Abuse Of Dominance In India
Author: LawSphereX
Category: Competition Law
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ABUSE OF DOMINANCE IN INDIA
B.S Yashaswini, LLM, School of Law, Christ (Deemed to be) University, Bangalore, India
ABSTRACT
An economy that thrives depends on healthy competition. In terms of rules and regulations, Indian competition law has changed a lot. The new regime does not limit or prohibit a corporation from enjoying monopolistic or dominant status in the market, unlike the previous regime that limits the formation of monopolies. instead, it only prohibits the abuse of dominating position and fixes the duty on those in positions of strength. Following the establishment of the New Economic Policy in 1991, this legislative shift was undertaken. Foreign investors were able to plunge into the massive Indian market after the New LPG reforms and the founding of the WTO. The necessity to regulate the market and prevent its abuse by global power brokers became apparent The papers analyse the case and instances of abuse of dominant position within the relevant market.
The researcher has identified a drawback in the implementation of the Competition Act, which has affected numerous enterprises and firms. secure this position through financial influence and monopolistic practices. However, the researcher in the study has indicated that dominance itself is not inherently negative; rather, the misuse of such a position can be detrimental to other enterprises within the firm. Moreover, the abuse impacts not only the market producers but also the consumers involved. This paper addresses cases in which the CCI has imposed penalties for the abuse of dominant position.
Keywords: Abuse dominance, CCI, Relevant market, Relevant geographical market, Relevant product market
INTRODUCTION
Market sustainability and development require fairness and equal playing field for all levels and players. In a perfectly competitive market, the consumer holds the ultimate authority, as their welfare is optimized . However, in reality, the markets are imperfect, and the invisible hands in Adam Smith's theory do not always favour consumer interests. As a result, we require, Ensuring consistency and fairness within the market. In 1947, the British withdrew from India, leaving behind a violently divided nation and a devastated economy. So, in order to limit the growth of private monopolies, regulate the prices of goods, and manage the expansion of industries, the government of independent India has chosen an economic model.
1 Parliament authorised the government to oversee the establishment and growth of new enterprises in 1951 with the passage of the enterprises (Development and Regulation) Act. 2 In addition, the government was able to limit the expansion of monopolies and unfair trading practices3 in the market with the passage of the Monopolies Restrictive trading Policies Act,
1969. This law has its origins in articles 38 and 39 of the Indian Constitution. However,
economic policy evolves in tandem with the economy . The New Economic Policy's adoption by India twenty years ago. The government's position shifted from market controller to market facilitator following the LPG reforms, reflecting the shift in attitude. A new licensed economy that was pro-market, efficient, competitive, and open was about to replace the old one. The previous competition policy failed to address issues such as predatory pricing, abuse of dominance, and anti-competitive agreements, so the Raghavan Committee was established to propose a new policy. The committee's report was due on May 22, 2002, and the following day, the measure was passed by the parliament with recommendations based on this report. This new Act has been developed in accordance with international standards. One of the significant concepts addressed by the new Act is abuse of dominance.
The new policy does not challenge the dominant position in the market; however, it penalises the abuse of such a powerful position.
1 P.K Basu Majumdar, Penalising Anti-Competitive Agreements and Abuse of Dominance, 7 NUJSL Review,
226 (2014)
Concept of Abuse Dominance The Act defined dominant position (dominance) in terms of a position of strength enjoyed by an enterprise, in the relevant market in India, which enable2; A) Operate Independently of the competitive forces prevailing in the relevant market.
B) Affects its competitors or consumers or the relevant market in its favour
A) Operate Independently of the competitive forces prevailing in the relevant market.
Demand and supply determine the features of a market. These forces are affected by many things, including government policies and rules, demographics, the availability of land, and so on. When a business is in a place where these forces can't affect it, it is said to be dominant. Example ; Competitive forces in the car market don't seem to have much of an effect on Maruti Suzuki because their customers are loyal to the brand, they have a service network, and their used cars have a better resale value. B) Affects its competitors or consumers or the relevant market in its favour
The second aspect of the definition is an enterprise's ability to influence its competitors, consumers, and relevant market. An enterprise may be able to influence its competitors, consumers, or market for its own benefit. An enterprise can use price or non-price strategies to combat competition, attract customers, or create a market environment that deters new competitors. In simple terms, a company's dominant status is based on its ability to act or behave without being affected by market forces. As a result of the Act, India's market policies have changed from four decades of monopolistic and restrictive trade policies. According to the aforementioned definition, a firm may be classified as a dominant firm if it possesses significant market power, enabling it to operate independently of its competitors rivals in the pertinent market. The second part of the concept
2 Competition Act, 2002 (Act 12 of 2003) Explanation (a) to s. 4
pertains to the firm's capacity to influence its competitors, consumer behaviour, or the pertinent market itself. Section 4 deals with Abuse of Dominance or Dominant Position ; it prohibits the use of market controlling position to prevent individual enterprises or a group from driving out competing businesses from the market as well as from dictating prices use of dominant position in the relevant market in an exclusionary or exploitative manner .
