DAMODARAM SANJIVAYYA NATIONAL LAW

UNIVERSITY VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE

COMPETITION LAW & E-COMMERCE

SUBJECT

COMPETITION LAW

NAME OF THE FACULTY

VARSHITHA

NAME OF STUDENT

L. SAI RADHA KRISHNA

ROLL NO

2016055

SEMESTER

VIII

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 ACKNOWLEDGEMENT

I must express my most sincere appreciation to my faculty advisor VARSHITHA ma’am,

whose direction, efforts and encouragement aided the outcome of this study and for giving
me the much-needed support. 

To do project on the topic COMPITITION LAW AND E-COMMERCE I would also like to
thank all my friends for providing me with sources and materials. They deserve my most
hearty gratitude for their support and assistance in my work.

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 TABLE OF CONTENTS

1. INTRODUCTION……………………………………………………05
2. WHAT IS E-COMMERCE……………………….…………………..06
3. NATURE & DEVELOPMENT OF E-COMMERCE………………...07
4. COMPITITION LAW & E-COMMERCE………………...………….08
5. CONCERNS OF E-COMMERCE AND TRADITIONAL
MATKETS…………………………………………………………….11
6. BUSINESS MODEL OF E-COMMERCE PLATFORMS…………...12
7. ABUSE OF DOMINANCE……………………………..…………….13
8. PREDATORY PRICING…………………….………………………..15
9. CONCLUSION………………………………………………………..17

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 SYNOPSIS

AIM OF THE STUDY:

The main objective of the study is to analyze the process of e-commerce and competition
effect on it

SCOPE OF THE STUDY:

Scope of the study is limited and is confined to Indian perspective

RESEARCH METHODOLOGY:

This project is purely Doctrinal and based on primary and secondary sources such as
websites, books, articles, and internet sources. This research process deals with theoretical
and analyzing information that is collected. The research is purely descriptive in its
boundaries of the topic.

REVIEW OF LITERATURE:

The researcher had taken the information from the articles, websites and books which
provided a lot of help for completion of the project. The information in the articles and
websites has been cited.

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 INTRODUCTION

The Indian Industry Department, some time back, in order to streamline the ever-growing
field of e-commerce, was planning to define the term ‘marketplace’ and also elaborate as to
what constitutes retail and wholesale trading on such platforms.

Along with e-commerce and high profile start-ups, this move of the Government is likely to
decide the course of traditional brick-and-mortar retailers who have long complained that
these e-commerce marketplaces have made inroads into retail as well and, as such, the
business of traditional retailers is being affected.

In addition, the e-marketplaces also get the support from billions of dollars which have found
their way into the same in the form of venture capital. This move of the Government has put
this foreign funding also at stake.

Marketplaces in question are in the form of websites that connect buyers to sellers offering
services such as warehousing, logistics and payments (B2B e-commerce). It is to be noted
that foreign investment is allowed in such firms but not in the firms engaged in retail.

An online marketplace is a type of e-commerce site where information about a product of

service is provided by multiple third parties whereas transactions are processed by the
marketplace operator. Online marketplaces are primary type of multichannel commerce.

The transactions are processed by the marketplace operator and, subsequent thereto, the
delivery is effected by the participating retailers or wholesalers. The ‘marketplace model’
precisely means that the e-commerce company does not own any inventory. They only
connect buyers and sellers to transact with each other.1

Since 2014, marketplaces are abundant as customers are more inclined towards organized
marketplaces. Difference lies, however, in the fact that some marketplaces provide a wide
array of products and cater to the public in general whilst others are consumer-specific and
deal with a specific segment of customers.

The Industry Department would, inter alia, define as to what would be considered retail
ecommerce (B2C) and wholesale trading (B2B) within the marketplace model. Although,

1
Guest Author, Ecommerce Marketplaces: Not all that rosy for sellers [An open letter] (2015)
[Link]

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Indian Government is trying to carve out a distinction between the B2C and B2B ecommerce,
there is no other country in the world which is doing the same.

WHAT IS E-COMMERCE

For the last over a decade, the way of communication has undergone a huge change due to
the advent of internet and, as such, gradual development thereof also transformed the manner
in which the business transactions are undertaken. This radical change in business
transactions over the internet is called electronic commerce or e-commerce.

