Due to the increase in the number of players in the e-tail market, there has been a tremendous upsurge in demands being placed digitally which has led to the downfall in the business of brick and mortar stores. India despite being a hub of manufacturing zone is not able to run its e-commerce business independently, rather it has succumbed to these foreign players ruling the electronic market by offering their products at prices reflected to be at great discounts. In light of the above scenario prevalent in the e-commerce market, a dire need is felt to formulate a legal framework which will strengthen the growth rate of the industry along with addressing the concerns of the retailers which have been long in distress over the deep discounts given by these e-commerce players which has severely affected their presence in the market.
Anti-Competitive Practices in the E-Tail Market
E-commerce has revolutionized the manner of doing business but it comes with its own set of challenging problems. It has not even catered to half of the diverse population of India than when it is already on the radar of the market regulator, i.e., the Competition Commission of India. The e-tail market practices lately seem to be in disagreement with the traditional retail market of India which has long been in existence. The practices alleged against the e-commerce regime has its presence in the Competition Act of India, 2002 (“Act”) and is discussed as follows:
One of the main imbedded roots of serious prohibitions listed under the Act is governed by Section 4[i], which gives rise to the most mooted point before the Commission today, i.e. the Delineation of Relevant Market[ii]. It forms the basis of all competition concerns raised in the e-commerce sector. The Competition Commission of India has made its stance clear in the case of Ashish Ahuja v. Snapdeal.com[iii] and clearly said that even though the e-tail and re-tail market are different in terms of the shopping experience, they are merely different distribution channels of the same products and thus belong to the same relevant market. The Commission also opined that there is no prima facie case for Snapdeal and it is a mere web portal acting as a facilitator for the sellers and the buyers.
However, in yet another case[iv] the Commission in its ruling have mentioned its uncertainty over the question of e-tail market being a separate relevant market or a constituent of the retail market of distribution. These rulings by the CCI has invoked a distasteful reaction among the brick and mortar stores. In view of the author, the Commission has failed to evaluate and understand the intricacies of the two different markets. The agenda of digitization and development cannot be promoted in the wake of the disruption of the retail industry in India. The dilemma posed in the above-mentioned case highlights the possibility of an alternate ruling by the CCI in the near future but for the present regime in India, the e-tail market is a sub-segment of the entire retail market.
Predatory Pricing: Deep Discounting Policies
The deep discounting policies adopted by the e-tail market has indeed made it a preferable option among the consumers. The financing of the e-commerce players by the foreign financial giants gives them an upper hand in luring customers by giving heavy discounts on products and services thus creating a concern for the brick and mortar stores, for there has been a paradigm shift from retail outlets to consumer placing its demands digitally even for the minute needs. The retail markets have not been quiet and have raised their concerns before the market regulator. They have alleged these deep discounting tactics as anticompetitive and amounting to predatory pricing.
Predatory pricing as envisaged is the Act can only be proved when there are enough instances to show that the alleged firm is dominant in the relevant market and that dominance has been abused to disrupt the market conditions of competition and fair play. It is pertinent to mention the procedure followed by the CCI in addressing such concerns which were followed in Mohit Manglani v. Flipkart India Private Limited & Ors.[v]. Before the subject of predatory pricing is to be discussed, the relevant market question nullifies it in entirety as the market share of e-tail market is 0.5% of the entire re-tail market in India which is considered to be the relevant market while determining any case of Predatory Pricing.
Proposed Draft Regulations 2018
However, the Draft E-commerce Policy 2018 proposes for a sunset clause which will clearly define the time period in which these e-commerce players can practice these tactics in attracting customer base or for the localization of the digital market.[vi] Thus, believing in the legislative force in India, hopefully, the E-commerce legislation will bring relief to the brick and mortar industry.
The Draft Policy has also banned FDI in the inventory model of e-commerce[vii] thus, laying a strong foundation in the regulation of the digital market in India.
Another practice of the e-tail market that concerns the retail stores is the exclusive agreements which these e-commerce players enter into agreements with the sellers and distributors of the product. Exclusive Distribution Agreements are not anti-competitive per se and thus, any investigation in such a case is done from the lens of Section 3(4) read with Section 19(3) of the Act[viii]. The CCI has held these exclusive agreements as not violative of having an appreciable adverse effect in the relevant market[ix]. It has held that the relevant market for such practices should also cover their substitutes available and the freedom of manufacturers and suppliers in selling their product on their websites and in physical stores.
Proposed Draft Regulations 2018
The upcoming E-commerce Draft regulation seems to have a contrary view in this regard. The draft policy clearly prohibits the marketplace entities from requiring the sellers to sell their products exclusively on their platforms[x]. However, in the context of Exclusivity Agreements, there is a need to seek clarification on the proposed policy for it fails to mention the scope of the word ‘platforms’ used in the restriction of selling. The platform could only be restricted to the specific contractual exclusion or it can also imply multiple platforms which may be owned by the group companies. Thus, proper and detailed clarity is required to give teeth to the upcoming legislation.
Another aspect of these exclusive dealing agreements is that these e-commerce giants have for long acquired, controlled & owned the inventory sold on their platform directly or indirectly through equity participation, which in a way restricts these brick and mortar stores to enter into the e-tail market. The draft policy comes as a relief in this regard too for it aims to prohibit the sellers from selling their products on online platforms run by a Marketplace Entity or if any of its group company have equity participation in the sellers or control over the inventory.
The increasing expanse of the e-commerce players in the Indian markets is a clear manifestation of the accelerated growth of the digital economy in the country. But, in the midst of the technological wave, the principles of fair play and maintenance of competition in the market should not be forgotten. The proposed draft policy comes as a blessing in the e-commerce sector addressing the concerns of the brick and mortar stores as well as challenging conditions for the e-commerce giants to retain and increase their growth and function effectively in the market regime. In order to strike a balance between the two along with keeping a balance in the market economy, it should be remembered that the objective is to promote competition and not protect the competitors.
[i] Section 4, Competition Act, 2002.
[ii] Implications of E-commerce for Competition Policy – Note by India, OECD, DAF/COMP/WD(2018)52, available at https://one.oecd.org/document/DAF/COMP/WD(2018)52/en/pdf
[iv] Mohit Manglani v. Flipkart and others; Case No. 80 of 2014 (CCI).
[v] Supra Note( v)
[vi] Draft National Policy Framework, available at https://the-ken.com/wp-content/uploads/2018/08/Draft-National-E-commerce-Policy-Annotated.pdf
[vii] Review of the policy of FDI on e-commerce, Press Note. 2, Ministry of Commerce and Industry, available at https://dipp.gov.in/sites/default/files/pn2_2018.pdf
[viii] Section 3(4) & Section 19(4) The Competition Act, 2002
[ix] Supra Note (iii)
[x] Supra Note (vii)
By Sakshi Agarwal, IVth Year, SLS Pune