Amazon and Flipkart found violating Competition law in India-DG investigation report out
CCI holds neither Flipkart nor Amazon as dominant in the market for online marketplace platforms- Hints at considering online market as a separate market for market analysis
CCI, by way of order dated 06.11.2018 has dismissed allegations against Flipkart India Private Limited (“Flipkart India”) and Flipkart Internet Private Limited (“Flipkart Internet”) of abusing its dominant position by indulging in the activity of (i) selling goods below cost price to individual sellers who are not backed by Venture Capital funds, thereby causing denial of market access and (ii) using its dominance by leveraging its position to enter into another market by way of extending discounts and manufacturing products under private label.
Background
The information before the CCI was filed by All India Vendors Association (“AIVA/informant”) which is a group of more than 2000 sellers selling on e-commerce marketplace such as Flipkart, Amazon, and Snapdeal etc. The primary allegation was that Flipkart India sells goods to companies like WS Retail Services Private Limited (“WS Retail Service”), which was owned by the founders of Flipkart internet till 2012, at a discounted price and thereafter, these goods are sold on the platform operated by Flipkart Internet. As per the informant, this practice amounted to preferential treatment to certain sellers. In other words, the information revealed an alleged strategy of Flipkart India to acquire goods from various persons and to immediately sell them to WS Retail Services at a discount, which would, in turn, sell these goods as sellers on the internet platform Flipkart.com of Flipkart internet.
CCI Analysis- Online market is a distinct market
The Commission, while delineating the relevant market noted that even though the distinction line between online and offline sellers is sometimes blurry, however it cannot be denied that online marketplaces offer convenience for sellers (saving cost of setting up a store, sales staff, electricity/maintenance charges etc.) as well as the buyers (comfort of shopping, time saving, product comparison etc.). In addition to this, the CCI was of the opinion that there is a difference between ‘online retail store’ and ‘online marketplace platform’. CCI observed that in case of an online retail store, a seller (who may or may not own a brick and mortar retail store) owns his portal to sell products through online websites, whereas, in case of an online marketplace platform such as Flipkart or Amazon the owner of the online portal offers a platform for buyers and sellers to interact. In other words, the sellers would be interested in selling on platforms when increasingly high number of buyers visit an online platform, and thus the online platforms are characterized with network effects. On the other hand, there is hardly any network effect in the case of online retail stores. Further, the Commission also observed the Foreign Direct Investment (“FDI”) policy on E-commerce which permits 100% FDI under automatic route to ‘marketplace model’ in e-commerce and no FDI in inventory based model. Accordingly, the Commission delineated the relevant market as ‘services provided by online marketplace platforms in India’. The Commission was of the opinion that Flipkart is not in a dominant position in the relevant market due to the presence of Amazon (its closest competitor having a valuation around $700 billion) and other competitors such as Paytm Mall, SnapDeal, and Shopclues etc. In addition, new entrants such as Paytm Mall revealed the low entry barriers in the relevant market.
Interestingly, though the information was filed against the Flipkart entities, the Commission held a preliminary conference with Amazon Seller Services Private Limited (“Amazon”), as it was also a key player in the relevant market. However, looking at the present market construct and structure of online marketplace platforms in India, it was concluded by the Commission that no one player in the market can be said to be commanding any dominant position at this stage of evolution of the market.
Accordingly, the matter was closed by the CCI since Flipkart was not found to be dominant in the relevant market.
Comment: This is an old order, but I thought of reporting it for the sole reason of its chronological importance. This is the first order in which CCI has hinted at considering the online marketplace as a separate independent market which can be seen to consider the market position/behavior of the e-tailers. This order should serve as a warning to the growing e-commerce players as CCI may now consider their market shares in the online market alone as compared with the overall market for both offline and online, as was the practice hitherto fore.
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