Customers shop at a Walmart Inc. store in Secaucus, New Jersey, U.S. (Photographer: Timothy Fadek/Bloomberg)

Predatory Pricing Concerns Fail To Prevent CCI Nod For Walmart-Flipkart Deal

India’s antitrust regulator acknowledged concerns over e-commerce companies’ predatory pricing but kept the issue out while approving the Walmart-Flipkart deal, saying that it was beyond the scope of the Competition Act.

The Competition Commission of India on June 8 approved Walmart’s acquisition of a majority stake worth $16 billion in India’s largest online retailer. But it also expressed concerns on compliance of the foreign direct investment norms by Flipkart and “predatory” practices and preferential treatment to specified sellers on the company’s online marketplaces.

Walmart had sought approval for the deal on May 19, days after it announced the proposed buyout of Flipkart. That provides the world’s largest retailer an indirect entry into India’s $672-billion retail market where it can’t set up retail stores. The Confederation of All India Traders, a lobby group of small retailers, had opposed the deal citing violation of foreign direct investment norms. It plans to move a higher court against the regulator’s approval to the deal.

Gautam Shahi, an advocate practising competition law, however, said that the issue of pricing practices, as noted by the CCI, could not be examined as they are not a consequence of the proposed deal. “It passed the order in terms of Section 6 of the Competition Act, 2002 which regulates combinations,” he said over the phone. “In its order, the CCI has, as mandated by the law, assessed whether or not the proposed transaction will harm competition in the market.”

Just a week ago, the draft e-commerce policy also took note of predatory discounting. It suggested a sunset clause or a maximum duration for which e-commerce platforms could offer deep discounts to attract consumers.

According to Shahi, the regulator can also separately enquire into these practices under the enforcement provisions of the law. The CCI, however, suggested policy intervention.

“As per the FDI policy, an e-commerce platform cannot influence market prices directly or indirectly,” the CCI said in its order.

However, this is a matter of consideration for the appropriate regulatory/enforcement authority.
CCI Order

The issues need to be addressed in the “policy space to ensure that online market platforms remain a true marketplace providing access to all retailers”.

Discounts Debate

The regulator highlighted discounting by Flipkart and preferential treatment to specified sellers. A small number of sellers in Flipkart’s online marketplaces, which were also customers of Flipkart in business-to-business segment, contributed to substantial sales, and availed significant discounts from Flipkart in both the B2B segment and online marketplaces, the CCI said.

“The revenue earned from these common customers in the online marketplaces was relatively less vis-a-vis the non-common sellers whose sales on the platform was considerably low,” the CCI order said.

Yet, the commission said the discounting practice of Flipkart is not specific to the deal and was prevalent in the market even without the proposed acquisition. “The issues about common customers of Flipkart are not directly or indirectly related to the proposed combination and thus, the same is not likely to alter the competition dynamics as it exists today.”

The traders lobby group, however, called it an “error of judgment”. “If there is predatory pricing and deep discounting, then it will affect the competition to kill the players,” Praveen Khandelwal, secretary general at the confederation, said.

If it impacts competition, and hence it is under the ambit of Competition Commission. I can’t understand why the CCI has deliberately not entertained the issue.
Praveen Khandelwal, Secretary General, CAIT

Claiming that the commission approved the deal without assessing the impact on the industry, he said while the regulator accepted arguments of Flipkart and Walmart, it “never gave any opportunity to us to represent our case”.

“We have convened an emergency meeting of national governance council on Aug. 19 at Nagpur to plan on the legal proceedings, and also a national movement on the issue.”