BY VASHMATH POTLURI, THIRD-YEAR STUDENT AT NALSAR, HYDERABAD
INTRODUCTION
The food delivery market in India has been one of the most dynamic and volatile markets, witnessing the quick exit of players like Uber Eats and Food Panda, among others, while being dominated by Zomato and Swiggy with a whopping market share of 58% and 42%, respectively. While there are many factors for such dominance, the recent allegations of Price Parity Clauses (“PPCs”) and exclusive agreements by the National Restaurants Association of India (“NRAI”) against both these platforms shed some light on the reasons for such market share. The findings of the Director General (“DG”), as reported by Reuters, indicate that the Competition Commission of India (“CCI”) is proceeding against these platforms under section 3(4)(c) of the Competition Act, 2002 (“Act”) based on the presumption that Swiggy and Zomato operate in a vertical framework as intermediaries distinct from their restaurant partners. However, this article challenges this presumption and argues that Swiggy and Zomato’s ownership of cloud kitchens transforms their relationship with restaurants into one of direct competition. As a result, this paper pushes for a reclassification of this case under Section 3(3)(a) and (b), enabling a shift from a ‘rule of reason’ approach to a per se standard.
The article advances this argument in a two-fold manner. First, it will analyze the anti-competitive effects of PPCs and exclusivity agreements, particularly in conjunction with Swiggy and Zomato’s cloud kitchens. Second, it will examine the role of dynamic algorithms in furthering these practices, proposing the introduction of the Algorithmic Facilitation Standard (“AFS”) in the Act, to ensure regulatory scrutiny and transparency in the market in line with the approach of the EU.
HORIZONTAL PRICE FIXING AND MARKET ALLOCATION
The allegations by the NRAI that Swiggy and Zomato operate their cloud kitchens and enter into arrangements such as PPCs and exclusivity agreements throw light on the dominance of these platforms through anti-competitive practices. These practices demonstrate that these platforms are not merely intermediaries with restaurants as downstream partners, but competitors operating simultaneously in both the food preparation and delivery markets. This dual role works to the detriment of independent restaurants.
In the MakeMyTrip (“MMT-GO”) case, the CCI assessed the anti-competitive effects of wide Price Parity Clauses (“PPCs”) and exclusivity partnerships in a vertical framework between MakeMyTrip, Goibibo, and OYO with their hotel partners. The CCI found that these agreements restricted hotels from offering lower prices or better terms on competing platforms, creating entry barriers and limiting consumer choice. As a result, the CCI held that these agreements resulted in an Appreciable Adverse Effect on Competition (“AAEC”) — a standard under Section 19(3) of the Act, which examines factors such as foreclosure of competition, barriers to entry, and harm to consumer choice. Relying on these findings, this article argues that the anti-competitive practices of Swiggy and Zomato produce identical effects, such as inflated prices and foreclosure of competition, but in a horizontal framework rather than a vertical one.
Applying the findings of the MMT-GO on wide PPCs, the PPCs entered into by Swiggy and Zomato are wide because they suppress competition in the market by mandating that restaurants maintain uniform prices across all channels, including their direct platforms and competing delivery services. This eliminates price differentiation and forces restaurants to inflate prices, depriving consumers of competitive pricing or discounts. These clauses also ensure that Swiggy and Zomato’s cloud kitchens are insulated from price competition, as restaurants cannot undercut them even when operating more cost-effectively. On the other hand, exclusivity agreements further suppress competition by restricting restaurants from listing on competing platforms or offering direct delivery services, creating a “lock-in” effect. This limits consumer access to popular restaurants and forecloses rival platforms from competing effectively.
These arrangements unfairly establish the dominance of Swiggy and Zomato’s cloud kitchens by allowing them to leverage vast data generated through their platforms. This data provides critical insights into consumer preferences, including popular cuisines, peak ordering times, delivery locations, and pricing trends. Using this information, Swiggy and Zomato can strategically design their cloud kitchen offerings to align with market demand precisely, bypassing the trial-and-error process faced by independent restaurants. They can quickly identify underserved cuisines or delivery zones and establish cloud kitchens to fill these gaps with minimal risk and cost. This data-driven approach grants their cloud kitchens a significant competitive edge over independent restaurants, which lack access to such comprehensive data and must rely on slower, costlier market research methods.
