November 13, 2018
In this recent case, an association of online vendors alleged that e-commerce giants- particularly Flipkart were indulging in anti-competitive activities by abusing their dominant position. However, the Competition Commission of India (CCI/Commission) held otherwise and cleared Flipkart as well as Amazon of any such unfair trade practice.
Case name: All India Online Vendors Association v. Flipkart India Private Limited and anr.
In this recent case, the Informant Association had alleged that Flipkart was involved in abuse of dominant position and its activities were in contravention of the provisions of Section 4 of the Competition Act, 2002. The Informant in the case alleged that small vendors had become allies of the big vendors and suppliers to leading sellers on the Flipkart and Amazon platforms. The Informant thus contended that unfair trade practices were being carried and corporate veil on it was required to be lifted to assess the economic nexus and the wrongdoings being committed.
Observations and Holding by the CCI
In order to analyse the issue at hand, the Competition Commission of India primarily delved into the determination of relevant market in the case and defined it as “Services provided by online marketplace platforms for selling goods in India”.
The Commission noted that e-commerce marketplaces are connecting link between the buyers and sellers. It provides them a platform to interact and transact their business. Ecommerce market in India is still an emerging market. Several ecommerce companies are opening physical offline stores to offer online buyers the touch-and-feel experience, thus offering an integrated shopping experience. On the other hand, various offline retailers have started their online ventures or partnered with leading e-commerce companies to attract customers on the electronic marketplace.
The Commission while arriving at the conclusion also observed that the distinction line between online and offline sellers is sometimes blurry, yet it cannot be denied that online marketplaces offer convenience for sellers as well as the buyers. For the sellers, they save costs in terms of setting up of a store, sales staff, electricity and other maintenance charges. The benefits afforded to buyers includes comfort of shopping from their homes thus saving time, commuting charges and at the same time they can compare multiple goods.
Difference between online retail store and online marketplace platform– The Commission also enumerated the difference between online retail store and online marketplace platform. It opined that in online retail store, a particular seller, who may or may not own a brick and mortar retail store, owns his portal to sell products thorough online website. Whereas in an online marketplace platform such as Amazon or Flipkart, the owner of the online portal offers a platform for buyers and sellers to transact. Hence, the sellers would be interested in selling on the platforms when increasingly high number of buyers visit an online platform, thus characterising the online platforms with network effects. In the case of online retail stores, there are hardly any network effects though there may be efficiencies of scale.
Dominance by Flipkart and Amazon- On this issue, the Commission noted that the Informant asserted the OPs hold over 40% market share, however the Informant has not given any credible source for the market share data.
The Commission was of the view that there are multiple players in the online marketplace platforms. As per the data available in the public domain, Flipkart and Amazon are the bigger competitors; moreover, there are other players like Paytm Mall, SnapDeal, Shopclues etc. No doubt, the size and resources of Flipkart are large; yet, it cannot be disputed that the closest competitor to Flipkart is Amazon which has a valuation of around 700 billion dollars and has a global presence.
Entry Barriers- The Commission noted that there are several new players which have entered or propose to enter the e-commerce segment, such as Paytm Mall, thus indicative of low entry barriers.
In view of the aforesaid, the Commission concluded that the OPs i.e. Flipkart and Amazon commanded any dominant position at this stage of evolution of market.
CCI’s order can be accessed here.