India is one of the fastest growing markets for the e-commerce sector. There has been tremendous growth and development in this sector in the past few years. The revenue from this sector has witnessed an annual growth rate of 51 per cent, which is the highest in the world. The growth of the digital economy in India has been enabled by the increase in the mobile phone subscriber base and penetration of the internet across the country. The number of internet users in India increased from 445.96 million in 2017 to 665.31 million in 2019 and is expected to increase to 829 million by 2021. The digital revolution has penetrated almost all sectors of the Indian economy and consumers have welcomed the digital revolution for the benefits and convenience that digitisation provides.
This proliferation of internet access has brought about a corresponding increase in the number of internet-based start-ups and incumbent global multinational internet giants entering and growing in the Indian market. The digital economy brings with it many benefits for consumers and markets, including increased choices, lower prices, information symmetry and rapid innovation, appearing to some scholars as the utopia of perfect competition. However, even with its many benefits, the digital economy is giving rise to the possibility of new anticompetitive and abusive behaviours, which, owing to the complex nature of the underlying technology involved, may not only be difficult to comprehend but may not even fit into the traditional competition law framework.
In the past few years, the competition regulator in India – the Competition Commission of India (CCI) – has dealt with several cases in the digital market involving e-commerce marketplace platforms, online cab aggregators, online search, etc. The CCI has had the opportunity to grapple with various issues that are fundamental to the digital economy, such as the multi-sided nature of markets, network externalities, lock-in effects and the nature of antitrust relationships between the online platforms and its users on different sides of the market.
The CCI, like other global competition regulators, has invested in developing a deeper understanding of the digital economy to effectively assess how digital markets function within the competition framework. In June 2019, the CCI initiated a market study in the e-commerce industry in India. The study was initiated in view of the rapid growth of e-commerce and the rising importance of online trade in India. The purpose of the study was to allow the CCI to develop a better understanding of the functioning of e-commerce in the country and its implications for markets and competition. The CCI through the study aimed to build its capacity in appreciating the competitive dynamics in e-commerce markets and to assess the novel issues and challenges that digital markets bring forth for competition regulation.
The CCI published its market study report in January 2020. The study was primarily focused on concerns raised by the business users of three digital platforms: online marketplace platforms, online travel intermediary platforms and online food delivery platforms. In the report, the CCI identified that the following business practices may raise concerns under the provisions of the Competition Act 2002 (the Act).
The primary concern raised by the business users was that when e-commerce platforms serve as both a marketplace and a competitor on the platform, they have the incentive to give preferential treatment to their own or related entities (e.g., preferred sellers, private labels). Such a scenario creates an inherent conflict of interest where the e-commerce enterprise provides the platform for business users to sell their products or services and also competes with business users on its own platform. Such leveraging is reflected by discriminatory ranking biases and the use of competitively relevant data by platforms, access to which is denied to the business users of such platforms. The marketplace platforms submitted during the study that all sellers listed on their platforms are independent sellers. As such, there was no conflict of interest or an incentive to discriminate.
Platform-to-business contract terms
Another concern that the business users raised is regarding the imposition of unfair and discriminatory terms on account of the superior bargaining position of these platforms. It was suggested that the terms of engagement were based on one-sided contracts which were unilaterally revised by the platforms. Business users were being forced to offer deep discounts as well as to mandatorily accept the bundle of services being provided by the platforms. It was also suggested that prominence is given to those business users who participate in the discount schemes of the platforms and non-participation in these discount schemes affected the visibility of the businesses on the platform.
Denial of access to data collected by the platforms
Another major concern raised in the study was that the data generated from the platform particularly, relating to critical customer information was not shared with the business users but was collected and analysed by the platform to launch and promote its own products or services in the downstream market. It was contended that lack of access to such data prevented the business users from improving their product or service offerings. Customer data, according to the business users surveyed, is an important brick in the entire system and the intermediary platform should not be the sole repository of such data. In relation to sharing of data, the food delivery platforms submitted that data that was necessary for improving performance was being shared with the restaurant partners.
Platform price parity clauses
The report notes that the digital intermediary platforms were imposing price parity clauses, which restricted the business users from offering their goods or services at lower prices on other competing platforms. The business users were required by the platforms to guarantee the lowest price for the products or service on the platform itself. The CCI noted that such parity clauses prevent a new platform from charging lower commissions in order to grow in a concentrated market, where incumbents were enjoying economies of scale and network effects. Further, such clauses can also lead to coordination or tacit understanding between platforms, by disincentivising deviation from an agreed rate of commission. As a result, price parity clauses may lead to higher commission rates and discourage entry of new players in the market. The CCI, though, also noted that such clauses can generate efficiencies as well in certain circumstances and may be objectively justified in order to prevent free-riding.
