[Priyansh Sharma & Nishita Choudhary are final year law students at Institute of Law, Nirma University]
Introduction
In digital markets, it is now a known phenomenon that ‘prices’ are ineffective for analysing the competition because services are provided at zero or nominal costs. This prompts the lawmakers to develop some new metrics to assess ‘abuse of position’ that are essentially not based on prices. The authors would be discussing one such factor that must be taken into account by the authorities in their quest to contain this digital havoc. We are talking about ‘conflict of interest’.
Amazon’s Big Data: From Prey to Predator
The tech giant is based on the humble beginnings of an online bookstore in 1994. Since then, it has integrated itself into every online segment through vertical integration. Amazon operates an online marketplace in around 20 countries. The conception behind developing a marketplace for third-party sellers is brilliant, as it directly results in the cross-leveraging of data between the marketplace and retail space. In 2006, Amazon Web Services (AWS) was kickstarted to help businesses host their enormous data and utilize the benefits of cloud computing altogether. AWS has the leading market share, which it has won through consistent improvement of its services. This service has benefited Amazon in numerous ways. Firstly, it facilitated the dominating intent of the company because web services are the powerhouse of any line of business. The game-changing technology not only helped this entity reach unimaginable heights, but it also asserted the structural dominance of Amazon by hosting some of the biggest players in the tech world on its platform. Secondly, to provide better services, it must analyse data. The aspect of ‘big data’ comes into play when a tremendous amount of data is collected and then analysed for providing services to the users. The humongous pool of data collected by Amazon gives it a competitive edge over its biggest adversaries, i.e., Microsoft and Google.
Conflict of Interest: A New Species yet to be Discovered
In a digital setting, the existence of a competing interest between two contracting parties that is caused by a power differential constitutes a conflict of interest, which must be inculcated in competition statutes as a factor to be considered. The authors would be arguing that the mere presence of a conflict of interest in digital markets is sufficient for the initiation of an antitrust scrutiny, for ignorance could make things worse. The rationale behind such contention is that conflicts of such nature could trigger theories of harm, which entail an Appreciable Adverse Effect on Competition.
The authors have divided the practices under three heads:
A. Quid Pro Quo: Marching the Forbidden Lands
Amazon is a blend of retail services and hosting third-party sellers. It is pertinent to note that if an entity is a potential competitor with key entities that are hosted on its platform, we could witness some grave inconsistencies. The approach with which Amazon channelled the network effects of the online retail industry to its own advantage is exceptionally brilliant. It attracted a large number of third-party sellers to its marketplace by providing them with the incentive of huge customer reach, which is acquired by it through the retail segment. It should be considered as a conflict of interest when Amazon develops similar products as those of its competitors through the cross-leveraging of information. In 2022, the Competition Commission of India has Suo Moto started an investigation into the alleged copying of products by Amazon. The submissions made by Amazon Seller Services Private Limited (‘ASSPL’) were, in our opinion, erroneous. It contended that any seller could register themselves for selling under Amazon Labels, and for that reason, ASSPL is not involved in the said allegations.
To comprehend the composition of sellers listed on Amazon, one needs to know that the products offered are bifurcated into two categories, i.e., sponsored and organic. For analysing the algorithm pertaining to sponsored slots, we typed ‘earbuds’ in the search box and found that, of the 22 results that were showing, six were sponsored. It is to be noted that, in this sponsored category (six) on every page, the products listed by a single seller range between 50% to 100 %. To give the illusion of fairness, a category of ‘Today’s deals’ or ‘Highly rated’ is provided on every page (which is changed on a daily basis), in which only sponsored products are displayed and each product is sold by various other sellers mostly. It is apparent that this is done by Amazon to avoid any kind of antitrust scrutiny.
It is evident that the seller who is getting most of the sponsored slots will eventually sell AmazonBasics products (majorly), in form of a quid pro quo. Appario Retail, which is an Amazon-owned seller, was getting most of the sponsored slots a while ago. The seller keeps on changing, however the algorithm is always the same! Amazon utilizes competing information of other manufacturers to aid their line of business i.e., AmazonBasics.
Such unpleasant pursuits result in an inevitable conflict of interest where products of competitors are being copied and sold on the same platform where these competitors are hosted.
B. The AWS Masterstroke: Turning Adversary into Ally
According to research conducted by The Street, AWS is the primary contributor to the company’s operating profit, with an enormous margin of 30.3%. It is also pertinent to note that, out of the total net sales of Amazon, this service occupies a 16% share.
With an ever-emerging appetite for content, customers are paying lots of money to subscribe to OTT platforms. Netflix, being the dominant player in the OTT market, has added thirteen million paid subscribers to its customer base worldwide in Q4 of 2023, taking the total tally to 260.8 million! It is mind-boggling to know that such a humongous player is dependent on AWS for almost everything, including storage and cloud computing. It is imperative that hosting such customers would obviously give a competitive edge to Amazon over its rivals like Microsoft and Google; however, things become ugly when we come down one level in the matrix and explore a potential pathway utilized by Amazon to handicap its competitors in another relevant market, i.e., the OTT market. In even a layman’s perspective, a conflict of interest is apparent when AWS hosts Netflix and also provides cloud services to Amazon Prime Video, a competitor of the former. We are not arguing that Amazon is utilizing competitively sensitive information for its advantage as of now, but rather that the access to such information must be scrutinized.