According to the UK Department of Trade and Industry, e-commerce is the exchange of

information across electronic networks, at any stage in the supply chain, whether within an
organization, between businesses, between businesses and consumers, or between the public
and the private sectors, whether paid or unpaid.

Further, according to Organization for Economic Co-operation and Development (OECD),

ecommerce is the business occurring over networks using non-proprietory protocols
established through an open standard setting process.2

We also need to know the two defining aspects of e-commerce which are as follows:

a) Certain characteristics of e-commerce are likely to facilitate entry and reduce costs with
the benefits of greater competition being passed on to consumers.

b) First mover advantage, network externalities, switching costs and other barriers to entry
may confer market power to a small group of large players, thereby, reducing competition.

All across the world, an effort is being made to harmonize the e-commerce and competition
laws so that competition therein is not affected and maximum benefit is passed on to the
consumers. In other words, consumer benefits are being emphasized on without hindering the
new and innovative forms of competition.3

In traditional commerce, there are intermediating agents like wholesalers, distributors,

retailers between manufacturers and consumers. However, in B2C website, manufacturer can

2
5Directorate For Financial, Fiscal And Enterprise Affairs Committee On Competition Law And Policy, Policy
Roundtables, Competition Issues in Electronic Commerce (2000)
[Link]
3
[Link]

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sell products directly to consumers. This process of removal of business layers responsible
for intermediary functions is called disintermediation. But with the development of e-
commerce, a new breed of intermediary is emerging like e0mall or product selection agents.
This process of shifting of business layers responsible for intermediary functions from
traditional to electronic medium is called reinter mediation.

NATURE AND DEVELOPMENT OF E-COMMERCE

With the ever-increasing pace of technology, it is all the more important for the laws to adapt
to the changes, in its letter and sweep, in order to effectively tackle the complexities put forth
before it by the new circumstances.

Relationship between law and technical innovation has to be interactive, dynamic and
complex. As opposed to technology, which is fast paced in order to meet the need of the hour,
process of law making is slow. This leads to a gap between technology and relevant legal
coverage. At one hand, this situation leads to uncertainty qua the rights and liabilities of
parties concerned and the implications of violations and, at the other hand, it provides an
opportunity for lawmakers to thoroughly analyze the ground reality and practicalities and
enact a law that effectively circumscribes all possible facets of legal complexities of
technology.

The development of e-commerce has led to clashes between the traditional brick and mortar
stores and e-commerce companies with traditional stores leveling allegations of predatory
pricing against e-commerce companies and stating that e-commerce players are trying to grab
a larger share of the retail market.

One imminent outcome of e-commerce is the fierce price competition between sellers so as to
earn the patronage of the vast consumer base and this leads to more discounts and offers to
the customers. Although this may be favourable from a consumer point of view, it may not be
liked by physical retailers who are trying to protect margins by restricting price competition
online so that they can continue to compete on non-price elements like service and in-store
presentation. On the other hand, incumbents defend their territory by efficiency arguments
based limiting free riding, improving service etc. This has given rise to difficult questions of

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balancing efficiency, exclusivity and exclusion in other jurisdictions and are likely to seep
into Indian context as well.4

COMPETITION LAW AND E-COMMERCE

Although, e-commerce is a novel development in the field of commercial transactions and

has drastically transformed the way the business transactions are undertaken the world over,
it is not without its own set of legal concerns, the most pertinent being in the field of
competition law.

A news article in The Financial Express presented a picture of the state of affairs qua the
perceivable anti-competitive practices being resorted to by the online retailers. According to
the article, offline retailers have accused the online retailers like flip kart, Amazon and Snap
deal of indulging in predatory pricing in order to grab a larger share of the USD 525 billion
retail market. .

End consumer is indifferent whether the medium for shopping is online or offline. It is to be
noted that, in metros, the shopping is majorly undertaken on online channels but, lately, the
difference between the two is fading out, in that, the customer conducts an initial research in
the physical space and, then, scouts the online forums for better prices and offers on the same
product. This trend amongst the customers has not gone unnoticed and, as such, the firms are
marking their presence both in the traditional and online marketplace. This has, undoubtedly,
led to a fierce price competition. As stated supra, this may be favourable to customers but it
has also let to perceivable competition law concerns.

