Why Is The Competition Commission Of India Probing The E-commerce Giants And What Happens Next?
The story so far: The Supreme Court on Monday ruled that e-commerce giants Amazon and Flipkart will have to face investigation by the Competition Commission of India (CCI) for their alleged anti-competitive business practices. The companies had approached the Supreme Court after the Karnataka High Court refused to stop the CCI from proceeding on a complaint filed against them by a traders lobby. Union Commerce Minister Piyush Goyal welcomed the top court’s decision in Parliament.
Why Are Amazon And Flipkart Under Scrutiny?
The CCI initiated its probe against Amazon and Flipkart last year following a complaint filed by the Delhi Vyapar Mahasangh (DVM), a lobby promoting the interests of small traders. The complaint alleged that the e-commerce giants favoured certain sellers over others on their platforms by offering them discounted fees and preferential listing. Fee discounts offered by platforms can help certain sellers offer lower prices than others. Preferential listing is a practice where the products offered by certain sellers are more prominently displayed than the products offered by other sellers. The DVM also raised concerns about Amazon and Flipkart entering into tie-ups with mobile phone manufacturers to sell phones exclusively on their platforms. The trader body argued that this was anti-competitive behaviour as smaller traders could not purchase and sell these devices. Concerns were also raised over the flash sales and deep discounts offered by e-commerce companies, which could not be matched by small traders.
Is The Probe By The CCI Necessary?
Supporters of the CCI probe believe that the scrutiny is justified given the rising market power of both Amazon and Flipkart. They argue that these companies engage in predatory pricing practices that have already put thousands of small traders out of business. The Confederation of All India Traders (CAIT) estimated that in 2019, just prior to the coronavirus pandemic, over 50,000 mobile phone retailers and 25,000 kirana stores were forced out of business by large e-commerce firms. Small retailers have found it hard to match the low prices offered by Amazon and Flipkart, and have thus been forced to cut prices and shrink their profit margins to retain their customers. The e-commerce giants are also said to break the law frequently in multiple ways. One such allegation is that Amazon and Flipkart do not act as neutral platforms where all sellers can compete for business on a level playing field. Another allegation against these large companies is that they have found a backdoor way to sell their own goods though their platforms. According to internal documents of Amazon revealed by Reuters earlier this year, Amazon had an indirect ownership stake in a handful of sellers who contributed the bulk of the sales happening through its platform. It is worth noting that India does not allow foreign companies to compete against local traders in the retail space. Amazon and Flipkart (owned by Walmart) are legally allowed to function only as neutral platforms that facilitate transactions between third-party sellers and buyers for a fee.
Opponents of the CCI probe view it as an attempt to protect the interests of small traders rather than the interests of consumers. They argue that competition from Amazon and Flipkart is a boon for millions of consumers who can now enjoy better products at lower prices. Many of the critics of regulatory action against Amazon and Flipkart do agree that these companies may be bypassing the law through ingenious ways. However, they see these laws as unnecessary and anti-competitive in the first place as they try to benefit small traders instead of consumers. Critics of the probe also believe that e-commerce platforms are businesses too and that they have the right to decide how to list products on their platforms. They argue that the practice of prominent listing of certain products is not exclusive to online platforms; even supermarkets have the power to decide how prominently to showcase various products on their shelves. In fact, preferential listing of certain products may be unavoidable since it is impossible to give all products the same prominence. Businesses usually compete to prominently showcase products that are most likely to satisfy consumer needs. Finally, critics of the CCI probe also dismiss worries about predatory pricing, exclusive supply contracts, and market domination. They say that these do not matter in the long run as long as fresh competitors are not blocked from entering the market and warn that the risk of regulatory capture and government failure must also be taken into proper account.
What Lies Ahead?
The regulatory burden on foreign e-commerce companies is likely to increase further in the coming days as the government tries to favour domestic companies as part of its Atmanirbhar project. Piyush Goyal, in fact, invoked the “Quit India” phrase alluding to India’s independence movement against British colonialism to welcome the Supreme Court’s decision against Amazon and Flipkart on Monday. Other foreign companies such as Mastercard have also been facing increasing pressure from Indian regulators in recent times to comply with domestic rules. Such measures, to the extent that they favour domestic business groups over foreign ones, may actually lead to decreased competition in the domestic market and severely hurt the interests of Indian consumers.
