Unravelling Digital Duopoly: Navigating Data-Driven Anti-Competitive Practices in India’s Online Marketplace
Introduction
Swiggy and Zomato dominate at least 90% of the food delivery business, making them a duopoly in the industry. The National Restaurants Association of India (NRAI) filed a complaint with the Competition Commission of India (CCI) in 2021, accusing Swiggy and Zomato of engaging in anti-competitive behaviour. The CCI determined that some practises of the food services aggregators (FSAs) were anti-competitive and ordered a Director General (DG) probe. The inquiry is still open at this time. According to the CCI’s order on April 4, 2022, there is a prima facie case against Zomato and Swiggy based on the following three allegations:
FSAs are playing a dual role by only featuring their own cloud kitchen brands on their platforms. FSAs operate as both participants and intermediaries in this, which presents a conflict of interest. FSAs force RPs to list solely with the FSAs by entering into exclusive contracts with them. By imposing price parity requirements on RPs, FSAs are preventing them from providing clients with cheaper rates or better conditions on platforms run by FSAs.
Data Exploitation: Regulatory Response and Market Landscape
Digital platforms including Google, Facebook, Uber, Ola, Amazon, and Flipkart have been accused of engaging in anti-competitive behaviour on several occasions during the past ten years. But the success rate in these circumstances has been rather low. The absence of collective dominance recognition and not considering data as a critical aspect in determining an entity’s dominance under Indian law are the two key causes of this.
A cloud kitchen, also referred to as a shadow kitchen or virtual kitchen, is primarily a delivery-only enterprise. It has a large online presence, depending mostly on food aggregator applications such as Swiggy and Zomato, as well as its own website or apps. Cloud kitchens do not provide dine-in services as part of their service. As intermediaries, Swiggy and Zomato collect a wealth of customer data and use it to inform their own business plans. For instance, they used this information to set up their own cloud kitchens. They use consumer information to create secret algorithms that give priority to their own cloud kitchens, which leaves restaurant partners perplexed as to why they rank lower in search results.
The food-delivery platforms have recently abandoned their cloud-kitchen strategy to focus on the grocery delivery segment instead. Although the presence of food service aggregators in cloud kitchens and restaurants’ favourable treatment of them cannot be disputed, demonstrating the magnitude of the harm has grown more difficult. The food intermediaries have a larger preference for restaurant partners that either belong to their private labels or pay them significant fees because of their vested interests in the downstream market.
In a prior Market Study on E-Commerce, the CCI concentrated on competition concerns relating to e-commerce platforms and marketplaces. The absence of platform neutrality was the first of the CCI’s five main concerns mentioned. When platforms lack neutrality, the market outcome is more likely to be influenced by food aggregators (marketplace) rather than driven by merit-based competition. The study revealed two critical platform neutrality challenges. First, on their platforms, intermediaries have access to sensitive transaction data. Second, intermediaries have power over search criteria and results, resulting in preferred listings. The Study also raised various issues, including platform-funded deep discounting, price parity provisions, exclusivity agreements, distorted search rankings, and data exploitation.
When there is no platform neutrality, food delivery platforms have an advantage because they can access transaction data and influence search result rankings. These platforms, as intermediaries, collect critical competitive information such as pricing, sales volumes, and demand trends for each product, seller, and region. This data access enables platforms that also operate as sellers to enhance sales
Duopoly’s dominance and User Reliance
Surprisingly, the CCI’s concerns in the Market Study correspond to those outlined in the CCI’s prima facie ruling against Zomato and Swiggy. The CCI in the well-known DLF case observed that one-sided agreements often result in consumer loss. If such arrangements do not result in customer loss, they demonstrate the enterprise’s capacity to function independently of competitive forces. Similarly, Zomato and Swiggy agreed to one-sided terms and conditions with RPs, such as exclusive listing obligations, hefty commission costs ranging from 25% to 30%, price parity agreements, and forcing RPs to subsidise platform-provided discounts. Despite these unfavourable conditions, Zomato and Swiggy have a combined market share of 95% in the meal delivery sector. This emphasises customers’ reliance on these platforms, suggesting their capacity to function independently of the market’s current competitive factors.
Zomato and Swiggy’s conduct match the standards established in Section 19(4) of the Competition Act, 2002. Furthermore, by utilising their dominating position in the app-based meal delivery sector to join another relevant market, they breach Section 4(2)(i). As previously stated, Zomato and Swiggy dominate the app-based meal delivery business. They solely feature their own cloud cooking brands on their platforms, akin to private labels, in addition to their core position as intermediaries between customers and RPs.
