Watchdog’s warning: E-commerce companies may be in deep trouble on deep discounts

Flipkart, Amazon, ecommerce, fdi policy, Walmart-Flipkart deal, B2B segment, online market platforms, Competition Commission of India  The CCI sounded this warning while granting approval to the Walmart-Flipkart deal on August 8.

E-commerce companies like Flipkart, Amazon and others could soon find themselves under investigation by the Competition Commission of India (CCI) for indulging in deep discounting and according preferential treatment to select sellers on their platforms, something that is prohibited under the 2016 foreign direct investment (FDI) policy. The CCI sounded this warning while granting approval to the Walmart-Flipkart deal on August 8. The approval was granted to the deal between the two despite the CCI finding such violations on the part of Flipkart because it said that such discounting is not specific to Flipkart but is prevalent in the market so it won’t make any difference from the competition point of view once the merger comes into force.

Still sounding a warning that it would not hesitate to probe such players at a time of its choosing, the CCI said, “There is no bar on the Commission at any point of time to examine such issues under the relevant provisions of sections 3(4) and 4 the Act and regulations made thereunder.”

The observations on such violations by the marketplace-based e-commerce companies have been noted first for the first time by any statutory body since the enactment of the 2016 FDI policy which bars them from discounting as well sourcing bulk of their products from preferred sellers. The CCI has also asked the government to look into the matter either through a policy or devising a suitable regulatory mechanism.

“As per FDI Policy an e-commerce platform cannot influence market prices directly or indirectly. However, this is a matter of consideration for the appropriate regulatory/enforcement authority. The issues concerning FDI policy would need to be addressed in that policy space to ensure that online market platforms remain a true marketplace providing access to all retailers,” the CCI has said.
Though Flipkart and other online retailers claim that the discounts on their platform is provided by third-party sellers, the CCI in its order has not concurred with their stand.

“Upon examination of the relevant facts, it was found that a small number of sellers in Flipkart’s online marketplaces contributed to substantial sales. Almost all of these were customers of Flipkart in B2B segment, and hence were common customers, availing significant discounts from Flipkart in both B2B segment as well as in the online marketplaces. Further, the revenue earned from these common customers in the online marketplaces was relatively less vis-à-vis the non-common sellers whose sales on the platform was considerably low. It was also seen that the top common customers in the Flipkart online marketplaces were incorporated on or after 2016,” CCI has noted.

This is the most damning indictment of the practices adopted by Flipkart and other online retailers by a statutory body though offline retailers as well as some trade bodies have been alleging this. In fact, the CCI examined this aspect upon a complaint by the body of small traders, the Confederation of All India Traders. This body has consistently maintained that Flipkart and other online players indulge in direct discounting and accord preferential treatment to a set of sellers. Flipkart didn’t respond to FE’s email query on the matter.

However, despite such harsh observations on Flipkart’s practices, the CCI did not hold back approval to the deal between it and Walmart because it felt that the violations had no connection with the “competition dimension of the proposed combination”. “The Commission notes that majority of the concerns expressed in the representations have no nexus to the competition dimension of the Proposed Combination. Issues falling beyond the scope of the Act cannot be a subject matter of examination by the Commission, though they may merit policy intervention,” CCI said while approving the merger proposal.

Source: Financial Express