Overview

PT Shopee International Indonesia (Shopee), a major online marketplace, and PT Nusantara Ekspres Kilat (SPX), a Shopee platform courier service provider, are alleged by the Indonesia Competition Commission (Komisi Pengawas Persaingan Usaha, KPPU) to have violated certain provisions of the Indonesian Competition Law¹ regarding discriminatory conduct and abuse of dominant position (the Case).

In particular, KPPU alleged that Shopee and SPX violated Articles 19(d) and 25(1)(a) of the Competition Law (Alleged Violations) that regulate discriminatory conduct and abuse of dominant position, respectively.

(In this client update, we refer to Shopee and SPX together as the Reported Parties).

In view of the Alleged Violations, the Reported Parties proposed a “change of conduct”² by undertaking to comply with the Competition Law and signing a so-called “integrity pact”³ with the KPPU. On 2 July 2024, the KPPU and the Reported Parties signed the integrity pact.

The significance of the Reported Parties signing the integrity pact is that if the KPPU determines after a specified period (in this case, 90 days) that the Reported Parties have complied with the integrity pact, KPPU will drop the charges against the Reported Parties, resulting in a “win-win” solution.

Shopee’s dominant position

From a Competition Law perspective, a company is not prohibited from holding a dominant position in a particular market (essentially if a business controls 50% or more of a particular market). It is a natural part of the dynamics within the relevant market competition cycle. However, problems can arise when a company with a dominant position engages in actions that disrupt business competition, that result or can result in unfair competition. Such actions include setting conditions aimed at preventing or hindering consumers from obtaining competing goods and/or services, limiting market and technological development, or obstructing other potential companies from entering the relevant market. ⁴

Even though KPPU found that Shopee's market share does not exceed 50% (based on monthly web visit traffic figures), KPPU investigators determined that Shopee has a dominant position in the relevant market for marketplace platform providers across Indonesia (including Shopee, Tokopedia, Lazada, Bukalapak and Blibli). We understand that KPPU may have applied the relevant KPPU Guidelines⁵ to determine that Shopee has a dominant position due to its competitive advantages, such as Shopee’s size, brand recognition and resources.

Discriminatory conduct

The Competition Law prohibits discriminatory conduct, which can include both price and non- price discrimination, that aims to hinder or is contrary to the principles of fair competition. Such actions can result in unfair business competition, especially when conducted by companies with market dominance.

In the Case, the KPPU investigators made various allegations based on findings relating to courier services on the Shopee platform, including that:

• Shopee uses an algorithm that prioritises SPX for every package to be delivered to its buyers (i.e. Shopee’s platform users);
• Shopee's behaviour in activating the auto-selection of only certain courier service providers that were affiliated with Shopee was discriminatory;
• Shopee’s standard procedure in the selection of courier service providers removed any option for buyers to choose other couriers and shipping services; and
• Shopee had an affiliation with SPX through a Shopee director having common directorships/dual positions in Shopee and SPX (since June 2018).

The KPPU investigators concluded that the above findings (together with other analytical information on Shopee) indicated discriminatory conduct by Shopee and SPX over other courier service providers, as well as Shopee’s abuse of its dominant position in the relevant market.

Progress of the Case

In response to the Alleged Violations, the Reported Parties submitted a proposal for a change of conduct to KPPU, requiring the Reported Parties to enter into an integrity pact with KPPU. KPPU accepted the Reported Parties’ change of conduct proposal at the 20 June 2024 hearing. At the 25 June 2024 hearing, the Reported Parties agreed to comply with the conditions set out in the integrity pact, which was then followed by the latest hearing on 2 July 2024, at which the Reported Parties, together with the KPPU, signed the integrity pact.

Case handling from the Competition Law perspective

The Case was processed according to the procedure set out under KPPU Regulation 2 of 2023 on Procedures for Case Handling (2023 Case Handling Regulation).

In the Case, a proposal for a change of conduct was submitted by the Reported Parties during the preliminary examination stage, which was subsequently formalised into an integrity pact. It is important to note that the submission of a proposal for a change of conduct during the preliminary examination stage is only permitted for certain matters. For example, change of conduct proposals cannot be made for cartel violation cases, including for violations of Competition Law Articles 5 (price fixing cartels), 9 (market division), 11 (cartels), 22 (conspiracy), and 29 (mandatory notification of M&A).

Following signing of the integrity pact, the Reported Parties will need to take all necessary measures to ensure compliance. KPPU is now obliged to form a supervisory team to monitor such compliance, including by way of on-site inspections, as well as data collection/analysis.

The timeframe for implementing a change of conduct is specified in the statement of change of conduct that is submitted when reported parties apply for a change of conduct. In the Case, the compliance monitoring period by KPPU was fixed at 90 days, starting from the date of integrity pact signing on 2 July 2024.

Based on the KPPU’s monitoring results, the supervisory team will then compile a report on Shopee’s compliance with the integrity pact, which must describe the integrity pact’s contents, the monitoring results and relevant evidence. If KPPU determines that the Reported Parties have complied with the integrity pact, it will terminate the Case. Otherwise, KPPU will proceed with a full Case examination.

Conclusion

The Case is important, given Shopee's position as a major online marketplace player and its affiliated relationship with SPX, which essentially operates as Shopee’s favoured courier service provider. The Case could set a significant precedent impacting the scope of acceptable behaviour among dominant online marketplace e-commerce providers in Indonesia and their abusive use of affiliated parties to carry out services.