C. Aggressive Tactics into Play: Swallowing Competitors
We have argued that the presence of conflicts of interest should be sufficient to initiate a probe; however, it is indisputable that the spirit of competition would surely be defeated if big players were allowed to swallow their smaller counterparts.In 2023, Amazon decided to acquire MXPlayer, the most downloaded OTT app in India. According to the CLSA report, MXplayer has gained a 34% market share, leaving behind its biggest rival, Disney+Hotstar, at a share of 26%. Amazon Prime Video’s share is relatively small, i.e., 9%. Keeping this factual background in mind, it is pertinent to note that MXplayer is based on AWS technology only. One could ponder the fascinating idea of such an acquisition, wherein an entity is present in multiple segments of a market and acquires one of its competitors in one market due to the leveraged position it enjoys in another market.
Capturing the Beast: Indian Competition Law
Section 4 of the Competition Act, 2002, deals with abuse of dominance. It should be kept in mind that, while reading Section 4, one needs to look into the practices mentioned in Section 3(4).
Amazon India has not faced a penalty for vertical restraints yet; however, we think that certain practices of Amazon require judicial intervention. Let us observe some tactics and measures imposed by Amazon on its sellers to acknowledge its malicious intent.
A. Tie-in:
We have heard about Amazon Prime membership and the exciting benefits attached to it. However, it is to be understood that every registered seller is not eligible to offer products under the ‘Prime’ badge. Having a prime badge may improve the performance of a seller on the platform, and consumer inertia would eventually aid prime sellers over time.
Shifting our focus to the fulfilment of these orders, it is to be understood that Amazon offers its fulfilment services, wherein it controls the delivery and shipment of ordered goods. It is called fulfilment by Amazon (‘FBA’). The tying of its fulfilment business with Prime badge facility should be declared anticompetitive. Herein, the effect of this strategy will be adverse for the competitors of FBA, i.e., 3rd-party logistics providers (3PL), because a foreclosure could be easily witnessed in this segment. Amazon exploiting its intermediate position between sellers and logistics providers to eliminate competition in the fulfilment market does not require further explanation to put it under antitrust scrutiny; however, to our dismay, nothing has been performed to deter Amazon yet.
B. Exclusive Dealing:
In 2015, the CCI took a twisted point of view in the case of Mohit Manglani v. Flipkart & Ors., wherein it observed that exclusive arrangements didn’t cause Appreciable Adverse Effect on Competition (AAEC) and that the emergence of new e-portals actually enhanced competition. This stance is valid because customers would like to order online at good discounts, as compared to waiting in long queues in a brick-and-mortar setting. However, irrespective of the penetration these e-commerce portals have had in the commerce industry, they are still not able to overshadow offline sales. According to a 2023 report, 90% of retailers in India make more than half of their sales offline, and only 10% of shoppers prefer shopping in ‘only online’ mode. While grasping this startling reality of the commerce industry, we contend that exclusive arrangements between manufacturers and platforms like Amazon result in restrictions on consumer choices. If most of the consumers are inclined towards visiting an offline store to purchase their required product, then it would be unreasonable to release some products in the online market only. If, at all, the factor of ‘consumer choice’ would be considered while ascertaining AAEC in the market, then we are of the opinion that Amazon would have modified their modus operandi.
On the flip side, if such exclusive arrangements are to be considered under Section 4 of the Act, then it could entail an exclusionary effect on small retailers, which is contended in the pending case of Delhi Vyapar Mahasangh too.
Suggestions & Conclusion
The Act requires an overhaul with respect to how it designates an entity as dominant. It can be observed through precedents that, inter alia, market share is considered to be of paramount importance in ascertaining dominance. However, with the evolving jurisprudence of competition law all across the globe, the criterion of market share is becoming less important. In the apex court’s ruling in Uber India Systems Pvt. Ltd. v. CCI & Ors., the Supreme Court held that Uber has the capacity to affect its competitors through its predatory practices, even though it was not dominant. This suggests that the honourable court adopted an effect-based approach under Section 4 of the Act, wherein the consequences of an act are considered. The lawmakers should be inspired by such reasoning and apply it squarely in the case of Amazon, for the conduct of this big cat is very much predatory.
We think that while dealing with tech companies possessing data, the criterion for assessing dominance should be the accessibility of data only. The ease of analysing big data should be the sole determinant of whether an entity could abuse it. The Commission should demand an objective justification from Amazon to show cause as to how its algorithm to price products is not harmful for consumers. India is contemplating the implementation of the Digital Competition Act and the need to shift from an ex-post facto regime to an ex-ante. However, it should be noted that under an ex-ante rule, ease of doing business could be seriously hampered, which could be understood by perusing the recently enacted Digital Markets Act in the EU. The simple answer to the problem of overregulation is periodic audits by investigative agencies in a liberal regime. The commission should appoint investigation officers to carry out such audits on big tech companies. The recent draft of the Digital Competition Bill seems promising.
As put forward by Lina Khan in her piece, prophylactic bans could be very effective because big players attempt to vertically integrate themselves into other supply chains. Such bans are aimed at eradicating the above-mentioned conflicts of interest. For bifurcative remedies, the concept of a relevant market is crucial to segregating different chains of supply.
The language of Section 4 is to be amended so as to include the aspect of ‘quality’ because services are generally priced at zero in online markets. This contention also implies that the application of Section 4 should not be restricted to only the ‘buying and selling’ of products and services, because data is not sold but rather analysed to increase sales later.
It is left to the legislature’s wisdom to incorporate changes in the current regime so as to control the menace of data abuse by big companies and acknowledge the presence of conflicts of interest in digital markets.
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