Introduction:
Rapid technological innovation has resulted in the emergence of new products and services that are constantly evolving, creating an uncharted territory for competition authorities. When compared to traditional retailers, large e-commerce companies sell goods at a relatively low price, forcing traditional stores to work harder to attract clients. As a result of this aspect, the balance has shifted in favor of the e-commerce sectors, resulting in a source of conflict between two competing networks[1].
In less than half a decade, digital marketplaces have evolved from being regarded as an extension of brick and mortar markets to becoming a separate sector. However, in recent years, the instances of abuse of dominance in the digital marketplaces have increased tremendously. The Competition Commission of India (CCI) Chairman Ashok Kumar Gupta stated recently in an interview that in the current times’ digital markets are the epicenters of technological innovation but lately they have become more of a zone of “entrenched and unchecked dominance[2].
The article attempts to analyze the increasing abuse of dominance in the digital market. The article is three-fold; firstly, it discusses the concept of dominance and the types of antitrust issues in the digital market. Secondly, it highlights the increasing instances of abuse of dominance in the digital market and also analyzes the CCI’s inefficient approach. Lastly, it assesses the latest initiative of the government (ONDC) and plausible alterations in the CCI’s approach.
Abuse of Dominance
According to Section 4(2) of the Indian Competition Act 2002 (the Act), an enterprise is in a dominant position if it: directly or indirectly imposes unfair or discriminatory conditions or prices for the purchase or sale of goods or services; restricts or limits market production of goods or services; restricts or limits technical or scientific development; or exploits its market dominance to enter or protect its position in other important markets.
In the case of Re: Lifestyle Equities C.V and Another v. Amazon Seller Services Private Limited[3] the CCI observed that: “under Section 4 of the Act, an enterprise’s dominating position in the relevant market is defined, and in the absence of dominance, the subject of abuse of dominant position does not arise”. Thus, there is an absolute necessity to establish a dominant position in the relevant market to further probe the question of abuse of dominance. Moreover, dominance has significance only when the relevant market is defined.
Under Indian law, a “dominant position” is defined as a position of strength held by an entity in a relevant market in India that allows it to act independently of competitive forces or influence its competitors, consumers, or the relevant market in its favor[4]. Furthermore, the legislation specifies several factors that the Competition Commission of India (CCI) must take into account when determining whether an enterprise has a dominant position, including market share, enterprise size, and resources available to it, the importance of competitors, economic power, commercial advantages, vertical integration, consumer dependence, entry barriers, market structure, and size[5].
Significance of Relevant Market
The relevant market means “the market that the Commission may determine concerning the relevant product market, the relevant geography market, or both markets”[6]. The first issue in studying digital marketplaces is the determination of the relevant market. Determination of the relevant market is the pre-requisite for an antitrust investigation as it establishes the investigation’s framework. Due to the presence of market disruptors and difficulty in assessing the geographical reach, the exercise of defining the appropriate market had become exceptionally difficult.
However, CCI in the case of All India Online Vendors Association (informant) and Flipkart India Pvt. Ltd. & Ors,[7] observed that although the services given by online marketplace platforms can be hazy at times, they provide consumers with a unique set of services and benefits that cannot be found in traditional brick and mortar establishments. Furthermore, the operations of online marketplace platforms differed from those of online retail stores since traditional markets sell goods from various vendors, whereas online retail stores only sell goods owned by a single retailer. CCI defined the relevant market as the market for services delivered by online marketplace platforms based on these fundamental differences.
Types of issues Dealt by CCI in Digital Market Cases
Treatment Of Exclusive Arrangements and Preferential Treatment
Any agreement between enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade-in goods or provision of services, that includes a tie-in arrangement, exclusive supply agreement, exclusive distribution agreement, refusal to deal, resale price, etc., is prohibited[8].
