In January 2020, the Competition Commission of India (CCI) released a Market Study on E-Commerce. The Study focused on competition aspects pertaining to e-commerce marketplaces and platforms. It identified five issues in this respect: (i) platform neutrality; (ii) platform-to-business contract terms; (iii) platform price parity clauses; (iv) exclusive agreements; and (v) deep discounting. These issues set out possible grounds for litigation against e-commerce marketplaces for violation of the Competition Act, 2002.
Platform neutrality (or lack thereof) is the first issue recognized in the Study. E-commerce marketplaces violate platform neutrality when they undertake measures intending to offer advantages or preferences to certain sellers over all others. The Study delineates two broad issues concerning the neutrality of e-commerce platforms. The first is the platform’s access to competitively relevant transaction data on products or services on the platform, such as data on demand and quantities sold. This data is used by the platforms to enter into and strengthen their position in the relevant product market through private labels. The second is the platform’s control over search parameters and results. The platform uses this control to give preferential listing and prominent placement to own brands and preferred sellers on the website.
Preferential treatment could potentially violate both sections 3 and 4 of the Act. However, the analysis in this post is restricted to the discussion on potential violations of section 4 of the Act, specifically on breach of neutrality by e-commerce platforms as ‘abuse‘ under the Act.
Leveraging occurs when an entity enjoys a dual role in the market for a product or service, i.e., both as an intermediary (being the marketplace) and a seller on the marketplace. Such entities potentially boast a disproportionate competitive advantage. As an intermediary, marketplaces receive crucial commercial information on all products and services on their platform. This competitively sensitive information is used towards an indirect or direct advantage for own brands and preferred sellers.
Reports have alleged that many e-commerce platforms partake in such conduct. In 2017, Swiggy started a cloud kitchen, The Bowl Company, which offers services on its platform in competition with other restaurants and outlets. It ostensibly customizes the menu for its cloud kitchen based on historical data on user preferences collected from its role as a platform. Amazon allegedly bases its decisions to offer products under the Amazon brand on third-party sellers’ demand for the product. Amazon acquires this information due to its position as a market platform. Further, thereafter for these categories, Amazon brand products became default options in search results.
The Act recognizes leveraging as a violationonly when it is committed by a dominant enterprise. The Act establishes it as abuse under section 4(2)(e) of the Act. An entity is leveraging when it uses its dominant position in one relevant market to enter into or protect its position in another relevant market. For this reason, the CCI dismissed a case against Flipkart in In Re: All India Online Vendors Association, for leveraging its position as a marketplace to extend preferential treatment to WS Retail – a seller closely associated with Flipkart in the B2B business. As Flipkart was not a dominant entity, a case for leveraging under section 4 of the Act could not be maintained.
Search bias is a method by which marketplaces leverage control to give sellers preferential treatment. However, it can also result in other violations under the Act (sections 4 (b)(i), 4(c)). It is the manipulation of search results to the advantage of a private brand or preferred sellers by allowing them prominent placement and better real estate on the platform. It aims at (and achieves in) shifting consumer attention towards preferred products and services. The Study refers to these actions as ranking bias as, in many cases, it is the manipulation of sellers’ ranking on the platform that results in compromised search results.
In 2018, the CCI held Google liable for fines to the tune of Rs. 136 crores for violation of section 4 of the Act for indulging in search bias. Google was pre-determining ranking on its online web search service, to unduly give prominent placement to its own specialized services (Google News, Google Maps, YouTube). E-commerce platforms preferentially list sellers by manipulating search results in favor of “preferential”, “assured” or “top-rated” sellers, which are titles designated by the platforms. Third-party sellers on the platforms suffer from lower visibility and hence restricted market access. However, again, an entity’s actions resulting in denial, limitation, or restriction of market and market access would constitute a violation under the Act only when a dominant enterprise commits them.
One of the issues in enforcing platform neutrality for e-commerce platforms is the lack of findings of dominance for e-commerce players by the CCI. An enterprise is dominant when it possesses the ability to behave independently of market forces. The size and importance of competition in the relevant market are factors in determining dominance. Many e-commerce platforms exist as duopolies in the relevant market (Amazon-Flipkart, Zomato-Swiggy). Therefore, due to the significance of the other competitor in the market, they are not said to operate independently of market forces. The recent investigation ordered into Flipkart and Amazon by the CCI recognized acts of preferential listing by the platforms. However, the CCI only issued an investigation for violation of section 3 of the Act – agreements according preferential listing to some sellers, resulting in exclusionary effects for others in the market. As there was no finding on dominance against either Flipkart or Amazon (and the Act does not recognize joint-dominance), investigation under section 4 could not be ordered.
For dominant enterprises, maintaining platform neutrality is a requirement under the Act. The CCI has already ordered investigations against MMT-Go for preferential listing of OYO rooms on its platform, on holding MMT-GO prima-facie dominant in the market for online intermediation services for booking of hotels. Some e-commerce marketplaces, such as Nykaa or Policybazaar, do possibly enjoy dominant positions in their niche relevant product markets as well.
The CCI could also take a substance-over-form approach to stop e-commerce platforms from avoiding punishment for abusive acts of leveraging and ranking bias, solely due to the presence of a significant competitor in the market. It can perhaps look into easing requirements for dominance for entities that have significant market power and cause restriction (or even denial) of market access through their abusive actions. That being said, any decision on violation under the Act (and existence of abuse) would ultimately depend on findings from the Director General’s investigation and subjective facts of the case.
– Kamakshi Puri