Amazon and Walmart-owned Flipkart are currently facing antitrust scrutiny from India’s antitrust watchdog, the Competition Commission of India (CCI). Various retailers and sellers have made allegations of preferential treatment of slots to vendors associated with them, predatory deep discounting practices and exclusive tie-ups which reduce consumer choice against these two e-commerce giants. The CCI is looking into the allegations against these companies and has ordered an investigation.
Amazon and Flipkart challenged this investigation before the Karnataka High Court and an interim stay has been granted. Recently, the Supreme Court directed the Karnataka High Court to decide on vacating the stay within six weeks. However, Flipkart is being currently investigated for these practices as per NCLAT’s direction in a case filed by the All India Online Vendors Association (AIOVA).
At stake is one of the fastest-growing e-commerce markets in the world, as this recent CCI study says. A July 2019 India Brand Equity Foundation report also states that the Indian e-commerce industry could be the second-largest in the world after the United States by 2034.
The most frequent allegation made against Amazon and Flipkart is that they give preferential listing slots to sellers who are associated with them. The products sold by such sellers are identified as either ‘Amazon Fulfilled’ or ‘Flipkart Assured’. Such sellers receive visibility on these platforms above sellers who are not associated with them despite having the same ratings and identical products. Such anti-competitive concerns of search bias have been noted by the CCI in the case against Google in 2018.
According to non-preferred sellers who are mostly MSMEs, the products sold by preferred sellers creates a search bias in the first few pages of the search result. The industry term for such preferential listing is called ‘winning the buy box’. The same allegations have been made in the report submitted by the US House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law against Amazon for preferential placement in product listings which raises serious competition concerns.
It has also been identified that such preferred sellers continue to receive higher preferential slots and deep discounts, which is another allegation against the e-commerce giants.
Amazon and Flipkart are known for their lucrative discount offers, especially during festive seasons. It is also no secret that both are backed by investors with deep pockets who are willing to sustain losses, such as when products are sold below the cost price. Such predatory behaviour is aimed at capturing the market.
The allegation before the CCI is that both Amazon and Flipkart provide deep discounts to selected products listed by their preferential sellers. This does not provide a level playing field and can impact offline retailers and non-preferred sellers from effectively competing with products preferred and discounted by Amazon and Flipkart.
However, the Competition Act, 2002, does cover the concept of consumer benefit in terms of lower prices, and efficient delivery of products which are offered by Amazon and Flipkart. But such benefits can only be temporary. The Act envisages that conduct in the present can likely harm competition in the future. Therefore, such benefits can be short term as once the competition is eliminated there is no guarantee that the discounts would continue.
Amazon and Flipkart have arrangements with manufacturers wherein they get exclusive rights to launch and sell products on their platforms. In 2018, Amazon launched 45 mobile phones while Flipkart launched 67 exclusively on their platforms. Such exclusivity not only eliminates non-preferred sellers on these platforms but also brick and mortar stores.
It was reported that online platforms are likely to account as high as 45 percent market share of smartphone sales in 2020 owing to COVID-19 situation. Owing to such dramatic rise of smartphones sold through online platforms, the non-preferred sellers and traditional store owners have alleged that this has the potential to relegate them. This can certainly result in decreased consumer choice.
Traditional stores have to incur the costs of maintaining an office/showroom, inventories, salaries for workers — all this while losing customers who prefer the heavily-discounted products online.
According to the vendors aggrieved by the conduct of Amazon and Flipkart, the policies adopted by them are at odds with the Competition Act, which requires the promotion of free, open and fair competition. Such policies can disrupt the e-commerce market as there is no level playing field for non-preferred sellers. Such a level playing field is essential to give the government’s ‘Make in India’ programme a boost.
Further, the combined effect of preferential treatment towards a few sellers, deep discounting and exclusive tie-ups can result in a strong consolidation of markets with the result being that very few players will actively compete. With various ongoing proceedings against Amazon and Flipkart before the CCI, its appellate bodies and high courts, it will be interesting to see the approach taken by courts and regulators in India against tech companies who are already facing antitrust scrutiny around the globe.
Chanakya Basa is co-founder and Karan Shelke is intern at Knock Legal. Views are personal.
Disclaimer: Chanakya Basa represents the All India Online Vendors Association (AIOVA) in cases filed against Amazon and Flipkart.