CCI’s Tweaking of Interpretation Of ‘Relevant Market’ To Hurt Digital Players

The Competition Commission of India (CCI) has reportedly made a change in its interpretation of the ‘relevant market’, leading to several digital platforms facing antitrust probes.

The development comes at a time when the antitrust body is conducting several probes into the business practices of Google, Amazon, Apple, Twitter, and multiple Indian companies such as Zomato, Swiggy, MakeMyTrip, and GoIbibo, among others. 

Earlier, the CCI used to club both online and offline markets while determining the market dominance of a digital player. Now, it has started considering only the online segment as a ‘relevant market’ for these players, people aware of the matter told ET. 

“The interplay between online and offline markets has changed significantly in recent times, prompting this change from the CCI,” a person aware of the matter was quoted as saying.

The person also told the publication that unlike in earlier days, now, the majority of consumers who shop online no longer visit the physical stores. In case an item is unavailable on one platform, the consumers just search for it on another application instead of searching for it in a physical store. “Hence digital platforms are now standalone markets and should not be clubbed with offline stores,” the person added.

According to legal experts, this change could have a considerable impact on the digital platforms when it comes to adherence to competition laws.

Charanya Lakshmikumaran, partner at Lakshmikumaran & Sridharan, told Inc42 that the consumer purchase trends in India are still at a stage where a large part of the population does not trust ecommerce platforms and they prefer visiting a nearby store to buy a product. 

According to her, initially, the CCI’s thought process was that online and offline are two distribution models for the same goods, making the entire offline market and the online market form one relevant market for different products. However, with time the online and offline markets are considered two different relevant markets

For instance, in the case of a branded product, the CCI till now used to consider the total number of offline stores the brand has and the offline marketplaces it is available on, and in that, online marketplaces were never dominant. 

This also gave scope for free riding where a consumer would refer to an online marketplace product as a catalogue and end up buying the product at a retail store.

Lakshmikumaran also cited the 2019 report by the World Bank Group that said that online retail sales in India were merely 1.6% of total retail trade in the country. and said that the online players were small fishes in a big pond. In fact, in 2020, online sales accounted for just 3.6% of India’s total retail sales.

“Now, with bifurcating the online and offline markets, automatically, the players in the smaller market (here, the online segment) will assume greater market power, resulting in greater scrutiny under the Competition Act, 2002,” she said. 

“I feel, India is not at a stage where we need ex ante regulation of digital markets. As such, the threshold must be the same as that adopted for offline markets,” added Lakshmikumaran.

According to Gaurav Shanker, managing partner at Business Law Chamber, the development might lead to further investigations against some of the giants in the segment. 

However, Shanker said that the CCI’s distinction between online and offline market players is fair. 

“This is something in line with the FDI policy as well, wherein, ecommerce is different from the brick-and-mortar stores,” he said. “For obvious reasons, the online platforms will have a direct impact, but it also gives the honest players their due reward.”

Shanker also added that not every ecommerce company is necessarily non-compliant with the law or in an abusive market position. So, it would be important to see the evidence that is being produced by the CCI with respect to the allegations against the ecommerce companies.

The development comes at a time when a lot of digital companies – from Amazon to Google, and from Zomato to Swiggy – are under the antitrust body’s scanner. Last week, the CCI conducted raids at the offices of sellers of Flipkart and Amazon for alleged violation of competition laws.

Earlier this month, the CCI also ordered a probe into unfair pricing, deep discounting and a few other alleged issues at food delivery startups Zomato and Swiggy.

Last week, reports said that the Parliamentary Standing Committee on Finance is set to summon representatives of Google, Amazon, Facebook, Twitter, and other big tech companies to examine their competitive conduct.