Is e-commerce really hurting competition?
As allegations of anti-competitive practices like vertical restraints by e-commerce firms become more frequent, the CCI’s “light touch” decision-making approach for the sector is likely to change
Business Standard, February 7, 2020
At a time when Jeff Bezos has announced that Amazon would invest $1 billion in “digitising small and medium businesses” in India, the e-commerce sector has come under the spotlight once again: The Competition Commission of India (CCI) conducted a market study on goods, food services and accommodation segments and started investigation against Amazon and Flipkart over alleged anti-competitive practices. With increasing footprint of e-commerce in the consumer market, the recent cases against the two companies have evoked a lot of interest.
As e-commerce becomes a growing and commonly used model for distribution and allegations of anti-competitive practices like vertical restraints by e-commerce companies become more frequent, the CCI’s “light touch” decision-making approach for this sector is likely to change.
As a relatively new regulator in India, the exposure of CCI to e-commerce is less compared to other progressive jurisdictions such as the US. Owing to the lack of adequate data on e-commerce sector, the CCI has not intervened strongly in the past. A recent e-commerce study by CCI is the first attempt at systematic market study-based regulation. It has recognised the benefits brought by these platforms to the industry, and has also identified several problematic issues like platform neutrality, deep discounting, platform-to-business contract terms, platform price parity clause and exclusive agreements. The CCI’s recommendation for self-regulation indicates that it is not opposed to the existence of these platforms, but only seeks to reduce the information asymmetry and correct anti-competitive practices prevailing in the sector, as opposed to the more stringent idea of breaking up the tech giants being talked of in other parts of the world.
Light regulatory touch is evident in the e-commerce cases adjudicated by the CCI over the past decade. In the online shopping segment, in Mohit Manglani v. M/s Flipkart India Ltd. & Ors, the CCI concluded that the exclusive agreements did not lead to any appreciable adverse effect on competition and it seemed unlikely that an exclusive agreement between a manufacturer and an e-portal would create any entry barrier or adversely affect the existing players in the retail market. Similar judgments were passed in other cases.
App-based cab aggregators have also come under the scrutiny of CCI. In the two cases as yet decided, the CCI took a liberal approach, declaring innovation to be the key in developing new markets and noting that these practices did not restrict expansion or entry into the market.
However, in 2019 the Supreme Court directed a fresh investigation in the Meru Travel Solutions v/s Uber case with allegations of anti-competitive practices and abuse of dominance by Uber.
The CCI has also started looking closely at hotels, restaurants and hospitality service providers. A case filed against Oyo in 2019 was dismissed as not being violative of the competition law. However, the Federation of Hotel And Restaurant Associations of India filed another case against both Oyo and Go-MakeMyTrip alleging predatory pricing, denial of market access, charging exorbitant commissions etc, in which prima facie Go-MakeMyTrip has been found to be dominant in the online travel market, while Oyo in the market for franchising services for budget hotels.
Big data has been in the news for several reasons. In the case of Vinod Kumar Gupta v. WhatsApp Inc it was alleged that WhatsApp is involved in predatory pricing by providing free services to its customers backed by Facebook (parent company’s) funding, and compels the users to allow access to their personal data, which is, in turn, exploited for market dominance. However, the CCI noted that WhatsApp may be dominant in the “instant messaging services through smartphones” but it is not abusing it as they have not restricted the entry of other similar service providers in this segment.
Market dominance is established largely through mergers of rival players. The CCI has been looking closely at mergers, but so far all have been approved. A few major deals included Walmart acquiring a controlling stake of 51-77 per cent in Flipkart, and eBay Singapore acquiring 6.2 per cent shares of Flipkart. In these mergers, the CCI noted that the transactions did not raise any competition concern due to insignificant market shares of the merging parties and the presence of several other players.
It is interesting to note that merger regulation is based on certain asset and turnover thresholds specified under the Act. As digital markets are asset light and may not generate significant revenue for some years, the deals can easily escape scrutiny. Facebook’s acquisition of WhatsApp was one notable instance that had a huge impact on the consumer base globally, but the transaction, falling short of the threshold, escaped CCI scrutiny. The Competition Law Review Committee, in its 2019 report, has recommended that government be empowered to introduce necessary thresholds including the deal-value threshold for combinations.
With rapid increase in the internet and smartphone penetration, the Indian e-commerce market, which was worth $38.5 billion in 2017, is likely to grow to $200 billion by 2026. It will be interesting to watch how the CCI increases its regulatory oversight over this segment of the market in the coming years.
Arvind Mayaram is former finance secretary & chairman, CUTS Institute of Regulation & Competition (CIRC). Garima Sodhi is senior fellow, and Siddhant Puri is an intern at CIRC.
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