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Antitrust

CCI’s Market study on E-commerce: A Pragmatic Path En Route Fixing Competition Law Impediments

By Aarya Deshpande and Sourabh Balwani

Background

The Indian e-commerce industry has seen phenomenal growth in the past few years and is expected to vitalise its accretion owing to broadening internet penetration and augmentation of smartphone users in the country. The growth of the e-commerce sector began in 2009, but has soared manifold since 2014, making India the fastest growing e-commerce market. The probable expansion of the Indian e-commerce market is expected to proliferate to $200 Billion by 2027 and become the second largest in the world by 2034.[1]

The Competition Commission of India (CCI), after successfully handling the issues emerging out of competition in the markets for a decade now, came up with a study titled ‘Market Study on E-commerce in India (2020)’[2], examining the dynamics of the e-commerce market and its consequent influence on small vendors. The indications of the study are of significant importance, as there lies a duty to regulate and promote genuine competition thrusted by the e-commerce platforms operating in India. This article germanely recapitulates and analyses the crucial report.

The Question of Relevant Market

Due to the relaxation of norms for FDI in the e-commerce industry up to 100% FDI investments[3], the prospects of e-commerce are splendid. The surge in the e-commerce sector being inevitable, the issue of properly delineating the relevant market in the current scenario has cropped up.[4] This question first arose in 2014, in the case of Ashish Ahuja v. Snapdeal.[5] The CCI had then concluded that the online and offline markets constituted different relevant markets altogether and hence the e-commerce platform was not in a dominant position. But since then, the situation of the e-commerce domain in the Indian economy has drastically changed. Determining the dominant position is central to identifying and penalizing the firms for their anti-competitive conduct.[6] The report draws testimony to the increasing dependence of brick and mortar shops on online trading, highlighting the profound conjugacy of the two realms. In the light of this report, the importance to cogitate on relevant market issues as well as abuse of dominant position by online platforms gains pertinence.

Apprehension of sellers

In the report, the CCI studied three broad categories of e-commerce spheres – consumer goods, accommodation services and food services. In the retail goods category, the study states the hegemony of only two such platforms to be extraordinarily overwhelming. It also states the dominance of only three large players in the online food service category while only one platform enjoys an exponential share in the Online Travel Agency market. Five major problems faced by sellers while dealing with e-commerce portals have been identified in the report- Platform neutrality, platform to business contract terms, platform parity clauses, exclusive agreements and deep discounts. These problems highlight the high handedness exercised by the e-commerce portals while dealing with the sellers. The portals possess higher bargaining power, leading to unilateral dictation of unfair clauses regarding discount and delivery schemes, often causing huge loss to the sellers.

Though the report underscores the increased dependence of sellers on online platforms, a cogent inference would reflect the nature of the product market to be an essential determining factor to gauge dependence. Nonetheless, the sellers are apprehensive of the search ranking mechanism employed by the platforms. Lack of transparency in ranking criteria may result in abrupt, arbitrary and discriminatory search results manifestly affecting the worthiness of conscientious business operators.

The sellers reckoned exclusive arrangements between marketplaces and certain vendors along with their engagement or non-participation in discount schemes and tranche of commission payment as various factors determining search ranking yardsticks. On the other hand, click through rate, customer feedback and conversion rate were cited by the marketplaces as important factors in fixing the framework of ranking criteria.

In case of All India Online Vendors Association v. Flipkart India Private Ltd. & Ors.[7], the CCI deliberated on the issue of exclusivity stating that the e-commerce platform did not have such special agreements. Preferred treatment to a single vendor or a clique of vendors by the platforms thus spawn an existential threat to nonpartisan promotion of e-commerce trade. Neutrality can be regarded as a relevant flashpoint that contours market outcomes of the scenario. The platforms imperil the market outcomes by being both an intermediation channel as well as a competitor exercising enormous control and incentive to promote one’s own product at the expense of others. Platforms also enjoy superiority to garner data concerning price, consumer feedback, demand for a particular product and then tweaking their own strategies to sell off the platforms’ private label products. This has further propelled business operators to the brink of incertitude.

Business operators also acknowledged absence of a countervailing power due to increased dependence. The sellers are thus susceptible to assent to even abusive, abortive and unacceptable contract terms foisted by the dominating marketplaces. The unfair terms may include discretion to the platforms to modify the commission rates as well as compelling sellers to participate in discount carnival and other services.

