Anay Mehrotra

In the case of The National Restaurants Association of India v. Zomato and Bundl Technologies we relook at the digital re-applicability of existing competition law both Indian and international. This piece examines the relationship between Food Delivery Platforms and restaurant owners and clearly calls out anti-competitive practices at play. Furthermore, it illustrates the implicit necessity of aggregator platforms for discovery of services and proposes recommendations that aim to provide equal opportunity to competitors in a digital marketplace.

I. Introduction

The riff between the petitioner, the National Restaurants Association of India (NRAI) and opposing parties Zomato and Swiggy (Bundl Technologies), alleging anti-competitive practices has been making headlines. In 2020, India’s online food delivery market was valued at USD 5 billion of which Food Delivery Platforms (“FDPs”) account for eighty percent market share. It is thus imperative that Competition Commission of India (“CCI”) regulates the working of FDPs to foster a fair and equitable environment that allows for competition and enables independent Restaurants Partners (“RPs”) to thrive.

The NHRI had moved to the CCI in July 2021, under §19(1)(a) of the Competition Act, 2002 against FDPs.  After finding a prima facie case, vide its order dated April 4, 2022, the Competition Commission of India (“CCI”) directed the Director General (“DG”) to conduct a probe against the exclusive practices of FDPs under §26(1) of the Competition Act, 2002 (“Act”).  The DG is required to inquire whether the conduct of FDPs has resulted in adverse effect on competition in the market, in contravention of the provisions of §3(1) read with §3(4) of the Act through agreements with downstream Restaurants Partners (“RP”). Noticeably, before referring the case to the DG the CCI assessed on the following 3 issues:

1. Bundling of Services: Forcing customers to use more than service under the pretext of providing a single service
2. Platform Neutrality: Preferential treatment to sellers by platform owners
   • Position
   • Search
   • Deep Discounts
3. Price Parity: High barriers to entry for smaller RPs

In this piece, I will trace, evaluate, and comment upon these 3 issues and sub issues assessed by CCI. I will then proceed to provide synthesis and recommendations basis the DG’s assessment.

II. Analysis and Critique of CCI’s Assessment of FDPs

1. Bundling of Services

An incumbent is legally disallowed from preventing new businesses from emerging. In effect, anti-competitive agreements and abuse of dominance is prohibited under §3 and §4 of the Act and correspond to Articles 101 and 102 of Treaty on the Functioning of the European Union (“TFEU”).

1. 3(4)(d) of the Act deals exclusively with tie-in arrangements, a practice whereby the seller of a product or service requires purchasers to also purchase a separate product. This corresponds to no single article of TFEU.
2. 4(2)(d) deals with both tie-in and bundling arrangements, a practice whereby the seller packages two complementary products and sells at one price. This corresponds to Articles 101(1)(e) and 102(d) of TFEU.

The language incorporated under §3(4)(d) of the Act alongside interpretation of the same in the Sonam Sharma v. Apple [1] case has created a lacuna in the law dealing with tie-in and bundling arrangements. In 2020, the CCI while deciding the case held that these sections independently dealt with cases i.e., exclusive tie-in for §3 or a combination of tie-in and bundling for §4(2)(d). As opposed, under the current case the CCI has ignored its previous stance and analysed the case of bundling under §3(4)(d) i.e., ignoring bundling and only considering tie-in.

Since §4(2)(d) of the Competition Act corresponds to Articles 101(1)(e) and 102(d) of TFEU. Let’s proceed to analyse the possible outcomes of this case under TFEU.

Proving Bundling and Tying Under International Law 

Under International jurisprudence, ‘bundling’ refers to a practice whereby the seller of a product or service requires the buyers to purchase another separate product or service. FDPs are bundling the two services of placing orders and fulfilling delivery, while actively and aggressively dissuading restaurants from fulfilling orders themselves. The following three conditions need to be met to prove bundling as anti-competitive:

1. Market Dominance
2. Coercion
3. Foreclosing competition

1. Market Dominance: Opportunity to define Collective Dominance under Indian Jurisdiction

The CCI noted that “that Zomato and Swingy are prominent online food delivery platforms and operate as online intermediaries for food ordering and delivery”.^[2] Here, the CCI did not consider Zomato and Swiggy (FDP’s) to be dominant under §4 of the Competition Act. However, the author is of the opinion that Zomato and Swiggy should be held ‘collectively dominant’ under §4, i.e., a scenario where two or more independent undertakings, possibly through established economic links, hold a dominant position in the market together while still being independent of each other.