Difficult price comparison:

Internet has made it easier for the customers to conduct a research on the product they intend
to buy and has also lowered the search costs but not to zero as customers also have related
costs. Firms, strategically, adopt means to make the comparison of prices difficult for the
customers to prevent them from making a switch.

4
M.M. Sharma, India: Do Online Markets Effect Competition (Nov. 14, 2014),

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Information asymmetry:

Although, internet being a medium without boundaries, geographic markets tend to have been
expanded but customers still prefer to transact within limited distances owing to cultural and
security reasons. E-commerce has lowered the distribution costs as manufactures can directly
transact with the customers, thereby, elimination the need of the players in the middle of the
chain and also because online retailers can provide for a wider variety of products online.
However, this leads to an information asymmetry as the consumers are not able to test the
product before buying the same and, hence, it is all the more difficult for the retailer to build
a reputation. Hence, price competition is getting fiercer, geographic markets are widening
and consumers are able to buy the products which were hitherto not available in physical
markets.

Resale Price Maintenance (RPM):

One of the issues which are being faced globally is that of RPM which is, in fact, common to
both physical and online stores. This is taken seriously all across the world as this amount to
an infringement by ‘object’. By its very nature, it has a high potential for restricting
competition and the consumer may end up paying more than what was required.

Internet Minimum Advertised Pricing (IMAP), dual pricing, price ceilinged:

Apart from the above, there are some issues which are specific to e-commerce. IMAP is
acting to set a price floor online. IMAP and other vertical restraints that prohibit advertising
of any prices online or place an outright ban on online sales have also been a concern. IMAP
restrictions affect intra-brand competition, affect discounting of prices and end up being
higher prices for customers. As regards dual pricing, the same is under the scanner as setting
higher prices for the internet may be a way of restricting passive sales. Further, restraints
setting price ceilings can soften price or commission or competition on platforms and
resulting cost of sales may be passed on by a trader to consumers. Instances of Price parity
and price relativity agreements between parties have come up and been investigated in
various jurisdictions the world over.5

Another such practice which can cause competition law concerns is preventing selective
distributors from selling online. A real life experience of the same was observed in the case
of SanDisk/Snapdeal17 when the online sale of a physical market trader was scrapped in the
5
M.M. Sharma, India: Do Online Markets Effect Competition (Nov. 14, 2014),

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year 2014. The trader was engaged in selling of pen drives, laptops etc and had started selling
the same through Snapdeal but, subsequently, his online sales were scrapped by Snapdeal
because it was not in the list of ‘authorized online channel partners’ of SanDisk who was also
engaged in the similar business and, as such, was a competitor of the complainant. There was
seemingly an agreement between Snapdeal and Sandisk, whereby, the understanding was to
market latter’s products online for Indian consumers. The Information under Section 3 and 4
of the Competition Act was based on the grounds that, by this agreement of theirs, both the
parties had tried to prevent the Informant to offer competitive prices. CCI, however, closed
the matter while observing that, owing to the presence of other online e-commerce players,
Snapdeal cannot be termed as being dominant and, in absence of dominance, the conduct
cannot be abusive.

Further, the CCI observed that the conduct of SanDisk in restricting the market to its
authorized dealers alone cannot, prima facie, be termed as a violation of Section 3 of the Act.
The appeal against the aforesaid order bearing number 54/2014 was preferred by the
Informant, wherein, although COMPAT was, prima facie, satisfied that the Hon’ble CCI was
not justified in summarily disposing off the Information mainly on conjectures18, the Appeal
stood dismissed on 13-02-2015 owing to technicalities in the matter and no arguments on
merit could take place and, hence, the question is still open to be decided by the CCI.6

Many other practices which are amenable to competition law inquiries are access to
platforms, online targeted advertising, Most Favoured Nation clauses, price parity or price
agreements between sellers and electronic trade platforms under which a physical seller
undertakes not to charge on that platform a price higher than the price he charges on other
platforms like. For ex: Apple e-book case. Under Indian competition law, these practices
would attract the attention of CCI only if the party is considered dominant in the relevant
market.

