The Delhi Vyapar Mahasangh (‘Informant’) – a society consisting of Micro Small and Medium Enterprises (‘MSME’) traders dealing in the trade of smartphones and related accessories, filed a complaint before the CCI under section 19(1)(a) of the Act.
The primary contention was regarding multiple instances of vertical agreement between (i) Amazon and its preferred sellers, and (ii) Flipkart with its preferred sellers which have allegedly led to the foreclosure of other non-preferred traders or sellers from these online marketplaces. This foreclosure has affected the aggrieved parties detrimentally; as it is directly affecting the livelihood of bricks and mortar retailers. Moreover, the aforementioned act of foreclosure itself, while providing direct predilection to these preferred sellers, infringes on their income and has led to a situation of e-commerce marginalization. The contentions against the OPs can be categorized in various subgroups namely:
(a) Deep Discount
The ‘Informant’ alleged that the OPs provided deep discounts to a few preferred sellers on their respective platforms which adversely affected non-preferred sellers. The sale of products by online platforms, at prices significantly lower than the initial cost price constitutes as deep discounting. The platforms offer competitively higher discounts than other vendors can afford to compete against, inducing exclusivity and engaging in discriminatory practices against smaller traders. This act essentially results in predatory discounting thereby removing any competition by small traders as they do not have the similar corporate backing like the preferred sellers. Furthermore, Amazon sells its private label brands exclusively through these preferred sellers which reflect the existence of unfair economic discrimination in Amazon’s e-commerce policy. By engaging in the deep discounting practice, the tech giants are restricting competition and causing an anti-competitive effect on the market. By providing deep discounts, it becomes difficult for retail competitors to enter or compete in the relevant market[2].The unfair advantage conferred by the OPs is allowing higher product sales at cheaper costs. The preferential backing to selected sellers not only distorts competition but also eliminates the much needed level-playing field. These preferred sellers possess structural and financial links in the form of joint ventures with the online marketplaces which encourages preferential treatment.[3] Smaller traders and enterprises who cannot afford to compete with the OPs or the preferred sellers are bulldozed by them and lose their livelihood.
(b) Preferential Listing
Both e-commerce giants Amazon and Flipkart use the terms ‘fulfilled’ and ‘assured seller’ respectively on their platforms specifically for the products sold by its preferred sellers. The preferred sellers receive a preferential listing on the respective platforms, whereby the non-preferred sellers are pushed down the search list which indirectly lowers their chances of getting customer interaction. This segregation of ‘fulfilled’ and ‘assured seller’ displays the systematic manner by which certain few are promoted at the cost of small traders and enterprises costing the small traders the most.
(c) Exclusive Tie-Ups
The OPs have several ties and private labels which get preference in terms of sales. They seem to have exclusive tie-ups with numerous smartphone companies whereby providing exclusivity through discounting and preferential listings. Majority of these exclusive tie-ups are again provided to the ‘preferred sellers’, who can provide these exclusive sales because merely they are being benefited unabashedly by the OPs.[4] This encourages more profitable sales for the preferred sellers while simultaneously eliminating smaller traders. This particular instance of selling of smartphones via OPs directly affects the traditional retailers: a majority of the phones are launched on the online platforms, that too with exclusive tie-ups (a), and they cannot afford to compete with the prices and discounts offered by OPs in their festive sales,[5] for instance, Big Billion Days of Flipkart and the Great Indian Festival of Amazon respectively (b).
ANALYSIS
The CCI in Re: All India Online Vendors Association and Flipkart India Pvt. Ltd &Anr.[6]had observed that relevant market for these online marketplace platforms shall be the services provided by them for selling goods in India. Here, the primary concern of the CCI was about the exclusive launch of mobile phones on the said platforms. Notably, in 2018, Amazon had launched 45 mobile phones and Flipkart launched 67 mobile phones exclusively on their respective platform.[7] There have been instances where the launched products are exclusively available on either of the two platforms and nowhere else, thereby eliminating competition from traditional retailers. Also, the commission observed that on various occasions manufacturing companies like One Plus, OPPO, and Samsung exclusively launched several of their models on Amazon whereas Vivo, Realme, Xiaomi etc., have exclusively launched their models on Flipkart. This makes a prima facie case of an exclusive partnership between the mobile phone manufacturers and e-market platforms. However, the Karnataka High Court granted an interim stay against the CCI’s order while observing that there is no material on record from CCI to prove that e-commerce marketplace entered into exclusive deals with smartphone manufacturers.[8]
Interestingly, the Supreme Court in similar factual scenario ordered an investigation against Uber considering the prices offered by them while losing around ₹ 204 on every ride.[9]The Court did not consider market share for determining dominance. Rather, it observed that Uber by its position of strength can operate at a loss and affect competitors in its favour. Thus an investigation was launched for predatory pricing which was originally dismissed by the CCI. A similar investigation to check the position of strength is the need of the hour in the e-commerce market to curb the special treatment conferred to ‘preferred sellers’ at the expense of smaller traders in a bid to eliminate competition.
