Competition Commission Orders Probe Against Flipkart, Amazon

India's competition regulator will probe if online retailers Amazon India and Flipkart abused their dominant position through deep discounting, preferential listing and exclusive tie-ups.

The Competition Commission of India asked its investigation wing to probe online retailers after the Delhi Vyapar Mahasangh, a lobby of small businesses, accused the e-commerce companies of anti-competitive practices. The order—which was posted on the regulator's website—comes ahead of Amazon.com Inc.'s founder and Chief Executive Officer Jeff Bezos' scheduled India visit this week.

This is not the first time that the online retailers have found themselves in the CCI's spotlight. The regulator last year, in a study following similar complaints by traders, said the e-commerce firms aren't transparent on discounts, ranking and, data collection and revision of contract terms with sellers.

The traders have again raised similar concerns. Here are the key allegations against the online retailers.

The trade body has alleged that Flipkart and Amazon entered into vertical arrangements with their preferred sellers that were directly or indirectly under their control, leading to the foreclosure of other sellers.

Violation of Section 3(4) of the Competition Act:

The online retailers violated section 3(4) of the Competition Act—which deals with agreements among enterprises that can affect competition adversely—by:

• Entering into vertical agreements with preferred sellers which were directly or indirectly under their control.
• Being capable of influencing prices charged by the sellers through discounts and inventory.

Deep Discounting And Preferential Listing

• Flipkart provided deep discounts to selected retailers while no such facility is extended to other sellers. Similarly, Amazon had preferred sellers on its Cloudtail India and Appario Retail platforms and it provided deep discounts to a few sellers.
• Flipkart created a bias towards its non-preferred sellers by labelling certain preferred sellers as “Assured Sellers”. Similarly, Amazon promoted its preferred sellers by marking them as “Fulfilled” and listed product sold by other retailers on later pages.

Exclusive Tie-Ups, Private Labels And Market Power

• The retailers routed their private labels through their preferred sellers and grants greater preference to certain private labels, leading to the foreclosure and exclusion from the market. Sellers having no online marketplace suffer as they don't possess a pan-India reach like online marketplaces.
• Flipkart implements preference across product categories, including smartphones.
• Cross-subsidisation by the portals due to their funding leads to the creation of high entry barriers for new entrants, who cannot launch their own marketplace.

Violation Of Sec. 4(2) Of Competition Act:

Flipkart and Amazon had a “joint dominance” and market share of 53 percent and 36 percent, respectively, as on March 2019. This coupled with their financial resources and huge market base has led to the establishment of an “inherently anti-competitive model” for e-commerce. The online retailers have obtained an ability to unilaterally terminate agreements and treat sellers arbitrarily.

CCI's Findings

After carrying an initial investigation of the allegations, the competition regulator concluded that there is a “prima facie” case against the online retailers. It, however, denied an investigation against allegations of joint dominance by Amazon and Flipkart on the grounds that such an investigation isn't contemplated under the Competition Act.

CCI's Observations:

• Flipkart and Amazon launched 67 and 45 mobile phone models exclusively through their online platforms, which indicates that manufacturers partnered with online portals and sold cellphones through their exclusive sellers.
• A prima facie inference can be drawn that there's an exclusive partnership between smartphone makers and online retailers for exclusive launch of smartphone brands. This may create an ecosystem that causes an appreciable adverse impact on competition.
• An investigation is necessary to find out if funding of discounts by the online portals is an element of the exclusive tie-ups with certain preferred sellers.
• Similarly, an investigation is required to examine the provisions of the vertical agreements, their operation and impact on the competition and leads to the exclusion of other sellers.

What They Said

In response to emailed queries from BloombergQuint, Rajneesh Kumar, Flipkart's chief corporate affairs officer, said that they are “fully compliant with all applicable laws and FDI (foreign direct investment) regulations”.

“We take pride in democratising e-commerce in India and giving market access to lakhs of MSMEs, sellers, artisans and small businesses, making quality and affordable goods available to consumers through our transparent and efficient marketplace while creating lakhs of jobs,” Kumar was quoted as saying in the emailed response.

A spokesperson for Amazon said: “We welcome the opportunity to address allegations made about Amazon; we are confident in our compliance and will cooperate fully with CCI.”