Competition in digital markets: Making sense of the AICPDF complaint at the CCI
The intervention devised by the CCI in this matter is likely to reflect its policy on digital markets; In case the CCI opts for a dismissal or abeyance, the perception around reluctance to move against domestic firms would grow, while any swift action has to weigh in for the legal standards applicable.
The All India Consumer Products Distributors Federation (AICPDF) has filed a complaint at the Competition Commission of India (CCI) alleging monopolistic practices by quick commerce platforms such as Swiggy Instamart, Blinkit and Zepto. The Federation, among many other allegations, has said that the business model of such platforms is not only reflective of predatory pricing and deep discounting to the detriment of small retailers, but may further be in violation of FDI regulations given the presence of centrally-based ‘dark stores’.
The AICPDF has filed this complaint in the backdrop of earlier communication it made to the Ministry of Commerce and Industry, Government of India. Some of the other concerns which have been highlighted include direct appointment of quick commerce platforms as distributors of FMCG companies, expansion of quick commerce through franchise model without due diligence, usage of private vehicles for commercial deliveries, lax labour norms and the need to take protective action for small retailers.
What led to the dispute?
Quick commerce companies have been observing exponential growth in recent times. For instance, the annual revenue for Zepto increased from INR 141 crore to 2,024 crore on an Y-o-Y basis with its increasing valuation from $1.4bn to $5bn. The company, though, is yet to turn positive where its loss burgeoned from INR 390 crore to 1,272 crore during the same time. Similarly, the revenues for Blinkit increased from INR 806 crore to 2301 crore on a Y-o-Y basis without such a splurge in the profits. All this has led to concerns around predatory pricing as an operating model.
What are the competition concerns?
As far as competition aspects are concerned, the concerns remain around allegations related to predatory pricing and deep discounting. As mentioned earlier, there is lack of Indian jurisprudence on predatory pricing thereby making the possibility of any successful action taken by the competition authority against quick commerce platforms meagre. In such a case, the Commission may apply ‘deep discounting’ as the legal standard to trigger its mandate to intervene in the matter.
Possible outcome of the complaint
It is not yet clear whether AICPDF has availed formal procedure to file an information before the CCI. In such a case, the CCI may simply ignore the letter complaint or register a suo moto case against quick commerce companies as per its discretion.
The intervention devised by the CCI in this matter is likely to reflect its policy on digital markets. While the Commission has opened investigations against foreign Big Tech companies such as Google, Amazon and Meta on multiple occasions, the action against Indian technology firms has been taken with some reluctance. For instance, the CCI dismissed multiple complaints against platforms such as Zomato, Swiggy and OYO before opening an investigation against them. In case the CCI opts for a dismissal or a delayed response, the perception around reluctance to move against domestic firms would grow, while any swift action has to weigh in for the legal standards applicable.
The due scrutiny under the appellate process would also be a factor. In case an action is initiated under section 4 of the Act, i.e. abuse of dominant position, the first roadblock would be to prove dominance of the respondent companies in the quick commerce industry. Given that there are multiple players and the concept of ‘collective dominance’ isn’t applicable in India, any action under this provision would lack prudence. In such a case, moving under section 3(4) of the Act, i.e. non-horizontal restraints, is likely to yield better pay-off.
This complaint is also apposite for the CCI to test the possibility of collusion through AI. Given that the quick commerce platforms are horizontally placed and technology firms have fully embraced the usage of AI, this would allow the CCI to efficiently allocate its resources and synthesise consistent jurisprudence on this key area of law. This may all the more be relevant for its market study on ‘competition concerns in AI’ to further advocacy.