Another major concern raised by the business users in the report was the exclusive arrangements between platforms and certain business users or brands, which may restrict competition in the market. Such arrangements included agreements under which a certain product offering is launched exclusively on a single online platform as well as agreements that made a platform list only one brand in a particular product category.
Another concern noted in the report was that major digital online platforms in India, while providing the technology infrastructure to connect sellers with buyers, were also engaged in pricing by way of funding price discounts for the products listed on the platform. Several platforms operating as pure marketplaces, without having their own inventory, were offering discounts over and above the price set by the seller or service provider. Such deep discounting practices were affecting competition and creating an uneven playing field on the platform. Owing to lack of transparency about what constitutes the basis for the extent of discounts available to a particular seller or service provider, there was apprehension that the platforms were using discounts as a discriminatory device. Concerns were raised that higher discounts were being offered as an incentive to forge exclusive contracts and to curb multi-homing by business users of these platforms.
Self-regulatory measures recommended by the CCI
The CCI noted that whether the issues raised in the study violate the competition laws has to be assessed on a case-by-case basis. In order to address the imbalance in bargaining power between the digital platforms and the business users as well as to improve transparency, the CCI recommended that marketplace platforms should adopt certain self-regulatory measures set out below:
- a general description of the main search ranking parameters drafted in plain and intelligible language to be set out in the platforms’ terms and conditions. If the parameters include the possibility to influence ranking against any direct or indirect remuneration paid by business users, a description of those possibilities and of the effects of such remuneration on ranking should be set out in the terms and conditions;
- a clear and transparent policy on data that is collected on the platform, the use of such data by the platform and also the potential and actual sharing of such data with third parties or related entities;
- adequate transparency over user review and rating mechanisms;
- notification of the business users concerned of any proposed changes in the terms and conditions. The proposed changes must not to be implemented before the expiry of a notice period, which is reasonable and proportionate to the nature and extent of the envisaged changes and to their consequences for the business user concerned; and
- clear and transparent policies on discounts, including inter alia the basis of discount rates funded by platforms for different products and suppliers and the implications of participation or non-participation in discount schemes.
The self-regulatory measures recommended by the CCI are largely based on the P2B Regulations of the European Commission (EC). However, unlike the EC’s P2B Regulations, the self-regulatory measures are not mandatory for online marketplace platforms in India. In addition to the e-commerce market study, the CCI has also been proactive in investigating the conduct of digital players across the spectrum of the digital economy.
Smart mobile operating systems
The CCI is currently investigating Google for alleged abuse of a dominant position in the market for licensable smart mobile device operating systems in India. It has been alleged that Google has engaged in different kinds of anticompetitive and abusive practices in the market in which it is dominant as well as in separate markets, with the aim of cementing its dominant position in online general web search services and online video hosting platforms (through YouTube). In this regard, the complainant alleged that Google has essentially abused its dominant position by the following conduct: it mandates smartphone and tablet manufacturers to exclusively pre-instal Google’s own applications or services, which hinders the development and market access of rival mobile applications or services; it ties or bundles certain Google applications and services (such as Google Chrome, YouTube and Google Search) distributed on Android devices in India with other Google applications, services and application programming interfaces of Google; and, it prevents smartphone manufacturers in India from developing and marketing modified and potentially competing versions of Android (Android forks) on other devices. The allegations made against Google are similar to the issues dealt with by the EC, which ended with a penalty of €4.34 billion being levied on Google and is currently under appeal.
Online web search and online search advertising
The CCI in Matrimony.com Ltd and
- Ranking of ‘universal results’ prior to 2010 by Google was not strictly determined by relevance. Rather, the rankings were pre-determined to trigger at the first, fourth or tenth position on the search engine results page.
- Prominent display and placement of its ‘commercial flight unit’ with a link to Google’s specialised search options and services (Flight).
- Prohibitions imposed under the search intermediation agreements upon the publishers were unfair as it restricted the choice of these partners from using the search services provided by competing search engines. The CCI observed that Google had leveraged its dominance in the market for online general web search, to strengthen its position in the market for online syndicate search services. Further, competitors were being denied access to the online search syndication services market on account of such prohibitions.
In the order against Google, the CCI noted that any intervention in technology markets must be carefully crafted so that it does not stifle innovation or deny consumers the benefits that innovation can offer. The order of the CCI is currently under appeal before the National Company Law Appellate Tribunal (NCLAT).
