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This post has been authored by Nishant Pande and Soham Chakraborty, students of B.A.LL.B (Hons.) at the NALSAR University of Law, Hyderabad.
Introduction
On January 8, 2020, the Competition Commission of India [‘CCI’] released its Market Study on E-Commerce in India [‘Market Study’][i] which, inter alia, highlighted the plausible competition law issues that might arise in the e-commerce market and how the CCI would examine such issues. Insofar as the competition concerns arising out of the imposition of unfair prices, platform parity clauses, exclusive agreements, and deep discounts are concerned, the CCI observed that it can scrutinize such concerns under Section 4, i.e., abuse of dominance, of the Competition Act, 2002 [‘the Act’].[ii] However, to conclude a Section 4 violation on behalf of an enterprise, it is mandatory to establish its dominant position in the relevant market. This piece scrutinizes the plausibility of finding enterprises in dominant positions to counter the anticompetitive effects that might arise in the e-commerce market and suggests an alternative avenue to penalize abuse of dominance.
The Prerequisite of Dominance
The explanation to Section 4(2) of the Act[iii] defines ‘dominant position’ as an enterprise’s position of strength that enables it to -
i. Operate independently of competitive forces in that market, or
ii. Affect the competition or its competitors or the market in its favour.
If an enterprise possesses sufficient market strength to cause either of the aforesaid, it would be considered as a dominant enterprise in that market. Consequently, its acts can be investigated for being an abuse of dominant position. Contrarily, in the absence of dominance, there can be no abuse thereof.[iv]
The Peculiarity of the E-Commerce Market
In order to understand the question of dominance in the e-commerce market, it is imperative to appreciate the CCI’s decisions dealing with this market –
In Ashish Ahuja & Snapdeal.com,[v] the CCI noted that offline and online markets were not “different channels of distribution of the same product and are not two different relevant markets.” In other words, offline and online markets were mutually substitutable while determining the relevant product market. Considering the innumerable competitors of Snapdeal.com, the CCI concluded that it was not the dominant player in the market.
The CCI, in Mohit Manglani & Flipkart,[vi] while dealing with an allegation of exclusive agreements among others, did not find any of the online market retailers to be dominant in the possible market delineations.
In Fast Track Call Cab & ANI Technologies,[vii] the CCI delineated the relevant market as “Radio Taxi services in the city of Bengaluru.” ANI Technologies had constantly maintained high market share and thus, it was found to be dominant in the relevant market.
The order in AIOVA & Flipkart[viii] saw a deviation from the Ashish Ahuja order, here the CCI found that the lines between offline and online markets can be blurry for customers, however, online marketplaces offer convenience to both sellers and buyers. Resultantly, the market was defined as “Services provided by online marketplace platforms for selling goods in India.” That being said, the CCI did not find Flipkart in a dominant position in light of the presence of many competitors and the absence of entry barriers on account of network effects. The CCI observed that, as the e-commerce market was in a stage of evolution, no one player appeared to in any dominant position. Finally, the CCI opined that any intervention in the e-commerce market should be carefully crafted considering the technology-driven nature of the market.
In Delhi Vyapar Mahasangh & Flipkart,[ix] the information pertained to joint/collective dominance being exercised by Flipkart and Amazon to effectuate deep discounts, preferential listing, exclusive tie-ups and private labelling. The CCI, before directing the Director-General to investigate the matter, reiterated its position apropos collective dominance which is not envisaged by the provisions of the Act. Interestingly, the CCI decided to scrutinize the allegations under Sections 3(1) and 3(4) of the Act and not under Section 4.
The Unavailing Pursuit of Proving Dominance
The foregoing doctrinal research patently reveals that concluding a dominant position in the e-commerce market is the exception and not the norm. In fact, the CCI, in its AIOVA[x] order dated November 6, 2018, conceded that no enterprise stands out as dominant in the e-commerce market.
On one hand, by extending the principle of offline/online substitutability as applied in the Ashish Ahuja[xi] order, it becomes virtually impossible to find an online enterprise dominant in the market because the goods offered by it would, in most instances, be substitutable by offline enterprises.
On the flip side, even if the online e-commerce market is viewed separately, the ramifications of it being a technology-driven market need to be pondered. The CCI has observed that in such markets the market share of any firm is temporary.[xii] An enterprise faces competition from not only the players present in the market but also from potential competitors.[xiii] Innovation plays an instrumental role in a technology-driven market and it must be accounted for while assessing market power,[xiv] the latter being a vital consideration while determining dominance. Thus, in view of the volatile nature of the technology-driven e-commerce market, the chances of finding an enterprise dominant seem even bleaker.