DIFFERENCE IN COMPETITION CONCERNS POSED BY E-COMMERCE AND

TRADITIONAL MARKETPLACES
6
[Link]

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One peculiar aspect of e-commerce is strong network effects, which means that the value of
product or service increases with each added user and, as such, the variable cost for large
players like Facebook and Google is almost nil. Like economies of scale, network effects also
make it difficult for a new firm to enter the market where minimum viable scale of network is
large compared to the size of market. However, it is believed that online markets with
network effects marked by these inherent entry barriers are due to the first mover advantage
which allowed the incumbent firms to establish a strong consumer base for their products and
services and they cannot be blamed for that.

But network effects could also be a result of interconnection arrangements. For that to be a
viable alternative, however, there would have to be a great degree of standardization in the
software employed by the e-marketplace. Larger networks might prove reluctant to provide
interconnection to smaller networks even though both might stand to gain roughly the same
amount in the short run through these arrangements.

However, other than the aforesaid, there are other non-price predatory behaviours like
excluding rival firms from network software, as in the case of SanDisk/Snapdeal case supra,
are concerning the competition authorities.

Some common issues that are found in both the channels are as follows:

Exclusivity Arrangements:

The issue of exclusive distribution agreements between the retailers and the online retail
portals was brought before the CCI in the case of MohitManglani wherein the Information
was filed, inter alia, against Flipkart, Snapdeal and Amazon while alleging that the opposite
parties had entered into exclusive distribution agreements with their retailers, whereby,
certain products were available only on these portals and nowhere else. Although, the CCI
did not find any anti-competitive conduct and closed the case, it, nevertheless, exposed the
possible concerns which might come to fore in future where interference might be warranted.

Predatory Pricing:

The primary attraction of customers toward online portals is on account of the huge discounts
offered by them. Although, such discounts are welcomed by the customers, they are equally
frowned upon by the traditional players who have constantly alleged that the same is a tactic
to scuttle the competition in the market. They have also approached the CCI but CCI

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observed that online portals cannot be said to be dominant in the relevant product market and,
as such, their conduct cannot be said to affect the competition therein.

In order to prove predatory pricing, it would first have to be established that the intention of
the online players was to foreclose the market and create an entry barrier which, owing to the
fact that online channels constitute only 0.5% of the total retail market in India, cannot be the
case as the online players cannot be said to be dominant and, further, the retail market is so
broad that there cannot possibly a comprehensible AAEC in the market.

Market Operating Price:

There is being witnessed a new trend of ‘Caution Notices’ which are being published by
manufacturers, inter alia, on their websites, whereby, it is intimated to the public at large that
the online retail portals are not a part of their authorized distribution channel and, as such, the
credibility of the products thereon is doubtful. A similar caution notice was published by Kaff
Appliances wherein they stated that products purchased from Snapdeal are not genuine and,
as such, the warranties would not be honoured. It was brought out that the reason for the
same was because Snapdeal was selling the product at a price which was below the market
operating price.

Aggrieved by the same, Snapdeal approached the CCI while alleging that the manufacturer
was preventing its authorized distributor from selling the products through online channel and
was also imposing anti-competitive conditions by preventing them from selling the goods on
a discount without a prior permission from it. CCI, prima facie, observed that the
manufacturer cannot dictate the prices as the same would hinder the process of competition.
Accordingly, CCI ordered an inquiry into the matter under Section 26(1).

BUSINESS MODELS OF E-COMMERCE PLATFORMS

In the goods category, there exist two types of business models, namely, the marketplace
model, whereby platform operators facilitate transactions between buyers and sellers and can
fulfil the orders by handling logistics, deliveries and returns and the inventory model, that
allows online retailers to own inventory and directly sell to consumers through their own
platform. While e-commerce companies which have foreign direct investment (FDI) are

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allowed to adopt a marketplace model, they are not allowed to hold inventory and sell
directly to consumers.

Some e-commerce platforms in the goods category, besides providing

marketplace/intermediation services to connect sellers and consumers, also provide related
services such as warehousing facilities, transactional support services, promotion and
advertising, centralized payment processing, shipment and delivery of goods, refund and
replacement, etc. Some have a presence in B2B (business-to business) wholesale, wherein the
B2B entities reportedly procure goods from brands/ manufacturers and sell them to sellers,
who may in turn sell the goods on the marketplace platform to consumers. The nature of fee
charged varies across platforms. Some charge fixed upfront fee and commission per
transaction, the rate of commission varying across product categories. Marketplaces who
offer delivery service may also include shipping charges. The other sources of revenue are
advertisements and customer subscription programs.

