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Amazon and Flipkart oppose ex-ante competition regulations in India

Amazon and Flipkart are opposing untested ex-ante regulations modeled according to the EU Digital Markets Act in India, saying the current system is already well-equipped.

E-commerce platforms Amazon and Flipkart opposed ex-ante regulations modeled after the EU’s Digital Markets Act (DMA), for India, according to the Report of the Committee on Digital Competition Law (CDCL). Amazon, in particular, cited that it was already “heavily regulated” in India by the Foreign Direct Investment (FDI policy) and ex-ante regulations might lead to “over-regulation.” It suggested that India look at alternative regulatory models like those in  Japan, Singapore, the UK and Australia. Flipkart opined that existing competition regulations are sufficient for digital markets.  

These suggestions were made to the CDCL, whose report on ex-ante regulations, along with a draft Digital Competition Bill,2024, was released by the government on March 12.

Ex-ante regulations aim to prevent anti-competitive conduct from occurring, as opposed to the current ex-post framework under the Competition Act, 2002, wherein the Competition Commission of India (CCI) intervenes after the occurrence of anti-competitive conduct.

The Digital Competition Bill, prohibits large digital platforms, identified as Systemically Significant Digital Enterprises (SSDE), from engaging in self-preferencing, restricting third-party apps, imposing anti-steering policies, misusing business users’ data, and bundling products and services.  

What did Amazon say in its submission:

  • Already regulated by the FDI Policy: Amazon submitted that they were already mandated by the FDI policy to act only as an online marketplace and not as a seller and provide fair terms to all sellers.
  • Risk of over-regulation: Calling ex-ante regulations for e-commerce “untimely and excessive”, the submission also warns that they can cause regulatory overlap and increase compliance costs.
  • Consider alternative regulatory models: The submission alleged that the proposed ex-ante regulations modelled on similar regulations in the EU, are largely untested. Instead, they suggested the competition laws of other countries. The alternative frameworks they suggested were from Japan (focuses on transparency/reporting), Singapore (self-regulatory model), the UK (sector-specific model) and Australia (service-specific model).

What did Flipkart say in its submission:

  • Existing regime well-equipped:  Flipkart submitted that the current ex-ante regulations in India are adequate for curbing competition in the Indian e-commerce sector.
  • DMA has a one-size-fits-all approach: Flipkart submitted that the DMA uses a “one-size-fits-all” approach that does not deem well for India, and questions its effectiveness as it remains largely untested.
  • Appoint subject matter experts to CCI and provide guidance: Flipkart suggested appointing subject matter experts at the CCI and having a facility that would provide companies guidance for the current self-assessment process and other informal guidance/clarifications.
  • Harmonize with other legislations: Flipkart also called for the current competition regime to work in harmony with other legislations for digital markets such as data protection, privacy, interoperability, etc.

Investigations on anti-competitive practices in the Indian e-commerce sector

The Competition Commission of India (CCI) in January 2020 launched an investigation into Amazon and Flipkart based on a complaint filed by the Delhi Vyapar Mahasangh (DVM), a group of MSME (Micro, Small and Medium Enterprises) smartphone traders. 

The CCI probe, which is still ongoing, focuses on the following aspects: 

  • Exclusive launch of mobile phones
  • Promoting preferred sellers on their websites
  • Deep discounting practices
  • Prioritising some seller listings over others

Along with DVM, other industry bodies including the Confederation of All India Traders (CAIT), the Swadeshi Jagaran Manch (SJM), and the All India Online Vendors Association (AIOVA), have all repeatedly voiced their concerns. All India Online Vendors Association (AIOVA) filed its own complaint with the CCI as well, but the same was rejected for lacking sufficient material

Trade bodies have also complained that both companies circumvent the FDI policy, which prohibits marketplace platforms with foreign investment like Amazon and Walmart-owned Flipkart from selling directly on their platforms. They are only allowed to act as intermediaries for third-party sellers. However, the industry bodies alleged that both companies set up complex corporate structures to continue selling on their platform.

Two Amazon sellers, Cloudtail and Appario, have been at the centre of the complaints surrounding Amazon because of their close ties with the e-commerce giant, including Amazon’s minority stake in these companies. Industry bodies alleged that Cloudtail and Appario made the bulk of the sales on the platform and received preferential treatment from Amazon in terms of search ranking and fees. A Reuters investigation revealed in February 2021, that Cloudtail and Appario account for nearly 35 percent of the sales on Amazon. With Flipkart, similar allegations were levied against a seller called WS Retail, who contributed to 30-40 percent of the sales on the platform. Flipkart ended ties with WS Retail in 2018 and Amazon ended its partnerships with Cloudtail in 2022 and Appario in 2023, but concerns still linger that other preferred or “favoured” sellers are taking their place. 

The Indian government sought to address the various issues surrounding Amazon and Flipkart through amendments to the existing Consumer Protection (E-Commerce) Rules, 2020. The proposed changes included new rules to address abuse of FDI regulations, the establishment of a grievance redressal mechanism, new display and labelling criteria for foreign goods, the prohibition of flash sales, and the introduction of fallback liability, among other things. However, these proposals, made in June 2021, never saw the light of day, although Consumer Affairs Minister Piyush Goyal in May 2023 indicated that the government is still working on these proposals.

The Digital Competition Bill will address some of the concerns that sellers have as it would mandate that Amazon not provide preference for its own products or use the data of third-party sellers to its advantage.

Accusations of anti-competitive practices in the US

Amazon has also been under scrutiny by the Federal Trade Commission in the US for similar anti-competitive practices, including facing a major lawsuit in September 2023 for allegedly maintaining a monopoly in the online shopping market. The lawsuit details Amazon’s anti-competitive practices accusing it of:

  1. Anti-discounting measures that prevent third-party sellers from offering lower prices than Amazon
  2. Forcing sellers to use Amazon’s fulfilment services by making it compulsory to be eligible for Prime. Making it extremely challenging for sellers to switch to competing services
  3. Prioritising paid advertisements over organic search results for users
  4. Self-preferencing rather than displaying cheaper or better-competing products
  5. Charging multiple costly fees to avail their services

Amazon refuted these claims in a blog post.

The FTC also filed a complaint against Amazon in June 2023, accusing them of using “Dark patterns” to manipulate their users into actions that benefited Amazon. Some of the accusations levied in the complaint are:

  1. Recurring subscriptions without user consent
  2. Complicating the cancellation process for Prime subscribers
  3. Forcing consumers to choose to enrol in Prime
  4. “Presenting asymmetric choices” by making it seem that enrolling in Prime is easier than not, and cancelling Prime is tougher than it is.
  5. Hiding or disguising relevant information, or delaying its disclosure, such as Prime’s terms and conditions and price
  6. Making purchasing items on Amazon without subscribing to Prime more difficult for consumers
  7. Directing users to sign up for Prime bundle when a cheaper Prime Video subscription is available
  8. Having an overly long and complicated cancellation process

The EU’s investigation into Amazon’s anti-competitive practices

In 2020, the European Commission opened an investigation into Amazon for anti-competitive practices. Amazon was accused of creating conditions that favoured its own products by leveraging the non-public data of the sellers in its marketplace that they competed with. In 2022, Amazon reached a settlement with the European Commission by making commitments, not to use data from its sellers to benefit itself.

Amazon has made changes in its data collection policy in the EU since the Digital Markets Act came into effect. Users must now consent to their personal data being used and Amazon must provide reports on the fees paid by the advertisers for displaying ads on third-party websites and apps. Additionally, Amazon shared that it would now treat third-party sellers and Amazon retail equally. This decision they said was made as per the EC recommendations, they said.  

 

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