The combined effects of PPC, exclusivity agreement, and cloud kitchens on a horizontal level, results in the creation of barriers to entry and foreclosure of competition, causing an AAEC under Section 19(3)(a) to (c). Hence, this article argues that the CCI must re-examine this case under Section 3(3)(a) and (b) through a ‘per se’ approach. Taking inspiration from the EU’s Vertical Block Exemption Regulation (“VBER”), which removed wide PPCs from the regulatory exemption, the CCI could impose cease-and-desist orders and monetary penalties, ensuring a competitive marketplace.
ALGORITHMIC FACILIATATION STANDARD
Swiggy and Zomato’s algorithms play a crucial role in enforcing PPCs and exclusivity agreements, amplifying their anti-competitive effects. These platforms use algorithms to monitor pricing across various channels, including restaurants’ direct platforms and competing delivery services, ensuring strict compliance with PPCs. By scanning for pricing discrepancies, the algorithms flag instances where restaurants offer lower prices on alternative channels. Non-compliant restaurants face automated penalties, such as reduced visibility in search results or exclusion from promotional campaigns, discouraging price competition. Similarly, these algorithms enforce exclusivity agreements by tracking restaurants’ activities on competing platforms. Exclusive partners receive preferential treatment, such as enhanced visibility, while restaurants breaching exclusivity face reduced exposure, limiting their ability to attract orders.
Operating as a “black box,” these algorithms lack transparency, leaving restaurants unaware of the reasons for penalties or visibility changes. This creates a unilateral power dynamic that disproportionately favours Swiggy and Zomato, making it difficult for restaurants to challenge or adapt to platform policies. In this context, the article proposes that the AFS identify the role of such algorithms and bring them under regulatory scrutiny. Under this, the CCI would be required to follow a two-step inquiry-
MANDATORY ALGORITHMIC DISCLOSURES:
The first step in the proposed AFS is to mandate disclosures by Swiggy and Zomato regarding their algorithmic decision-making. These platforms must provide information about the design, operation, and structure of their algorithms, specifically in relation to penalizing or incentivizing restaurants. Such disclosures should be made to the DG under Section 36(4)(b) of the Act during the investigation stage. This requirement mirrors the EU Platform to business regulations 2019/1150, which mandates transparency in ranking criteria, ensuring that platforms do not manipulate search results based on monetary compensation or preferential treatment.
EFFECTS BASED OUTCOME ANALYSIS:
The second step shifts the scrutiny from intent to effects, applying an effects-based outcome analysis to assess whether these algorithms control prices, foreclose competition, or limit consumer choice by restricting visibility or promotions. If these practices result in an AAEC, the burden of disproving their anti-competitive impact should shift onto Swiggy and Zomato, allowing the CCI to order a rollback of such algorithms, if necessary. This aligns with the EU Court of Justice’s ruling in the Google Shopping case which found algorithmic self-preferencing anti-competitive, and rejected short-term efficiency arguments as justifications for long-term market harm. Likewise, under Section 19(3)(d) to (f) of the Act, any efficiency claims by Swiggy and Zomato should be dismissed if they come at the expense of competition.
WAY FORWARD
This article proposes that the AFS could be incorporated into the Act in two ways. First, under the ‘Hub-and-Spoke’ model, introduced through the Competition Amendment Act, 2023, wherein, a central entity (hub) can facilitate anti-competitive coordination among independent entities (spokes), even if they do not explicitly collude with each other. In this context, Swiggy and Zomato function as hubs, using algorithms to impose price parity and exclusivity conditions on restaurants (spokes), effectively orchestrating market behavior without direct collusion between restaurants. Second, the liability of Swiggy and Zomato could be invoked under Section 2(b), as part of tacit collusion through algorithmic enforcement. Since intent is irrelevant under ‘per se’ approach, the AFS would impute intent constructively, aligning with the Competition Law Review Committee 2019’s recommendation of a “guilty until proven otherwise” standard in cases involving algorithmic anti-competitive practices.
CONCLUSION
While the case is still pending before the CCI, this article has established that Swiggy and Zomato’s anti-competitive practices produce effects similar to horizontal price fixing and market allocation under Section 3(3)(a) & (b). A reclassification accordingly would enable for a shift to ‘per se’ from ‘rule of reason’, under which the entire burden to prove the anti-competitive effects rests on the complainant, and in such situations where these practices are furthered by opaque algorithms, it becomes difficult to hold Swiggy and Zomato responsible for their actions. Thus, under the AFS, the mere presence of algorithms and assessment of their prima-facie effects after due disclosure to the CCI, the burden to disprove AAEC would be heavy on Swiggy and Zomato. This reclassification would represent a significant jurisprudential shift, setting a precedent for addressing algorithm-driven anti-competitive practices and establishing a framework for future actions against quick commerce platforms.
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