COMPETITION COMMISSION PRONOUNCES AMAZON "NOT DOMINANT" IN SELLING FASHION MERCHANDISE IN INDIA

The Competition Commission of India on September 9, 2020 held that Amazon is not dominant in the market of ‘selling fashion merchandise in India’ after an Information was filed with Commission. The allegations levelled against Amazon included forming anti-competitive agreements and abusing its dominant position. Access the order here.

Background

The Informants in the present case are Lifestyle Equities CV and Lifestyle Licensing BC, both Dutch Companies. They alleged that there is contravention of provisions of Section 3(4) r/w 3(1) and Section 4(2) r/w 4(1) of the Competition Act, 2002 (“Act”) by Amazon Seller Services Private Limited (“Amazon”), Amazon Export Sales LLC (“Amazon Export”) and Cloudtail India Private Limited (“Cloudtail”) all the three collectively referred to as “Opposite Parties”.

Allegations

That there are instances of unfair anti-competitive practice by the Opposite Parties and their affiliate entities worked out through their inter-se agreements, which have caused an exclusionary effect on the Informants’ overall online business operations in India, by adversely impacting the visibility of the Informants’ fashion products sold.

Abuse of Dominance

To allege abuse of dominance by any entity, the relevant market has to be proposed which defines the contours within which the dominance of such entity shall be evaluated. The relevant market proposed by the Informant is ‘online fashion retail in India’. The arguments put forth are reproduced below -

i. It was alleged, based on reports, that the combined market share of Amazon and Flipkart India Pvt. Ltd. (another e-commerce company) is almost 62% of the entire online retail space and allegedly Amazon holds about 31.1% share in the online fashion retail space.

ii. That in terms of Gross Merchandise Value (GMV), Amazon is leading with gross sales of $7.5 billion in the financial year ended on March 31, 2018 while Flipkart’s sales are at $6.2 billion. Thus, based on such reports, the Informants allege that Amazon holds significant market share in online retail and enjoys position of strength.

iii. That new entrants in the market not having capital to spend on discounts and incentives, get stifled and eventually get eliminated on account of the exclusionary conduct of the Opposite Parties.

iv. The Informants have stated that they do not sell or offer for sale any of their fashion products on Amazon’s e-commerce platform and such products are available for sale only on Informants’ own website (now) or its licensee’s website (earlier), or in brick and mortar stores. The modus operandi followed by the Opposite Parties of selling/offering for sale counterfeit/unlicensed/unauthorized products bearing Informants’ Brand at unfair and discriminatory prices, including predation model, which is supported by their deep pockets and funding, has affected the relevant market in Opposite Parties’ favour. Because of the abusive conduct of Opposite Parties in selling counterfeit products of the Informants at abysmally low prices, the Informants are unable to compete in the online retail space.

v. The Informants averred that in 2017 they acquired knowledge that the Opposite Parties offered counterfeit/unlicensed/unauthorised products of the Informants at ‘unfair, discriminatory and/or predatory prices’ on their website. This not only caused confusion due to visibility of excessive discounting of products under the Informants’ brand than the prices of genuine products sold on their own website, but also resulted in the delivery of inferior counterfeit/unlicensed/unauthorised products of the Informants, by the Opposite Parties. Such alleged conduct of imposing unfair pricing upon the sale of goods is anti-competitive because the Informants would never be able to match the pricing levels of the counterfeit/unlicensed/unauthorised products sold by Opposite Parties.

vi. That the sale of such inferior products caused an appreciable reduction of the Informants brand appeal which directly benefited the Informants competitor brands such as US Polo Association which sold through preferred sellers of Amazon.

vii. The Informants apprehended that the Opposite Parties are engaged in similar activities with respect to other brands in the online fashion retail as well and it is not just the Informants who have suffered from the anticompetitive activities of the Opposite Parties.

Thus, based on the above allegations, the actions of the Opposite Parties especially Amazon has resulted in creation of barriers to new entrant in the relevant market and has driven existing competition from the relevant market. That the Opposite Parties have adopted a model with the aim to give ‘astronomical and accelerated incentive’ with the only objective of centralizing the supply chain coupled with discounts to consumers to lock-up demand and stifle competition in the relevant market.

Preferred and Non-Preferred Seller

There is a difference between selling through a preferred seller and a non- preferred seller on Amazon’s platform. The Retailers or brands selling on Amazon’s platform but not through preferred sellers do not have a level playing field to compete with competitors/ sellers/brands selling on the platform. This is because of the preference agreement between Amazon and Cloudtail. Selling through non-preferred sellers will not achieve and/or likely to achieve equivalent sales and market exposure as against selling through preferred sellers.

The Commission

Although the Informants alleged anti-competitive practice by Amazon as well, the Commission dealt with the allegations of the Informants as regards the dominant position of Opposite Parties in the first instance.

The Commission noted that Amazon is a platform that facilitates trade between buyers and sellers. In the past cases by the Commission, it has noted the distinguishing characteristics of these platforms where the sellers would be interested in selling when increasingly high number of buyers visit such online platform and vice versa thus, characterizing the online platforms with cross-side network effects. Thus, the relevant market in the present case is the ‘market for services provided by online platforms for selling fashion merchandise in India’.

As per Red Seer Report June 2019[1], the online fashion segment consists of many players which includes large horizontals like Amazon and Flipkart and verticals like Myntra (acquired by Flipkart), Ajio, Koovs etc. As per the Report, the fashion marketplaces’/verticals’ collective share is estimated to be around 50% and that of the large horizontal/multi-product marketplaces such as Amazon and Flipkart to be around 35%.

The Commission stated that for the assessment of dominance, there are multiple players operating in the relevant market for services provided by online platforms for selling fashion merchandise in India. As per the information available in public domain, it appears that presently Flipkart and Amazon are close competitors with comparable market position and resources. In addition, there are other players like Paytm Mall, Snapdeal, Shopclues etc. providing intermediation services in the relevant market. Thus, looking at the present market construct, it does not appear that any one platform is occupying a dominant position in the relevant market, as envisaged under Section 4 of the Act.

Thus, Amazon does not seem to be the dominant entity in the relevant market. In the absence of dominance, the question of abuse of dominant position does not arise. The Commission clarified that the aforesaid assessment of dominance is specific to the relevant market delineation owing to the product focused on in the present case. Delineation of relevant market and competitive assessment are based on market realities as they exist at the time of assessment, keeping in view the facts and allegations.

Conclusion

Although the Commission has held that Amazon is not dominant in the present case, it has very categorically highlighted the importance of delineation of the relevant market. Thus, it becomes clear that even if the entity (in this case Amazon) may be dominant in other related aspects of e-commerce, the fact that in the relevant market as decided by the Commission it did not prove to be so, underlines the relevance of the same.

[1] Access here.