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INTRODUCTION

“The Internet has come a long way from being a military experiment during the Cold War to the

modern day Internet which is made accessible by the proliferation of technology. 1 The Internet

has come to become a system with world-wide broadcasting capabilities coupled with

information dissemination and a medium for interaction between individuals regardless of their

geographical location.2 The wide-spread proliferation and commercialization of the Internet has

paved the way for welcoming the Digital Economy in several jurisdictions across the world,

opening up their economies and the legal systems, and India is no exception to the same.

Walmart’s proposal to acquire a majority stake in Indian e-commerce giant, Flipkart, brought

back the focus to the growing digital sector in India, specifically the e-commerce industry.3 Not

only does this present us with an opportunity to assess the booming e-commerce industry in the

country but to re-examine our laws and policies in order to assess as to whether we are moving

towards providing for a fair market, which can in turn attract more investments in the future.

This brings our attention to the fair market regulator, the Competition Commission of India and

the Competition Framework, which presents more complexities than what, meets the eye.4

1
Naughtan, J. (2016). The evolution of the Internet: From military experiment to General Purpose
Technology. Journal of Cyber Policy, 1(1).
2
Leiner, B., Cerf, V., Clark, D., Kahn, R., Kleinrock, L., Lynch, D., Postel, J., Roberts, L. and Wolff, S.
(1997). Brief History of the Internet. [pdf] Internet Society. Available at:
https://www.internetsociety.org/resources/doc/2017/brief-history-internet/
3
(2018). Walmart-Flipkart: 15 pointers on India's biggest e-commerce deal. [online] CNBC TV18.
Available at: https://www.cnbctv18.com/retail/walmart-flipkart-15-pointers-on-indias-biggest-e-
commerce-deal-54903.htm
4
Mondal, D. (2018). Flipkart-Amazon merger: Market share may not be only 'concern' for CCI. [online]
Business Today. Available at: https://www.businesstoday.in/current/corporate/flipkart-walmart-amazon-
deal-market-share-cci/story/274265.html

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The paper is divided into three chapters. The first chapter deals with tracing the growth,

evolution and rise of the e-commerce industry in India, which is necessary to understand and

apply the growing implications of application of Competition policy to the industry; the second

chapter deals with the interplay between the existing competition framework in the country and

the booming e-commerce business in India, where the author has analyzed the various cases that

have been brought to notice of the regulator and the decisions arising out of the same and the

implications on the industry; the third and final chapter will conclude the research study with an

overview of the issues raised in the paper and the research questions that the author aimed to

have arrived at a conclusion for.

RESEARCH OBJECTIVES

 To analyze the growth of e-commerce industry in light of the Competition Framework in

India;

 To study the position of e-commerce markets vis-à-vis Competition Law & Policy in India;

 To identify future challenges to Competition Framework from the e-commerce industry.

RESEARCH METHODOLOGY

The author will adopt a doctrinal method of research in order to fulfill the said objectives and in

pursuit of answering the research questions as enumerated above and use articles, books and

precedents to support the arguments as put forward by the author.

RESEARCH QUESTIONS

A. Whether the Competition Regulator (CCI) has provided for a conducive environment for the

growth of e-commerce industry in India?

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B. Whether the present Competition Framework addresses the present and future concerns

arising from the industry?

SCOPE

The scope of the project is limited to the various case judgments disposed off by the Competition

Commission of India, COMPAT, the Courts of Law in India and other incidental laws,

regulations, notifications and orders passed in respect of e-commerce in India. In addition, the

author will refer to the various scholarly articles published online viz. blogs, websites and journal

articles.

LIMITATIONS

The study is limited to the materials and data as available on the Internet and the various

judgments that are passed, and made available to the public. In addition, the research study is

also limited by paucity of time owing to the study being undertaken as a part of an academic

course in the University.

