The recent order by the Supreme Court dismissing the special leave petition filed by Amazon, Flipkart against the Competition Commission of India (CCI) is not just an end to the alleged vertical anti-competitive arrangement in the online sales of smart mobile phones in India. It instead poses a larger question of combined market dominance in vertical anti-competitive arrangements. This post will examine the possible aftermath of SC’s refusal to interfere in CCI investigation into the e-commerce sector prone to the ‘discounting’ card of market dominance. It will also discuss the relevance of the Supreme Court’s order as a possible beginning of the end of relaxations for the e-commerce sector.
The purpose of this post is not to determine the presence of anti-competitive practices in conglomerates like Amazon, Flipkart or any other e-commerce giant, but it is to emphasize the requirement of the investigation ordered by CCI and its significance in the anti-trust regime of India for smaller vendors. The Supreme Court noted that it would ensure that a probe is conducted, and a time of 4 weeks was given to the e-commerce companies to prepare their set of submissions and arguments to be made before the regulator. The top court order means that CCI will continue probing allegations of predatory pricing, deep discounting, preferential seller listing and exclusive partnerships against Amazon and Flipkart. The investigation if stayed by SC would have been a lost opportunity for a much-needed analysis of such e-commerce practices from a watchdog lens. The Supreme Court utilized this significant opportunity to effectively decide on the ‘discounting’ culture in the e-commerce sector and not just the online sales of smartphones in India. Even though the CCI has highlighted such issues in the E-commerce sector in its study, its impact on the actual practices remains questionable. It is only a suggestive mechanism that discourages the practices like deep discounting, exclusionary approach and preferential listing but does not provide regulatory backing which has no benefit of maintaining a healthy competitive market.
Prevalent anti-competitive practices in E-commerce
The Division Bench of Karnatka High Court acknowledged that Amazon and Flipkart used ‘deep discounting’ and ‘preferential listings’ and held that CCI formed its opinion on the prima facie existence of predatory pricing practices. As per Section 4(2) of the Competition Act, 2002, deep discounting and preferential listing are abuse of market dominance and the prima facie investigation by CCI was crucial for local small vendors. The Court stated that “a plain reading of the impugned order shows that the Commission has looked into the information in detail and applied its mind” and dismissed the petition. Similarly, the Supreme Court’s approach towards Amazon and Flipkart’s petition by allowing CCI probe should not be seen as limited to the online selling of smartphones; rather, it concerns crucial issues like ‘abuse of dominance’ in any e-commerce sector for example, food delivery apps. This judgement is a step towards investigating such vertical anti-competitive practices, and the further evaluation by CCI would be an important step to lay down a foundation of regulatory watchdog over such arrangements.
Even with the option for local vendors to list their products on such platforms, the preferential listing of some labels, most discounted products does not give a level playing ground to all such vendors. It is thus, required that such e-commerce giants are prevented from owning such business which uses the medium for sale of their products, for example, Amazon using its ‘Amazon Brand’ as specific preferred merchandise on the platform. Such conflict of interest in e-commerce creates a gap in the healthy competitive markets which is why CCI investigation carries a significant chance towards a regulatory policy framework for such e-commerce conglomerates.
Other relevant markets
The dominant players regularly resort to different methods such as exclusive agreements, deep discounting, preferential treatment to certain sellers and predatory pricing. Recently, the National Restaurants Association of India has approached CCI over deep discounting, leading to anti-competitive practices and alleged ‘abuse of dominance’. This has resulted from the dominant position enjoyed by the Food Service Aggregators (FSA) primarily through deep discounting. The FSAs attract a large number of customers and thereby compelling the restaurants to get listed with them. The reports suggest that Zomato has around 45% share and Swiggy has around 25% share of the Online Food Delivery market. Further, the services such as Zomato Gold now hamper the competition in dine-in services as well.
CCI has failed to acknowledge the deep discounting as anti-competitive issue in e-commerce regardless of the fact that deep discounting being a prevalent method used to establish dominance in the market and eliminate competition. One reason behind the same is the online and offline treatment as different market channels, like in the case of Ashish Ahuja v. Snapdeal and Mohit Manglani v. Flipkart India Private Limited. In the Mohit Manglani case, CCI held that even the exclusive arrangement with a few sellers was not causing an appreciable adverse effect on the competition.
Even though for a different market, the Supreme Court in the Uber case held that the loss incurred through deep discounting on every ride resulted from the dominant position enjoyed by it in the market. A similar issue persists in other markets as well, and in some areas, the issue is an upcoming one. For example, the FSAs have now begun to take control over the delivery and supply of groceries. With the ever-evolving consumer-oriented market, such scenarios are only expected to rise with the upcoming arising reliance on groceries being delivered at home.
The challenge before CCI
The CCI investigation could play a massive role in setting a precedence for the model through which the e-commerce platforms will operate further in India. There is a need for clear directions to ensure that no anti-competitive practices are operating in the market. The reasoning used in Uber can be applied while analysing other relevant markets with deep discounting practices.
While rooting for the e-commerce industry and the benefits, it is necessary to allow the watchdog CCI to keep a close eye on the effect on competition; otherwise, small vendors would be wholly under the control of these giants. A policy like Ending Platform Monopolies Act in the USA is crucial as it would force giants like Amazon, Flipkart to compete with other vendors on the price and quality of the product. CCI needs to eliminate the conflict of interest and regulate predatory pricing techniques such that it can have ample opportunity to keep an eye on these giants and look out for small vendors.
Similarly, the application of Digital Services Act, 2020 and Digital Markets Act, 2020 by the European Commission is a critical policy framework whose application in Indian e-commerce markets need to be debated. Hopefully, Supreme Court allowing CCI to probe into Amazon and Flipkart would open this more significant debate of regulating market powers of e-commerce giants. The legislation by European Commission aimed at limiting the use of consumer data available with such ‘data-rich firms’ like Amazon, Google and Facebook, in certain specific competitive situations. This poses more critical questions on the consequences of market dominance and abuse through this data.
The Supreme Court’s judgment to allow the CCI investigation into the practices of Amazon and Flipkart has opened the door for much needed CCI investigation. This will mark a significant step towards limiting the anti-competitive practices as it opens the doors towards investigation in other relevant markets as well.
Authors Name: Vansh Singla & Divyansh Saluja (OP Jindal Global University, Sonipat)