In the case Re: Lifestyle Equities C.V. and Others v. Amazon Seller Services Private Limited and Others, the opposite party sold unauthorized products by entering into an inter-se agreement with themselves that created an exclusionary effect for other non-preferred sellers. As a result, it has concentrated and amalgamated the sellers, with whom it has exclusive tie-in arrangements, thereby limiting the seller’s options. The CCI, on the other hand, dismissed the charges, claiming that the contracts were not exclusive.
Deep Discounting And Predatory Pricing
Online shopping portals follow a growth over profit strategy to subsidize users by resorting to low price techniques to attract customers and build their client base. As a result, the consumers indulge in purchasing through the online platforms due to anti-competitive cheaper prices. Section 4(2)(a)(i) of the Act applies to these anti-competitive actions, since the imposition of any unfair or discriminatory price on the purchase or sale of products or services results in abuse of dominant position, whether directly or indirectly. Further explanation (b) of Section 4 defines “predatory price” as a price that is lower than the cost of selling products or providing services, as established by regulations, or the cost of producing the goods or providing services, to decrease competition or remove competitors.
The Act, on the other hand, only prohibits corporations with a dominating position in a relevant market in India from using “predatory pricing” or “below-cost pricing.” If the corporation is not dominant, the law prohibits predatory pricing.
The informants claimed in Re: Delhi Vyapar Mahasangh V. Flipkart Internet Private Limited[9] that Flipkart gave deep discounts to selected sellers on its platform, in consequence of which the non-preferred sellers were prevented from competing on Flipkart’s online platform. They further claimed that Amazon offered large discounts to recommended vendors at the expense of non-preferred sellers. In this case, the Commission observed that whether funding of discounts constitutes an aspect of exclusive tie-ups or not is a subject that warrants further examination.
Preferential Listing
Preferential Listing, as the name suggests refers to a prejudiced approach towards selected entities undertaken by an enterprise. The informants claimed in Re: Delhi Vyapar Mahasangh V. Flipkart Internet Private Limited[10] that Flipkart uses the term “Assured Seller” to describe products sold by its preferred sellers, creating a bias in favor of preferred sellers at the expense of other sellers. They further claimed that Amazon uses the term “fulfilled” to describe products sold by recommended sellers and that it causes search bias by placing preferred sellers at the top of the first few pages of search results (preferential listing).
The Commission stated that “the question of the preferential listing should also be examined in conjunction with the foregoing”. It further observed that through bigger discounts and preferred listing, competition on platforms may be skewed in favor of exclusive brands and merchants. As a result, the claims were intertwined, necessitating a comprehensive inquiry regarding the functioning of vertical agreements. CCI held that both the platforms follow the same procedures in terms of exclusive tie-ups and favorable terms with brands/sellers, therefore, competition between the platforms does not appear to be a factor in mitigating the potential bad influence on platform competition.
Platform To Business Contract Terms
Online marketplace platforms provide businesses with the necessary potential since they provide huge market prospects. Due to the availability of numerous options, these businesses are becoming increasingly reliant. The issue of unilateral contract terms amendment, as well as the imposition of unfair conditions or prices in the sale or purchase of products and services via contractual clauses, causes significant conflict in the online platform. The imposition of unfair conditions or prices in the sale or purchase of products and services by dominating firms is prohibited[11]. These contract provisions also result in direct or indirect competitive exclusion, which is exploitative/ unfair to business users[12].
Instances of Abuse of Dominance in Digital Markets
Digital markets have pushed the boundaries for traditional markets through establishing the relationships between commercial entities and assessing dominance and abuse. The CCI has looked into dominance issues related to digital markets in India. The following are certain instances wherein the abuse of the dominant position of an enterprise in the digital market has been reflected in recent times.
Google Pay
The Competition Commission of India (CCI) launched an investigation against Google Pay to assess whether Google Pay (GPay) exploited its dominance of India’s digital payments sector[13]. After investigating charges that Google abused its dominance in the “market for the supply of licensable operating system (OS) for smartphones” to sway the “market for apps facilitating payments through UPI” in its favor, the CCI claimed that Google took advantage of its market dominance in the licensable OS for smartphones by pushing manufacturers to pre-install Google Pay. It further stated that the pre-installation of Google Pay pushed Google Pay quite ahead in the competition.