Online retail and marketplace platforms
In the early years of the rise of the digital economy, several complaints had been filed against major online e-commerce platforms, including Amazon and Flipkart, alleging anticompetitive and abusive conduct by these enterprises. The CCI, in these cases, had dismissed these complaints and refused to direct any investigation against the major online marketplace platforms on account of negligible market shares. The CCI in these cases had delineated the relevant market to include both online and offline retail. The CCI was of the view that services provided through the online and offline retail or marketplace is considered substitutable by the end consumers and as such the market share of the online retail platforms was negligible for the purpose of competition laws. The CCI particularly noted that online and offline retail are two different channels of distribution and not two different relevant markets.
Another information (complaint) was filed in 2018 by the All India Online Vendors Association against a leading online marketplace Flipkart and its wholesale trading arm for alleged abuse of dominance. It was alleged that Flipkart’s wholesale trading arm sold goods to companies like WS Retail Services Private Limited (previously owned by the founders of Flipkart until 2012) at a discounted price and thereafter, these goods were sold on Flipkart’s marketplace at below cost price. Such below cost pricing and preferential treatment to a few sellers allegedly reduced competition on the platform and resulted in denial of market access to other competing sellers on the platform.
The CCI dismissed the complaint and took the view that considering the present market construct and structure of online marketplace platforms in India, it did not appear that any one player in the market was commanding any dominant position at that stage. The CCI further noted that marketplace platforms were still at a relatively nascent stage and models of retail distribution were rapidly evolving. Recognising the growth potential as well as the efficiencies and consumer benefits that these markets can provide, the CCI took the view that any intervention in these markets needs to be carefully crafted, lest it stifle innovation.
In an interesting move this year, within days of publishing the e-commerce study report recommending self-regulatory measures to be adopted by marketplace platforms, the CCI, in a new information filed by Delhi Vyapar Mahasangh, directed an investigation against the two leading marketplace platforms in India, i.e., Amazon and Flipkart. The CCI has prima facie held that Amazon and Flipkart have contravened the provisions of the Act by entering into anticompetitive exclusive agreements, deep discounting and giving preferential listing to certain ‘preferred sellers’. The investigation directed by the CCI has currently been stayed by the High Court of Karnataka.
Instant communication apps
The CCI, over a period of time, has increasingly delineated relevant markets involving digital markets narrowly. In the case of Vinod Kumar Gupta v. WhatsApp Inc., while delineating the relevant market as the market for ‘instant messaging services using consumer communication apps through smartphones’, based on price, characteristics and end use, the CCI drew a distinction between ‘instant communication apps’ and ‘traditional electronic communication services’ (such as text messaging and voice calls).
The CCI observed:
Instant communication apps cannot be compared with the traditional electronic communication services such as text messaging, voice calls etc. . . . because unlike traditional modes of communication, instant messaging using communication apps are internet based and provide additional functionalities to the users. . . . Further, instant communication apps can be used through smartphones only whereas traditional electronic communication services can be used through any mobile phone. There are also differences in the pricing conditions in both the abovesaid modes of communication. ‘WhatsApp’ is a free to download communication application which does not charge any fee from its users for providing the services and just uses internet connection on the device to send instant messages, connect voice calls etc. Further, text messaging through traditional modes can be done between people who do not use the mobile service of the same service provider, whereas instant messaging services typically require you and your contacts to be on the same communication application platform.
- all consumer communication apps were offered for free or at a nominal price;
- all consumer communication apps were easily downloadable on smartphones and could coexist on the same handset (multi-homing) without taking much capacity;
- once consumer communication apps were installed on a device, users could switch from one app to another in no time;
- consumer communication apps were normally characterised by simple user interfaces so that costs of switching to a new app were minimal for consumers; and
- information about new apps was easily accessible given the ever-increasing number of reviews of consumer communication apps on app stores.
Online cab aggregator platforms
The CCI dealt with several cases involving online cab aggregator platforms. Allegations made against online cab aggregator platforms included predatory pricing, exclusivity arrangements and hub-and-spoke cartel.
Several complaints filed against major online cab aggregator platforms in India, i.e., Ola and Uber alleging predatory pricing were dismissed by the CCI on the ground that neither Ola nor Uber was in a dominant position and the concept of collective dominance does not exist under the Act. The CCI also took into account the nascency of the market and held that:
- the competitive process in the relevant market was unfolding;
- the market was growing rapidly;
- effective entry of a competitor had taken place thereby leading to gradual decline in the market share of the alleged dominant player;
- entry barriers were not insurmountable;
- there existed countervailing market forces that constrained the behaviour of the alleged dominant player; and
- the nature of competition is dynamic in such innovation-driven markets.
