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It is alleged that Amazon and Flipkart are able to cross-subsidise because of the huge amount of funding received from their investors (Photo: iStock)
It is alleged that Amazon and Flipkart are able to cross-subsidise because of the huge amount of funding received from their investors (Photo: iStock)

Why the CCI is getting worried about e-tail wags

The CCI on Monday ordered a probe against Amazon, Walmart-owned Flipkart for alleged ‘deep discounting’, ‘preferential listing’ and other unfair trade practices. The probe, to be completed in 60 days, may still leave online retailers unscathed

The Competition Commission of India (CCI) on Monday ordered its Director General to probe Amazon and Walmart-owned Flipkart for alleged ‘deep discounting’, ‘preferential listing’ and other unfair trade practices. The probe, to be completed in 60 days, may still leave online retailers unscathed. The matter, once a toss between pricing and convenience, now has issues of jobs and international relations at its heart. Mint explores.

What are the online retailers accused of?

Amazon and Flipkart are accused of offering deep discounts on products to buyers through only a select few ‘preferred sellers’. Not all sellers on the platforms are handed this, denying them the opportunity of higher sales. The online retailers are also accused of tweaking their search algorithms, which results in their ‘preferred sellers’ appearing on top of the websites and thus having a brighter chance of being chosen by the buyer. It’s alleged that non-preferred sellers are relegated to sell only through brick and mortar set-up, preventing them from a wider pan-India reach which online marketplaces offer.

Graphic: Paras Jain/Mint
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Graphic: Paras Jain/Mint


How are online retailers able to dominate?

It is alleged that Amazon and Flipkart are able to cross-subsidise because of the huge amount of funding received from their investors. This allows them to price products below cost, through their sellers, resulting in creation of high entry barriers for a new entrant. They allegedly also force non-preferred sellers to sign skewed agreements that they can also terminate as per their will. In products like mobile phones, they also enter into exclusive tie-ups with the manufacturers, thereby creating a monopoly and in turn denying the end-consumer the option to buy from elsewhere.

What is the sales model that’s under scanner?

Amazon and Flipkart are online marketplaces, which sellers and manufacturers use to sell their ware. For any given product, both have multiple vendors supplying it to buyers. Both also have their own ‘private label’ brands which they source from their preferred manufacturers. The two also use preferred sellers to retail those private labels on their online channels. The law doesn’t allow them to hold their own inventory or sell directly.

What’s the fear around online retailers?

The online platforms are acting as intermediaries between the buyer and the seller. That role allows them to gather critical data like price, sold quantities, demand of each product, seller and geography. This enables them to use the information to launch their own private labels in categories where they think it’s profitable for them or use their preferred sellers for the same, ignoring other merchants. On the consumers’ side, this enables the platforms to better target them with product recommendations and customized offerings. Sellers also find transparency missing in online product reviews, which they believe corrupts their rankings.

What are the online retailers saying in defence?

The CCI released a 38-page ‘Market Study on E-Commerce in India’ on 8 January. The study says the marketplace platforms maintain that all sellers listed on their platforms, including those selling private labels, are independent sellers. Thus, it is not incentive-compatible for them to prefer a few at the expense of the quality of the platform, given the intensity of competition that exists in still a predominantly offline retail landscape. Online retailers also deny any role in pricing. The CCI will take a final call on the findings while ensuring competition and efficiency are not sacrificed.

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