According to the CCI, there was an unequal relationship between Google and smartphone makers due to the “must-have” character of some of Google’s products in the smartphone ecosystem, such as Google Search, Google Chrome, etc. It was decided that the topic of coercion needed to be looked at from this angle. It was also highlighted that Google has a substantial presence in the Indian market for apps that facilitate UPI payments. Financial incentives granted to manufacturers under the RSAs (revenue sharing agreements) were found to have the impact of generating a sense of exclusivity and default, as consumers may not choose rival payment apps due to a pre-existing status-quo bias for the default application. Such contractual relationships with smartphone manufacturers, according to the CCI, had the potential to disrupt the fair playing field in the “market for apps allowing payments using UPI”. As a result, this issue required an examination[14].
WhatsApp Pay
WhatsApp Pay is based on the Unified Payment Interface (“UPI”), which allows its users to send and receive money using the app. In February 2018, it began a trial run in India, delivering payments through WhatsApp Pay to a million users as part of a partnership with ICICI Bank. In the decision of Harshita Chawla v. WhatsApp and Facebook3, the Competition Commission of India (“CCI”) dismissed all allegations of abuse of dominance against WhatsApp Inc. (“WhatsApp”) in respect of launching its much-awaited UPI app ‘WhatsApp Pay’ in India. Interestingly, this comes at a juncture when CCI has lately become active in initiating probes against various tech players across different markets. The case had garnered a lot of media attention as it marked the beginning of the CCI’s scrutiny of the digital payments sector[15].
The CCI looked into the anti-competitive effects of connecting WhatsApp Pay, a proposed UPI, to the popular messaging service in the WhatsApp Pay Case. It determined that WhatsApp’s practice of incorporating WPay within the WhatsApp messenger did not constitute tying. The reasons for this were twofold: first, there was no element of coercion in purchasing and utilizing the two goods together; and second, WPay’s entry does not preclude competition in the payment services market.
As they operate in two different markets, the CCI determined that WhatsApp (the tying product) and WhatsApp Pay (the tied product) are two separate products. It also noted that WhatsApp is the market leader in India’s “Smartphone-based OTT messaging service industry.” CCI concluded that the element of coercion was not present because WhatsApp users were not obligated to utilize WPay; rather, they had entire discretion whether or not to do so. It did not restrict the users from using any other UPI-based service that they may have downloaded on their mobile devices.
The Duplicity of CCI
As it can be observed from the two cases concerning UPI payments applications, the CCI has taken different approaches. The CCI noted Google’s dominance in the market for licensable OS for smartphones and other product markets, including general search services, and rejected the premise that manufacturers have any real option in the pre-installation of Google Pay. Despite WhatsApp’s overwhelming domination in the Indian market for OTT messaging services, the CCI found that users have the option of not using WhatsApp Pay. The CCI’s conclusion was impacted by the processes required to register with WhatsApp Pay and the presence of competing for UPI applications. But, more importantly, the same logic applies to Google Pay, which the CCI did not consider before launching an investigation[16]. Through these examples, it is evident that the CCI does not apply uniform standards while evaluating various aspects of the UPI payments industry.
Google Meet
The CCI on January 29, 2021, dismissed allegations of abuse of dominance against Google LLC and its subsidiary, Google India Digital Services Private Limited[17]. In this case, the informant claimed that Google, a dominant player in internet-related services and products, had integrated the Meet App (a Google video-conferencing app) into the Gmail App, which amounted to Google abusing its dominant position by using its dominant position in one relevant market.
