This article is written by Sparsh Agrawal, from Symbiosis Law School, Hyderabad. In this article, relevant market definition in e-commerce. Furthermore, this article also discussed in length issues of anti-competitive agreements and abuse of dominant position in the relevant market of e-commerce.
An online marketplace is a type of multi-channel or an e-commerce where the information about the product or service is provided by the third parties and the transactions are processed by the operators in the marketplace. There have been various antitrust issues between the online and offline market players. The objective of the article is to discuss the relevant market definition in e-commerce and its effect on the anti-competitive agreements and abuse of dominant position in the relevant market.
In order to determine whether an enterprise is causing adverse effects on the competition or abusing its dominant position, relevant market analysis and its definition is of utmost importance. Section 2(r) of the Competition Act, 2002 talks about the relevant market. The two fundamental components of relevant market definition are:
(i) To determine the relevant product market (Section 2(s) of the act).
(ii) To determine relevant geographic markets (Section 2(t) of the act).
It is pertinent to note that, the market definition takes into consideration the factors of demand and supply. On the demand side, it depends upon the substitutability and interchangeability of the products from the buyer’s point of view. While on the supply side it depends on the factors such as, whether the seller can switch the production to the close substitutes or relevant product.
In order to determine a relevant geographic market, the location of buyers and sellers in the relevant market is imperative. In a relevant geographic market, the geographical boundaries of the market within which all the conditions of competition of the products are homogenous. The location of the buyers and sellers will determine what the presence of the market is. It can have local, regional, national, and international presence.
Test of determining the relevant market
It is worth mentioning that, if the markets are defined too narrowly in terms of product-market or geographic market, the competition may be excluded from the analysis. However, if at all the product market or geographic market is broadly defined, and then the degree of competition may be overstated. Therefore, too broad or too narrow market definitions can eventually lead to understating or overstating the market share or concentration measures.
In order to provide a comprehensive test for determining the relevant market, the Supreme Court in CCI v. Coordination Committee of Artists and Technicians of West Bengal Film and Television and Ors. noted that the need to define a relatively narrow product market which would at most include all substitutes of the requisite product, which a customer could potentially turn to the face of the price increase in the original product in question. The SC stated that the process of defining the relevant market should start by looking into a relatively narrow potential product market and then be expanded to look at the close substitutes for the same.
The aforesaid test can be of utmost importance, since providing a broad relevant market definition is unlikely to help CCI to grasp a picture of market power which the offending enterprise may have in his respective segment.
Moreover, the SC in the Coordination committee case itself stated the relevant market can be defined from a buyer’s or seller’s point of view, as to how many disruptions have been caused to the supply chain. For example, if the anti-competitive activities affect the wholesale segment and not the retail segment, then the relevant market has to be defined from the perspective of retail buyers.
Test for determining the relevant market under e-commerce
It is pertinent to note that the relevant market delineation is essentially an empirical issue. The various competition authorities worldwide in order to determine the relevant product market and relevant geographic market of a product adopt an analytical framework known as “hypothetical monopolist test” for the determination of relevant markets in the e-commerce sector. The aforementioned approach provides whether a hypothetical monopolist of a given set of products in a particular geographical area has the potential to increase the profits through a small but significant (5-10%) non-transitory increment in the prices. Prominently this is also called the “SSNIP” test.
For proper application of the hypothetical monopolist test, the authorities of the competition regimes examine the various kinds of information in accordance with the nature of the given case. This means and includes the following:
- Marginal cost and price elasticity.
- Price levels and changes.
- The degree of switching costs.
Marginal cost and price elasticity
It is worth mentioning that the application of the “hypothetical monopolist test” will require information pertaining to both the marginal cost and price elasticity. The estimation of price elasticity calculation involves an econometric analysis of huge data pertaining to sales and prices, broken with respect to the product and the geographic area. After the calculation of the price, elasticity estimates one can get the idea of how much volume a “hypothetical monopolist” of the test market would have the probability to lose because of a rise in requisite prices by 5-10%.
With respect to the marginal costs, one needs to assess whether a rise in price can cause a subsequent loss in the sales volume. Furthermore, one needs to also determine whether such a rise in price is balanced and profitable. If at all, the rise in price is not profitable, then the scope of the relevant market should be widened.
Price levels and changes
In the catena of cases, the calculation and estimation of price elasticity will be difficult and cost-intensive. And because of this difficulty, the requisite relevant markets are defined by the other sources of information such as the price levels and the extent to which prices move together.
