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E-COMMERCE INDUSTRY AND COMPETITION LAW
12 May 2016  |  Views: 211  | 
Ravindra Purohit
Advocate

E-COMMERCE INDUSTRY AND COMPETITION LAW

India’s e-commerce market was worth about USD 3.8 billion in 2009, it went up to USD 17 billion in 2014 and to USD 23 billion in 2015 and is expected to touch whopping USD 38 billion mark by 2016. . The increasing use of smartphones, tablets and internet broadband and 3G has led to developing a strong consumer base likely to increase further.. By 2020, eTail in India is expected to account for 3% of total retail. Further, orders per million are expected to more than double from five million in 2013 to 12 million by 2016, which will mean more opportunities for both consumers and eTail companies.

This significant rise in e-commerce market in India has raised various competition law concerns relating to predatory pricing and entering into exclusive supply agreements.

  1. EXCLUSIVE SUPPLY AGREEMENT

It refers to an agreement which restricts purchaser to buy product only through a single available seller. [1] For deciding whether an agreement is anti-competitive or not the first thing that is to be decided is relevant market. CCI has not divided retail market into online and offline retail market. Retail market as a whole is considered relevant market for deciding whether it has adverse effect on competition or not. Although exclusive supply agreement is considered as anti- competitive agreement, but what needs to be proved is that it is having adverse effect on competition.

In a leading case M/s Mohit Manglani & Others Versus M/S Flipkart Pvt Ltd [2] recently four major online retail players of the Indian e-commerce industry, namely, Flipkart, Jasper Infotech, Xerion Retail, Amazon and Vector E-commerce were alleged to be indulging in exclusive supply and distribution agreement for sale of products. Chetan Bhagat’s novel Half girlfriend was exclusively launched on Flipkart which was alleged to be exclusive supply agrrement. It has been urged that due to such practices, the consumer is left with no choice in regards to terms of purchase and price of the goods and services as the buyer/consumer can either accept the terms and conditions in totality of the e-portal or opt not to buy the product. It is also alleged that each e-portal i.e., each of the OPs has 100% market share for the product in which it is exclusively dealing and therefore, leads to dominance. It is contended that the relevant market in such a case has to be defined in context of a particular product in question and the dominance is also seen accordingly.

The CCI ordered that the exclusive marketing arrangements between e-portals and manufacturers/suppliers do not create any entry barriers in the market, as the manufacturers/suppliers are free to sell their products on their own websites as well as the physical market. Mobile phones, tablets, books, camera etc., are neither alleged nor seem to be trodden by monopoly or dominance. Further, it does not appear that because of these exclusive agreements any of the existing players in the retail market are getting adversely affected, rather with new e-portals entering into the market, competition seems to be growing.

This seems to be a very beneficial order for the e-tail market which gives a proper definition of relevant market. Although exclusive supply agreement needs to be channelized but healthy competition is also a factor that has been taken into consideration.  

  1. PREDATORY PRICING

Predatory price means selling product which is below the cost to reduce competition or eliminate competition.  Recently Flipkart and Amazon were alleged of predatory pricing after Big Billion day. Offering products at too low discount was alleged to be predatory pricing. In order to be liable for predatory pricing, two factors must be established:-

  1. Adverse effect on competition should be established in relevant product market.

Here, the relevant market was decided by CCI in case Ashish Ahuja Vs Snapdeal. [3]The Commission noted that both offline and online markets differ in terms of discounts and shopping experience and buyers weigh the options available in both markets and decides accordingly. If the price in the online market increase significantly, then the consumer is likely to shift towards the offline market and vice versa. Therefore, the Commission stated that these two markets are different channels of distribution of the same product and are not two different relevant markets.Accordingly, e-retailer form only 1-2 percent of whole retail market.These e-portals are offering discount for few days which is normally offered by every brand and retailers. This is an indicator of fierce competition not of predatory pricing. In a way these e-retails are benefitting the consumer which is one of the aims of competition law. Therefore, it cannot be said to be having adverse effect on competition.

 

  1.   Abuse of dominant position must be established.

 

A company will be in dominant positiononly when it has more than 50% market share which is not so in case of e-portals. CCI also observed in Snapdeal case these e-portals are not engaged in the purchase or sale of products, rather it owns and manages a web portal that enables those sellers who purchase to sell such devices through its web portal for a commission. Therefore they cannot be held to be a dominant player in the market.

CONCLUSION

Considering the decisions taken by CCI so far in respect of e-commerce market, we can say that Commission aims at promoting healthy competition in market. Growth of e-commerce industry is beneficial for Indian Economy. Therefore, such anti-competitive issues don’t pave away the route for entry of new e-retailers. However, the concern is if this continues then these e-commerce companies like Flipkart, Amazon & Snapdeal will be dominating the market of India which will lead to monopolistic activities. This will undermine the purpose of competition law. Therefore, Competition Commission in India needs to take stringent measures in regulating such activities.

 

 


[1]  Section 3 Competition Act, 2002

[2]   Case No. 80/2014

[3]  Case No. 17/2014

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