In relation to allegations of predatory pricing, the CCI noted that promotional offers in the early stages do not constitute predatory pricing. Such promotional pricing and offers were an important and effective strategy to increase the size of the network and bring more users on the platform.
In the case of
In Meru Travel Solutions Pvt Ltd v. ANI Technologies Pvt Ltd and Others, it was alleged that Ola and Uber were colluding and that such collusion was established by common investors in both the platforms. The CCI opined that the presence of common investors was insufficient to establish collusion and what was required to be established was the existence of some form of ‘control’. The CCI dismissed the information as no material was placed on record to suggest that competition between Ola and Uber had been compromised because of the common investments. Though the CCI dismissed the complaint and did not direct an investigation, it did accept that common investments and investors may lead to softening of competition and it was possible that the anticompetitive effects of common ownership may arise more as an error of omission, rather than error of commission. It further noted that it will monitor whether safeguards have been put in place to ensure that competition was not compromised by the common investments. Further, the CCI noted that it would not hesitate to take action, on its own motion or otherwise, if concern arising out of horizontal shareholdings prima facie seem to exist at any point of time in the future where the parties are found to be competing less vigorously.
Online travel agency platforms (OTA)
The CCI recently directed an investigation against two online travel agencies, i.e., MakeMyTrip Pvt Ltd (MMT)> and Ibibo Group Private Limited (Ibibo)> (which was acquired by the MMT group in 2017) (MMT-Go) on allegations that MMT-Go was abusing its dominant position and entering into anticompetitive agreements including exclusive arrangement with Oravel Stays Private Limited (OYO), which provides budget accommodation across India.
While delineating the relevant market, the CCI noted that in case of platform markets, where the platforms may be serving several sets of consumers, the consumer side for which the relevant market is being defined needs to be identified. Since the allegations in the present case were primarily with regard to hotels, the prima facie relevant market analysis was carried out from the perspective of hotels, i.e., the relevant product market to include all alternatives available to hotels and the competitive constraints faced by the focal product (the service provided by MMT-Go to hotels). The CCI noted that as an aggregator of hotel booking services, these aggregators provide a platform to business users to list their hotels on their apps, which are accessible to the consumers. The consumers can use the platform to search, compare and book the hotels from the vast choices available. These platforms also provide value-added services such as use of filters to make searches more effective and targeted as well as incorporate customer reviews to help customers make their decisions. By reducing the transaction and search costs and introducing varied choices with price comparisons, these apps offered an important breakthrough to the traditional mode of booking hotels. Based on the above, the CCI delineated the relevant market in the case of MMT-Go as the ‘market for online intermediation services for booking of hotels in India’. In case of OYO, the relevant market was delineated as the ‘market for franchising services for budget hotels in India’. The CCI noted that OYO provides a platform for connecting consumers to its network of independent budget hotels under the brand ‘OYO Rooms’. The arrangement between OYO and the partner hotels is akin to a franchise model.
In an interesting move, the CCI deviated from its previous delineation of the relevant market in the order approving the acquisition of Ibibo by the MMT group in 2017. The CCI had previously delineated the relevant market in a broader manner to include travel agencies, direct suppliers and online travel aggregators. The CCI had held that from a demand-side perspective, it is easy for a consumer to switch across the three travel channels. It had also noted that online and offline travel channels are substitutable for each other. However, within a period of two and a half years, the CCI has changed its stance and adopted a narrower definition of the relevant market. The CCI has justified the deviation in its approach on the basis of the following.
- Delineation of relevant market is based on existing market realities at the time of determination. In rapidly changing markets like the digital sector, assessment of the relevant market cannot have a static approach.
- The pace of evolution of digital markets is significantly faster as compared to traditional markets.
- In view of the increased popularity and use of OTAs by a large segment of consumers in India, hotel operators now perceive OTAs as a distinct mode of distribution, which cannot be substituted by other modes without losing out significantly on consumer reach.
- Given the present market realities, all the three booking channels, i.e., direct booking, offline booking through travel agents and booking through online travel agents are used by hotels simultaneously and not as substitutes to each other.
- On account of the growing importance of online platforms for increasing visibility and discoverability of hotels, in case of a small but significant increase in the rates by all platforms, it is unlikely that a significant proportion of hotels would move completely offline or to direct supply so as to make such an increase unprofitable for a hypothetical monopolist.
