Will Traders’ Complaint Against Flipkart-Walmart Find Favour With The Competition Regulator?
The $16 billion Walmart-Flipkart deal will adversely impact India’s seven crore traders, says the Confederation of All India Traders in its complaint to the Competition Commission of India.
The Walmart-Flipkart combine will become a dominant entity in India, and the acquisition is likely to cause appreciable adverse impact on competition in both offline and online markets, the traders’ association added. It asked for the deal to either be blocked or modified.
CCI has never blocked any transaction; at best the regulator has directed parties to undertake structural remedies. Going by precedent, it’s unlikely that the CCI will block the deal merely on CAIT’s complaint, Gautam Shahi, an advocate practicing competition law said.
Since the starting point of any CCI assessment is the relevant market, CAIT has stated that the regulator should look at offline and online markets separately. Within that, both business-to-business and business-to-consumer markets in India should be looked at, the association has contended.
In the business-to-consumer or B2C market, the complaint said, the CCI should define the market narrowly, that is, in terms of specific products and not a broad scope of all products. For instance, CAIT’s complaint says that Flipkart has a market share of 60 percent in the online e-commerce space – including mobiles and fashion – which it sees as achieved through predatory pricing, exclusive arrangements and preferential treatment.
But the regulator may not delineate the relevant market as online and offline, if it comes to that, Shahi pointed out.
Globally, no competition regulator has ever concluded that online marketplace is a separate market and the CCI itself has held earlier that online and offline are distribution channels in the same relevant market. Even if the CCI was to take cognisance of CAIT’s complaint, which it is not required to, CAIT will have to present very strong and compelling arguments for the CCI to ignore its own previous orders.Gautam Shahi, Advocate
But Suhail Nathani, managing partner at law firm ELP said there’s merit in asking the regulator to reconsider the market definition. The last time CCI considered this was four years ago. Since then market share and consumer habits have changed, he added.
Pointing to potential competition concerns, the CAIT complaint stated that Walmart has had a history of predatory pricing in other jurisdictions like Germany, Japan and Mexico. It’s quite likely that Flipkart will give preference to Walmart’s inventory, the complaint contended. And CAIT believes this would leave offline retailers with two choices – either exit the market or sell their goods on Flipkart in spite of the discriminatory terms. Flipkart’s data on customer preferences and Walmart’s deep pockets will also become entry barriers for new players.
Finally, the deal will result in high vertical integration, the complaint said. This is because Walmart will cover the wholesale end with its products and Flipkart would provide marketplace and logistics support.
The growth of online retail cannot be ignored and Flipkart is a major player, Nathani said.
If you add to it the might and resources of a global player like Walmart, the regulator needs to examine that it doesn’t have an appreciable adverse impact on competition. Take the example of Asus in the mobile phone space which sells its mobile phones in India online only through Flipkart. If more handset makers enter into similar exclusive tie-ups, it will have an impact on competition. The question is, will these exclusive tie-ups increase, and will their ability to bear greater losses increase as a result of this acquisition? These are the aspects that the CCI will need to examine.Suhail Nathani, Managing Partner, ELP
But Shahi isn’t impressed with these arguments.
When we conduct a competition analysis for a transaction, we look at how competition in the relevant market will be affected as a result of the proposed transaction. CAIT will have to demonstrate that the proposed transaction involving Walmart and Flipkart will cause appreciable adverse effect on competition in the relevant markets and such adverse effect cannot be mitigated by undertaking structural or behavioural remedies.Gautam Shahi, Advocate
That is a difficult burden to discharge, he added.