An enterprise is said to abuse dominant position in the market a) It directly or indirectly imposes unfair and discriminatory conditions on purchase of sale of goods or services or on the price of purchase or sale; b) It limits or restricts the production of goods or services in the market or technical or scientific development relating to goods or services to the prejudice of the consumers; c) Indulges in practices resulting in denial of market access; d) Uses its dominant position in one relevant market to enter into, or protect, other relevant markets. Factors Determining Dominant Position Dominance has been customarily characterized as far as the part of the market share of the enterprises or group of undertakings is concerned3. In any case various different elements assume a role in deciding the impact of undertaking or group of endeavours in the market;
1. a market size
2. size and assets of undertaking
3. financial intensity
4. vertical combination
3 Deyasini Chakrabarti, Abuse of dominant position, Ipleader, available at https://blog.ipleaders.in/abusedominant-positioncompetition-act-2002/ last visited on 06/01/202
5. exit barriers in market
6. countervailing purchasing power
7. market structure and size of the market
8. source of dominant position
Relevant market as defined by the Competition Act, refers to either the relevant product market, the relevant geographical market, or both, as determined by the CCI. Relevant Product Market [Section 2(t)] is defined as a market comprising all those products or services, which the consumer, by reason of characteristics of the products or services, their prices and intended use, regards as interchangeable or substitutable. RPM identifies a product such that firms producing those products can defeat each other’ attempts to raise the price above the competitive level Factors in determining in Relevant product market ;
1. Price of goods or service
2. Consumer preference
3. Exclusion of in house producers
4. Existence of specialized producers
5. Classification of industrial products
United States v. E.I. Du Pont De Nemours & Co. (1957) Facts; Plaintiff federal government brought suit against defendant for monopolizing, attempting to monopolize, and conspiracy to monopolize interstate commerce in violation of Section 2 of the Sherman Act. Defendant produced 75 percent of the cellophane sold in the United States, which constituted less than 20 percent of all flexible packaging material sales.
The district court held in defendant's favor. The United States sought review. 4 Issue; Whether automobile finished and fabrics constitute a different product market from that of the market for general finished and fabrics? Held ; The Court held that because the facts established that cellophane was functionally interchangeable with other flexible packaging materials, there was no cellophane market separate and distinct from other flexible packaging materials. Nestle – Perrier Case (1993) Facts; On February 25, 1992, the Swiss company Nestlé (active in many sectors of nutrition) notified to EEC Commission a public bid for 100% shares of Perrier, which is mainly active in the manufacture and distribution of bottled waters.
5 Article 2 (3) of the Merger Regulation ; A concentration that creates or strengthens a dominant position as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it shall be declared incompatible with the common market. Nestlé submitted in its notification that there is no separate market for bottled source water, and that the relevant market to assess the proposed concentration should be that of non alcoholic refreshment beverages, including both bottled source water and soft drinks. Held; Functional interchangeability or similarity in characteristics may not provide in themselves sufficient criteria because the responsiveness of customers to relative price changes may be determined by other considerations.
Relevant Geographic Market [Section 2(s)] – Relevant Geographic Market (RGM) is a market comprising the area in which the conditions of competition for the supply of goods and services and demand for goods and services are distinctly homogenous and can be distinguished from the conditions prevailing in the neighbouring areas. Identifying effective alternative sources for supply for customer needs and interchangeability with the same product from elsewhere defines RGM.
