CCI to probe Amazon, Flipkart for deep discounts, preferred sellers model

The commission would also attempt to understand the business model of the ecommerce companies through its first ever investigation into the segment

Ahead of Amazon founder and CEO Jeff Bezos’ visit, the Competition Commission of India (CCI) has ordered investigation against Amazon and Walmart-owned Flipkart on complaints of deep discounting practices and tie-ups with preferred sellers. 

The anti-trust watchdog said it had found prima facie evidence necessitating a probe by the director general (DG)-investigation to look into alleged anti-competition discounts by the two online marketplaces.  The CCI has directed the DG office to complete the probe within 60 days. 

“We will get to understand the entire business model of the e-commerce sector through this investigation. This is the first time we are probing an e-commerce company,” Ashok Gupta, chairman, CCI, told Business Standard. 

The country’s e-commerce, estimated at around $40-billion, makes up for less than 10 per cent of the retail pie, estimated at close to $700 billion. In the past, the CCI, after studying the e-commerce deep discounting matter, had said it was not a competition issue. 

While Amazon and Flipkart have close to 90 per cent e-commerce business (without travel) in India, their share is insignificant in the overall retail universe. 

The CCI investigation is based on a complaint by traders’ body Delhi Vyapar Mahasangh regarding online sale of smartphones. The CCI is looking into allegations whether the preferred sellers are an extension of the online marketplaces, operating through different ‘proxy’ entities. 

An Amazon India spokesperson said, “We welcome the opportunity to address allegations made about Amazon; we are confident in our compliance, and will cooperate fully with CCI.’’ Flipkart was reviewing the document, a spokesperson said, adding that the company was fully compliant with all applicable laws and FDI regulations. “We take pride in democratising e-commerce in India and giving market access to lakhs of MSMEs, sellers, artisans and small businesses, making quality and affordable goods available to consumers through our transparent and efficient marketplace while creating lakhs of jobs,” the executive said.   

The CCI said it has studied the original and discounted prices for smartphone brands sold on Flipkart and Amazon and has found that certain brands/models are available at significantly discounted prices and sold largely through ‘preferred sellers’. 

“Whether the funding of discounts is an element of exclusive tie-ups is a matter that merits investigation,” the CCI said.

The offline retailers’ body has provided CCI evidence in the form of communication from Flipkart to its sellers, stating it would incur a part of the cost during the Big Billion Days sale or Diwali sales. “No such opportunity is available to other sellers who are, thus, unable to compete,” the Delhi Vyapar Mahasangh has alleged in its complaint.

A similar allegation has been levelled against Amazon about its preferred seller Cloudtail India. “Amazon has own private label brands, which are sold only through these preferred sellers,” the complaint said.  

The CCI order said it needs to be investigated whether the alleged exclusive arrangements, deep discounting, and preferential listing by the online platforms are being used as an exclusionary tactic to foreclose competition and resulting in an appreciable adverse effect on competition contravening the provisions of Section 3(1) read with Section 3(4) of the Competition Act.