The Competition Commission of India (CCI) has launched an investigation to find out if the exclusive arrangements, deep discounting and preferential listing by e-commerce marketplaces like Amazon and Flipkart for mobile phones are causing an adverse effect on competition.
The CCI on Monday passed directions for investigation under Section 26(1) of the Competition Act, 2002. The order was passed by Ashok Kumar Gupta, chairman, Sangeeta Verma and Bhagwant Singh Bishnoi, both members.
In a 11 page order, the CCI observed that the exclusive arrangements between smartphone/mobile phone brands and e-commerce platform/select sellers selling exclusively on either of the platforms, coupled with the allegation of linkages between these preferred sellers and e-commerce companies merits an investigation.
The CCI noted that though these platforms are used for selling various categories of products, for some categories the online channel constitutes a predominant channel of distribution. Smartphones is one such category of product. The Informant has claimed that Amazon and Flipkart had 36 per cent and 53 per cent market share, respectively, in the market for smartphones sold on online marketplaces in India in the first quarter of the year 2019.
On careful perusal of allegations levelled by the Informant and the documents provided, the Commission noted that there are four alleged practices on the marketplaces, namely, exclusive launch of mobile phones, preferred sellers on the marketplaces, deep discounting and preferential listing/promotion of private labels.
The first issue under examination is that of the exclusive launch of mobile phones on the two major e-commerce platforms. The Informant has provided a list of phones which were exclusively launched on the platforms. The Informant has provided the following evidence in the form of text messages to indicate that due to partnership between mobile manufacturer (Vivo Z1x and Vivo U10 models) and platforms (Flipkart and Amazon), offline retailers are forced to purchase smartphones either from manufacturers’ e-stores or from the platforms e-portals.
The Commission has also noted several reports in the media as well as advertisements by e-commerce portals regarding exclusive launches. Mobile manufacturing companies like One Plus, OPPO, and Samsung have exclusively launched several of their models on Amazon. Similarly, Vivo, Realme, Xiomi etc., have exclusively launched several of their models on Flipkart. In 2018, Flipkart launched 67 mobile phones and Amazon launched 45 mobile phones exclusively on its platform. 2 Thus, it appears that these mobile manufacturers partner with the e-commerce platforms and their brands are sold by the platforms’ exclusive sellers.
“It needs to be investigated whether the alleged exclusive arrangements, deep-discounting and preferential listing by the opposite parties (Ops) are being used as an exclusionary tactic to foreclose competition and are resulting in an appreciable adverse effect on competition contravening the provisions of Section 3 (1) read with Section 3(4) of the Act,” the order said.
“In view of the foregoing, the Commission is of the opinion that there exists a prima facie case which requires an investigation by the Director General (‘DG’), to determine whether the conduct of the OPs have resulted in contravention of the provisions of Section 3(1) of the Act read with Section 3(4) thereof, as detailed in this order,” it added.
Accordingly, the Commission directs the DG to cause an investigation to be made into the matter under the provisions of Section 26(1) of the Act. The Commission also directs the DG to complete the investigation and submit the investigation report within a period of 60 days from the receipt of this order.
The case was filed by Delhi Vyapar Mahasangh as the informant versus Flipkart Internet, owned by Walmart and Amazon Sellers, as opposite parties.
The traders body has stated that the that there are instances of several vertical agreements between Flipkart with their preferred sellers on the platform and Amazon with their preferred sellers, respectively which have led to a foreclosure of other non-preferred traders or sellers from these online marketplaces. It has been alleged that most of these preferred sellers are affiliated with or controlled by Flipkart or Amazon, either directly or indirectly.
On deep discounting, the complaint says that Flipkart provides deep discounts to a select few preferred sellers (such as Omnitech Retail) on its platform which adversely impacts non-preferred sellers such as members of the Informant from competing with such sellers on Flipkart’s online platform.
Similarly, Amazon has preferred sellers on its platform namely Cloudtail India (a joint venture between Amazon and Catamaran Ventures) and Appario Retail (a wholly owned subsidiary of a joint venture between Amazon and Ashok Patni which received a round of investment from Frontizo Business Services Ltd.) which are related to Amazon. Similar allegations of deep discounts by Amazon to the detriment of non-preferred sellers have been levelled.
On exclusive tie-ups and private labels, the complaint said that both the e-commerce players have several tie-ups and private labels which get more preference in terms of sales. The OPs’ private label brands, sold through their platforms, are routed through a few preferential sellers.
It is submitted by the Informant that this modus operandi is being employed by Flipkart across all categories, including smartphones. It is alleged that by having exclusive tie-ups in the relevant market with the smartphone companies, it provides exclusivity through discounting and preferential listings.
This leads to other competitors being excluded and foreclosed from the market. It is stated that any benefit to the consumers is only apparent at the initial stage till critical mass of network effects is reached or competitors are eliminated.
“This arrangement has far-reaching consequences on the economy as the non-preferred sellers are relegated to sell only through traditional brick and mortar set-up which involves significant fixed costs and are devoid of wide pan-India reach which online marketplaces offer,” the complaint said.
Based on the evidence adduced by the Informant and information available in the public domain, it can be prima facie inferred, CCI said that there appears to be exclusive partnership between smartphone manufacturers and e-commerce platforms for exclusive launch of smartphone brands. Thus, exclusive launch coupled with preferential treatment to a few sellers and the discounting practices create an ecosystem that may lead to an appreciable adverse effect on competition, the order said.