• Indian Jurisprudence on collective dominance

The Indian law on Collective Dominance falls far below the international standards. There have been multiple cases in India such as the Amazon & Flipkart v. Competition Commission of India where the CCI has concluded that though Amazon and Flipkart if considered independently would not attract section 4 of the Competition Act, they are jointly dominant e-commerce entities. When the concept of joint or collective dominance is not recognised, individually non-dominant firms evade liability, simply because when considered standalone they do not have the market share to attract the provisions of the Act.

This stands in stark contrast to international law, particularly the EU law. In the Italian Glass Flat case, the Court interpreted  Article 102 of the TEFU and held that two independent economic organisations can jointly maintain a dominating position “compared to the other operators on that market”. This position of law has been upheld in a plethora of cases in the EU including Compagnie Maritime Belge Transports a.o. v Commission and Atlantic Container Line and Others v. Commission. A parallel can be drawn between the present case and the Laurent Piau case in the EU in which multiple companies were deemed to have such collective market dominance that other competitors were rendered insignificant. This permitted businesses to increase prices at their discretion. The author believes that the concept of collective dominance should be recognized under the Indian Law.

• Why Zomato and Swiggy Should be held Collectively Dominant

By alleging violation of § 4, the NRAI has presented the CCI with an excellent opportunity to recognise the abuse of collective dominance by the FDPs. In the online food ordering industry, the market is hyperlocal, meaning that the direct delivery of items from a vendor to a customer is confined to a few kilometres. Considering this the CCI defined the relevant market as the “market for restaurant marketplace for delivery services in various hyperlocal areas across India”.[3] Moreover, the CCI while ascertaining dominance in a relevant market takes into account the market share. Zomato and Swiggy collectively hold ninety-ninety five percent market share in every hyperlocal area.^[4] Considering this, Zomato and Swiggy should be held dominant.

Moreover, Zomato and Swiggy have been infamous for an unregulated increase in pricing, over and above the cost imposed by the restaurants. In addition, §5 of the Act governs the creation of combinations via acquisitions and extends this sanction to “one or more people.” This section penalises several organisations that engage in covert collusion to take control of a company. If the Act recognises the possibility of multiple enterprises to combine and jeopardise free competition, it only makes sense to likewise recognise their power to jointly control a market. Thus, acknowledgement of collective dominance will, serve to sustain the values already established by the Act.

2. Coercion

Coercion should ideally be assessed at the time of sale/service rather than deriving it from effects on consumer behaviour post-purchase of the bundled product. The Court of First Instance of the European Union in Microsoft v. Commission (‘Microsoft’) held that in cases of bundling in e-commerce, “coercion exists when a dominant undertaking deprives its customers of choice using the bundling service without the tied product.”

The Microsoft case is of special significance because the factual matrix is very similar to the present case. In that case the integration of Windows Media Player into the Windows Operating System (OS) was held to be tying in of products in contravention of Article 102 TFEU since it dissuaded customers from purchasing other media players and affected competition in the relevant market. In 1998, Microsoft faced similar antitrust charges in the US for its bundling of Internet Explorer with the Windows OS.

In their submissions to the CCI, both firms emphasised the fact that they do not refuse to serve businesses who do not use both services. However, the FDPs’ reluctance to outsource delivery services to logistics businesses indicates otherwise. FDPs also have their own cloud kitchens. Owning these cloud kitchens has the potential to classify them as direct competitors.

Furthemore, the author believes that the CCI erred viewing consumer behaviour post-service in the present case. If it were to view coercion as pre-service then the integration of online food ordering with food delivery service by dominant players would be correctly classified as a lever to drive out the competition from the relevant market.

3. Restricting Foreclosure

CCI considers market foreclosure to be a concern when the damage causes real and significant harm to competitors. While analysing bundling the CCI rejected the notion of market foreclosure.[5] Under Indian jurisprudence, to qualify the condition of ‘market foreclosure’ for constituting bundling, it is sufficient that rivals are disadvantaged such that they consequently compete less aggressively. This has also been affirmed by the Court of Justice of the European Union.[6] The author believes that non sharing of data by Zomato and Swiggy is leading to market foreclosure.

