Legality of Online Flash Sales & Competition Laws in India: Lawyers Advice
Online flash sales are discounts offered by e-commerce entities for a short period of time. In such sales, the online entities give out discounts on certain products to increase their sales. These sales by the online retail markets attract a lot of customers but such sales do not benefit the offline retailers of the same product on sale. Through these discounts the price of the product decreases to an extent lower than the cost of the product and this does not favor the offline physical stores who will not be able to meet their expenses and costs. This brings us to question the legality of online flash sales.
Legality of Online Flash Sales under the Competition Act, 2002
Through a lot of examples and theories, online flash sales seem to be legal under the Competition Act, 2002. The Competition Act, 2002 prohibits anti-competitive agreements as per section 3 of the Act, abuse of dominant position as per section 4 of the Act, and Predatory Pricing as per section 4(1) of the Act. Before understanding if online flash sales are prohibited under any of these provisions of the Act, it is important to understand the relationship between the online market and the offline market. The e-commerce platform is a channel of distribution to the relevant retail market. In the case Ashish Ahuja v. Snapdeal & Anr (2014) CCI 17, it was held by the Competition Commission of India (CCI) as follows “The Commission also notes that both offline and online markets differ in terms of discounts and shopping experience and buyers weigh the options available in both markets and decides accordingly. If the price in the online market increase significantly, then the consumer is likely to shift towards the offline market and vice versa. Therefore, the Commission is of the view that these two markets are different channels of distribution of the same product and are not two different relevant markets.”
Can Online Flash Sales be termed under Predatory Pricing ?
Predatory pricing is a practice prohibited under section 4 of the Competition Act. In the case MCX Stock Exchange Ltd v. National Stock Exchange of India Ltd. (2012) 6 Comp LJ 260, the Competition Commission of India defined predatory pricing as “where a dominant undertaking incurs losses or foregoes profits in the short-term, with the aim of foreclosing its competitors.” This is when the e-commerce platforms give out discounts to an extent that the price of the product becomes lesser than the cost of the product. While doing this the e-commerce platform attracts a lot of customers from the offline stores selling the same product and also customers of other firms as well. If this is done with the intention of removing all the small business and competition form the market it perfectly fits the practice of predatory pricing and also anti-competition agreements which are prohibited under section 3 of the Competition Act, 2002. But, for the act to constitute predatory pricing the firm has to be a dominant firm in the market. In the case Bharti Airtel Ltd. v. Reliance Industries Ltd. 2017 Comp LR 723 (CCI) the CII stated that the investigation of the alleged predatory conduct would take place only if Reliance Industries prime facie dominant in the market.
The Competition laws of India does not promote dominance of Corporate entities and envisages for health competition in the market both electronic and physical.
Pre-Dominant Position of the E-Commerce firms in the Market
The e-commerce retail firms amount to approximately 8% of the entire retail market in India. This proves that they are not dominant in the market and hence they cannot abuse any dominant position as per section 4 of the Competition Act, 2002. However, in 2018, the Minister of Commerce and Industry, Suresh Prabhu announced in the Lok Sabha that conduct of certain e-commerce players who do enjoy a position of market dominance may also be brought under the radar of Indian competition law under Section 4 of the Competition Act, 2002 if they abuse their dominant position.
Online Flash Sales by E-Commerce websites and portals can be termed legit, however, in case they have a dominant position and misuse the same to wipe out competition from the market then the same becomes illegitimate and falls under the legal preview of the Competition Commission of India (CCI).
Small businesses are the driving forces of the economy and it is important to protect these entities. With the flash sales provided by the online stores, a lot of offline stores and small businesses are getting destroyed. And online flash sales can be considered as an unfair practice as through this practice the online platforms are stealing the customers of the offline platforms which will lead to them shutting down and a lot of people losing their jobs. E-commerce companies compete with themselves and that is the only competition they have. This leads us to think that there is no way they can indulge in predatory pricing and anti-competitive agreements but with online flash sales it is possible. When an e-commerce entity with an intention of removing all the offline stores put up online flash sales is unreasonable. This can be tried by the the Competition Commission of India (CCI) but only if the relevant online platform is dominant.
Authored By: Adv. Anant Sharma & Sanjana Akasam