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I. E-COMMERCE IN INDIA: TRACING THE GROWTH TRAJECTORY

“ Although E-commerce is relatively a novel concept, there is no shying away from the fact that

the e-commerce industry has taken the country by storm, with every small and medium sized

enterprise taking it online to boost their business and sales.5 With nearly 46 Million internet users

and a growth rate of 7-8 per cent, India represents a digital economy, which has biggest market

potential for global players. This digital revolution, also known as 'the Internet economy', is

expected to generate new market growth opportunities, jobs and become the biggest business

opportunity for businesses in the next 30 to 40 years.6 Over the past few years, the sector has

grown by almost 35% CAGR from 3.8 billion US$ in 2009 to an estimated 12.6 billion US$ in

2013.7

The year 1991 was an important year for the country, when we opened up our economy to

liberalization. The country was set to witness several changes, not only to the choices in the

markets but also the markets in which they interact in. Over the years, the digital economy sector

of the country has grown a staggering 413 US$8 of the overall economy with the digital economy

expected to touch over 1 Trillion US$ by 2025.9 In a study conducted by Associated Chambers

of Commerce and Industry of India (ASSOCHAM) along with PricewaterhouseCoopers (PwC)

has predicted for the Indian e-commerce industry, which is presently valued at about 50 Billion

5
Kapoor, A. (2017). Why SMEs should take digital marketing seriously [online]. Available at:
https://economictimes.indiatimes.com/small-biz/sme-sector/why-smes-should-take-digital-marketing-
seriously/articleshow/56997133.cms]
6
Guha, R. (2017). Digital Evolution in India [online]. Available at:
https://www.businesstoday.in/opinion/columns/digital-evolution-in-india/story/259227.html
7
Report on Evolution of E-Commerce in India: Creating the bricks behind the clicks [pdf]. Available at:
https://www.pwc.in/assets/pdfs/publications/2014/evolution-of-e-commerce-in-india.pdf
8
Singh, S. (2018). India's way to $1 trillion digital economy [online]. Available at:
https://economictimes.indiatimes.com/news/economy/indicators/indias-way-to-1-trillion-digital-
economy/articleshow/63561270.cms
9
Id.

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US$ to clock a compounded growth rate of 35% and hit the 100 Billion US$ mark by 2019.10 In

another report titled India’s Digital Leap–The Multi Trillion Dollar Opportunity, Morgan Stanley

said this growth in e-commerce will help grow market penetration to 12% in the next nine years,

versus 2% today. An increasing number of internet users, all new to e-commerce, will help lead

this growth, the report said.11”

II. E-COMMERCE AND COMPETITION FRAMEWORK: THE INDIAN

EXPERIENCE

Competition policy is a public policy aimed at ensuring that the market forces are operating in a

fair manner in order to ensure maximum choice and benefit to the consumer. The most

significant goal of competition policy is to shield society from harmful competitive behavior.12

The object of the Indian Competition Act, set out in the preamble, is to provide for the

establishment of a Competition Commission “…to prevent practices having adverse effect on

competition, to promote and sustain competition in markets, to protect the interests of consumers

and to ensure freedom of trade carried on by other participants in markets, in India…”13

E-Commerce, although in its nascent stages, has garnered a lot of attention owing to the booming

industry14, which has not only attracted investments and acquisitions15 but has also brought itself

under the eyes of the competition watchdog.

10
(2014). Indian e-commerce to hit $100 bn value by 2019: Assocham [online]. Available at:
http://www.business-standard.com/article/companies/indian-e-commerce-to-hit-100-bn-value-by-2019-
assocham-114122700409_1.html

12
Motta, M. (2004). Competition Policy: Theory and Practice. Cambridge: Cambridge University Press.
13
Preamble, Competition Act, 2002.
14
Supra note 6.

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Along with the benefits it brings to the economy, consumers and retailers, it has attracted several

challenges for regulators of different sectors. With low entry barriers and high levels of

innovation, offline retail stores have to work harder than ever to keep customers, who can easily

switch allegiance to a better or cheaper competitor.16

“The sheer dynamic nature of digital markets is what makes it different from other sectors in the

market. The growth in digital economies can also be coupled with the increase in accessibility to

Internet and with the number of users in India growing at a steady rate17 and penetrate the web,

digital services are increasingly beginning to offer similar services using different mediums,

which also commonly known as network effects. While this, on one hand promotes

concentration of markets, but at the same time there are multiple routes through which digital

services can be delivered to the end users.18 This has led to a myriad of concerns across varied

fields of law such as taxation, Intellectual Property Laws and other incidental laws, including

competition law and policy. With intense competition19, both within the e-commerce sector itself

and the offline retail markets has seen a healthy level of litigation being raised in the e-commerce

sector of being violative of competition laws. It is increasingly becoming difficult to make a

distinction between anti-competitive motives and normal business strategies in digital

commodities as it largely involves future markets. However, traditional methods of assessing

