By Nihit Nagpal and Anuj Jhawar
The Competition Commission of India has passed an order dated April 04, 2022 directing an investigation in terms of Section 26(1) of the Competition Act, 2002 against online food delivery platforms in India, Zomato and Swiggy with respect to their market activities resulting in adverse effect on competition in the market violating Section 3(1) read with Section 3(4) of the Competition Act, 2002.
Brief facts of the case
The National Restaurant Association of India filed the present information under Section 19(1)(a) of the Competition Act, 2002 against the said online food delivery platforms alleging that their market activities are violating Section 3(1) read with Section 3(4) of the Competition Act, 2002. The main allegation of the National Restaurant Association of India is that the said online food delivery platforms have taken unfair advantage of their significant market power and compounding “network effects” by use of advanced algorithms to enforce vertical agreements and impose vertical restraints on the Restaurant Partners, which are anti-competitive in nature. The other allegations levied are:
- Coerced bundling of food delivery services with the core listing services
- Data masking
- The RPs receive no data or information about the end-consumers to whom the food is delivered.
- “Cloud kitchen” leading to promotion of private labels and preferential treatment
- One sided conditions of contracts with RPs
- Use of MFN /Price parity clauses
- Excessive commissions
- Deep discounts forced on RPs
Observations made by the Competition Commission of India
The Competition Commission of India conducted a detailed analysis of the allegations and found a prima facie case in respect of below three allegations:
“Cloud kitchen” leading to promotion of private labels and preferential treatment:
Even if Zomato does not own the kitchen space as claimed by it, prima facie the Commission was satisfied that the revenue interest that exists in favor of Zomato, along with the minimum guarantee obligation, can act as an incentive to divert traffic to the Restaurant Partners situated in those Access Kitchens. Thus, in the case of both Swiggy and Zomato, prima facie there exists a conflict-of-interest situation, warranting detailed scrutiny into its impact on the overall competition between the Restaurant Partners vis-à-vis the private brands/entities which the platforms may be incentivizing to favour themselves.
The Competition Commission of India found merit in investigating the issue pertaining to platform neutrality and felt that it may also be seen during investigation whether exclusivity in conjunction with minimum guarantee obligation is further accentuating the structure which may come in the way of the platform operating in a neutral manner. Thus, the aforesaid conducts require 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.
Price parity clauses
In case of food delivery apps, widely defined price parity arrangements/restrictions may result in removal of the incentive for platforms to compete on the commission they charge to restaurants, inflate the commissions and final prices paid by consumers and may also prevent entry of new low-cost platforms. The price parity clauses mentioned in the agreements of Zomato and Swiggy appear to indicate wide restrictions where the Restaurant Partners are not allowed to maintain lower prices or higher discounts on any of their own supply channel or on any other aggregator, so that the minimum price or maximum discounts can be maintained by the platform. Such price parity clause may discourage the platforms from competing on the commission basis as Restaurant Partners need to maintain similar prices on all platforms and provide similar prices to the customers, regardless of the commission rates paid to the platform. Given that Zomato and Swiggy are the two biggest platforms present in the food delivery segment, their respective agreements with Restaurant Partners of this nature are likely to have an appreciable adverse effect on competition on the market by way of creating entry barriers for new platforms, without accruing any benefits to the consumers. Thus, the Competition Commission of India was of the view that an investigation under Section 3(4) read with Section 3(1) of the Act is made out on this aspect as well.
The Competition Commission of India concluded that a prima facie case does in fact exist, the matter of the conduct and operational policies of the two biggest restaurant aggregator and food-delivery platforms in India, which requires an investigation by the Director-General to determine whether the conduct of the said online food delivery platforms has resulted in contravention of the provisions of Section 3(1) of the Act read with Section 3(4) of the Competition Act, 2002.