news/AMZN/2023.01.30/Could The CCI's Determination To Take Down E- Commerce Marketplaces Really Be Counter-P...txt

Rarely does a day go by, without the Confederation of All India Traders (CAIT) or the All India Online Vendors Association (AIOVA), both powerful trader lobbies, accusing foreign owned e-commerce entities (such as Amazon and Flipkart) of having used underhanded means to circumvent the intent of India's Competition Act and Foreign Direct Investment policy. The accusations themselves come with such frequency, that it is surprising that they continue to be taken seriously by news agencies, as well as the Indian Government. This speaks to the serious political muscle that these associations enjoy as a large vote bank, which must be kept happy.Is it at all possible that in this instance, the focus on these e-commerce giants is doing the opposite of encouraging free and fair competition? Does the CCI's continued concentration on these e-commerce giants have the propensity to force these already squeezed businesses to shut shop? Where will this leave the Indian consumer that has greatly benefited from the marketplace model during the pandemic? Will it be to the detriment of small businesses that online e-commerce has purportedly saved during the pandemic by providing them an outlet to their wares?Let us consider some of the claims and consequences:1. Predatory PricingOne allegation is that these foreign owned ecommerce entities ensure that goods are priced below cost, with the intention of bleeding out competitors. Once these competitors have been pushed out, these e-commerce entities would then raise their prices to monopoly levels to recoup their losses. There are a few problems with this assertion:Overall, the breaking of the monopoly of mom-and-pop stores in their limited geographies, providing lower prices, a wider range, while also enabling the convenience of not having to leave the house during a pandemic in terms of customer benefit should be seen as far outweighing the need to protect the bottom line of these stores that have had it all their own way so far.The claim from trade associations that foreign owned e-commerce entities are putting small retailers out of business is obviously a self-defeating one, because it means that they compete, necessarily making the market not restricted only to e-commerce marketplaces, and greatly reducing the likelihood that they are dominant in a market where the vast majority of sales are still made directly from a local store.2. Use of Third-Party Seller DataWhile the CCI decided not to pursue this in March of 2022 against Amazon, there have been repeated claims/concerns and news reports raised about the use of third-party seller data to reverse engineer goods of leading brands and small businesses, thereafter undercutting them to put them out of business through the entity's own 'private brands'.This again is a claim that would require 'dominance' to be established. It is understandable if the brands have no choice but to sell on the marketplace, which is for all practical purposes an essential facility, but this is clearly not the case. Other than there being multiple online marketplaces, these brands can, and often do sell their goods through brick-and-mortar stores, as well as their own websites.If it can indeed be established that no dominance exists in favor of the e-commerce marketplace giants we have mentioned before, one cannot help but come to the conclusion that the outcome of the use of data is clearly pro-competitive. These private brands usually offer a cheaper alternative to branded goods, often aping the market leader. Consumers then have a choice of buying an established product at a slightly higher price, or a cheaper substitute that is designed to do the same job.Should the branded product have a suitably superior quality, be suitably differentiated, or be priced suitably reasonably, it is certain to survive. This is essentially the kind of competition that the free market predicates.3. Differential TreatmentThis is another area where the lines are extremely blurred between Competition Law and FDI Policy. Section 4(2) of the Competition Act 2002 states that a 'dominant' party cannot impose unfair or discriminatory conditions in the sale of services, here to be read as access to the marketplace. Needless to state here that the establishment of dominance would be a necessary criteria for this to even begin to be considered as something that could potentially fall foul of the Act.Press Note 2, however requires the e-commerce entity to maintain a level playing field for its sellers on the platform.It is notable that Press Note 2 also establishes that an ecommerce entity with FDI cannot have an ownership interest in sellers, and cannot dictate prices. Logically thus, what interest would a marketplace that survives on commissions have to discriminate against a seller, but based on performance or customer satisfaction?It is interesting to note that the Enforcement Directorate, one of India's most powerful enforcement agencies, responsible for enforcing economic laws and a part of the Department of Revenue, only chose to send a notice to Flipkart and not Amazon for purported violation of FEMA, asking why a fine to the tune of USD 1.35 Billion should not be imposed.2It appears that another way to bell the cat has been found here, where the antitrust challenge was destined to fail.AnalysisThere is little doubt that the overall impact of having Amazon and Flipkart operate and compete with each other, as well as disrupt existing supply chains is greatly pro-competitive when viewed from afar. Availability and customer choice have greatly improved. Prices and delivery times have nosedived.Add to this the fact that both provide jobs, either directly or indirectly to thousands of people, which goes up significantly during Big Billion Days and the Great India Sale festivals. There are also multiple instances that can be found on the internet, whereby Amazon and Flipkart claim to have taken steps such as waiving listing and onboarding fees and providing working capital loans to enable small businesses to keep afloat during the pandemic.Not for a minute can it be claimed that these organizations act solely altruistically. Positive media coverage and attention are nothing but attempts to drive up stock prices and profits. But where really are these profits? Both Amazon and Flipkart have reportedly made losses of over 500 and 300 million USD respectively3. This is without accounting for wholesale arms of both entities which also make massive losses.Walmart procured a 77% stake in Flipkart in May of 2018 for USD 16 Billion. This was surely done with the hope that Flipkart would become profitable at some point in the future, or at least that Walmart would be able to sell its stake down the line profitably. Unfortunately for them, later that year, PN2 would come into play that would cut off one of the avenues to be able to make revenue, i.e. by selling directly to the customer.It appears increasingly unlikely that Amazon or Flipkart will ever be able to turn it around to become profitable, particularly with mounting legal expenses and the threat of millions being imposed upon them as a fine.It will be unfortunate if the myopic protectionist measures to protect Indian companies leads to a withdrawal of these established global e-commerce giants.While active outreach programs that ensure you stay in the news for all the right reasons e.g. providing jobs, enabling cottage industries and small Indian businesses succeed will certainly help stem the tide of popular opinion against the 'outsiders', the importance of visibly and obviously being in compliance cannot be overstated particularly when it comes to FDI norms and the Competition Act. Some of the top most priorities should be:Admittedly, there is no bullet proof solution for safeguarding investments in an economy where ad-hoc decisions are unfortunately commonplace. The 4 steps mentioned above however, should go some way is providing some security to businesses.Footnotes1. Refer to paragraph 97 of Fast Track Call Cab Pvt. Ltd and Anr. Vs. ANI Technologies Pvt. Ltd. (6 of 2015)2. Refer to https://economictimes.indiatimes.com/industry/services/retail/enforcement-directorate-threatens-flipkart-its-founders-with-1-35-billion-fine-say-sources/articleshow/85056916.cms3. Refer to https://www.business-standard.com/article/companies/flipkart-clocks-25-growth-in-fy21-revenue-at-rs-43-357-cr-losses-drop-23-122010401221_1.htmlThe content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr Dhruv Singh
G&W Legal
C-9 / 9624
Vasant Kunj
New Delhi
110070
INDIA
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