15
Supra note 3.
16
Porter, M. and Heppelmann, J. (2018). How Smart, Connected Products Are Transforming
Competition. [online] Harvard Business Review. Available at: https://hbr.org/2014/11/how-smart-
connected-products-are-transforming-competition [
17
Agarwal, S. (2018). Internet users in India expected to reach 500 million by June: IAMAI. [online]
Economic Times. Available at: https://economictimes.indiatimes.com/tech/internet/internet-users-in-
india-expected-to-reach-500-million-by-june-iamai/articleshow/63000198.cms [Accessed 9 May 2018]
18
Jain, S. (2018). Growth Of Digital Economy : A Challenge For Competition Regulators. [online]
Mondaq. Available at:
http://www.mondaq.com/india/x/683170/Antitrust+Competition/Growth+Of+Digital+Economy+A+Chall
enge+For+Competition+Regulators
19
(2016). The great race [online]. Available at: https://www.economist.com/briefing/2016/03/05/the-
great-race

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relevant market and dominance, which include describing market boundaries, analyzing market

power, whether the behavior of the firm is anticompetitive, is not the most pertinent approach

now. This is because digital firms have dynamically been redefining the boundaries of markets

by competing largely on the basis of innovation, which has redefined the structure of the

markets. Therefore, market shares or profit margins are less useful for determining market

power.20 In light of the booming e-commerce sector and competition issues, it is interesting to

examine the stand taken by the Competition Commission of India, the watchdog for Competition

and fair markets in India, who’ve got the opportunity to deal with the dynamic and fast-moving

digital economy and the e-commerce industry in India.”

RELEVANT MARKET

Amidst all the issues that have been raised against e-commerce players, the case of Ahuja v.

Snapdeal21 addresses the concern of determination of relevant market in the interplay between

the e-commerce sector and the Competition Law Framework in the country. The Act defines a

relevant market to means the market which may be determined by the commission with reference

to the relevant product market or the relevant geographical market or with reference to both the

markets.22 The case involved a dispute between the Informant, Ashish Ahuja, who was engaged

in selling of various products like pen drives, hard disks, laptops etc, and had entered into an

online agreement with Snapdeal for sale of goods through their online website portal. After a

brief period, Snapdeal refused to sell the Informants products on their online portal and directed

him to obtain a No Objection Certificate for the purposes of continuity of sale. The Informant,

20
Supra note 17.
21
Ashish Ahuja v. Snapdeal, Case No. 17 of 2014.
22
Section 2(r), Competition Act, 2002.

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alleging the two companies of being dominant in the relevant market, stated that Snapdeal and

SanDisk are engaged in abusive practices.

“In determining the relevant market, the Commission held that both online and offline markets

differ in terms of discounts and shopping experience. Similarly, buyers weigh the options

available in both markets and decide accordingly. Therefore, if the price in an online market

increases significantly, then the consumer is likely to shift towards the offline market and vice

versa. Following this reasoning, the Commission opined that the two markets – online and

offline, are only different channels of distribution of the same product and do not constitute as

different relevant markets.

EXCLUSIVE SUPPLY AGREEMENT

In the wake of the Ahuja23 case, came the case of Mohit Manglani v. M/s Flipkart & Ors.24,

which addressed the issue of exclusive supply agreements made amongst retailers and e-

commerce portal websites. For the purposes of the Act, exclusive supply agreement includes any

agreement restricting in any manner the purchaser in the course of his trade from acquiring or

otherwise dealing in any goods other than those of the seller or any other person. 25 For deciding

whether an agreement is anti-competitive or not, the primary factor to take into consideration is

to determine the relevant market. In addition to proving the existence of an exclusive supply

agreement, it is also imperative to prove that it has had some adverse effect on the competition.

The present dispute involved the informant, Mr. Mohit Manglani, alleging the respondents of

engaging in anti-competitive practices in the nature of ‘exclusive agreements’ with sellers of

goods/services. It was alleged that each e-portal i.e., each of the Online Portals has 100% market
23
Id.
24
Mohit Manglani v. M/s Flipkart India Private Ltd & Ors., Case No. 80 of 2014.
25
Section 3(4)(b), Competition Act, 2002.

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share for the product in which it is exclusively dealing and therefore, leads to dominance. After

looking into the necessary facts and circumstances, the Commission held that the exclusive

marketing arrangements between e-portals and manufacturers/suppliers do not create any entry”

barriers in the market, as the manufacturers/suppliers are free to sell their products on their own

websites as well as the physical market. Further, the mere existence of an exclusive supply

agreement does not violate the provisions of the Competition Act, 2002 but in addition, there

must be an Appreciable Adverse Effect (AAEC) in the market/consumers.

