India's e-commerce sector is poised for significant changes as the Competition Commission of India (CCI) investigates allegations against Amazon and Walmart-backed Flipkart. Launched in 2020, the CCI's inquiry has produced over 2,700 pages of findings so far, detailing serious accusations ranging from preferential treatment of select sellers to deeply discounted pricing practices that could adversely impact market competition.

The investigation, temporarily halted by the Karnataka High Court due to procedural issues in the findings, has prompted Amazon, Flipkart, and related sellers to prepare written and possible oral responses. A verdict is not expected by the end of the year, as disclosed by a connected attorney.

This investigation reflects a global shift toward stricter regulation of digital markets, with the outcome potentially setting important precedents for digital platforms. The challenge lies in balancing the convenience of e-commerce with essential fair competition and consumer protections.

WHAT ARE THE ALLEGATIONS?

The chief accusations against Amazon and Flipkart centre on preferential treatment of certain sellers, particularly those with established partnerships, which allegedly results in higher search rankings. Another significant concern involves deep discounting practices that may constitute predatory pricing, particularly in the mobile phone sector. The CCI warns that such tactics could severely weaken competition by driving smaller players out of business.

Both companies are also accused of exclusive arrangements, like exclusive product launches, limiting consumer choice and fair market practices. Additionally, preliminary findings suggest potential circumvention of India's foreign direct investment (FDI) policies by favouring preferred sellers to directly sell inventory.

The significant FDI received by these companies is allegedly being utilised to sustain losses, thereby providing an unfair competitive edge against smaller competitors. 

In their defence, both companies assert that their practices are typical within the industry and necessary for operating in India’s expanding $123 billion e-commerce sector. 

The lawyer close to the investigations says that CCI must not deal with Amazon and Flipkart collectively, but look at them as market rivals competing for a larger slice of the pie in the fast-growing Indian market. “To ensure this competition, both offer price discounts and exclusive access, which is commonplace among online and offline retailers in the industry,” they add.

The attorney explains that the electronics industry, both online and retail, has witnessed a faster growth in demand than supply, leading to more efficient participants eating into the market shares of others. With the focus on market penetration, deeper pockets help larger players survive market turbulence, which may be an entry barrier in general but cannot be attributed to particular practices on the e-commerce giants’ platforms.

The CCI, which is statutorily bound to examine mitigating and aggravating impacts of such policies before adjudication, will be urged to see that these price benefits and exclusive access deals are beneficial to consumers. 

On predatory pricing, Amazon and Flipkart are likely to deny these allegations, says the lawyer. While they do offer deep discounts, there is no evidence to say the selling price was below the cost price, which is a necessary condition to show predatory pricing.

WHAT IS THE IMPACT ON THE E-COMMERCE SECTOR?

At the rate at which the industry in India is growing, it is likely the CCI will have its eye on e-commerce for the coming few years, says the lawyer. E-commerce platforms will therefore have to be careful when offering exclusive deals and discounted prices, which might be a hit for consumers in the short term but might lead to a more diverse and competitive online and offline retail space in the long term. 

Furthermore, the relationship between platforms and sellers is likely to undergo scrutiny, potentially leading to more equitable treatment of all sellers and changes in product ranking algorithms, another lawyer connected to the matter says. 

If preferential treatment of certain sellers is curtailed, it might affect the efficiency of logistics networks, potentially leading to slower delivery times. Consumers might also have fewer opportunities to access exclusive products or early launches, the second lawyer explains. 

For third-party sellers, smaller entities might gain better visibility if preferential treatment is reduced. However, if platforms are forced to change their business models, it could lead to increased fees for sellers, they add. 

WHAT CAN WE EXPECT TO SEE IN THE FUTURE?

Different forms of e-commerce, particularly the fast-growing commerce sector, are likely to see increased scrutiny from the CCI, which has significantly ramped up its focus on the tech sector in recent years.

However, the Digital Competition Bill, which provides for increased regulation of the top market players, similar to the law in Europe, is not getting the traction hoped for and might be placed on hold for now, the second lawyer says.

Based on industry responses, it is clear that while there is a need for digital antitrust regulation, “there may be a need to tone the bill down,” they add.