Xiaomi's online focus and the bigger questions on competition

As the Covid-19 pandemic sent more and more people towards online shopping (MINT_PRINT)
As the Covid-19 pandemic sent more and more people towards online shopping (MINT_PRINT)

Summary

  • The pandemic has altered the online versus offline retail scales in ways that affect competition

The All-India Mobile Retailers’ Association recently threatened to approach the Competition Commission of India (CCI) against Chinese phone-maker Xiaomi’s alleged bias in favour of online marketplaces over offline retailers. This issue is especially relevant in the backdrop of the Supreme Court’s recent ruling that let the CCI go ahead with an investigation against e-commerce players Flipkart and Amazon on a complaint by the Delhi Vyapar Mahasangh, which represents small and medium businesses, alleging an exclusive partnership between smartphone makers and e-com companies for the exclusive launch of smartphone models on these platforms. For antitrust probes, determination of the ‘relevant market’ is crucial to assess if such deals result in abuse of an entity’s dominant position.

The relevant market dilemma: Under section 4 of India’s Competition Act, 2002, “dominant position" means a position of strength enjoyed by an enterprise in a relevant Indian market that enables it to operate independently of competitive forces and affect its competitors or consumers in its favour. Therefore, to examine any abuse of such a dominant position, the first step would be to establish the relevant market in which competition has been affected. Section 2 (r) of the Act defines it as “the market which may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets." In the current scenario, the question is whether our online and offline markets constitute a single relevant market.

Rulings by Indian courts have not been consistent in this aspect. Even though courts increasingly favoured the view that online and offline markets fall in the same relevant market, there have been contrary views.

In Ashish Ahuja vs Snapdeal (2014), the CCI held that “the offline and online markets are different channels of distribution of the same product and are not two different relevant markets". In this case, the CCI was of the opinion that consumers shift from online to offline markets and vice-versa on the basis of price fluctuations. In Deepak Verma v Clues Network Pvt Ltd (2016), the CCI adopted the same view. In these two cases, it can be seen that the CCI has adopted the substitutability test without looking at external factors. However, it can be observed that the CCI has taken a significantly different position in many cases that dealt with other online platforms, making space for ambiguity on the issue.

In the case of Fast Track Call Cab Pvt Ltd vs ANI Technologies Pvt Ltd (2015), the CCI took into account external factors such as “convenience in terms of time saving, point-to-point pick and drop, pre-booking facility, ease of availability even at obscure places, round the clock availability, journey time, etc" and held that “radio cab taxi" services constitute a relevant market as they’re not substitutable with any other mode of transport, given the above features.

An analysis of such cases: Online retailers have significantly lower customer-reach costs than offline retailers. The latter must bear the costs of setting up a warehouse, transporting products there, and so on, while online retailers can serve customers across a large area with a single warehouse and customer-service unit. Further, transportation costs of products are often passed on to end customers. Savings on these allow online retailers to sell customers the same products at lower prices.

However, it should be noted that price is not the only criterion that attracts customers towards online stores. Internet retail services lower the transportation costs of customers, allow quick and convenient product searches, offer a variety of products in a range of price brackets, and provide detailed product information that is often not available at regular retail stores. Further, even though a transportation fee is often charged by online retailers for the delivery of wares, it is typically only a fraction of what it would cost customers to visit brick-and-mortar stores for these purchases.

On the other hand, offline retailers have an upper hand when it comes to customer experience. Many customers prefer to physically experience or inspect a product before they make a purchase. Also, many customers find gratification in instantly purchasing what they want, a sense of satisfaction that is not matched by most online retail platforms, which usually take a few days for delivery.

What needs to be determined: Even though some customers might switch from an online to an offline market and vice-versa, competition authorities must check if they are close enough substitutes for a significant chunk of consumers, and if so, then both can be said to constitute the same relevant market. It is clear from the above discussion that both online and offline markets offer different shopping experiences, and many times, the consumer’s choice depends not just on a head-to-head price comparison, but on various other factors such as her own age, income and location. Hence, external factors must also be considered (those beyond pricing, that is) while deciding substitutability, especially in the context of a pandemic that has made safety a prime consumer concern.

Given the manner in which the covid pandemic has altered shopping circumstances, attitudes and habits over the past 20 months or so, with an increased number of retail consumers now relying on online purchases for reasons that go beyond price differences, Indian jurisprudence that calls for an analysis of whether online and offline outlets constitute the same relevant market may need to be looked at with a fresh lens.

Insaf Ahmad and Priya Garg are, respectively, a student research assistant at The Corporate House, and a law professional who teaches at OP Jindal Global University.

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