Amazon and Flipkart found violating Competition law in India-DG investigation report out
CCI orders investigation into Amazon and Flipkart’s alleged exclusive tie ups and preferential terms with their respective preferred sellers
Competition Commission of India (“CCI/Commission”), vide order dated 13.01.2020, has directed the Director General (“DG”) to investigate whether the alleged exclusive agreements, deep-discounting and preferential listing of a few select sellers by Amazon and Flipkart on their respective platforms is being used as an exclusionary tactic to foreclose competition and resulting in an Appreciable Adverse Effect on Competition (AAEC).
Background and Allegations
Information before the CCI was filed by Delhi Vyapar Mahasangh (“Informant”) – a society consisting of Micro, Small and Medium Enterprises (“MSME”) traders of smartphones and related accessories who list their products on the e-platforms.
The primary allegations levelled in the information was that there are several instances of vertical agreements between: (i) Amazon and its preferred sellers; and (ii) Flipkart with its preferred sellers which allegedly have led to a foreclosure of other non-preferred traders or sellers from these online marketplaces. It was also alleged that these preferred sellers are actually controlled or affiliated to Amazon and Flipkart, as the case may be.
The information contained the following broad allegations:
- Deep Discounting: It was alleged that Amazon and Flipkart, on their respective platforms, provide deep discounts to a select few preferred sellers which adversely impacts non-preferred sellers. Amazon’s preferred sellers included its own joint ventures which apparently uses the same contact details as of Amazon.
- Preferential listing: Amazon and Flipkart, use the word “Fulfilled” and “Assured Seller” respectively on their platforms for the products sold by its preferred sellers to the detriment of other sellers. Such preferred sellers also receive preferential listing on the respective platforms as a result of which the non-preferred sellers are pushed down the search list.
- Exclusive Tie-Ups and Private Labels: Both Amazon and Flipkart have several tie-ups and private labels which get preference in terms of sales. By having exclusive tie-ups in the relevant market with the smartphone companies, it provides exclusivity through discounting and preferential listings.
CCI prima facie Order
The Commission noted that the primary issue to be examined was the exclusive launch of mobile phones on the Amazon and Flipkart. The CCI acknowledged the evidence in the form of text message put forward by the informant which indicated that due to partnerships between mobile manufacturers and platforms, the offline retailers are forced to purchase smartphones either from the manufacturer’s e-stores or from the platforms e-portals. The Commission also noted the several reports in media and the advertisements regarding exclusive launches of smartphones on these platforms. CCI observed that companies like OnePlus, OPPO, and Samsung exclusively launched several models on Amazon. On the other hand, Vivo, Realme, Xiomi etc. exclusively launched several of their models on Flipkart. In 2018, Amazon had launched 45 mobile phones and Flipkart launched 67 mobile phones exclusively on its platform. The CCI observed that it prima facie appears that the mobile manufacturers’ partner with e-commerce platforms and their brands are sold by the platforms’ exclusive sellers. CCI noted that there are only few online sellers which sell the exclusively launched smartphones either through Amazon or through Flipkart and it prima facie appears that there is an exclusive partnership between the mobile phone manufacturers and e-commerce platforms for exclusive launch of smartphone brands. CCI observed that the exclusive launch coupled with preferential treatment to a few sellers and discounting practices create an ecosystem that may lead to AAEC.
CCI acknowledged e-mails furnished by the Informant which revealed communications allegedly sent by Flipkart and Amazon to their sellers for incurring a part of the discounts offered during the big sale events such as ‘Big Billion Days’ of Flipkart and the Great Indian Festival of Amazon. CCI found that certain smartphone brands are available at significantly discounted price on Amazon and Flipkart and are sold largely through their preferred sellers. CCI noted that the question of whether funding discounts is an element of exclusive tie-ups merits investigation.
CCI observed that competition on the platforms may get influenced in favor of the exclusive brands and sellers through higher discounts and preferential listing and the allegations levelled are interconnected. Therefore, it merits a holistic investigation in order to examine how the alleged vertical agreements operate, the key provisions of these agreements and what effects they have on competition.
Accordingly, CCI directed the DG to undertake an investigation to ascertain whether the above-mentioned conduct of Amazon and Flipkart is in violation of Section 3(1) read with Section 3(4) of the Act.
COMMENT: This order marks a big shift in the CCI’s policy towards e-commerce platforms. It seems to be a result of the market study undertaken by CCI in the recently published report on the “Market Study on e-commerce”. Though it is too early to make any concrete comment on the outcome since e-commerce platforms also have their own arguments which have not been captured in the prima facie order, but this inquiry is certainly likely to be the darling for the media .Apparently, none of the e-platforms were called for hearing during the preliminary conference,which too is doubtful. Interestingly, the CCI has avoided defining the relevant market in this case ostensibly on the basis of Supreme Court Judgement in Excel Corp Case. Moreover, CCI has played safe by avoiding to go into the allegation of joint dominance or collective dominance of both Amazon and Flipkart since the concept of collective dominance is still alien to Indian Competition Law. The reference for investigation under Section 3(4) of the Act makes it mandatory for the Commission to apply Rule of Reason analysis which will inevitably have to consider the counter arguments of the e-commerce platforms in the final analysis.
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