Consumer data is indispensable to the digital market. The accumulation of data contributes to the generation of “network effects,” in which an increase in the number of users on one side leads to an increase in the number of users on the other side, resulting in an increase in the product’s value. The more data food delivery platforms accumulate, the more network effects they create. These network effects are the greatest entry barriers in digital marketplaces. After amassing a substantial quantity of big data, the incumbent platform acquires the position of market gatekeeper. In Matrimony.com v. Google, the CCI acknowledged Google as a “gateway to the internet” due to its practically uncontested market hegemony.

In the current Indian market, there are two dominating corporations instead of one, and they together control almost ninety percent of the food delivery business.[7] This produces a “multi-homing” situation, in which consumers freely use two competing platforms simultaneously. Amazon and Flipkart are excellent examples of this. In the midst of an active rival platform, one attempts to gain dominance by contractually mandating restaurants to list only on their platform.  By doing so, the FDPs establish barriers for new market entrants by denying them not just access to restaurants but also the customers that come with them. Thus, both the supply (restaurant) and demand (customers who order meals) sides of a new platform are compromised.

Players in the digital market sector are not competitors in the conventional sense. They share interconnected goals by not competing for the same customer base but delivering distinctive advantages that neutralise the competitor platform’s offerings. Thus, the stance taken by the CCI leads to an incorrect assessment since FDPs are ensuring ubiquitous oligopoly by restricting foreclosure of data with the RPs.

Since all conditions of bundling i.e., dominance, coercion, and foreclosure under International Jurisprudence are met, I recommend that practices of FDPs should be begun to be held anti-competitive.

2. PLATFORM NEUTRALITY

In the study, the CCI recognised platform neutrality, as a growing and consistent concern. Absence of platform neutrality could potentially violate both §3 and §4 of the Act.

In the current case, the CCI prima facie declared the existence of a conflict-of-interest situation between independent RPs and RPs owned in part or full by FDPs. This warranted detailed scrutiny into the impact on competition, arguably artificially removing competition, between the RPs with a focus on those that the platforms/aggregators may favour.

Thus, the aforesaid conduct requires a holistic examination to ascertain whether these intermediaries prevent competition on merits, creating an ecosystem causing or likely to cause an appreciable adverse effect on competition. The FDPs go against the ethos of neutrality by leveraging their exclusivity on:

• Position: Offering advantages of preferential listing and placement to sellers
• Search: Artificially modifying search parameters and results
• Deep discounts: Providing excessive discounts to customers

1 Position

Leveraging occurs when an entity enjoys a dual role in the market for a product or service, i.e., both as an intermediary (being the marketplace) and a seller on the marketplace. Such entities potentially wield disproportionate competitive advantage. As an intermediary, marketplaces receive crucial commercial information on all products and services on their platform effectively allowing the platform to reverse engineer the entire value chain and produce exclusive dishes.

Swiggy enjoys this dual position in the marketplace. This is witnessed in private labels, which are brands that the company sells under its own name. These company-owned brands generate good margins and revenues. Swiggy already operates brands like the Bowl Company, Breakfast Express and Homely. These brands contributed 20% to Swiggy’s revenue pre-pandemic. Furthermore, Swiggy generates terabytes of data every day, which is leveraged for delivery efficiency and connecting customers to the right restaurant. It is, therefore, possible for Swiggy to strategically direct the customers towards the restaurants owned by Swiggy.

The Competition Act establishes such leveraging as abuse under §4(2)(e) and recognises the same as violation only when committed by a dominant enterprise to enter a relevant market or protect its position in another relevant market. In the case of In Re: All India Online Vendors Association,[8] the CCI held Flipkart responsible for leveraging its position as a marketplace to extend preferential treatment to WS Retail – a seller closely associated, founded and once owned, with Flipkart. However, as Flipkart was not a dominant entity, a case for leveraging under §4 of the Act could not be maintained.