In Re: Delhi Vyapar Mahasangh and Flipkart Internet Pvt. Ltd. & Ors.[8] in January 2020, the question of deep discounting was highlighted. The CCI ordered a probe into the policies of Amazon and Flipkart to determine anti-competitive conduct and abuse of dominant position under Section 3 along with Section 4 of The Competition Act, 2002, respectively. The business users also stated differential discounting policy, lack of pricing control on their part and below-cost pricing as discriminatory techniques of the marketplaces which work in tandem to wither the sustainability of brick and mortar sellers and incapacitate their ability to compete in the market.

Safeguards under Indian Competition Law

As a solution to their concerns, the report enumerates various probable outlooks to the apprehensions of business users of the platforms. It states that preferential treatment by platforms to their own product needs to be examined in the light of the nature of a market along with the market power of the platform. The commission, though emphasises on improving information symmetry by making platforms share more information on search ranking mechanism, data use and transmission along with rating and review framework to create a healthy relationship with the sellers.

Section 4[9] of the Competition law further safeguards business users against platforms by effectively diagnosing whether imposition of harsh contract terms and unilateral revision of contracts amount to abuse of dominant position by the platforms or not. The law protects enterprises from discriminatory and exclusionary contracts which the commission thinks are likely to cause an appreciable adverse effect on competition under Section 3(4).[10] The discounting schemes can also be tested on the altar of this section. Exclusive arrangements prevent markets from being competitive as well as induce other brands to incur additional costs by compelling them to enter into similar accords with platforms. The CCI, however, has also acknowledged the fact that exclusive agreements can be pro-competitive as well.

It was stated that aspects like the market power of the enterprise offering the discounts, the nature of the discount, the intent/rationale behind the same and its effect on competition needs to be factored into consideration.

Conclusion

The CCI has time and again suggested that the important question concerning preferential treatment by platforms needs to be examined in light of the distinct factual circumstances of each case. Espousal of a presumption to the disadvantages of platforms is a dangerous proposition in itself. If need be, a legislation mandating divulgation of relevant information to the business users should also be enacted to promote transparency. While the precedent set by the CCI in the case of Mohit Manglani v. Flipkart[11], absolving the e-commerce platform from the charge of abusing dominance through exclusive accords with sellers, needs a reformed conceptualisation with the changing dynamics of the market. Fixation of yardsticks for online platforms along with scrutinising distinct factual scenarios should thus be accentuated.

A framework which brings about a conducive environment for both marketplaces and sellers needs to be established, specifying balancing guidelines for the discounting policies of the platforms and sellers. Advisory opinions of CCI could also be sought by the Department for Promotion of Industry and Internal Trade (DIPP) while framing FDI norms for the Indian e-commerce industry, to adopt a more inclusive approach toward platforms and sellers. The proposals in The Amendment Bill[12] concerning segregation of functions of CCI by creating different bodies for adjudication, investigation and quasi-legislative functions could expedite development of norms and regulations for e-commerce market.

The authors are second year students pursuing their law degree from the Maharashtra National Law University, Nagpur.


[1] Indian Ecommerce Industry Report, IBEF 2020, https://www.ibef.org/industry/ecommerce.aspx.  

[2] Market Study on E-commerce in IndiaKey Findings and Observations, Competition Commission of India, (Jan. 8, 2020), https://www.cci.gov.in/sites/default/files/whats_newdocument/Market-study-on-e-Commerce-in-India.pdf.

[3] Draft National E-Commerce Policy 2019, Department for Promotion of Industry and Internal Trade, https://dipp.gov.in.

[4] Competition Act, § 2(r) (2002).

[5]Ashish Ahuja v. Snapdeal, Case 17/2014 (CCI).

[6] Competition Act, § 4 (2002).

[7] All India Online Vendors Association v. Flipkart India Private Ltd. & Ors., Case 20/2018 (CCI).

[8] Re: Delhi Vyapar Mahasangh and Flipkart Internet Pvt. Ltd. & Ors., Case 40/2019 (CCI).

[9] Competition Act, § 4 (2002).

[10] Competition Act, § 3 (2002).

[11] Mohit Manglani v. Flipkart, Case 80/2014 (CCI).

[12] The Draft Competition (Amendment) Bill, (Feb. 12, 2020).

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