Published On: 23rd March, 2024
CASE ANALYSIS:
(2015 ) 04 CCI CK 0010
IN THE COMPETITION COMMISSION OF INDIA
CASE NO: 80 OF 2014
MOHIT MANGLANI______________ APPELLANT
VS.
M/S FLIPKART INDIA PRIVATE LIMITED AND ORS._______________RESPONDENT
Date of Decision: 23-04-2015
Acts Referred: Competition Act, 2002 — Section 3(1), 3(4), 3(4)(b), 3(4)(c), 4(1), 4(2), 4(a)(i),
4(b)(i), 4(b)(ii), 19(1)(a), 19(3), 26(2)
Citation: (2015) 04 CCI CK 0010
Counsel: For Appellant: Parti-in-person and For Respondents: Ramji Srinivasan, Senior Advocate, H.S. Chandhoke, Abdullah Hussain, Kanika Chaudhury Nayar and Divye Sharma, Advocates
Hon’ble Judges: Ashok Chawla Chairperson; S.L. Bunker Member; Sudhir Mital
Member; Augustine Peter Member; U. C. Nahta Member
Bench: Full Bench
Advocate: Ramji Srinivasan, H.S. Chandhoke, Abdullah Hussain, Kanika
Chaudhary Nayar, Divye Sharma, Manas Chaudhuri, Sagardeep Singh, Ashish
Ahuja, Shine Joy, Lunita Hijam, Anindita Mitra, Shruti Bhardwaj, Satendra Vir
Singh, Anand S. Pathak, Akshay Nanda, Rakesh Bakshi, Ankur Sharma, Amit
Tambe, Gautam Chawla, Mahinder Aggarwal, Swarn Singh, Munish Sharma
Final Decision: Dismissed
ABSTRACT:
“The E-Commerce Industry is a force which no investor can afford to ignore” – Cushla Sherlock
The e-commerce industry in India is experiencing an unparalleled expansion due to the rise in internet users brought about by smartphone accessibility and the ease of having the World Wide Web at our fingertips. Internet businesses like eBay Inc. and Amazon.com, Inc. are entirely founded on Internet-backed marketing concepts. E-commerce has transformed distribution and marketing, allowing them to be more direct. Both e-commerce and traditional channels with intermediaries are advanced by traditional businesses like banks, insurance providers, and automakers like BMW Group. Dealer roles may shift from being merely resellers to advisors and service providers as e-commerce concentrates on reselling. Because it is frequently necessary for the traditional distribution networks to synchronize with the direct e-tailing networks, dealers may become anxious and begin selling online as a result. As a result, although producers and distributors have previously enjoyed a mutually beneficial, non-competitive vertical relationship, the emergence of e-commerce may force these parties to engage in direct rivalry. Is it still a strictly vertical connection between distributors and manufacturers from the perspective of e-commerce, or can manufacturers keep all e-tailing outlets to themselves and keep their distributors out of those that space of competition?
In light of these conditions, it is not unexpected that the Competition Commission of India (“CCI”) has been investigating claims of unfair trading practices made by a few significant players in this industry, including Flipkart, SnapDeal, Jabong, Myntra, and Amazon[1]. This article looks at how the CCI’s order has affected the Indian e-commerce market, specifically how the CCI has interpreted the relevant market and how online retail business models have affected both price and non-price competition.
SYNOPSIS:
M/s Mohit Manglani & Others Versus M/S Flipkart Pvt Ltd
In this instance, Flipkart was granted exclusive rights to market Chetan Bhagat’s new book “Half Girlfriend” due to an exclusive sale deal between Flipkart and Rupa publishers[2]. Flipkart had a 100% market share for the goods for which it had exclusive dealing rights, leading to dominance. The competitors alleged that this resulted in unfair trading practices because the consumer was given no alternative.
According to CCI, the agreement between a manufacturer and an e-portal in this case did not operate as a barrier to entry; on the contrary, it indicated that competition is growing as more e-commerce enterprises emerge.
FACTS:
- Information submitted by Mr. Mohit Manglani (the “Informant”) against four significant online retailers in the Indian e-commerce market—Flipkart, Jasper Infotech, Xerion Retail, Amazon, and Vector E-commerce—led to the opening of the investigation.
- Through exclusive supply and distribution agreements with producers and marketers of products and services, the informant claimed that the Opposite Parties had been engaging in anti-competitive acts in contravention of section 19(1)(a) of the Competition Act, 2002 (the “Act”).
- The Informant also stated that the Opposite Parties had signed exclusive agreements for the sale of specific products, with the intention of keeping other e-portals or physical channels out of the picture. As an example, the Informant mentioned author Chetan Bhagat’s most recent book, which was released exclusively on Flipkart. This gives the Opposite Parties the ability to manage the supply of the goods[3] that are sold exclusively on their portals, giving the impression of scarcity, which frequently results in foreclosure of the market for the physical market traders.