The CCI upheld Google’s claim that it was not dominant in India’s e-mailing and direct messaging markets. The reasoning was that the Gmail users were not required to necessarily register on Google Meet. Moreover, there is an absence of any negative implications for those who do not use Google Meet. Further, a Gmail user has access to other video conferencing sites; and anyone with a Google account (not necessarily a Gmail user) can also host a meeting on the Google Meet platform as a standalone app outside of Gmail. The CCI also found no prima facie evidence against Google, under Section 4(2)(d) of the Competition Act 2002, even though the Meet tab was a part of the Gmail[18].
The goal of anti-competitive tying prevention is to protect the competitive landscape and safeguard the consumer’s freedom and choice. In the instant matter, the Commission departed from its previous position in Harshita Chawla v WhatsApp[19] (four-prong test) as it determined the case exclusively based on coercion[20]. Furthermore, the Commission applied a restrictive interpretation of coercion, which differs significantly from the European Commission’s approach. Google claimed that integrating Google Meet with Gmail is a product improvement to achieve a competitive advantage. However, it’s impossible to envision any efficiency as a result of the integration in the present matter.
Amazon and Flipkart
In the case of Re: Delhi Vyapar Mahasangh V. Flipkart Internet Private Limited[21], a complaint was filed by the Delhi Vyapar Mahasangh (DVM), a lobby supporting the interests of small traders, the CCI launched an investigation into Amazon and Flipkart last year. According to the complaint, the e-commerce behemoths preferred certain vendors on their platforms over others by granting them cheaper fees and priority listing. Platform fee discounts assist certain merchants in offering lower pricing than others. The trade association claimed that this was anti-competitive because smaller traders were unable to buy and sell these products[22].
The Karnataka High Court in this case refused to stop the CCI from proceeding on a complaint filed against Amazon and Flipkart by a traders lobby. The e-commerce giants appealed in the Supreme Court, wherein the Supreme Court recently ruled that the e-commerce giants, i.e. Amazon and Flipkart will have to face investigation by the Competition Commission of India (CCI) for their alleged anticompetitive business practices.
Initiatives to Deal with Abuse of Dominance in e-Commerce Sites
To “democratize e-commerce” and “offer alternatives to corporate e-commerce sites,” the Union government is aiming to establish an Open Network for Digital Commerce (ONDC). The government intends to shift the e-commerce market’s core structure from a “platform-centric model” to an “open-network model.” The ONDC project is based on the Unified Payments Interface (UPI). The government aims to make sure that the e-commerce customers and sellers can transact regardless of the platforms on which they are registered. It will also enable the buyers to access sellers across platforms due to the absence of any barrier for switching between multiple platforms.
However, Andy Mukherjee, a renowned journalist has labeled the ONDC as a “solution looking for a problem.” The ostensible advantages of an open network for digital commerce are far from certain. It is because in the existing e-commerce platform, vendors are already free to list their products across many e-commerce platforms. The buyers have access to the different platforms and they frequently shop across platforms for the best deals. As a result, the dominance of the e-commerce business may not be attributable to a captive grip the existing platforms such as Amazon and Flipkart have over buyers and merchants[23].
Conclusion
The objective of competition law in the e-commerce sector is to promote parity between e-commerce businesses and traditional brick-and-mortar businesses and dealers. However, the competition authorities around the world have been baffled by the challenges posed by digital markets. The above-presented instances reflect the inefficiency of CCI in maintaining uniformity. The lack of uniformity depicts the instability and inadequacy of the institution as well the existing law. Due to these differing opinions, the offenders gain an easy escape from the punishment of antitrust legislation. This ultimately impacts consumer welfare as well as the traditional sellers of fair competition.
Regulators and the government have to attempt to regulate the digital marketplaces through new laws and policies. With the rapid advancements in the e-commerce industries, the CCI while analyzing the specific elements of the e-commerce industry has to also consider rapid technical innovation, increased returns, network effects, as well as data obtained from users. The CCI also needs to undertake the essential facilities theory to ensure that a dominant company and other market participants are compatible. There is an imminent need to examine and reform the Competition regime to keep up with the new economy’s rapid changes. In the e-commerce sector, a check-and-balance mechanism has to be implemented to prevent the entities present in the digital marketplace from engaging in unethical business practices.
