This article is written by Rohit, pursuing Certificate Course in Competition Law, Practice and Enforcement from Lawsikho.
Anti-competitive agreements are agreements between competitors to prevent, restrict or distort competition. Such agreements cause or are likely to cause Appreciable Adverse Effect on Competition (AAEC) and are prohibited under the Competition Act, 2002. Anti-competitive agreements disrupt the smooth functioning of the market and it is the end consumer who suffers as his choice preferences get restricted. The Competition Act believed that the consumers should have the ultimate choice of choosing a product without any biases from the sellers. It was one of the factors that surfaced the idea of competition law in India.
Section 3 of the Competition Act, 2002
Section 3 of the Competition Act, 2002 states anti-competitive agreements as:
(1) No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.
(2) Any agreement entered into in contravention of the provisions contained in subsection (1) shall be void.
(3) Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which;
- Directly or indirectly determines purchase or sale prices,
- Limits or controls production, supply, markets, technical development, investment or provision of services,
- Shares the market or source of production or provision of services by way of allocation of the geographical area of the market, or type of goods or services, or number of customers in the market or any other similar way,
- Directly or indirectly results in bid-rigging or collusive bidding shall be presumed to have an appreciable adverse effect on competition.
Burgeoning run of e-commerce
The sudden augment in internet reach has paved the way for e-commerce to whole new levels. The rise of the e-commerce industry in recent times has initiated a paradigm shift in consumer behaviour. Consumers prefer to buy almost everything online. “Whatever you need, it’s just a click away” is the principle on which e-commerce works. From buying a small needle to buying an automobile, e-commerce has significantly changed the way people buy things. High discounts, gift vouchers, promo codes, gift hampers, cashback schemes etc proved to be a massive encouraging factor to induce people to switch to e-commerce. With such a great rise, there came massive hurdles in terms of quality, how products are offered to people, antitrust issues etc. The Competition Commission of India (CCI) wants to ensure free and fair trade practices and ensure that no entity or group of entities indulge themselves in activities or agreements that would eventually prove to be detrimental for the consumers and market economy as a whole.
Types of anti-competitive agreements in e-commerce
1. Exclusive agreements
It is often experienced on e-commerce websites that some products belonging to a certain corporate entity are sold on certain specific websites. Sometimes some e-commerce websites only allow a certain company’s product in a specific product line. All these actions take place because of an exclusive understanding between two or more entities. Exclusive agreements tend to make the user buy products from these specific websites only irrespective of price and availability of the alternate products, thus restricting their choice of buying the same product from different other platforms. The consumer is the one who suffers from such practice.
Recently CCI has ordered a probe into Amazon Seller Services Pvt Ltd and Flipkart Internet Services regarding contravention of Section 3(4) read with Section 3(1) and joint dominance under Section 4(2) read with Section 4(1) of the Competition Act, 2002.
Section 3(1) read with Section 3(4) of the Competition Act, 2002 (Act) regulates vertical agreements. The CCI noted that Flipkart and Amazon are e-commerce corporate entities following a marketplace based model of e-commerce. They basically provide online intermediation services to sellers on one side and consumers on the other. These marketplaces(platform) and the sellers selling on such marketplaces operate at different stages of the vertical supply chain. CCI’s assessment showed risks of the exclusive launch of mobile phones, preferring sellers, deep discounting thus making the physical retail market almost fruitless.
2. Predatory pricing
The cheap pricing of products is one of the major reasons why people buy online. But these trends have disrupted the market at unimaginable levels. Predatory pricing being at the top of the chain has shown how easy it is to destroy competition by offering goods and services at low prices, which results in augmentation of their market share and then exploiting the same market by increasing prices of the same goods and services. The main goal of predatory pricing is to drive out competition from the market as no established entity is strong enough to deal at such low levels of prices in the present market environment.
The case of predatory pricing is pretty peculiar in nature. For example; predatory pricing is treated as abusive when it is practised continuously with the intention of kicking out the competitors of the same product market.
