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18 July 2019
By way of a 6 November 2018 order, the Competition Commission of India (CCI) dismissed allegations against Flipkart India Private Limited (Flipkart India) and Flipkart Internet Private Limited (Flipkart Internet) of abusing their dominant position by indulging in the activity of:
The information before the CCI was filed by the All India Vendors Association (informant), which is a group of more than 2,000 sellers on e-commerce marketplaces such as Flipkart, Amazon and Snapdeal. The primary allegation was that Flipkart India had been selling goods to companies such as WS Retail Services Private Limited – which was owned by the founders of Flipkart Internet until 2012 – at a discounted price and, thereafter, that these goods were sold on the platform operated by Flipkart Internet. As per the informant, this practice amounted to giving preferential treatment to certain sellers. In other words, the information revealed an alleged strategy of Flipkart India to acquire goods from various persons and immediately sell them to WS Retail Services at a discount, which would, in turn, sell these goods on the internet platform 'Flipkart.com' of Flipkart Internet.
While defining the relevant market, the commission noted that even though the distinction between online and offline sellers is sometimes blurry, it cannot be denied that online marketplaces offer convenience for sellers (eg, saving the costs of setting up a store, sales staff, electricity and maintenance charges) and for buyers (eg, comfort of shopping, time saving and product comparison). In addition to this, the CCI stated that there is a difference between an 'online retail store' and an 'online marketplace platform'. The CCI observed that in the case of an online retail store, a seller (who may own a brick and mortar retail store) owns their portal to sell products through online websites, whereas, in the case of an online marketplace platform such as Flipkart or Amazon, the owner of an online portal offers a platform for buyers and sellers to interact. In other words, sellers would be interested in selling on online platforms which an increasingly high number of buyers visit, and thus online platforms are characterised by network effects. On the other hand, there is hardly any network effect in the case of online retail stores. Further, the commission observed the foreign direct investment (FDI) policy on e-commerce which permits 100% FDI under the automatic route in entities carrying out e-commerce under the 'marketplace' model, but prohibits FDI in 'inventory-based' models. Accordingly, the commission defined the relevant market as 'services provided by online marketplace platforms in India'. The commission stated that Flipkart had not been in a dominant position in the relevant market due to Amazon's presence (its closest competitor, having a valuation of approximately $700 billion) and other competitors, such as Paytm Mall, SnapDeal and Shopclues. In addition, new entrants such as Paytm Mall revealed the low entry barriers in the relevant market.
Interestingly, though the information was filed against the Flipkart entities, the commission held a preliminary conference with Amazon Seller Services Private Limited, as it was also a key player in the relevant market. However, looking at the present market structure of online marketplace platforms in India, the commission concluded that no one player in the market could be said to be commanding any dominant position at this stage of the market's evolution.
Accordingly, CCI closed the matter as Flipkart was not found to be dominant in the relevant market.
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