Sibling Rivalry: The case of Flipkart
The hubbub created by Flipkart’s sale this week has drawn a lot of flak from among its offline brethren. Prime among their concerns is the discount levels doled out by the online retailer terming it as predatory pricing. Therefore, they have decided to approach the Competition Commission of India.
There are a few legal concerns that were highlighted by a few stakeholders:
- Flipkart’s authority to sell products that certain manufacturers have been crying foul over as the seller has not been designated an ‘authorized’ dealer, and
- Can Flipkart provide warranty on the goods it sells?
- The issue of Predatory Pricing with the offline retailers preparing to approach the competition watchdog to reign in this concern.
Does a seller necessarily have to be a manufacturer’s designated dealer to retail products?
To know this, one would need to understand Flipkart’s modus operandi. Reportedly it uses a hybrid model inviting third party sellers to market through its platform. So, if a product is being sold on the website, it has been approved by the manufacturer. Given this hybrid model utilized by Flipkart, the warranty for the goods that is sold on its website should come with a warranty so long as the manufacturer has provided the same.
The next issue has been that of Predatory Pricing. It has been defined in the Competition Act as a price below the cost of production as may be determined by regulations.
The concept has been fairly covered under Section 4(2)(ii) of the Competition Act whereby it states that there shall be an abuse of dominant position by an enterprise if it imposes unfair and discriminatory pricing including predatory pricing on the purchase or sale of goods and services directly or indirectly.
Going by the industry facts and figures, one could safely rule out the dominance position of Flipkart. (It could be an entirely different story if e-commerce alone could be treated as separate from offline retail.)
The issue of predatory pricing therefore would have to be ruled out as Flipkart isn’t really holding a position of dominance. Furthermore, the CCI had ruled in the case of Snapdeal that it was just an online facilitator of sale of goods and services which acts as a good precedent for Flipkart.
Additionally, once a contract is in place between the manufacturer and Flipkart, the question is whether Flipkart is allowed to modify the pricing for the products which is a function of the contract terms. The fact that manufacturers, one or many, will be stopping supply to the retailer is a commercial call. So at best, the impact of the recent sale by Flipkart could be sealed off as sibling rivalry.