- Consequently, there is a noticeable negative impact on competition (“AAEC”). The informant further claimed that as a result of these exclusive agreements, the parties involved had obtained a product-specific monopoly, meaning that each party controlled a 100% share of the market for the goods that were sold only through their portals. This gave them the ability to set prices and enforce other terms and conditions that were harmful to the interests of the buyers.
- Previous complaints received by the CCI contained similar accusations made by their brick-and-mortar counterparts against certain internet retailers, with their major grievance being that these companies’ activities were forcing these entrepreneurs out of business.
- In December 2014, the Director General referred a similar complaint filed by the All Delhi Computer Traders Association (“ADCTA”) against the Opposite Parties to the CCI, which it considered in order to resolve the market’s ongoing concerns. By buying products from wholesalers or dealers on credit for 21 to 30 days and then selling them at rates less than their purchase costs, the ADCTA had claimed that the Opposite Parties were engaging in predatory pricing.
- In order to reach its prima facie opinion in this case, the CCI heard arguments from the ADCTA, the Informant, and the Opposite Parties. The ADCTA further claimed that the Opposite Parties were abusing their dominant position in the market to impose quantity and resale restrictions, which had an impact on the distributors and dealers operating in the physical market.
STAND TAKEN BY OPPOSITE PARTIES:
Since the relevant market for a product would also contain its close substitutes, the opposing parties argued that the relevant market in question cannot be understood as product-specific for each exclusive dealing arrangement, per se. Consequently, goods that were able to impose a price limit on these goods would also be included in the relevant product market. For example, the relevant product market for a book could be defined by language, genre, and so forth, but it could not be limited to every book that was sold through a specific channel. Additionally, they argued that the e-portals function according to a marketplace paradigm, in which they merely act as a distribution conduit rather than as the owner of the commodities sold. Therefore, they do not form distinct relevant markets; rather, they are simply subgroups of India’s organized retail market, which includes both online and offline (or physical) retail markets. The opposing parties further argued that, as online shopping is a subset of the organized retail industry, its market share is insufficient to establish a dominating position, with organized retail making up just 8% of the country’s total retail market.
Regarding their exclusive relationships with suppliers and manufacturers, the Opposite Parties contended that those vertical agreements[4] did not automatically include an AAEC. In order to ascertain whether these vertical agreements actually enhance or inhibit competition, the Act mandated that they be assessed using a range of criteria outlined in Section 19(3). Consequently, the opposing parties argued that the manufacturer/supplier was free to sell their product on their own websites or in physical markets and that the exclusivity of their purported vertical agreements only applied to the exclusion of other online portals. They added that no one manufacturer could have sufficient market power to influence competition in the relevant market because of the abundance of viable alternatives and the ongoing rivalry between e-portals and the retail sector.
CCI’s ORDER:
It was determined by the CCI, in agreement with the Opposite Parties, that the relevant market could not be product-specific because it encompasses all product substitutes. Consequently, it was not possible to say that the Opposite Parties held a 100% dominant position in the market for the products that they exclusively marketed. The CCI continued by saying that, considering the abundance of e-portals in the market providing comparable services, none of the Opposite Parties could be considered individually dominant, regardless of whether the online retail market is regarded as a separate relevant product market or a subset of the retail market. Using this justification, the CCI declined to respond to other claims that the Opposite Parties’ dominance was abused.
After assessing the contested exclusive agreements using the standards established by Section 19(3)[5] of the Act, the CCI came to the conclusion that no manufacturer-e-portal exclusive arrangement appears to be impeding entry into the market. The CCI also pointed out that new e-portals are joining the market, which instead suggests a rise in competition, and that the availability of substitutable items generates enough competitive limitations to discourage any scope of monopoly or domination. The CCI determined that the purported exclusive agreements do not result in any AAEC in the relevant market after noting that the Opposite Parties, acting as online distribution channels, assist the customers in making better-informed decisions by comparing prices and products.
The following succinctly summarizes the CCI’s main conclusions about how the Opposite Parties affect retail market competition:
(i) A product sold through an e-portal has a relevant market that encompasses all of its replacements, which may put a cap on the product’s price.
(ii) Manufacturers and suppliers are free to offer their goods on their own websites in addition to real markets, thus the exclusive marketing agreements between e-portals and these parties do not impose any obstacles to entry.
(iii) It is impossible for a single company to dominate this industry due to the abundance of interchangeable items and the sheer number of businesses offering e-portal services.
(iv) In actuality, e-portals increase price transparency, empowering customers to make better decisions and boosting competition in the process.