- The OTAs provide the facility to search, compare and book at the same place. Such characteristics are distinct from the services that the offline modes such as travel agents provide.
The CCI has prima facie held that MMT-Go is in a dominant position in the relevant market of online intermediation for booking of hotels in India and has directed an investigation into alleged abuse of dominance for imposing room and price parity clauses on the hotels; denying market access to certain hotel franchising chains; indulging in predatory pricing; misrepresenting information on its platform by showing non-availability of rooms on its portal of hotels that had specifically requested for severing ties with MMT-Go instead of delisting them; imposing unfair and discriminatory fee on the hotels; and, entering into exclusive arrangement and giving preferential treatment to OYO.
Merger regulation in the digital space
On 20 February 2020, the Ministry of Corporate Affairs (MCA) released a draft Competition (Amendment) Bill 2020 (the Amendment Bill), which seeks to amend the Act. This was preceded by the MCA constituting a Competition Law Review Committee (CLRC) in October 2018 to recommend changes to India’s competition law regime, given the changing business environment and to bring it in line with global best practices. The CLRC submitted its report to the MCA in August 2019 and recommended several changes, most of which have been accepted and incorporated in the Amendment Bill.
One of the key amendments proposed in Amendment Bill in order to address issues and concerns in relation to the digital markets is the introduction of new thresholds for notification of combinations. The Amendment Bill provides that the central government may in public interest and in consultation with the CCI prescribe any criteria, the fulfilment of which shall cause any acquisition of control, shares, voting rights or assets, merger or amalgamation to be deemed to be a combination and a notice for such acquisition, merger or amalgamation fulfilling such criteria shall be given to the CCI.
The CLRC, during its deliberations, noted that most of the acquisitions in digital markets derive value from data or business innovation held by the target. In such acquisitions, the target may not have a huge asset base and may be offering products or services that are either free or generate insignificant turnover. The value of the sales of the target is a rather poor indicator of the combination’s significance for competition. As such, the CLRC recommended that the existing asset- and turnover-based thresholds for notification of combinations to the CCI may be inadequate.
The CLRC recommended that other thresholds (for example, deal-value or size-of-transaction threshold) beyond the existing asset- and turnover-based thresholds for merger control should be explored and introduced in due course. In this regard, the CLRC recommended that an enabling provision empowering the government to introduce necessary thresholds for merger notification be introduced by the Amendment Bill.
Digital markets continue to remain a priority for the CCI. The CCI has often stated that intervention in these fast-paced digital markets must be timely and rigorous. The reason being that once a platform attains a critical size, switching costs and status quo bias, may create insurmountable barriers for potential competition. As far as the efficacy and effectiveness of the laws to deal with digital markets are concerned, while the CCI is of the view that the existing competition legislation, save a few tweaks, is adequate, the CCI has recognised the need to introduce a complementary innovative regulatory architecture as well as a code of conduct for digital platforms. Given the CCI’s recognition of data being the new oil, increased competition scrutiny is likely to ensure digital markets remain competitive without creating entry barriers while continuing to reward innovation.
1 Nisha Kaur Uberoi is a partner, Akshay Nanda is a counsel and Tanveer Verma is an associate at Trilegal.
3 Indian Ecommerce Industry Report, IBEF 2019, Page 3. https://www.ibef.org/download/E-Commerce-October-2019.pdf.
4 Ariel Ezrachi and Maurice E Stucke, Virtual Competition – The Promise and Perils of the Algorithm-Driven Economy, Harvard University Press, 2016.
8 Market Study on e-commerce in India at Para 113. https://www.cci.gov.in/sites/default/files/whats_newdocument/Market-study-on-e-Commerce-in-India.pdf.
9 Mr Umar Javeed and Others v. Google LLC and Other, Case No. 39 of 2018.
12 All India Online Vendors Association v. Flipkart India Private Limited and Others, Case No. 20 of 2018.
13 In re: Delhi Vyapar Mahasangh and Flipkart Internet Private Limited and ors., Case No. 40 of 2019.
14 Vinod Kumar Gupta v. WhatsApp Inc., Case No. 99 of 2016.
16 Case No. 37 of 2018.
17 Case No. 25-28 of 2017.
18 In re: Federation of Hotel & Restaurant Associations of India (FHRAI) vs. MakeMyTrip India Pvt. Ltd. (MMT) & Others. Case No. 14/2019.
19 Combination Registration No. C-2016/10/451.
20 In the interests of full disclosure, Nisha Kaur Uberoi, partner and national head of competition law practice at Trilegal, was part of the CLRC.