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An Analysis Of Anti-Competitive Agreements & Heavy Discounting By Ecommerce Players

An Analysis Of Anti-Competitive Agreements & Heavy Discounting By Ecommerce Players

Jio’s move may have resulted in industry-wide losses for its competitors

The current trajectory of India’s economic development requires a competition law

The CCI should employ the essential facilities doctrine for mandating compatibility

In 2017, Reliance’s Jio gifted a country of 1.3 Bn people free voice calls and high-speed internet at rock-bottom prices.  Consequently, it generated a gargantuan shift in the consumer base making it India’s largest mobile network operator with over 350 Mn subscribers today.

Naturally, this revolutionary step attracted complaints from major telecom players like Bharti Airtel, citing concerns like – “Predatory Pricing,” and “Abuse of Dominance.”

The Competition Commission of India (CCI) held that Reliance Jio did not enjoy a dominant position in India with less than 7% market share in India. Further, CCI stated that incentivising customers through attractive schemes in order to establish its identity in a hyper-competitive market cannot be considered as a contravention of Section 4(2)(a)(ii) and 4(2)(e) of the Competition Act, 2002 and accordingly dismissed Airtel’s complaint.

Jio’s move may have resulted in industry-wide losses for its competitors, but consumers welcomed the new entrant and the competition with open hands which further makes it difficult for others to form a basis of competition.

Prohibitions Under Competition Act, 2002

The current trajectory of India’s economic development requires a competition law which focuses on promoting efficiencies and allowing firms to freely innovate, strategize and reap profits. At the same time, it is also important to continuously check for any kind of exploitation as the economy grows and new market structures emerge.

Realizing this, the Competition Act, 2002 outlaws anti-competitive practices like “Predatory Pricing” – the practice pricing of goods or services at low levels with a view to reduce or eliminate competition – treating it as an abuse of dominant position and thus prohibited under Section 4 of the Act and “Anti-Competitive Agreements” which cause or are likely to cause Appreciable Adverse Effect On Competition (AAEC).

Section 3(1) of the Act provides a general prohibition on the following to enter into agreements and the CCI has been given the authority to direct any enterprise or person to modify, discontinue and not re-enter into an anti-competitive agreement and impose a penalty, which can be 10% of the average of the turnover for the last three years.

Section 4(2) (a) of the Competition Act, 2002 states that:

There shall be an abuse of a dominant position under Sub-section (1) if an enterprise:

(a) Directly or indirectly, imposes unfair or discriminatory-

(i) Condition in purchase or sale of goods or service; or

(ii) Price in purchase or sale (including predatory price) of goods or service.

Denial of market access briefly referred to in this section, if read conjunctively, is expressly prohibited under Section 4 (2) (c) of the Competition Act, 2002.

Exclusive Agreements & Heavy Discounts

OYO-Make My Trip

In a market with no clear standards to determine what price is excessive or fair or what agreement is preventive rather than restrictive, adopting such a practise may be at the disposal of the manufacture with a view to contact a more extensive group of onlookers in a savvy way.

However, concerns with respect to the dispossession of other market players, especially offline ones keep surfacing now and again as observed in the OYO and Make My Trip case.

In a recent case, the CCI ordered an investigation into online travel booking company Make My Trip (MMT) and hospitality provider OYO based on complaints by members of the Federation of Hotel and Restaurant Associations of India (FHRAI) alleging preferential treatment, deep-discounting, and cheating by these firms.

Both OYO and MMT allow guests to book hotels through their mobile apps while charging hotels a fee on room revenue, but OYO also franchises its brand and offers standardized amenities at hotels on its network.

First, it was alleged that MMT and OYO have entered into confidential commercial agreements wherein MMT has agreed to give preferential, exclusive treatment to OYO on its platform, further leading to a denial of market access to Treebo and Fab Hotels.

Second, FHRAI alleged that OYO and MMT are hurting competition by offering deep discounts and charging exorbitant fees from hotels. Further, FHRAI stated that OYO’s prices in small Indian markets are about 30% lower than average industry prices, which helps it attract more customers at the cost of smaller, independent hotels which are then forced to join OYO’s network or lose out on potential revenues.

Past Judicial Approach

A similar issue of the exclusive agreement had emerged before the CCI in the case of  Mohit Manglani v.  Flipkart India Pvt. Ltd. & Ors. in relation to the sale of the book titled “Half Girlfriend” written by Chetan Bhagat, which was available for sale exclusively at Flipkart. It was alleged that such as arrangement was destroying players in the physical market, controlling the creation and supply, and consequently bending the reasonable rivalry in the commercial centre.

However, such allegations were rejected by the CCI which opined that a selective plan between a maker and an e-gateway would not make any entry obstructions since products sold via online portals face competitive constraints. Thus, in the opinion of the CCI:

  • Mobile phones, tablets, books, cameras etc., are not to be trodden by imposing business model or predominance.
  • There was a lack of concrete evidence to show that it was by reason of the exclusive agreements that any of the existing players were getting adversely affected.

But in the Flipkart case, the CCI at the prima facie level rejected the claim since none of the players enjoyed dominance in the retail market and in order to prove predatory pricing it is fundamental to show that the enterprise has a dominant position in the market. The determination of dominance is connected to the refusal made by the CCI to designate e-market as a different space of goods/services.

Further, in the case of Snapdeal v. Kaff Appliances, where a suit was instituted by Snapdeal against a manufacturer which had placed restrictions on its dealers in their dealings with e-retailers. It was alleged by Snapdeal that Kaff Appliances, had imposed a blanket ban on providing after-sale warranties with regards to products purchased online from unauthorised sellers. In this case, it was held by the CCI that:

  • The conduct of the Kaff Appliances was by its very nature a unilateral policy and involved coercion
  • The ban lacked reasonable justification and led to total deprivation of consumer choice thereby violating Section 3(4) (d) of the Act.

This decision is indicative of the paradigm shift in the approach made by the CCI with regards to the policy of restriction in relation to online sale and distribution and also highlights the bold stance taken by the CCI.

Way Forward

In the light of the audacious and laudable stance taken by CCI in the Snapdeal case, the CCI is likely to mirror the bold mindset in determining the alleged anti-competitive practices of the OYO and Make My Trip. In doing so, the CCI shall continue its endeavour in doing justice to the three-prong focus of the Competition Act, 2002 namely –

  • Encourage competition,
  • Protect consumer interests, and
  • Ensure freedom of trade in markets.

The Indian Competition law can be said to have created enough space so as to allow the novel and creative organizations to enter the market and offer more options to the customers and organizations. It seeks to promote the equality between the ecommerce enterprises and the traditional bricks and mortar companies and dealers.

However, it is suggestive that the CCI should take into account the unique features of the ecommerce sector such as rapid technological advancement, increasing returns, network effects, data collected from the users while analysing the position of dominance and abuse.

The CCI should also employ the essential facilities doctrine for mandating compatibility between a dominant player and the other market operators. It can also be said that time has come for reviewing and amending the Competition regime to keep pace with the rapidly changing new economy.

Note: The views and opinions expressed are solely those of the author and does not necessarily reflect the views held by Inc42, its creators or employees. Inc42 is not responsible for the accuracy of any of the information supplied by guest bloggers.