Once the competitors are kicked out, the entities begin to cover their losses by gradually increasing the prices. On the other hand, predatory pricing is also seen as an extremely successful approach to enter any given market and capture the market by providing the customers with a more feasible option to buy from. Reliance JIO would have been a perfect example of predatory pricing had it been an already established entity. JIO literally slashed their prices to absolutely nothing, thus providing 4G internet and calling free of cost and if we take a look at the present scenario, the prices of the same such services are back at par with the market prices which were prevailing before JIO entered the telecommunication market. Since JIO was a new player and had no significant market share at the time, it got away by stating its 7% market share at the time.
3. Retargeting advertisements
This marketing practice is something that we all might have sometimes faced in our life while being on social platforms. Sometimes when you search for a specific product online and then realise you do not really need the product immediately so you just decide to buy this sometime in the future. You just add it to your e-commerce website’s cart and leave. Then you open social media and see the ads of the same product on all social platforms be it Facebook, Instagram or Snapchat etc. Such ads start popping up everywhere. The main idea behind these ads is to convert a possible lead into a sale. Your interest in a specific product is considered as a lead and is shown to you through different social platforms as a trigger to convert it into a sale. This is a very great concept for increasing the sale of a given product but from a consumer’s point of view, it restricts the alternatives to the product. Such advertisements are very specific in nature but fail to provide you with what would be a more feasible option rather it just shows you the product you left in the cart. But instead, such ads must also show similar products which can be used as alternatives to the product, thus giving the customers a range of variety to choose from. Such agreements between e-commerce websites and social media platforms should be channelled in a way to provide the best available option for a certain product to the consumer.
E-commerce websites earn a lot of revenue from listing services. This is a common practice in the modern-day to earn more by listing products of specific companies higher in the pecking order. Often the big companies pay subscription fees to list their product above everyone. The more they pay the higher they get in the result of a search. This is a great practice to promote a new product in the market which would ultimately provide competition and provide consumers with more choices. But in recent times it is quite evidently seen that mostly the big corporate houses usually purchase all the top spots in the listing for their product leaving absolutely no choice to small retailers but to just accept the list as it is. The small retailers and manufacturers suffer from such cruel practices as their reach to the customer market are restricted. Small scale manufacturers do not get the desired customer reach irrespective of how good their product is.
The Indian e-commerce industry is as big as it can get. It becomes a tremendous task to keep a check on these websites while ensuring that consumers are not baited on any step. The Competition Commission of India should consider creative features of these online websites as technological advancement and should focus on brushing them for a better consumer experience and simultaneously ensuring that there are free and fair trade operations practised by all entities of the market. The CCI must ensure that any agreement or even a mutual understanding between two or more entities must not violate any regulation or indulge in any practice that would eventually affect the consumer’s ability to buy the best available product.
- Listing of products should not be done according to which corporate house pays more but should be done according to the consumer needs (i.e. quality, durability, uses and other features of the product)
- Consumers rating mechanism should have more clarity. We often encounter these situations of products on their original websites where the negative reviews are deleted or are not posted just to maintain the reputation of the product in the market. Any entity undertaking these practices must be punished. Such practices should be treated as strictly as possible because such ratings do not provide an explicit picture of the product a consumer is paying so much on.
- The CCI must work on providing lucidity in retargeting ads. It should focus on providing alternatives or similar products of different entities so that the best possible product is made available to the consumer.
- Mutual exclusive agreements should be all about making the innovative products available in the most feasible way to a broader reach of people. The companies may sometimes need to join hands just to provide a better innovative and creative product to the market. Such agreements or understandings must not violate any rules or regulations and must work more ethically for a better consumer experience.
In the end, I would like to conclude by saying, that the CCI must look for new opportunities to make the market transparent, restricting the giant e-commerce websites to take control over the industry, restricting them against the practice of favouring any specific entities simultaneously helping new players to enter the market and provide competition which will result in further innovation and making available the better product to the consumers. Thus the CCI must work towards more holistic development of the market.
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