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The Commission has called for a probe into allegations of exclusive arrangements, deep-discounting and preferential listing by the two e-commerce giants.
The Competition Commission of India (CCI) has directed the Director General (DG) to investigate allegations of anti-competitive conduct in the online sale of smartphones levelled against e-commerce giants Flipkart and Amazon.
The information was filed by Delhi Vyapar Mahasangh, an association of traders who deal in smartphones and related accessories.
Flipkart and Amazon were alleged to be in vertical agreements - prohibited under Section 3 of the Competition Act, 2002 - with certain preferred sellers. Allegations of deep discounting, preferential listing, and abuse of dominant position were also levelled against the two e-commerce platforms.
The informant association thus alleged contravention of Section 3(4) read with Section 3(1) and Section 4(2) read with Section 4(1) of the Act by Flipkart and Amazon.
The following are the detailed allegations made by the informant before the CCI:
The informant contended that Flipkart and Amazon have several vertical agreements with their preferred sellers. This has led to a foreclosure of other non-preferred traders or sellers from these online marketplaces. The preferred sellers were also alleged to be affiliated with or controlled by Flipkart/Amazon either directly or indirectly.
It was also contended that the e-commerce platforms are capable of influencing prices being charged by these preferred sellers by providing several discounts.
It was alleged that Flipkart provides deep discounts to a select few preferred sellers, which adversely impacts non-preferred sellers, including the informant’s members. The informant submitted evidence to this effect, in the form of communications from Flipkart to its sellers stating that it would incur a part of the cost during the Big Billion Days (BBD) sales and other sales. This also renders other sellers unable to compete with such preferred sellers.
Similarly, Amazon has preferred sellers on its platform which are related to Amazon, the informant contended. It was also highlighted that the company has its own private label brands which are sold only through these preferred sellers.
The fact that Flipkart lends the word “Assured Seller” to products sold by its preferred sellers creates a bias in favour of these sellers to the detriment of other sellers, the informant contended. In the same vein, Amazon lends the word “Fulfilled” to products sold by its preferred sellers. This results in search bias by listing its preferred sellers in the first few pages of the search results.
Exclusive Tie-ups and Private Labels
Both platforms have tie-ups and private labels which get more preference in terms of sales. These private label brands are routed through a few preferential sellers, it was alleged. This method is being employed by Flipkart across all categories, including smartphones. Having exclusive tie-ups with smartphone companies provides exclusivity through discounting and preferential listings, the informant stated.
As argued by the informant,
“This arrangement has far-reaching consequences on the economy as the non-preferred sellers are relegated to sell only through traditional brick and mortar set-up which involves significant fixed costs and are devoid of wide pan-India reach which online marketplaces offer.”
Attention has also been drawn to the fact that Amazon and Flipkart are able to cross-subsidise because of the huge amount of funding received from their investors. This facilitates pricing below the cost on their platforms, resulting in creation of high entry barriers and high capital costs for any new entrant in the market. As a result, existing sellers find it difficult to launch their own portals or marketplaces in order to compete with Flipkart and Amazon.
Abuse of Dominant Position
It was pointed out that Flipkart has more than 53% of the market share in the relevant market as of the first quarter of 2019, while Amazon held 36% of the market share.
Thus, it was alleged that both Flipkart and Amazon are alleged to be jointly dominant in the relevant market and are stated to be abusing their dominance.
What the CCI held
At the outset, the Commission noted that the Act does not provide for inquiry into cases of wherein joint/collective dominance is alleged.
“Therefore, the Commission need not deliberate further on allegations on account of joint dominance as the same being untenable under the Act.”
As regards the other charges, the CCI prima facie observed that there appears to be an exclusive partnership between smartphone manufacturers and the two e-commerce platforms for exclusive launch of smartphone brands. In this light, it was held,
“Thus, exclusive launch coupled with preferential treatment to a few sellers and the discounting practices create an ecosystem that may lead to an appreciable adverse effect on competition.”
The Commission further noted that certain smartphone brands/models are available at significantly discounted prices on these platforms and are sold largely through the sellers identified by the informant as the platforms’ preferred sellers.
“Whether funding of discounts is an element of the exclusive tie-ups is a matter that merits investigation.”
Moreover, the CCI observed that the issue of preferential listing and exclusive arrangements were inter-connected. The fact that there was competition between the two platforms did not mitigate the potentially adverse effect on competition in the market, it was noted.
In light of these observations, the CCI ultimately held,
“Thus, the Commission observes that the exclusive arrangements between smartphone/mobile phone brands and e-commerce platform/select sellers selling exclusively on either of the platforms, as demonstrated in the information, coupled with the allegation of linkages between these preferred sellers and OPs alleged by the Informant merits an investigation. It needs to be investigated whether the alleged exclusive arrangements, deep-discounting and preferential listing by the OPs are being used as an exclusionary tactic to foreclose competition and are resulting in an appreciable adverse effect on competition contravening the provisions of Section 3 (1) read with Section 3(4) of the Act.”
Competition Commission of India
Therefore, the Commission held the prima facie view that an investigation into these issues by the Director General was required. The DG has been directed to complete the probe and submit its report within 60 days from the receipt of the order.
The informant association was represented by a team from Sarvada Legal.