Restaurant partners have expressed worries regarding data masking-related privacy risks. Surprisingly, both Swiggy and Zomato have privacy policies that expressly ask agreement to share user data with restaurant partners using identical language. “When you place a food order request on the Swiggy/Zomato platform, your information is shared with us and the restaurants/merchants you choose to order from… We share your information with the restaurant in a manner similar to if you had made a reservation or food order directly with the restaurant…”
A seller’s rating on the platform is determined by their position in response to customer-generated search queries. The platform oversees fine-tuning the algorithm as well as regulating the search parameters and outcomes. Hence, platform’s dual structure raises concerns about potential biases that may affect search rankings, which have a significant impact on the amount of client traffic a vendor receives. Several restaurant owners complained about the lack of transparency in the platforms’ algorithms.
Platforms that manipulate search results, seller data, and user evaluations make it difficult for independent eateries to compete against vertically integrated organisations or the platforms’ favoured entities. The European Commission fined Google $2.4 billion for prioritising its own retail comparison website in search results, taking advantage of its position as a search engine. Similarly, Google was fined $21 million in 2019 by the CCI for “search bias” and exploiting its strong market position.
Addressing the anti-competitive practises
Zomato and Swiggy are the two primary market leaders in the Indian food aggregators business, and with Zomato’s acquisition of Ubereats, Zomato is poised to become the dominating market leader in the relevant sector. Swiggy launched Instamart in 2020, enabling easy grocery and other goods delivery. Zomato purchased Blinkit, a rapid commerce platform, in 2022, seeing it as a logical extension of their main meal delivery company. Swiggy’s integration with Instamart, for example, makes it easier for them to grow into other areas by combining these services within their platforms. Platforms prioritise their own services and protect data in these horizontal market places. Swiggy and Zomato both announced major investments in Urban Piper, a business that provides point-of-sale software integration for eateries, in April 2022. According to Urban Piper, it handles around 20% of all internet food orders. Concerns are raised by this investment since the duopoly now has access to data from eateries regardless of whether they are listed on Swiggy or Zomato.
Big Tech firms amass massive amounts of Big data, which they tightly manage within their closed ecosystems. When these corporations abuse such broad data access, it has a negative impact on competition, creating a void in Indian competition law. To solve this problem, the recently released Open Network for Digital Commerce (ONDC) protocol requires sellers to openly reveal their algorithmic preferences and submit to audits. This keeps platforms responsible for their behaviour and encourages openness. Furthermore, the ONDC protocol restricts platforms from favouring a subset of suppliers.
To address the issue of Big Tech’s anti-competitive data practises, the 53rd Report of the Standing Committee on Finance (December 2022) advocated the introduction of a new Digital Competition Act, comparable to the European Union’s Digital Markets Act. This suggestion tries to address the issues raised by Big Tech businesses. Thrive, DotPe, and Peppo, for example, provide a platform for restaurants to be discoverable without imposing hefty commissions and provide restaurant partners with access to client data. These steps, however, are insufficient to remedy the issue. To successfully counteract data-centric anti-competitive practises, legislative changes that recognise collective dominance and its related anti-competitive behaviours are required. Furthermore, enacting a strong data privacy regulation is critical to preventing the establishment of walled gardens and ensuring data democratisation.
The draft data privacy law released in December 2022 raises worries since it gives Big Tech broad authority to acquire data based on “deemed consent” for any lawful reason. This clause is unconvincing and may give Big Tech even more influence.
Platform cooperative models such as NammaYatri and Rezoy, which have lately acquired popularity, offer potential. However, in order to live and prosper, these models require improved institutional support in the form of financing awards and legal concessions.
Conclusion
To combat anti-competitive practises, ecommerce websites must be required to keep track of previous algorithms. In conclusion, maintaining a robust and balanced data protection framework, encouraging platform cooperatives, and legislating transparency in algorithmic practises are critical steps in addressing Big Tech concerns and promoting fair competition in the digital realm .Fifth, the definition of a “related party transaction” should be broadened to include the benefit derived by data. This implies that data exchange or flow between organisations with major or small stakes in one another must be recorded as a related party transaction.
To summarise, broadening the definition of related party transactions to include data benefits and strengthening the CCI’s technological capabilities are critical steps towards guaranteeing a fair and competitive e-commerce environment.
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