Experts highlight that under the competition law, e-commerce platforms are allowed to offer discounts, but not in a way that harms competition or creates an unfair market
Trader’s body Confederation of All India Traders (CAIT) and mobile retailers' association All India Mobile Retailers' Association (AIMRA) released a white paper on October 1 that talks about the impact of e-commerce platforms on the retail ecosystem.
The paper urges the Competition Commission of India (CCI) to suspend the operations of e-commerce giants Amazon and Flipkart as they are engaged in predatory pricing. As per CAIT, while deep discounts benefit consumers by lowering prices, the focus on this discounting poses a market risk that could ultimately affect consumers.
Further, CAIT adds that these e-commerce platforms are also burning cash by offering heavy discounts, which in turn can lead to the creation of a grey market for mobile phones.
Customers are not able to buy these mobile phones at discounted prices as they are being sold in the grey market, said Kailash Lakhyani, Founder and Chairman, AIMRA, at a summit as per media reports.
Lakhyani further reportedly said, “These can easily be tracked with the help of International Mobile Equipment Identity (IMEI)... It is also a loss for the government as grey market players evade taxes.”
Additionally, BJP MP and CAIT Secretary General Praveen Khandelwal reportedly stated that Flipkart and Amazon are heavily engaged in predatory pricing, deep discounting, and loss funding. He also highlighted that the investment these e-commerce companies bring to India is used to burn cash and also cover the losses that are incurred by them during their operations in India.
Let’s first break down the concept of grey marketing that has been talked about by the traders association.
Just to simplify, a grey market is an unofficial market area where goods and securities are sold. The AIMRA previously also claimed that under this exclusive launch arrangement, 4 out of the 5 smartphones are sold in the grey market area. Additionally, Lakhyani reportedly claims that this becomes an easy way to avoid paying taxes. Lakhyani also pointed out, as per The Economic Times, that when devices are bought through regular consumer channels with offers and discounts and then resold at a higher price, the price difference ends up resulting in a potential tax loss.
While the existence of the grey market isn’t foreign to India, the same happening because of e-commerce festive discounts is a recent discussion. “The Competition Commission of India has addressed this issue of predatory pricing time and again, which causes it to artificially push down prices in its online sales and leave the customers thronging online portals instead of lounging through retail markets. This also causes the creation of a grey market for mobile phones,” says Jasmine Damkewala, senior partner at Circle of Counsels, Advocate-on-Record, Supreme Court of India.
However, some experts don’t agree with the fact that the steep discounts offered by e-commerce platforms to sell electronic goods lead to a grey market area.
“As such, we do not believe that there is any direct link between predatory pricing and the creation of a grey market, specifically for the electronics market. Secondly, we have not come across any instances where the sales being conducted on e-commerce platforms (such as Amazon and Flipkart) are directly utilised for grey market sales and are not actually available to end-users,” says Haroon Asrar, Partner, Solomon & Co.
Asar further highlights that even if one assumes that the AIMRA and CAIT did unearth evidence that finds a link between grey market and predatory pricing via e-commerce players, the CCI has to first establish that grey market sellers are being sold products at a lower price by the e-commerce platforms with the intent to hurt the market ecosystem.
“It will have to be investigated whether indeed end-users are being fooled into buying devices that are in fact re-sale items. All of this is part of a complicated web that will need to be inextricably connected with each other in order to prove such an allegation,” adds Asar.
Now, two questions arise. First, if at all Amazon and Flipkart are found to be encouraging grey market sales of electronic goods, what actions will be taken against them? Further, the very concept of predatory pricing that has been talked about for a very long time, is it illegal in India? Can companies levy 70-80 per cent discounts? Let’s break it one by one.
If the e-commerce platforms are found to be encouraging the selling of electronics in the grey market, they will be levied with a wide range of laws, such as criminal actions, infringement of intellectual property rights, or even actions pertaining to municipal laws. “The government could also address consumer protection act violations as well as implications for tax evasion, penal actions for unlicensed goods, money laundering, etc.,” says Asar.
Coming to the question of e-commerce platforms charging heavy discounts, experts say that it is legal. “Under competition law, e-commerce platforms are allowed to offer discounts, but not in a way that harms competition or creates an unfair market. The key question is whether these discounts are genuinely promotional or artificially low to undercut competitors,” says Damkewala.
The charges of predatory pricing or anti-competitive practices being practiced by Amazon and Flipkart have been happening for a long time. Both the e-commerce platforms have also been reportedly investigated by the CCI. The watchdog, in its investigation, also reportedly found out that the two e-commerce platforms violated competition laws in the country and treated ordinary sellers as mere databases. Further, mobile phone makers such as Samsung, Xiaomi, and others have also been found to have flouted the competition law by having exclusive agreements with the two e-commerce platforms, as per Reuters. As per the competition watchdog, these exclusive launches impacted ordinary sellers as well as retail stories in India. While the investigation is still ongoing, it does raise critical questions about market fairness and its impact on consumers.