Market share may not be the sole determining factor for assessing dominant position under section 4 of the Act, but surely a crucial one. Interestingly as of first quarter of 2019, both Flipkart and Amazon held around 53 % and 36% of the market shares respectively in the relevant market.[10] The CCI back in 2018 dismissed the case against Flipkart, citing, inter alia, that e-marketplace in India is at a nascent stage it does not appear that any single player in the market is commanding any dominant position at this stage of evolution of market.[11] But it is time for CCI to revisit its stance to see if that still stands. Moreover, deep discounting per se might not fall within the scope of anti-competitive practices as per the Act. However, the issues of preferential treatment and deep discounts have often been referred to as abuse of dominance if a dominant position of an entity can be established.
This is not the first time that information has been filed against the abovementioned e-commerce giants. After the release of a report titled ‘Market study on e-commerce in India’ the CCI looks to tighten its grip on e-marketplace platforms and warn them against any anti-competitive practice.[12]It would now look to redo its image of a ‘toothless tiger’ and set a strong precedent for such cases.
CONCLUSION
In the present investigation against the OPs, CCI dismissed the allegations under Section 4 citing that the Act does not recognize the concept of collective dominance. The CCI subsequently directed a further investigation to look into the conduct of OPs under section 3(1) r.w 3(4). However, the question remains whether an investigation can be launched for abuse of dominance, individually against Amazon and Flipkart respectively. This investigation also poses the question of the need for the inclusion of ‘Collective Dominance’ as a concept and breach in the Indian Competition law akin to Article 102 of the Treaty on the functioning of the European Union (formerly Article 82 of the Treaty establishing the European Community).[13]
The CCI must acknowledge its role and power to keep in check the position of strength enjoyed by entities in the relevant market e.g., Flipkart and Amazon in providing services in the e-marketplace. This position can be inferred from the unmatchable discounts offered by the OPs vis à vis other similar platforms or traditional retailers and their open inclination towards ‘preferred sellers’.
The antitrust watchdog ought to keep in check the growing abuse of the competition law and work to protect the emerging digital platforms from slowly descending into a digital monopoly. The judiciary has an important role to play, while it has to maintain the competition in the e-marketplace in growing digital economy, it also has to look after the well being of the traditional retailers.
This article has been authored by Arjun Chakladar and Aman Kumar Yadav, Third Year, National Law Institute University, Bhopal.
[1]Re: Delhi VyaparMahasangh and Flipkart Internet Pvt Ltd &Ors., Case No. 40 of 2019, Competition Commission of India (January 13, 2020), available at https://www.cci.gov.in/sites/default/files/40-of-2019.pdf.
[2]Id.
[3]Id., ¶ 7.1.1.
[4]Supra note 1.,¶ 22, 23.
[5]Wriankar Mukherjee, Festive season sales: Ecommerce companies Amazon &Flipkart hand over discount baton to brands, The Economic Times (Oct. 02, 2019, 08:23 AM IST), available at https://economictimes.indiatimes.com/industry/services/retail/festive-season-sales-ecommerce-companies-amazon-flipkart-hand-over-discount-baton-to-brands/articleshow/71401956.cms?from=mdr
[6]Case No. 20 of 2018, Competition Commission of India, (November 06, 2018), https://www.cci.gov.in/sites/default/files/20-of-2018.pdf
[7]Anirban Sen, Flipkart, Amazon in tight race for exclusive tie-ups with phone makers, Livemint (Oct, 5, 2018, 09:27 AM IST), available at https://www.livemint.com/Companies/0kg99mEITjiWdU429gZIfM/Flipkart-Amazon-in-tight-race-for-exclusive-tieups-with-ph.html.
[8]Amazon Seller Services Pvt. Ltd. v. Competition Commission of India, WP 3363/2020 (Kar.H.C.)
[9]Uber India Systems Pvt. Ltd. v. Competition Commission of India &Ors., Civil Appeal No. 641 of 2017, https://main.sci.gov.in/supremecourt/2017/2103/2103_2017_5_2_16524_Judgement_03-Sep-2019.pdf
[10]Supra note 1, ¶10.
[11]Supra note 6.
[12]Market study on e-Commerce in India, Key findings and observations, Competition Commission of India, https://www.cci.gov.in/sites/default/files/whats_newdocument/Market-study-on-e-Commerce-in-India.pdf
[13]Consotidated Version of the Treaty on the Functioning of the European Union art.102, May 9, 2008, 2008 O.J. (C 115) 47.
Picture Source: Reuters/Pascal Rossignol
Comments