IMPACT OF THE ORDER:
Separating the online and offline retail sectors was previously rejected by the CCI, which maintained that “these two markets are different routes of distribution of the same product and are not two independent relevant markets[6].” In the same ruling, the CCI did concede, though, that the main distinctions between offline and online marketplaces are in the deals and customer experiences they provide. Therefore, from the perspective of the consumer, it seems that there is a high degree of substitutability, inter se, between the two distribution channels. This allowed the physical market dealers to claim that their online competitors’ unfair business practices were forcing them out of the market. But this ruling has not only made it clearer what the Indian e-commerce sector’s relevant market would be, but it has also admitted that the emergence of online retail has actually increased market competitiveness.
The CCI has noted that, in comparison to their brick-and-mortar equivalents, internet distribution channels offer customers the ease of comparing costs and the benefits and drawbacks of a product. In the online retail space as well as between the online and offline retail marketplaces, this suggests that price competition[7] and intra-brand competition[8] are becoming more intense. Although the purported exclusive dealing agreements between e-portals and manufacturers/suppliers only apply to other e-portals, the CCI order has also recognized that these agreements do not forbid the manufacturer/supplier from selling the product on their own websites. Consequently, even if they might have some effect on intra-brand rivalry[9] in both distribution channels, their effect seems to be minimal in the online distribution channel alone.
JUDGEMENT:
The Commission notes that customers have the ability to evaluate pricing and the benefits and drawbacks of products through the online distribution channels used by the OPs. Moreover, by having the option of doorstep delivery, customers can accept the purchase whenever it is convenient for them and do not have to dedicate several hours to a brick-and-mortar store to make the buy. Consequently, it does not seem at this time that the exclusive agreement between manufacturers and OPs caused AAEC in the market. In reference to the claims made in relation to section 4 of the Act, the relevant market in which OPs operate must be identified. Regardless of whether we consider the e-portal market as a separate relevant product market or as a sub-segment of the market for distribution, none of the OPs appear to be individually dominant in this context, which is why the Commission is convinced with the OPs that every product cannot be taken as a relevant market in itself. ADCTA and the Informant have raised concerns about the OPs’ abuse of their dominance, but the Commission does not think it is necessary to address these issues in light of the fact that multiple players in the online retail market have been arrayed as OPs in this particular case and are providing comparable facilities to their customers. After considering the aforementioned analysis, the Commission believes that there is not enough evidence to support a case of the OPs being in violation of either section 3 or section 4 of the Act. Thus, the Secretary is directed to notify all parties involved that the issue is closed in accordance with section 26(2) of the Act.
CONCLUSION:
The Indian e-commerce sector has experienced rapid expansion, and as a result, a number of market regulators have been closely monitoring the operational characteristics of the companies involved. The Indian competition authorities are further compelled to investigate the anti-competitive effects of these business practices due to the brick and mortar stores’ persistent complaints against their online competitors in the retail sector. In this particular case, the CCI’s endeavor to resolve some fundamental inquiries regarding the business operations of these internet-based retailers is commendable. The CCI has reiterated that the Act’s purpose is to safeguard “competition,” not “competitors,” by issuing this directive.[10]
[1] In Re: Mohit Manglani v. M/s Flipkart India Private Limited and Others, Case No. 80 of 2024, decided on 23rd April 2015
[2] https://cbcl.nliu.ac.in/contemporary-issues/indias-new-e-commerce-policy-leveling-the-playing-field-for-online-retailers/
[3] Exclusive supply agreements are considered to be anti-competitive under Section 3(4)(b) of the Act, and exclusive distribution agreements are considered to be anti-competitive under Section 3(4)(c) of the Act if they cause any appreciable adverse effect on competition.
[4] Vertical agreements refer to arrangements between entities operating at different levels in the production and distribution chain, e.g., an agreement between a manufacturer and distributor
[5] The factors that were considered by the CCI in this case, include the creation of entry barriers in the market. Elimination of existing competitors, foreclosure of competition, accrual of benefits to consumers, improvement in production or distribution chain, and promotion of technical, scientific, and economic development.
[6] Ashish Ahuja v Snapdeal and Anr, Case no. 17 of 2014, at paragraph 16, decided on 19th May 2014.
[7] Price competition refers to the competition of a free-market economy where all the competitors sell the same product, the demand for which is driven by the prices charged by each seller for the product.
[8] Inter-brand competition refers to the competition between two brands or manufacturers producing similar or perfectly substitutable goods.
[9] Intra-brand competition refers to the competition between two retailers or distributors dealing in goods of the same brand.
[10] https://www.mondaq.com/india/trade-regulation–practices/400076/ccis-take-on-the-indian-e-commerce-market-protect-competition-not-competitors
[11] https://www.rfmlr.com/post/e-commerce-deep-discounting-and-the-anti-trust-war
