THE FOOD AGGREGATORS’ QUANDARY- DATA MASKING…A Precursor to an Anti-Competitive Regime?

-by Srishti Suresh

On March 2nd, 2020, around thousand irate restaurant owners launched the ‘Logout Campaign’ foisting their intention of getting their companies delisted from online food aggregator platforms, owing to data masking and rampant anti-competitive practices. The National Restaurant Association of India (NRAI) took cognisance of the grave issue and voiced its concern over the rampant abuse of dominant position exercised by such aggregator platforms.

In an E-Market Study carried out by the Competition Commission of India (CCI), the practice of Data Masking by online aggregating platforms raised concerns of morphing itself into a foreseeable anti-competitive practice in the cloud kitchen and hotelier/restaurant industry.

The Significance of Information in the Hospitality Sector:

Chains of hoteliers and restaurants have since inception, engaged themselves in collecting customer data and feedback review in an analogous format, to cater to the likes and preferences of their clientele. This crucial source of information can be attributed as a major source of growth for successful food companies. With the advent of technology and the spurt of technological advancement in almost every sector, cloud kitchens and online food aggregators have capitalized this new advent to their best possible advantage. Restaurants seeking to expand their clientele and online presence, have begun to rope in the services of such cloud kitchens and aggregators. The data collected online not only helps them understand their customer profile but also enables them to receive direct feedback/review from customers. As there is no direct delivery or contact with the customers, online platforms such as an intermediary prove to be the only means through which hotels and restaurants can get their hands on vital data.

Information Asymmetry And The Dominance Abuse:

Online platforms and food aggregators are noted to have included clauses in their contracts, which effectively bar restaurants from tapping into data on customer preference and review. Privacy concerns, the alleged misuse of data and manipulation of the picture of the platforms’ performance, vis a vis such aggregate customer review, is often cited as a shield of defence in their refusal to share customer information with restaurants.

While such vital customer information constitutes one of the single most important bricks in the hospitality and hotelier industry, can the withholding of such information by aggregators constitute an anti-competitive practice under the Competition Act, 2002?

Information asymmetry is witnessed in every possible sector, ranging from health care to data science; and this asymmetry is not malignant in itself. To the contrary, it often times proves itself to be an important and effectual stimulant in the market, leading to the advancement of knowledge, ultimately benefitting the end consumer. The acquisition of customer data comes at high costs and effort, often laboured by the online aggregators.

However, with the broadening of the information gap and masking of information, there lies a large scope for abuse by those holding the access to such information.

First, bargaining power is overtly asymmetric and is accumulated in the hands of a few major platforms. With fragmented suppliers, represented by chains of hotels and restaurants sprawled across a wide geographical base, it becomes necessary to rope in the services of large centralised platforms with an online presence. In a market with an imperfect symmetry, as long as the demand and supply fragments are in proportion, multi-homing can work as an effective constraint on anti-competitive practices. The constraint would work owing to the interdependence of the demand and supply groups in their functioning. However, in the context of online food aggregators, the ratio of demand and supply is too stark to exert any form of overarching constraint on the aggregators.

Second, another aspect adjunct to power imbalance, is that aggregators have been found to include unfair unilateral clauses in contracts with restaurants, sans any form of negotiation. Hotels and restaurants restrain from challenging this in the courts of law, for these dealings prove to be double-edged swords. A potential challenge to enable data access has a major pitfall, as platforms can rescind contracts, pay pecuniary damages (if any) and ask restaurants and hoteliers to choose an alternate aggregator platform as a retort. But concerns arising out of necessity (owing to the small number of big platforms) and the fear of missing out on attractive deals and a wide-spread customer base, forces these subdued restaurants into carrying out business without having access to vital customer data, striking at the very root of their operations and functioning.

Gaming the System- The Anti-Competitive Regime

It is to be acknowledged that there are limits to how much information can potentially be shared with a client, especially in a human-centric sector such as the hospitality industry. As mentioned earlier, platforms believe that the information gathered is a laboured effort that can have damaging effects on their very competitive edge, if shared. However, a problem arises when this withholding starts to create barriers in a sector where the free flow of information is intrinsic in making informed decisions by the numerous players engaged in the field.

To proceed in analysing the anti-competitive nature of the act, recognizing the relevant market is a prerequisite. The relevant market (service in this context) needs to be categorically ascertained in order to identify the dominance of a few players. Oftentimes, the product/service and the product/service market may not be analogous. The service provided might be a sub-specie of the market. In such situations, anti-competitive regimes are generally not attracted owing to the vast open-ended services/products the market might be dealing with. Factors such as substitutable products/services, alternate markets etc. factor in, while contemplating an anti-competitive regime.

In this particular instance, it is evident that the relevant market pursuant to the grievance of restaurants is the online aggregating food platforms, for which there are no substitutions. The demand and supply for this specific market are certain, close-ended and easily ascertainable, thereby allowing competition authorities to gauge the abuse of dominance.

As per Section 3(4) and 4 of the Act, agreements would be construed to be anti-competitive if the activities of those engaged in different levels of production or distribution, causes or is likely to cause an Appreciable Adverse Effect on Competition (AAEC) in the Indian market OR, as per Section 4(2)(c), abuse of dominant position ensues when the unfair terms imposed in an agreement directly or indirectly restricts or limits the others in accessing the relevant market.

The non-negotiable clauses incorporated in these agreements have an advertent effect on market restriction. Hoteliers and restaurants are inevitably made reliant on platforms for tapping potential customer base, in an industry where customer preference and review plays a fundamental role. Restaurants can seek to customize their services to cater to the larger market, only if they are made aware of such preferences. This has raised concerns in recent times, as the seemingly innocuous agreements with aggregators are resulting in the ushering of unethical and anti-competitive practices affecting the food industry which engages more than 7.3 million people.

The Way Forward:

In a hitherto unrecognized market dominance by online platforms, there has been no formal determination of anti-competitive practice or violation of the various provisions of the Act; But there exists great scope for potential abuse in a world where each sector has begun to transition itself into a more flexible virtual forum, where customers can operate with ease.

Improving transparency, vis a vis, formal regulation and mandates, can greatly solve the problem of information asymmetry. Making information available on ranking criteria, collection, rating and review mechanisms can solve the parity question not just within platforms, but between associate platforms. It is imperative to emphasize that the objective of the Act is to sustain and bolster competitive dynamics by which healthy competition develops; The intention should not be focused on ousting the platforms. Greater scrutiny, accountability and transparency in their functioning, is the need of the hour.

The views are personal.

Image Courtesy: images.idgesg.net

ABOUT THE AUTHOR

Srishti Suresh is a third year law student currently studying NALSAR University of Law, Hyderabad

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