PREDATORY PRICING

“One of the most hotly contested issues with regard to competition law and e-commerce is that

of predatory pricing. The Act defines predatory pricing to mean the sale of goods and provisions

of services, at a price which is below the cost, as may be determined by regulations, of

production of the goods or provisions of services, with a view to reduce competition or eliminate

the competitors.26 Flipkarts’ Big Billion Day Sales on October 6, 2014 not only turned out to be

the tipping point for e-tail sales27 but also paved way for e-commerce regulation.28 This raised a

fundamental question which is not limited to Flipkart’s Big Billion Day sale itself, but the entire

business model of e-commerce portals, which rely upon high-discounts, low profitability and

operate on future markets for their abysmally bleak profits. The allegation of predatory pricing

against e-commerce online portal companies came at a time where they were just beginning to

capture a presence in the rather largely break-even retail market.

26
Section 4(2), Competition Act, 2002.
27
(2017). How Flipkart's Big Billion Day turned out to be the tipping point for Indian e-tailers [online].
FirstPost. Available at: https://www.firstpost.com/business/corporate-business/how-flipkarts-big-billion-
day-turned-out-to-be-the-tipping-point-for-indian-e-tailers-1998795.html
28
Nanda, S. (2017). Flipkart's Big Billion Day paves way for e-comm regulation [online]. DNA India.
Available at: http://www.dnaindia.com/business/report-flipkart-s-big-billion-day-paves-way-for-e-comm-
regulation-2026114 [

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When it came to the Commission, any such allegations were brushed aside, based on the

judgments rendered in Ahuja29 and Manglani.30 In addition, the test for predatory pricing as laid

down in previous judgments rendered by the Commission, online e-commerce portals completely

"fall outside the purview of predatory pricing. As can be seen in the case of MCX Stock

Exchange Ltd v. National Stock Exchange of India Ltd. & Ors.31, the CCI while laying down

the test for predatory pricing said that “before a predatory pricing violation is found, it must be

demonstrated that there has been a specific incidence of under-pricing and that the scheme of

predatory pricing makes economic sense. The size of Defendant’s market share and the trend

may be relevant in determining the ease with which he may drive out a competitor through

alleged predatory pricing scheme-but it does not, standing alone, allow a presumption that this

can occur. To achieve the recoupment requirement of a predatory pricing claim, a claimant must

meet a two-prong test: first, a claimant must demonstrate that the scheme could actually drive

the competitor out of the market; second, there must be evidence that the surviving monopolist

could then raise prices to consumers long enough to recoup his costs without drawing new

entrants to the market.”

In the Alcoa Case32, the judge observed: “A single producer may be the survivor out of a group

of active competitors, merely by virtue of his superior skill, foresight, and industry. In such cases

a strong argument can be made that, although the result may expose the public to the evils of

monopoly, the Act does not mean to condemn the resultant of those very forces which it is the

prime object to foster: finis opus coronat. The successful competitor, having been urged to

29
Supra note 21.
30
Supra note 24.
31
MCX Stock Exchange Ltd v. National Stock Exchange of India Ltd., DotEx International Ltd. and
Omnesys Technologies Pvt. Ltd , 2011 Comp LR 0129 (CCI)
32
US v. Aluminum Co of America (ALCOA), 148 F.2d 416 (2d Cir. 1945)

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compete must not be turned upon when he wins.” Therefore, if the goods are placed at a lower

price because of the economies of scale and even less profit from a single good gives “ the “

moreprofit, in total, as their sales are comparatively much higher, they cannot be accused for

abuse or predatory pricing.33

“ Based on the aforementioned judgments, one may conclude that e-commerce websites are not

engaged in predatory pricing, and this can evidenced from the fact that the relevant market itself

constitutes both online and offline markets and there being no clear dominant player in the e-

commerce industry, the primary condition of predatory pricing itself is not fulfilled.

