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CCI to investigate Flipkart, Amazon deep discounting on mobile phones
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SME Times News Bureau | 14 Jan, 2020
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.
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