The allowance of discounting strategies of the online portal can adversely affect the dealership network of the said manufacturer.
By Abir Roy
The recent FDI norms with respect to e-commerce have created quite a stir in the market with varied opinions being put forth. It has been reported that the new norms have come as a surprise to dominant e-commerce companies since they now need to tweak their operations substantially. The revised FDI norms come in the backdrop of objections raised by retailers and traders against these behemoth e-commerce entities on practices of predatory pricing and loss funding; and the web of preferential sellers created by such dominant e-commerce players.
Having said that, there were certain regulatory norms which existed even in the previous avatar of the FDI regulations. The most prominent being (a) after sale services were the responsibility of the seller and the name of the seller was to be conspicuously mentioned in the e-commerce portal to ensure that after sales services were the responsibility of the seller and (ii) these e-commerce players should not have any control or influence over the prices of goods sold on the platform. The reason for having this norm is that these online portals remain a pure play market place.
While these regulatory restrictions were present previously, recently, the CCI, in its order in relation to Snapdeal, has made certain key observations which throw specific aspects of the operations of e-commerce players into the limelight. The CCI has noted that (i) when the sales are made possible through the online platform, and in case of any issue/requirement/discrepancy, the end consumer/customer can approach the online platform for redressal, i.e. for after sales services and more importantly (ii) while various dealers/distributors of manufacturers offer a particular price to the online portals, it is the prerogative of such online portals to decide the incentive/discount it wishes to offer to its customer on the relevant product. The CCI further notes that, even if the online portal decides to list a particular product at a price lower than the agreed price or provides cashback to the buyer(s), the dealer/manufacturer cannot legally interfere in such matters.
Thus, the CCI noted that, to say that the online portals have no role or influence over the prices, may not be correct. It must be noted that these observations were made by the CCI after a thorough investigation. While these observations were in relation to Snapdeal, it would be safe to presume that these practices are also followed by other dominant e-commerce players, which, in turn, begs the question, of whether they were following the earlier FDI restrictions in toto. These aspects further emboldened the fact that there is an urgent need of a quasi-judicial body to ensure compliance of all FDI norms in letter and spirit.
Another interesting aspect of this case is that the CCI has given a shot into the arm of manufacturers to ensure their dealership network is not at risk due to low prices offered on online portals. There was a concern that was raised by all manufacturers that they want to ensure there are no practices which affect their dealership network, however, they were hamstrung as they could not force the online portals to sell the goods at a particular price due to a widely debated competition law, both in India and worldwide, due to a prohibition of resale price maintenance (“RPM”).
The CCI, in this case, has deliberated in detail the concept of RPM in India and noted that, unlike in some other jurisdictions, RPM is not a hardcore restriction but has to be assessed by the rule of reason test and needs to be seen on the basis of facts of each case like market power, etc, and whether the said practice causes an appreciable adverse effect on competition in India. Interestingly, the CCI has noted that it is the right of a manufacturer to choose the most efficient distribution channel and said this choice ought not to be interfered with, unless the said choice leads to anti-competitive effects. Also, the CCI has noted the manufacturers’ defence that they have made considerable investment on creating its dealership network.
Dealers set up the showroom, spend money on display and pre-sale services and, thus, such dealers expect to be incentivised for making such investments. The allowance of discounting strategies of the online portal has the potential of adversely affecting the dealership network of the said manufacturer. All in all, the wide ranging debate of e-commerce continues and it would be very interesting to watch out for this space.
The author is Advocate, Seetharaman & Associates