By Nivedita Krishna
Swiggy and Zomato form a duopoly in food delivery platforms, as together they control atleast 90% of the food delivery market. In 2021, the National Restaurants Association of India (NRAI) approached the Competition Commission of India (CCI) alleging anti-competitive practices by Swiggy and Zomato. Without delving deep into the facts of the case filed,, the CCI found certain practices of the food services aggregators (FSAs) to be anti-competitive, and ordered a Director General (DG) investigation into the case. The case is still pending as the position of the Commissioner of the CCI has remained vacant since November 2022. Anti-competition allegations against other digital platforms such as Google, Facebook, Uber, Ola, Amazon and Flipkart have been frequent over the last decade. However, the success rate of such cases has been low.
Pacta’s research team identified a total of 32 cases pertaining to digital platforms before the CCI from January 2011 until January 2023. 30 of those cases pertained to either Section 4 exclusively or to both Section 3 and Section 4 of the Competition Act, i.e alleged abuse of dominance. In 14 (out of the 30) cases, dominance was established. In the remaining 16 cases, dominance could not be established. But the true test of Section 4 is to prove that dominance was abused. Abuse of dominance was found in only 8 cases, revealing a ~27% chance of success to prove abuse of dominance by digital platforms.
We hypothesised that the low rates of success of abuse of dominance cases against digital platforms can be attributed to two factors: firstly, the non-recognition of collective dominance, and secondly, the non-recognition of data as a significant factor in assessing the dominance of a firm under Indian law. Our study focussed on data-related anti-competitive practices pursued by FSAs, using FSAs as a proxy for any e-commerce platform, and intended to make recommendations to effectively counter these practices.
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Data to Cannibalise: Since they function as intermediaries, Swiggy and Zomato collect large scale consumer data and use such data to inform their own business strategy. For instance, Swiggy and Zomato used the data at their disposal to set up their self-branded cloud-kitchens that directly competed with restaurant partners on their platforms. In a Pacta exclusive interview, a member of the NRAI raised this concern:
“…So these aggregators, try to run their own kitchens, which are on the strength of data they collected of our restaurants, and they knew where there is more sale (kaha Biryani bikti hai, kaha pasta bikta hai) and they put up kitchens of their own”.
They also use the customer data to build opaque, “proprietary” algorithms that self-preference their cloud kitchens and leave restaurant partners baffled as to why they feature so far below in search results. In recent times, the focus has shifted away from cloud kitchens, as Swiggy and Zomato have found it to be an unprofitable model. Though the damage perpetrated against restaurants by the food service aggregators by the cloud kitchen presence and preferencing cannot be disputed, now there is no way to prove that damage was done.
“…When you place a request to order food on the Swiggy/Zomato platform, your information is provided to us and the restaurants/merchants with whom you choose to order….We provide your information to that restaurant in a similar manner as if you had made a reservation or food order directly with the restaurant….”
This point was also raised by restaurants in the town hall meetings organised by the NRAI. In the town hall meeting dated October 7, 2022, founder of Indigo Hospitality Anurag Katriar stated,
“..We have yielded our complete pipeline in the hands of aggregators- right from discovery to delivery is totally controlled by them and slowly the business which was ours have become theirs.”
Expansion Into Horizontal Markets: The food-delivery platforms have recently abandoned their cloud-kitchen strategy to focus on the grocery delivery segment instead. Section 4(2)(e) of the Competition Act regards the use of dominance in one market to enter another market as an abuse of dominance. Swiggy and Zomato have expanded into the grocery delivery market without being in conflict with the letter of the law, because neither entity, taken singularly, is dominant.
Bundling: Swiggy launched Instamart in 2020. Instamart provides convenience-based delivery of groceries and other products. In 2022, Zomato acquired Blinkit, a quick commerce platform, calling it a “natural extension to [its] core food delivery business”. This expansion into horizontal markets is easier when all services are bundled in one platform, like Instamart is bundled with the Swiggy app. Blinkit, however, still remains a stand-alone app. On such other horizontal markets too, the platforms self-preference and guard the data.
In April 2022, Swiggy and Zomato jointly made strategic investments in a company called Urban Piper, further securing their control over data. Urban Piper is a software service offering point of sale software integration for restaurants, and claims to process about 20% of online food orders. This investment raises concerns on use of data as data from restaurants, whether or not they are listed on Swiggy/Zomato, can now be accessed by the duopoly.
Big data is thus collected by Big Tech and is heavily guarded in walled gardens. When Big Tech abuses their access to such large scale data, there is a chilling effect on competition, which falls through the cracks of the Indian competition law. Pacta’s research makes the case for why India needs a trifecta approach that includes legal and policy measures, private market responses and public/government innovations to curb the pursuit of data related anti-competitive practices holistically. Some steps are already underway.
The recent Open Network for Digital Commerce (ONDC) protocol requires sellers to transparently disclose their algorithmic preferencing criteria and conduct audits to make platforms remain accountable to these disclosures. ONDC protocol also disallows platforms to prefer their closed group of vendors while broadcasting a query for a product or service. Secondly, the 53rd Report of Standing Committee on Finance released in December 2022 recognised data-related anti-competitive practices by Big Tech, and recommended the enactment of a separate Digital Competition Act on the lines of the Digital Markets Act of the European Union. Thirdly, apps such as Thrive, DotPe and Peppo, allow restaurants to be discoverable on their platforms, without charging exorbitant commissions, and provide restaurant partners access to customer data. But these alone will not suffice.
Firstly, legal amendments to recognize collective dominance and its ensuing anti-competitive practices is desirable, though this alone will not suffice to check data-centric anti-competitive practices. Secondly, a robust data privacy law that effectively prevents walled gardens and democratizes data is urgently needed. The draft data protection law issued in December 2022 is not reassuring, since it provides sweeping powers to Big Tech to collect data for any legitimate purpose under the concept of “deemed consent”. Thirdly, though platform co-operative models such as NammaYatri (transport app developed by JusPay on behalf of Auto drivers’ Union in Bengaluru) and Rezoy (food delivery service app by restaurant owners in Kerala) have seen promising uptake in the recent past, better institutional support through funding grants and legal concessions are necessary to help platform-cooperatives thrive. Fourthly, mandating ecommerce websites to maintain records on prior algorithms will help make and prove the case for certain business and data practices having anti-competitive effects. Fifthly, the definition of a “related party transaction” must be expanded to include the vantage that data provides. So, data flow or sharing of data among companies which hold major or minor interest in each other, must get reported as a related party transaction. Finally, it is also critical to augment the technological capacity of the CCI to equip its members to navigate the quickly changing e-commerce landscape.
Nivedita Krishna is the Founder-Director of Pacta, a Bengaluru based boutique law firm and policy think tank
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