Conclusion and Suggestion
While the CCI’s Market Study certainly provides a comprehensive insight into the e-commerce market, it does little in devising an avenue for the successful use of Section 4 to counter the anti-competitive activities therein.
That being said, a possible alternative to tackle anti-competitive activities in e-commerce could be the recognition of collective dominance. In India, the concept of collective dominance has not been recognized to date, but the concept is well-established in the European Union [‘EU’].
In the EU, for collective dominance to exist it is not necessary that the firms adopt identical conduct in every respect.[xv] What needs to be shown is that, based on an economic assessment or the structure of the market or tacit agreements or any other common economic links, the firms conduct themselves as a collective entity vis-à-vis trading partners, consumers and competitors.[xvi]
The Airtours case[xvii] and the Laurent Piau case[xviii] lay down three conditions to find out whether two or more undertakings can be held collectively dominant in the relevant market –
i. There should be transparency as to the market strategies which are followed by the undertakings. These allow firms not only to adhere to such policies for their mutual benefits but also to monitor the adherence of the other undertakings to such market policies.
ii. There should be some mechanism for retaliation against firms not adhering to such common market policies.
iii. The adoption of such common policies results in a lack of competitive pressures from the existing and upcoming competitors and also the consumers.
The Market Study reveals that market policies followed by e-commerce companies are vastly similar to the sellers’/service providers’ side of the market.[xix] Sellers on the e-commerce platforms have complained about the unfair terms in the contracts existing between themselves and the e-commerce platforms, which are further subject to unilateral revision by the latter.[xx] According to the sellers, such practices exist on all major platforms preventing the possibility of multi-homing.[xxi] This unambiguously points towards similar market strategies being deployed by the e-commerce players.
Furthermore, the Market Study identifies that platform parity clauses “help cement coordination or tacit understanding that may exist between platforms by, disincentivising deviation from a consensus rate of commission.”[xxii] These platform parity clauses may serve as entry barriers for emerging platforms as they prevent them from offering goods and services at a lower cost by charging lower commission rates.[xxiii] Such policies can enable incumbent enterprises to resist the pressure from upcoming competitors.
Thus, it is apparent from the Market Study itself that there exists enough prima facie evidence to examine the issue of abuse of collective dominance in the e-commerce market. If the concept of collective dominance is recognised in India, it might be an effective way to counter the menace of abuse of dominance in the e-commerce market.
End-Notes
[i] Market Study On E-Commerce in India – Key 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 [ii] The Competition Act, 2002, No. 12, Acts of Parliament, 2002. [iii] Id. [iv] G.P. Konar v. Department of Agriculture and Farmers Welfare, Government of Haryana, 2018 CompLR 987 (CCI); Arjun v. Viacom 18, 2018 CompLR 15 (CCI). [v] Mr. Ashish Ahuja v. Snapdeal.com, MANU/CO/0056/2014. [vi] Mohit Manglani v. Flipkart India Private Limited, [2015] 131 SCL 18 (CCI). [vii] Fast Track Call Cab Private Limited & ANI Technologies Pvt. Ltd., [2015]131 SCL 240 (CCI). [viii] All India Online Vendors Association v. Flipkart India Private Limited, 2018 CompLR 1122 (CCI). [ix] Delhi Vyapar Mahasangh v. Flipkart Internet Private Limited, MANU/CO/0001/2020. [x] Supra note viii. [xi] Supra note v. [xii] Matrimony.com Limited v. Google LLC, (2018) CCI 7. [xiii] M/s Fast Way Transmission Pvt. Ltd. v. M/s Kansan News Pvt. Ltd., (2014) CompLR 59 (CompAT). [xiv] Meru Travel Solutions Pvt. Ltd. v. Uber India Systems Pvt. Ltd., (2016) CCI 12. [xv] Case T-228/97, Irish Sugar plc v. Commission [1999] ECR II-2969. [xvi] Joined cases C-395/96 P and C-396/96 P Compagnie maritime belge transports SA, Compagnie maritime belge SAand Dafra-Lines A/S v. Commission [2000] ECR I-1365. [xvii] Case T-342/99, Airtours plc v. Commission [2002] ECR II-2585. [xviii] Case T-193/02, Laurent Piau v. Commission of the European Communities [2005] ECR II-209. [xix] ¶90, Supra note i. [xx] Id. [xxi] Id. [xxii] ¶93, Supra note i. [xxiii] Id.