Delineation of relevant markets by the CCI: Change in practice?

‘Relevant market’ is the sandbox within which all anti-competitive practices of businesses are analysed by a competition law regulator, such as the Competition Commission of India (CCI). Hence, the correct delineation of the relevant market by the CCI is of paramount importance.

Historically, online and offline markets used to be considered by the CCI as merely different modes of distribution, but forming part of the same relevant market. In the recent past, it appears that the CCI has tweaked its approach in the delineation of ‘relevant markets’ and started viewing online distribution and offline distribution as separate relevant markets.

The rationale for this re-interpretation by the CCI could be to keep a vigilant check on potential anti-competitive practices of digital businesses in the Indian e-commerce sector, owing to its massive growth in the recent years. However, in doing so, the CCI seems to have drawn an artificial distinction to indicate that online and offline distribution models do not compete inter se and has pitted only online businesses against each other. The CCI has also discounted the fact that some of the online businesses have created new product/service categories for themselves in sectors that were non-existent previously, which has also seen the emergence of ‘copycats’ in the offline market.

If such an approach of the CCI becomes the norm, it has the potential to have far0reaching implications, as it is likely to lead to a false positive with regard to the determination of ‘market power’ or ‘dominant position’ of certain online businesses, which in turn may have a chilling effect on the growth of the digital economy in India.

Given the growing preference to e-commerce and online shopping in India, typically, a consumer who wants to buy a product researches about the product online and then proceeds to survey, compare the best possible price between online and brick and mortar shops, and chooses to procure the product from the mode that offers the most competitive price. Hence, online and offline distribution modes compete fiercely. It is therefore important to examine the recent narrower interpretation taken by the CCI and look at the evolution of interpretation of ‘relevant market’.

Ashish Ahuja v. Snapdeal was one of the first orders where the CCI explicitly discussed whether two modes of distribution - online and offline - can be considered as two separate relevant markets or whether they are a part of the same relevant market. This 2014 CCI dismissal order provided much needed guidance at the time. As such, the CCI opined that online and offline markets are different channels of distribution of the same product (pen drives in this case) and are not two different relevant markets. The CCI further noted that both offline and online markets differ in terms of discounts and shopping experience and buyers weigh the options available in both markets and then decide accordingly. If the price in the online market increases significantly, then the consumer is likely to shift towards the offline market and vice versa.

The above approach was followed subsequently in the 2017 CCI approval order in the Make-my-Trip (MMT)/Ibibo combination case, whereby the CCI delineated the relevant market as ‘sale of travel and travel related services.’ The CCI noted that all travel channels operate through both offline and online modes, and from a demand side perspective, it is easy for a consumer to switch between the two modes.

Surprisingly, within a year, the CCI shifted from its earlier stand and recalibrated market delineations, without any notable developments in the market dynamics. As such, the CCI defined relevant markets narrowly for the first time in All India Online Vendors Association (Aiova) v. Flipkart. This 2018 CCI dismissal order narrowed the scope of the ‘relevant market’ in relation to platform markets and accepted the relevant market defined by Aiova as the ‘services provided by online marketplaces for selling of goods in India.’ However, the CCI remarked that the e-commerce market being a recent phenomenon, is still an emerging concept and has also led to offline retailers entering into partnerships with e-commerce companies in order to attract consumers and thereby acknowledged the complementary nature of both these markets.

This approach towards a narrower interpretation was adopted once again in the 2019 CCI approval order in the Cleartrip-MMT combination case, which pertained to the travel-related services market. The CCI opined that in view of the increased popularity and use of online travel aggregators (OTAs) by a large segment of consumers in India, the online channel appears to be a distinct mode of distribution, which cannot be simply replaced or substituted by other offline modes or direct sale without losing out significantly on consumer reach. However, the exact delineation of the relevant market was left open since the combination did not raise competition concerns in either of the alternate markets.

Despite its observation in 2018 that e-commerce is an emerging market which complements the offline market, the CCI in its 2020 investigation order in Delhi Vyapar Mahasangh v. Flipkart, drew a distinction between the two markets by considering online marketplaces to be falling in a separate relevant market, distinct from the brick-and-mortar retail outlets. The CCI’s rationale for drawing this distinction came from the fact that Amazon and Flipkart comprised the bulk of the online retail market in India and for certain categories of products, such as smartphones, constituted a pre-dominant channel of distribution.

The 2020 CCI dismissal order in Lifestyle Equities v. Amazon reiterated the view that online platforms have distinguishing characteristics such as cross-sided network effects (as sellers would want to sell products on a marketplace that has a high number of buyers and vice versa). Given that the allegations in the present case pertained to the online sale and purchase of fashion merchandise, the CCI delineated the relevant market as the ‘market for service provided by online platforms for selling fashion merchandise in India’. However, the CCI specifically remarked,

"Delineation of relevant market and competitive assessment are based on market realities as they exist at the time of assessment, keeping in view the facts and allegations. In rapidly changing markets in particular such as the one in the present case, market assessment cannot have a static approach."

Thus, the delineation of relevant market is a dynamic exercise which evolves based on market realities. An analysis of recent CCI orders brings to light the fact that the CCI is delineating the ‘relevant market’ narrowly in regard to online platforms for certain product/service categories. Further, one cannot say that the CCI has conclusively changed its practice and is drawing a distinction between online and offline markets, which will be followed in subsequent cases, due to the contrasting decisional practice of the CCI regarding delineation of relevant market.

It is important to bear in mind that the CCI’s views in the Delhi Vyapar Mahasangh case and Lifestyle Equities case were only prima facie and that the former case is currently being investigated by the Director General. It remains to be seen whether the delineation of the relevant market by the CCI (in its prima facie order) will be backed by empirical data.

Given that the digital ecosystem in India is gaining steady adoption and penetrating new remote geographical markets as well as audience bases, the CCI should not lose sight of the fact that any premature intervention by it will have a cascading impact on the growth of e-commerce in India, which will be ultimately detrimental to the consumer’s interests. Further, it will be difficult to attain India’s ambitious GDP goals if there is so much uncertainty as to the law of the land.

Unnati Agrawal is a Partner in the Competition Law practice at IndusLaw.