E-COMMERCE, DEEP DISCOUNTING, AND THE ANTI-TRUST WAR
This post has been authored by Saksham Grover and Kritika Panwar, students of law at Delhi Metropolitan Education, Guru Gobind Singh Indraprastha University.
In the last few decades, the e-commerce industry in India has grown rapidly, and, as such, the technological advancements thereof have changed the manner in which businesses are conducted. Owing to the unprecedented growth of the ‘internet retail market’, the marketing and distribution system has undergone a sea change. Many e-commerce retailers such as Amazon, Flipkart, Myntra, etc. provide goods at low prices as compared to traditional retail stores. The harsh competition, as well as the excessive funding, enables several e-commerce companies to be able to afford the heavy discounts. The entry of online sellers and the practice of massive discounts has put undue pressure on the traditional brick and mortar stores, giving rise to the controversy about the morality and legality of the practice.
In view of the rapid growth of the online market and the rising issues, the Competition Commission of India published the ‘Market Study on e-Commerce in India’[i]. The purpose of the study was to better understand the functioning of e-commerce in India and its implications for markets and competition.[ii] Among other regulatory loopholes, one of the major issues that the study discusses is the practice of deep discounting and predatory pricing by various e-commerce giants. The antitrust or competition laws aim to develop and promote a healthy competition and guide the industry to prevent misuse of power for welfare of the consumers as well as the players in the market. To uphold fair practices in India, the Competition Act 2002 (“Act”) has been enacted, which seeks to prevent abuse of dominant position and predatory pricing.
The Competition Commission steps in
In January 2020, the Competition Commission of India (“CCI”) ordered probe into the deep discounting practice by e-retailers Amazon and Flipkart (“Opposite Parties”). The CCI order alleges anti-competitive practices in view of Section 3(1) read with Section 3(4) of the Act[iii], and states three main issues: deep discounting, preferential listing of sellers and exclusive tie-ups. The complaint by the Delhi Vyapar Mahasangh alleges that the e-commerce companies gave preferential treatment to certain sellers, which were affiliated to or controlled by the companies themselves, directly or indirectly. Another allegation relates to the practice of deep discounting by these companies, which hurts the market competition since small sellers are unable to compete with the huge discounts offered by these marketplaces. Therefore, the CCI held that there exists prima facie case against the Opposite Parties which requires an investigation by the Director General. However, the Karnataka High Court granted an interim stay against the CCI order[iv] but, the observations made by the competition watchdog still remain significant to understand its take on the practice of deep discounting by the e-commerce giants. While granting the stay, the Court said that “there is no material on record from CCI to prove that e-commerce marketplace entered into exclusive deals with smartphone manufacturers.”[v]
Online shopping deals offered during festive season by these e-commerce companies and the huge discounts therein have been a controversial issue for a long time now. Several trade associations have made allegations of unfair trade practices against these companies.[vi] Even though deep discounting per se does not fall under anti-competitive practice as per the Indian law, the issue of preferential treatment and deep discounts has often been termed as abuse of dominance, if a dominant position in the market can be proved.[vii]
Interestingly, the CCI, on two earlier occasions, has taken a conflicting stance and dismissed the allegations against the e-commerce companies. In Re: Mohit Manglani and M/s Flipkart India Private Limited & Ors.,[viii] the CCI held that the exclusive arrangement between sellers and the companies does not appear to have an appreciable adverse effect on competition. A similar observation was made by the CCI in Re: All India Online Vendors Association and Flipkart India Private Limited.[ix] It is evident that such issues have been raised before the authority time and again, but the different approaches taken by CCI merits attention.
Conclusion : What Awaits the E-Commerce Market?
A perusal of several cases makes it clear that, although, certain practices by the e-commerce companies are immoral, it is still very hard to substantiate allegations from a legal standpoint. E-commerce and brick and mortar stores, for most part suffer from similar issues. However, e-commerce, being technologically advanced, brings some additional antitrust issues which require a change in policy and jurisprudence. As noted by the CCI, though online and offline markets differ in terms of discounts and shopping experiences, if the price in the online market increases significantly, then the consumer is likely to shift towards offline market and vice versa.[x] Therefore, there needs to be more clarity as to when discounting is ‘predatory.’
Entry of e-commerce companies in India has been driven by the ever-changing consumer needs and the industry is still at a nascent stage. Thus, the CCI has had a limited exposure to matters involving the online markets and is adapting to the changed environment. The jurisprudence surrounding the antitrust regime in India seems to be flawed as anti-competitive agreements and predatory pricing requires proof of dominance in the market. The case filed by Meru Radio Taxi against Uber in 2015[xi] is of utmost important, which upheld the order against Uber for abuse of dominant position. In this regard, it is worth noting that the Government of India recently issued a draft e-commerce policy[xii] which seeks to clarify their stance on deep discounting by online retailers. Further, the policy would lay out the maximum concession on products, subject to industry comments and suggestions. Nevertheless, the different approaches taken by CCI in several cases has only created more confusion.
In conclusion, the Government, particularly the competition authorities certainly need time to better understand the implications of e-commerce market and its business models in order to put consumer welfare at the top without harming the interests of other businesses.
[i] 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
[ii] Ibid., 2 [iii] Re: Delhi Vyapar Mahasangh and Flipkart Internet Pvt Ltd & Ors., Case No. 40 of 2019, Competition Commission of India (January 13, 2020), https://www.cci.gov.in/sites/default/files/40-of-2019.pdf [iv] Arpan Chaturvedi, Karnataka High Court stays CCI’s Investigation Against Amazon, BloombergQuint (Feb. 14, 2020, 02:14 PM), https://www.bloombergquint.com/law-and-policy/karnataka-high-court-stays-ccis-investigation-against-amazon [v] ET Bureau, CCI has no proof against Amazon and Flipkart: Karnataka HC, The Economic Times (Feb. 20, 2020, 08:26 AM IST), https://economictimes.indiatimes.com/news/politics-and-nation/cci-has-no-proof-against-etailers-karnataka-hc/articleshow/74217921.cms [vi] Shilpa S Ranipeta, Trader Body CAIT launches 2-month nationwide agitation against Flipkart, Amazon, The News Minute (Nov. 11, 2019, 12:42 PM), https://www.thenewsminute.com/article/trader-body-cait-launches-2-month-nationwide-agitation-against-flipkart-amazon-112105 [vii] Uber India Systems Pvt. Ltd. v. Competition Commission of India & Ors., Civil Appeal No. 641 of 2017 [viii] Case No. 80 of 2014, Competition Commission of India (April 23, 2015), https://www.cci.gov.in/sites/default/files/802014.pdf [ix] Case No. 20 of 2018, Competition Commission of India (November 06, 2018), https://www.cci.gov.in/sites/default/files/20-of-2018.pdf [x] Mr. Ashish Ahuja and Snapdeal.com & Ors., Case No. 17 of 2014, Competition Commission of India (May 19, 2014), https://www.cci.gov.in/sites/default/files/172014.pdf [xi] 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 [xii] https://dipp.gov.in/sites/default/files/DraftNational_e-commerce_Policy_23February2019.pdf