References:
[1] E-Commerce and the issue of Abuse of Dominance: The Practice & the Law, Indian Law Watch, https://indianlawwatch.com/practice/e-commerce-and-the-issue-of-abuse-of-dominance-the-practice-the-law/, last seen on 27/08/2021.
[2] Unchecked dominance in digital markets a concern, says CCI chief, The Economic Times (29/07/2021), available at https://economictimes.indiatimes.com/news/economy/policy/unchecked-dominance-in-digital-markets-a-concern-says-cci-chief/articleshow/84861400.cms?from=mdr, last seen on 27/08/2021.
[3] Re: Lifestyle Equities C.V and Another v. Amazon Seller Services Private Limited, Case No. 09 of 2020 (Competition Commission of India, 11/19/2020).
[4] S. 4, The Competition Act, 2002.
[5] S. 19(4), The Competition Act, 2002.
[6] S. 2(r), The Competition Act, 2002.
[7] All India Online Vendors Association (informant) and Flipkart India Pvt. Ltd. & Ors., Case No. 20 of 2018 (Competition Commission of India, 06/11/2018).
[8] S. 3(4), The Competition Act, 2002.
[9] Re: Delhi Vyapar Mahasangh v. Flipkart Internet Private Limited, Case No. 40 of 2019 (Competition Commission of India, 13/01/2020).
[10] Ibid.
[11] S. 4(2) (a)(i), The Competition Act, 2002.
[12] S. 3(4), The Competition Act, 2002.
[13] XYZ v Alphabet Inc, Case No. 07 of 2020 (Competition Commission of India, 09/11/2020).
[14] Harshita Chawla v. WhatsApp and Facebook, Case No. 15 of 2020, (Competition Commission of India, 18/08/2020).
[15] Dibya Behera, No Abuse of Dominance by Whatsapp and Facebook: A Shot in the Arm for Whatsapp Pay?, available at https://www.natlawreview.com/article/no-abuse-dominance-whatsapp-and-facebook-shot-arm-whatsapp-pay, last seen on 26/08/ 2021.
[16] Rajarshi Singh & Abhishek Abhi, The Problematic Stance of CCI in Whatsapp Pay Tying Case: An Opportunity Missed?, Kluwer Competition Law Blog, available at http://competitionlawblog.kluwercompetitionlaw.com/2021/01/11/the-problematic-stance-of-cci-in-whatsapp-pay-tying-case-an-opportunity-missed/?print=pdf, last seen on 26/08/2021.
[17] Baglekar Akash Kumar v Google, Case No. 39 of 2020 (Competition Commission of India, 29/01/2021).
[18] AZB & Partners, CCI Dismisses Allegations of Abuse of Dominance against Google, Lexology, available at https://www.lexology.com/library/detail.aspx?g=f38cccb1-9773-4cfc-a52f-f7a1e1cf6b49, last seen on 27/08/2021.
[19] Ibid, at 6.
[20] Tushar Chitlangia & Nikshetaa Jain, Deconstructing the Google Meet Case under Competition Law, IndiaCorp Law, available at https://indiacorplaw.in/2021/05/deconstructing-the-google-meet-case-under-competition-law.html, last seen on 26/08/2021.
[21] Ibid, at 4.
[22]Prashant Perumal, How will SC ruling on anti-trust probe impact Amazon, Flipkart?, The Hindu (14/08/2021), available at https://www.thehindu.com/business/how-will-sc-ruling-on-anti-trust-probe-impact-amazon-flipkart/article35910014.ece, last seen on 27/08/2021 .
[23]Prashant Perumal, The Open Network for Digital Commerce that’s on the anvil for online retailers, The Hindu (26/08/2021), available at https://www.thehindu.com/business/explained-whats-on-the-anvil-for-online-retailers-in-india/article36110846.ece, , last seen on 27/08/2021 .
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