CCI shakes the Digital Landscape: Consequences of new interpretation from Online Players Standpoint
The authors are Utkarsh Sharma and Shashank Shekhar, second year students at Hidayatullah National Law University.
The Competition Commission of India (the “CCI”) has recently altered its approach to delineating relevant markets by distinguishing between offline and online markets. This article aims to prognosticate the implications from the standpoint of the digital market players in India due to such tweaking of the approach by CCI in delineating relevant markets.
The first part of the article showcases the evolution of the approach of CCI in delineating the relevant market by relying on various judgments of CCI in recent years. The latter part of the article will discuss the two different standpoints i.e., consequences that will be faced by digital market players in light of the change in CCI’s approach in delineating the relevant market and the standpoint of the proponents of this New approach of CCI. In conclusion, we will analyze whether such a change in approach by CCI will be detrimental to online platforms or whether this is the appropriate step in order to prohibit anti-competitive conduct in the online market space or is there a need for a different approach altogether.
The Evolution of CCI’s Approach in the Delineation of Relevant Markets
The "relevant market" is a term used by the CCI to define the area of effective competition within a particular industry. It is used to determine the scope of competition within an industry and to identify whether a business has a dominant position in the market. The CCI defines the relevant market as the "area of effective competition" and states that the market should be defined based on the "nature of the product or service and the characteristics of the consumers." This means that the relevant market is not limited to the geographic area where a product or service is sold but also takes into account the digital space.
In the past, the Competition Commission of India did not view online and offline markets as separate modes of distribution but as part of the same relevant market. However, in recent times, the CCI seems to have changed its approach and now considers online and offline distribution as separate relevant markets. The reason for the CCI's new interpretation could be to closely monitor any potential anti-competitive behaviour by digital companies in India's e-commerce industry, which has seen significant expansion in recent years.
One of the first cases where the CCI specifically addressed whether two distribution methods, i.e., online and offline markets, could be regarded as two independent relevant markets or as components of the same relevant market was Ashish Ahuja v. Snapdeal. At the time, the 2014 CCI dismissal order gave much-needed direction. As a result, the CCI asserted that the online and offline markets are not two distinct relevant markets but rather separate methods of distribution for the same product.
But this practice of wide interpretation of the relevant market was tweaked by CCI in the case of All India Online Vendors Association v. Flipkart. In this case, CCI used a narrow interpretation of the term "relevant market" and acknowledged the distinct nature of offline and online markets, but it was also observed that the e-commerce business, which CCI described as a relatively new phenomenon, has prompted offline shops to collaborate with e-commerce firms in order to attract customers, recognizing the complementary nature of both of these marketplaces.
Finally, in the case of Delhi Vyapar Mahasangh v. Flipkart, CCI observed that the online market is a separate relevant market, and this practice of delineating the online market was followed by CCI in the cases of Vijay Gopal versus Big Tree Entertainment (Book My Show) and Others, where CCI delineated the relevant market as "the market for online intermediation services for the booking of movie tickets."
The Consequences of CCI's Revamped Approach for Digital Market Players
This new approach to CCI pertaining to the delineation of relevant markets will have several consequences for digital players, the most prominent of which is the creation of artificial dominance in the market. This means that when online markets are treated as separate markets, they result in a smaller market when compared to the situation where both offline and online markets are considered one and the same. Therefore, in this situation, the players who were earlier not considered to be in a "dominant position" under Section 19(4) of the Competition Act (the “Act”) might come under the ambit of "dominant position" and will be subject to Section 4 of the Act, which will further put restrictions on these players. This can be termed as "artificial dominance" because the player might not have actual dominance, but the fact that all the offline players are considered to be part of a different relevant market itself might result in the creation of this artificial dominance.
Another issue that online players may face is that they will have no recourse if any player in the offline market abuses its dominant position because the offline market is considered a separate relevant market, Therefore, if there exists a situation where any offline market player has indulged in anti-competitive practices which in fact has detrimental effects on online market player due to the overlapping nature of online and offline markets and the online market player approaches CCI for the same, there will be no remedy because one of the first leg of the investigation done by Director General is delineating relevant market and when the market itself will be different for online and offline players, the abuse of dominance will not be proved. Even though online platforms are experiencing phenomenal growth in Indian markets, the offline market still holds the ground as it still has more market share in the majority of areas. Online platforms are intrinsically related to technology, and if we take the IT sector as an example, traditional retailers have 75% of the market share in comparison to 7% of the market share occupied by e-commerce (2021). This is one example showing the relevance of the offline market and how players in the offline market can abuse their dominant position without the online platforms having any remedy in such a situation.
There also exists a different viewpoint on this issue of new approach of CCI ,it is contended that this approach of CCI fits well with the objective of keeping a check on anti-competitive behaviour by dominant market players in online market. The ecommerce market in India is on trajectory to become a 350 Billion US dollar market by 2030 and with such opportunities it becomes essential to treat online market as a distinct relevant market altogether to keep a check on anti-competitive practice in the market.
This new approach of CCI in the delineation of relevant markets is a debatable topic, as some experts claim that this was a much-needed approach to keep the online platforms in check. It is also in line with India’s FDI policy, which treats offline markets distinctly from e-commerce. The proponents of this new approach of CCI are advocating that this measure will only hurt the online platforms that are abusing their dominant position and will safeguard the small players that are emerging in the online market and, therefore, will complement the growth of e-commerce in India. On the other hand, the view is that this move by CCI will restrict business practices by creating an artificial dominance of players in the offline market and will also result in a lack of remedy for online players in the case of abuse of dominant positions by offline players since the relevant market is distinct.
Both of the arguments seem to be reasonable at first glance, and since this is a developing issue, neither side of the argument can be completely discarded in FHRAI & Anr .v. MMT & Ors observed that One size fit all approach may lead to absurd outcomes in online markets. Further, the timing is also a crucial factor. The assessment in rapidly changing digital markets cannot have a static approach. CCI should adapt the same approach and should not create any straightjacket formula on this issue of delineation of relevant markets to ensure that there is a balance between a free market where players have enough liberty to grow their businesses and anti-competitive practices by both online and offline players that should be prohibited.