The e-commerce platforms in food services in India have evolved from providing restaurant
discovery services to becoming aggregators whereby they partner with restaurants for taking
orders online and delivering food to the customers. Online table reservation sites have also
become prominent. The aggregators charge commission for their delivery service, which is
usually a fixed/variable percentage of each order value and some charge a separate fee for
listing. Platforms also provide multiple ancillary services to the restaurants, such as
advertising, packaging, pricing analytics, menu and food photography etc. One respondent
platform has entered into the supply of raw materials to restaurants.

CONCEPT OF ABUSE OF DOMINANCE

Section 4 of the Indian Competition Act talks about abuse of dominance or dominant position
by an enterprise or a group of enterprises. The act prohibits the utilisation of market
controlling positions by individual enterprises or a group as a preventive measure from out
casting competing businesses from the market and dictating prices.

Section 4 (1) of the Competition Act prohibits any enterprise or group from abusing its
dominant position.1 Such a provision of the act lays down two major requirements firstly, the
enterprise must enjoy a dominant position and secondly, the enterprise must abuse its
dominant position. However, dominance in itself cannot constitute an abuse and hence is not

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prohibited. It is only the abuse of dominant position that has been prohibited by the act. As
per Section 2 (a) (i) and (ii) of the Competition Act abuse of dominant position takes place
when the enterprise or the group directly, or indirectly, impose unfair and discriminatory

 conditions in purchase or sale of goods or service; or

 Price in purchase or sale including predatory price of goods or service.

However, it is noteworthy to state that the dominant position must be acquired by legitimate
means such as product innovation, superior production quality or distribution techniques or
by virtue of greater entrepreneurial efforts. The material consideration in determining the
existence of dominance is not that there shall be an increase in price or the exclusion of
competition but the power of hiking price or excluding competition when the enterprise has
the desire to do so.

Hence, determination of dominant position is based on two main factors-market share and
entry conditions. The Competition Commission of India has also identified certain conditions
while determining the dominant status of agreements as per Sections 19 of the Competition
Act. In the case of Eastman Kodak Co. v. Image technical Service Inc.7 it was observed that
dominant means market power, which is the power to force a purchaser to do something that
he would not do in a competitive market. But in majority of the cases the market power is
sought on the basis of the functional characteristics of the products and on the behavioural
pattern of the consumer.

Sometimes, the market shares of specialised streams of Internet-based businesses are

unavailable and the self-detailed data discharged by the market won’t be reliable and solid, in
such a case market shares may be required to be determined on the basis of the specially
commissioned market reports, but such a report must follow a steady technique of
information gathering, examination and investigation.

In the case of Direct-to-home (DTH) Services Case 8 it was argued by the informant that each
of the DTH operators was acting as individual dominant firms in the relevant market and
hence, had abused their position of dominance. Such a contention was however, rejected by
the Commission on the basis that each and every player in any important market can’t be said
to have predominance predictable philosophy of information accumulation, investigation and
examination. Thus, the DTH operator were said to have dominant position as per the
7
504 US 451.
8
Consumer Online Foundation v. Tata Sky Limited, Case No. 02 of 2009.

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provisions of the act. It was also observed by the Commission that the concept of dominance
does not revolve around the reality of impressive market control which can be practiced just
by a solitary endeavour or a little arrangement of market players.

Hence, in order to establish as to whether an enterprise acquires dominant position or not and
in case if it is in a dominant position whether or not it is abusing its dominant position. Thus,
the following factors must be established –

 Define the relevant market, since dominance cannot exist in an abstract but in relation
to a market where the establishments compete.
 Assessing the market strength with a view to discover if the undertaking possesses a
certain level of market power.
 Considering the question as to whether the conduct of the undertaking leads to an
abuse of dominant position.

PREDATORY PRICING

Predatory pricing is a pricing concept that is considered a predatory move by an organization.