III. CONCLUSION

Competition law provides enough room that novel and innovative companies are able to

penetrate into the market and offer more choices to consumers and companies.34 Competition

laws, as indispensable now as then, have continually been suitably modified to keep up with the

times.35 The accelerated growth of the e-commerce industry in India has enforced the market

regulators to keep a close eye on the operations of the e-commerce entities.36 As of 2016, the

market share of the Indian e-commerce industry is valued at 30 Billion US$ of the overall market

size of 672 Billion US$.37 India’s market regulator, one of the youngest in the world and highly

respected for what it has achieved within its relatively short existence, has the potential to show

33
Harshvardhan, H. (2017). An Analysis of the Law Relating to Predatory Pricing in India [online].
Manupatra. Available at: http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=3e7817b5-
23f9-4313-9ac0-fd94a329de45&txtsearch=Subject:%20Competition%20/%20Antitrust
34
Sharma, G. (2017). Competition Law & E-Commerce: Emerging Trends. Indian Competition
Law Review. 4(1).
35
Goel, R. (2017). Emerging Trends in Market Power: An update [online]. Available at:
https://competition.cyrilamarchandblogs.com/2017/07/emerging-trends-market-power-update/
36
Chadda, V. (2016). Competition Law and E-Commerce Industry: Predicting The Future For India Inc.
Abhinav International Monthly Refereed Journal of Research in Management & Technology. 5(5)
37
See https://www.ibef.org/industry/retail-india.aspx

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the path to various developing economies, many of which are looking to India.” That would take

time, and it means erring on the side of caution, rather than experimentation, and taking

“decisions that are relevant to India and in the best interests of Indian consumers. It also means

drawing lessons from overseas about what works, and, just as importantly, what doesn’t. 38 When

it comes to the Competition Fair Market Regulator i.e., the Competition Commission of India

and as far as the e-commerce is concerned, it was necessary to recognize the e-commerce space

as a mere additional channel of distribution as opposed to it being a different relevant market.

This comes as an important revelation, especially at a time when the e-commerce segment is in

its nascent stages with a lot of investors interested with the vast opportunities that the country’s

economy has to offer. By passing this order the CCI has reaffirmed the fact that the objective of

the Act is to protect “competition” and not the “competitors”.39

Competition law assessment of industries in the new economy should necessarily be grounded in

a deep understanding of the economic features of the markets in question.40 Distinct economic

features of high technology businesses should be taken into account and practices like deep

discounting, cash back offers, when looking in to the allegations of adoption of anti-competitive

practices by them. For this, a robust economic analysis of the impact of increasing returns to

scale and network effects is essential for understanding the present and future impact of these

practices on competition and consumer interests. The gains that the consumers incur from the

heavy discounts are short run and there is a need to assess it in a larger context. “

38
Kumar, D. (2016). Regulating lightly. [online] The Indian Express. Available at:
http://indianexpress.com/article/opinion/columns/regulating-lightly-digital-india-economy-cci-
competition-law-bar-association-4407590
39
Mishra, A. (2015). CCI's Take on The Indian E-Commerce Market: Protect Competition, Not
Competitors [pdf]. Available at: http://psalegal.com/wp-content/uploads/2017/01/ENewslineMay2015.pdf
40
Prasheera, S and Shah, A et al. NIPFP Working Paper Series. Competition Issues in India’s Online
Economy. Available at: http://www.nipfp.org.in/media/medialibrary/

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The Indian e-commerce industry today involves cut-throat competition and intense funding wars.

The business strategy seems to be to keep growing the consumer base (even if sustaining heavy

losses in the process) till all competition is eliminated. Because of the high likelihood of

“concentration of market power in a single enterprise in the near future, this is an area which

needs close scrutiny. It may not be too long before the CCI is beckoned again to look into anti-

competitive practices in Indian e-commerce and any such enquiry should be carried out with the

larger goal of preserving healthy competition in the market. 41 In the fast-changing nature of

online businesses, there are concerns that the time taken by detailed investigation would delay

the process of determination of violation and taking of subsequent steps to prevent it. The CCI

needs to work towards adopting stricter time frames for the disposal of cases, particularly those

relating to firms forming part of the digital economy. The authorities must follow a future-

oriented approach because of the central role that potential competition plays in the process. In

practice, this means following an approach that is cautious and relies on power of self-correction

of digital markets. There should be greater involvement of external IT experts that can

understand the business model of the companies better, so that they can be regulated more

efficiently and authorize can understand the future trends better.”

41
Chatterjee, J. (2018). CCI Sets Foot Into the Digital Arena, But Still Has a Long Way To Go [online].
The Wire. Available at: https://thewire.in/tech/cci-sets-foot-into-the-digital-arena-but-still-has-a-long-
way-to-go

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