Analysing the Legal Battle of NRAI and Zomato and Swiggy Through the Lens of Antitrust Law
Analysing the information filed by the National Restaurant Association of India against the alleged anti-competitive practices followed by food aggregator apps Zomato and Swiggy before the Competition Commission of India, HARISH KUGUNAVAR looks at recent developments in India’s antitrust jurisprudence to predict how the Commission may decide the case.
The National Restaurant Association of India (NRAI) on July 1, 2021, submitted information to the Competition Commission of India (CCI) about online food delivery partners Zomato and Swiggy alleging anti-competitive practices and abuse of dominant position.
The issues flagged by the association comprise bundling of services, use of deep discount policies, charging exorbitant commissions from the restaurateurs, reluctance to share consumer data with the restaurants, violation of platform neutrality and absence of transparent disclosure of delivery prices and share of the commission for the order.
The restaurants and the delivery partners form a vertical arrangement as they function under different levels of the supply chain. But Zomato and Swiggy, being e-commerce online platforms, function as both the marketplace and as competitors within the marketplace. These online marketplace platforms have emerged as a prominent route for sellers and service providers to reach consumers, who are actively shopping online. The search and comparison feature available on these platforms lead to massive consumer traffic. Thus, it becomes necessary for sellers and service providers to be listed on these intermediary platforms for greater visibility. This results in the utmost dependency of businesses on these online platforms to reach their end-users, which ultimately hands a higher bargaining power to online platforms, making them dominant over the service providers. This is the case being made by the NRAI.
Viewing NRAI’s allegations through the lens of antitrust law
NRAI asserts that Swiggy and Zomato indulged in breaking platform neutrality by providing priority to exclusive contractors. According to it, the platforms enter into an exclusive supply agreement with contractors who offer giant discounts on their platforms to list them on priority, thus bumping the other restaurants down the list, resulting in losses for the latter. This allegation, if proven, would be declared anti-competitive, and attract Section 3(4) of the Competition Act, 2002 (TCA). It would also indirectly result in denial of market access to these restaurants on the platforms, invoking Section 4(2)(c) of TCA.
The allegations of deep discounting and charge of exorbitant commissions would attract section 4 of TCA that regulates the abuse of dominant position in a marketplace. To establish such abuse, the prerequisites are that there should be a relevant market, the alleged enterprise should be dominant in the relevant market, and the practices of the enterprise should be abusive of its dominant position. The dominant position of an enterprise is determined according to procedural guidelines laid down under Section 19(4) of TCA.
As per the TCA, anti-competitive practices take place only when the enterprise in question enjoys market dominance. This has been reiterated in several CCI judgements, such as those in the cases of M/s Dhanvir Food Product v. Bank of Baroda (2015), Bharti Airtel Ltd. v. Reliance Industries Ltd. & Anr. (2017), and Fast Track Call Cab Pvt. Ltd. & Anr. v. ANI Technologies Pvt. Ltd. (2017).
The legal battle for NRAI may turn hostile if the online delivery partners are considered non-dominant. But the recent development in the competition law jurisprudence laid down by the Supreme Court in its judgment in Uber India Systems Pvt. Ltd. v. CCI (2019) that predatory pricing is prima facie indicative of abuse as well as dominance might prove fruitful for the NRAI case, and might land the online delivery partners in deep trouble if abuse is proved.
The allegation of deep discounting and charging exorbitant commissions is a price squeezing strategy of the online delivery partners and can be read down under section 4(2)(a)(ii) as unfair and discriminatory. Price squeeze is the charging of discriminatory prices by a vertically integrated firm for the supply of inputs to non-integrated rivals, as a means of putting them at a competitive disadvantage. A ‘squeeze’ is applied if the integrated firm charges the non-integrated firms a high price for the input, but sells its own finished product at a low price, thus allowing non-integrated firms only minimal profits or forcing losses on them.
The online delivery partner charges high rate of commissions from restaurateurs (high price) and provides discounts on its platform (low price), thus increasing traffic on its platform, and pushing restaurants towards a competitive disadvantage in reaching the end consumers for their product.
How the CCI might decide the legal battle
The CCI, while framing its opinion on whether there has been an abuse of dominance by Zomato and Swiggy, might call attention to its decision in Prachi Agarwal & Anr. v. Swiggy Bundl Technologies Pvt. Ltd. (2020). Swiggy was alleged to be engaging in unfair pricing on its platform, which was higher compared to the partner restaurants’ menu. The CCI held that the Swiggy had no role in pricing of the products of the partner restaurants, and was just an intermediary; therefore the question of contravention of section 4 of TCA did not arise.
But at the outset of the pandemic, a lot has changed in the business domain. The imposition of lockdowns has forced more and more restaurants to get listed on online platforms that has consequently multiplied the bargaining power of these online platforms, pushing the restaurants towards the lower end of bargaining. It also increased the market share and presence of these online platforms, giving space for abuse and antitrust violations.
In the additional information filed by NRAI with CCI, it was submitted, with evidence, the exorbitant commissions charged by Zomato and Swiggy range between 25 and 35%. NRAI also added that its partner restaurants were threatened with delisting from the platforms if they did not maintain price parity in their menus.
An analogy could be drawn with the CCI’s recent decision in In Re: Federation of Hotel & Restaurant Associations of India & Anr. v. MakeMyTrip India Pvt. Ltd. (MMT) & Ors. (2021) from March this year. In that case, MMT, operating as an online platform for hotel bookings, was held to be dominant in its relevant market and to have abused its position to indulge in anti-competitive practices by entering into a tie-in arrangement with Oravel Stays Pvt. Ltd. (OYO) in delisting the applicants Treebo And FabHotels from their platforms.
Going by that judgment, Zomato and Swiggy could have a tough time defending their case before the CCI.
(Harish Kugunavar is a law student at Karnataka State Law University’s Law School, Hubballi. The views expressed are personal.)
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