As per this strategy, the prices are kept at such a lower range that it becomes difficult for
anyone else to match it. This drives away potential as well as existing rival contenders. It
results in a sort o monopoly situation as there are very few or negligible competitors left in
the field.

Predatory pricing is generally conducted to achieve new and maintaining the old customers in
its fold. In some places, it is considered an anti-competitive action and hence is illegal.
Although everyone is aware of the predatory pricing, it becomes very difficult to prove that the act
was deliberate attempt and thus finds a lot of leeway in the court of law.

Predatory pricing can be of two types implicit which are possible via rebates and discounts or
explicit.

A real-life example is Amazon, that can sell its books at very lowered rates. In the year 2013,
it became evident that [Link] was willing and even able to sell its printed and
electronic books at a rate that was considered very low by the competitors sitting in physical
stores. It was seen that the giant company could suppose buy a book at 15 dollars and sell it at
10 dollars which other companies were unable to do.

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This was considered predatory pricing on its part as it was successfully driving up its sales
figures in the market and slowly and steadily removing the competitors one by one.

Effects of Predatory Pricing:

Predatory pricing is a deliberate effort of an organization to use its advantages to sabotage the
market and damage the position of its competitors. The predatory companies are easily able
to eliminate most of the competition from the market and stop the new entrants from gaining
entry.

Short Term Effects:

In the short-term, it is the consumer who is the winner. The rival companies keep on reducing
the prices of its products, and the consumer can purchase the products or services from
whichever company he thinks is cheaper.

As the buyer has no loyalty towards a particular brand, it easily purchases from the cheapest
one. This is a terrible move for the other participants in this war who are unable to maintain
such a dramatic lowering of prices.

They go down one by one as casualties of war because it becomes impossible for them to
maintain their prices. The profitability drags down sometimes in a minus figure as the
undercut prices divert the traffic to the cheapest outlet.

The few companies that can survive have to bear heavy losses all because of the predatory
pricing strategy of one organization.

Long Term Effects:

Although the customers are the winners of round one in the predatory pricing war in the long-
term, they are the ones who will have to handle the after-effects of the war.

After most or sometimes all other rivals are driven out the company that adopted a predatory
pricing strategy raises the prices of the products to recoup its loss. Although the customer is
unwilling to pay the high prices, he has no choice as any alternative product does not exist in
the market. In the long-term, the customers have to bear the high-cost prices, and the
company reaps the benefits of its effort.

Advantages and Disadvantages:

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The various advantages of adopting predatory pricing are as follows-

1. Dominant position – The predatory pricing helps the company to gain a dominant
position in the market

2. Minimizes competition – The rival companies who are unable to bear the loss because
of continuously lowered prices start bowing out of the market one-by-one. It
ultimately helps to minimize the competition to a greater degree

3. No place for new entrants – The predatory pricing is a dead-end for the new entrants
as it will not be able to sustain its business in such hard conditions. This strategy acts
as a barrier that deters them from entering new markets

The disadvantages of using predatory pricing are as follows-

1. Illegal practice – It is considered an illegal practice in several countries and is

frowned upon

2. Not feasible in the long run – The predatory pricing seems like a viable concept in the
short term but will become impossible to maintain over a longer period.

CONCLUSION

The intervention of competition law in the e-commerce sector meets multiple purposes. It
seeks to promote the equality between the e-commerce enterprises and the traditional bricks
and mortar companies and dealers. However, it is suggestive that the CCI should take into
account the unique features of the e-commerce sector such as rapid technological
advancement, increasing returns, network effects, data collected from the users while
analysing the position of dominance and abuse.

The CCI should also employ the essential facilities doctrine for mandating compatibility
between a dominant player and the other market operators. It can also be said that time has
come for reviewing and amending the Competition regime to keep pace with the rapidly
changing new economy.

Thus, it can be said that despite of the universality of problems of competition policy the
Indian competition law can be said to have created enough space so as to allow the novel and

17
creative organizations to enter the market and offer more options to the customers and
organizations. Simultaneously, the interest of the traditional bricks and mortar companies is
also being safeguarded by the competition regime as it seeks to provide protection from the
harmful effects caused by the e-commerce firms. A check-and balance mechanism has also
been brought into play in the e-commerce sector which prevents them from practising unfair
pricing.

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