2 Search

E-commerce platforms preferentially list sellers by manipulating search results in favour of “preferential”, “assured” or “top-rated” sellers, which are titles designated by the platforms. Search manipulation generates advantage to a private brand or preferred sellers by allowing them prominent placement and better real estate on the platform – and can result in additional violations under the Act (§4 (b)(i), §4(c)).

Search manipulation aims at (and achieves in) shifting consumer attention towards certain products and services. The study refers to these actions as ranking bias as, in many cases, it is the manipulation of sellers’ ranking on the platform that results in compromised search results.

For example, in 2018, the CCI held Google liable for fines to the tune of Rs. 136 crores for violation of §4 of the Act for indulging in search bias. Google was pre-determining ranking on its online web search service, to unduly give prominent placement to its own specialised services – similar to FDPs artificially forcing a choice basis ranking order of restaurants on search.

3 Deep discounts

The accusation of deep discounting and exorbitant commissions is a price-squeezing tactic of online delivery partners and may be seen as unfair and discriminatory under §4(2)(a)(ii). A price squeeze is when a vertically integrated company charges discriminatory pricing for the supply of inputs to non-integrated competitors in order to put them at a competitive disadvantage. A “squeeze” occurs when an integrated business charges non-integrated enterprises a high price for inputs while selling its own completed product at a low price, hence enabling non-integrated firms only modest profits or forcing them to incur losses.

The online delivery partner charges high commission rates to restaurateurs (high price) and offers discounts on its platform (low price), therefore driving platform traffic and placing restaurants at a competitive disadvantage when it comes to reaching end customers for their goods.

4. PRICE PARITY

The CCI, on perusal of the terms of the agreement noted that, restaurant partners are disallowed to maintain lower prices and higher discounts on their own supply.[9] Competition between FDPs is based on commission charged from restaurants – with each trying to outdo the other for exclusive access basis reduced commission charged. A new entrant will typically differentiate itself based on price or discounts – but given that FDPs compete on commission they will enforce higher prices than normal for food and beverage items.

Owing to softening of competition on commission rates, Price Parity Clauses (PPCs) will induce coordination or a tacit understanding among the existing ecommerce platforms to stabilize or increase the prices by increasing or stabilizing the commission rates for the sellers. For example, in the eBook cases against Apple, the use of PCCs led to a collusion among the publishers to increase prices of eBooks on all platforms.

Even the HRS Case is a classic demonstration of the anti-competitive effects posed by PPCs enacted by a significant market player. In this case, the use of wide PCCs was completely disallowed by the German Bundeskartellamt as it resulted in restriction on price competition among online Travel Agents and hotels, creating entry barriers for new entrants and hampering consumer welfare. Amazon too was scrutinized by the UK Office of Fair Trading and Bundeskartellamt for its use of wide PCCs – in response to which Amazon ended price parity policies across the EU Marketplace.

Even in the Federation of Hotel and Restaurant Associations of India v. MakeMyTrip India Pvt. Ltd. the CCI acknowledged the intensive anticompetitive restraints that wide parity clauses can impose on online commerce platforms, and this served as one of the factors for the order of investigation under §26(1) of the Act against significant players such as Online Travel Agents (OTAs) i.e., Make My Trip & OYO Case.

III. CONCLUSION

Digital marketplaces in India are under constant and consistent scrutiny – OTAs, eCommerce retail giants, and now FDPs – are all under the radar of the CCI, basis charges of exclusivity, preferential treatment of private labels, and broad parity agreements among others. The uptake of digital markets, while new to India, is an old phenomenon in the west. We must look to and learn from their ways of maintaining heathy competition in a hybrid world.

Anay Mehrotra is a second year law student at WBNUJS, Kolkata.

[1] Competition Commission of India, Sonam Sharma v. Apple, Case No. 24/2011, ¶ 68.

[2] Competition Commission of India, In Re NHRI v. Zomato and Swiggy, Case No. 16 of 2021, ¶ 36.

[3] Id., ¶ 4.

[4] Id., ¶32.

[5] Id.,  ¶ 50.

[6] ABIR ROY, COMPETITION LAW IN INDIA: A PRACTICAL GUIDE, 220 (2016).

[7] Supra n.2, ¶ 4.

[8] Competition Commission of India, In Re: All India Online Vendors Association, Case No. 20 of 2018, ¶ [8].

[9] Supra n.2, ¶ 86.