Pertinently, the e-commerce sector may tend to result in high price transparency. Therefore, the approach of taking into consideration the other sources of information is feasible, since the data on the price levels and changes will be easier to collect. Such price comparisons can be hard, however, if the e-commerce results in discriminatory price changes from the distinct customers.
It is pertinent to note that, the evidence related to the price level and changes will be essentially useful for the determination of the relevant market where the nature of the product is particularly identical across the “two potential markets”.
For example, if it is seen in the e-commerce context, such evidence can play a crucial role in the determination of whether the electronic commerce and traditional commerce lie within the same markets. On the other hand, such evidence can also be useful for the determination of the relevant geographical scope of e-commerce markets.
The degree of switching costs
The degree of switching costs also a useful approach for the determination of the requisite relevant product and geographic market. The data collected on the customers switching between the products can be reflected as evidence of products of existing in the same market.
For example, in the context of e-commerce one can expect to see that the companies who are presenting the data pertaining to customers switching away from the traditional commerce to e-commerce sector as evidence and reflecting that the two sales channels are part of the same market.
There can be a number of reasons for switching, of which price is just one of the reasons. Pertinently, this approach of switching costs should be taken into consideration to indicate whether the two identical products are a part of the same market if it results from changes in relative prices. In cases pertaining to shifting from traditional commerce to the e-commerce sector, it is far from obvious that this is the case. Rather, it eventually results in the shift in purchasing patterns or customer preferences, which implies here that the ability of each form of commerce to constrain the pricing decisions of the other.
Pertinently, the relevant product market analysis of the e-commerce sector has been an issue for the Competition Commission of India (CCI). In the case of Ashish Ahuja v. Snapdeal and others, the CCI in the context of marketplaces and e-commerce businesses, the buyer tends to consider the discounts and shopping experience in both the online and offline markets before making the final decision of purchasing the product. An increase in price in one segment can make the buyer shift towards the other segment. Therefore, CCI held that offline and online markets are not two different relevant markets since they are only different in their channels of distribution.
Moreover, Mohit Manglani v. Flipkart Private Limited and others argued that when the book is exclusively distributed through e-commerce firms, it cannot be substitutable by books distributed by stores. Therefore, there is a separate relevant market for both. However, CCI held that individual products cannot be construed as the market by themselves, so they are part of the same relevant market.
However, in the case of Fast Track Call Cab Private Limited v. ANI Technologies Pvt. Ltd, the CCI held that “radio cab services” is a relevant market by itself, on the ground that the characteristics of radio taxis cannot be found in any other means of transport. There are facilities available such as time-saving, point-to-point pickup, pre-booking facility, predictability in terms of expected waiting/journey time, etc. Therefore, such services cannot be substitutable with other modes of transport.
From the aforementioned discussion, the CCI decisions with respect to the relevant market in e-commerce are confusing. This is because, on one hand, it stated that both the offline and online marketers have different channels of distribution, but they are part of the same relevant market. However, the CCI’s Judgments pertaining to radio cab services stated that such cab services are a relevant market in itself considering factors such as ease of choice, convenience, etc. And these factors can also be easily argued in favour of e-commerce platforms for consideration of the relevant product market.
It is pertinent to point out that the CCI in the case of “All India Online Vendors Association ( “AIOVA”) v. Flipkart India Private Limited” tried to solve the conundrum with respect to the relevant market. In the instant case, AIOVA alleged Flipkart of abusing its dominant position in the market by facilitating discounts and further leveraging its position in the market to enter into another market of manufacturing products through some private labels.
In the aforesaid case, CCI accepted the relevant market definition of “market for services provided by online marketplaces for selling of goods in India”. Furthermore, as per the findings of the CCI, there are other competitors in the market with significant resources such as Amazon, Snapdeal, Paytm mall, etc. Therefore, CCI found no merits in the case, since there are competitors of Flipkart existing in the market and it cannot influence the market.
With the emerging propensity of e-commerce, it is imperative to settle the problem of relevant market definition essentially between the e-commerce platforms and traditional platforms. The Competition Commission of India needs to be well equipped for carrying out the findings pertaining to the competition violations. The relevant product market must be defined narrowly to allow the CCI to effectively define and analyze the boundaries within which the anti-competitive has taken place.
The order of the CCI in the Flipkart case, can be considered as a welcome change such as it can help to clear the confusion pertaining to the relevant product market caused by CCI’s previous orders and it has provided facilities for establishing a fair competition as establishing dominance becomes easier in the narrower market.
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