4 United States v. E.I. Du Pont De Nemours & Co. (1957)
5 Nestle – Perrier Case (1993)
Determining Factors
1. Nature of alternative
2. price disadvantages arising from transport costs, tariffs, degree of inconvenience in
obtaining the goods
3. Presence and absence of barriers to entry
4. RGM could be local, national and international, depending upon the product in question
Thus, RGM is the area in which the reasonable consumer or buyer usually covers his demands. Dominance per se Bad ? One should know that being in a dominant position is not inherently wrong and that businesses in such a position should have the same privileges as any other business in the market before moving on. Natural monopolies are prevalent in many different industries, including even at the present day. Examples ; Google as an example in the search engine industry. It has been established through numerous court decisions that undertakings in dominant positions have a unique obligation to ensure that their conduct does not hinder real, undistorted competition in the relevant market.6 Types of Abuse dominance Position
A. Exclusionary Abuse –
1. Refusal to Deal – refusal to deal results from contracts between dominant undertakings
and its customers or suppliers (Exclusive dealing)
2. Raising competitors cost – Legal harassment
3. Cross-Subsidization
6 Dr. S. Chakravathy, MRTP Metamorphoses into Competition Act, 2002
4. Structural Abuse – practices that produce immediate change in the structure of the
market to the detriment of competition.
B. Exploitative Abuses –
1. Refers to those practices engages in by dominant undertakings which, while not directly
harming competitors in the market, reduce the welfare of consumers.
2. Pricing Practices – price squeezing, price discrimination
3. Excessive pricing
4. Imposing unfair trading conditions
5. Limiting production, markets or technical developments
6. Discriminatory practices7
Predatory Pricing Predatory Pricing under Explanation (b) of Section 4 means the sale of goods or services, at the price which is below the cost of production, with a view to reduce competition or eliminate the competitors. Predation is exclusionary behavior and can be indulged in only by enterprises holding dominant position in the relevant market8. Determination of Predatory Pricing (Tests)
1. Establishment of dominant position of the enterprise in the relevant market.
2. Pricing below cost for the relevant product in the relevant market by the dominant
enterprise.
3. Intention to reduce competition or eliminate competitors – Predatory Intent Test
7 Deyasini Chakrabarti, Abuse of dominant position, Ipleader, available at https://blog.ipleaders.in/abusedominant-positioncompetition-act-2002/ last visited on 06/01/202
8 Predatory pricing as defined u/s. 4 (2)(b)
How to identify Abuse Of Dominance Sec 4(2)
1. Unfair and biased trade practice ; For instance, a tie-in deal that says you have to buy
the other product too if you buy the first one, or any other unfair condition, which means that if a business has a monopoly, it can set unfair terms for its workers that is bad for the market or to quote a price and be obligated to buy the goods at that price. The company is able to do this because it is the market leader. This is a form of abusing a dominant situation. Example ; All predatory prices are unfair prices. At any time, the firm that makes the good can sell it on the market for less than what it costs them to make or distribute. It will take Rs.50 worth of goods and sell them for Rs.40.Now why would a company do that to lose money? The main goal of the loss is to take over the market.
2. Limiting Creation ; If a firm with a dominating market position restricts the production
of goods or the provision of services, what will be the consequences of such output limitations? The reduction in supply, with demand staying constant, will result in an increase in the product's price, ultimately affecting the market. Any enterprise in a dominant position should refrain from engaging in activities that constitute abuse of that position. Furthermore, if production is not restricted, it should not impede technical or scientific advancements essential for consumer needs in the market. If an enterprise restricts development, consumers are severely affected as they require change and technological advancement in the product. Example ; Initially, mobile phones were bar phones, followed by slide and flip phones, and today we have smartphones. If a monopoly exists in the market and restricts technological advancement in mobile phones.
What activities would the consumer engage in until the day they utilised the barcode phone, given that technical development was constrained? The ultimate outcome would be our coexistence in the same epoch as the barcode phone. If an enterprise holds a dominant market position, it must not impede production or the progress of technical and scientific growth.
3. Denial Market Access; ABC Ltd, an enterprise with a dominant market position.
Similar to the cell phone industry, they would implement measures to artificially induce a shortage, resulting in market denial in various forms. Exploiting a dominant position
would constitute abuse; the market ought to function freely. In a competitive market, equilibrium is achieved at a singular point where demand, supply, and competitors are balanced.
4. Imposition of beneficial improvements ; n enterprise in a dominating position may
impose supplemental obligations when engaging into contracts with distributors, suppliers, or any market participants. The obligation is not referenced anywhere in the contract
5. Protection of different Markets ; If a company exploits its dominant position in one
relevant market to penetrate another relevant market, it constitutes an abuse of dominance. If the firm is entering another area, it is acceptable; however, if it is doing so through the misuse of dominance, it is problematic.. Case Laws I.
AKZO Chemie BV v Commission Facts; AKZO was the first EU case in which predatory pricing was discussed. AKZO was a multinational corporation, which produced benzoyl peroxide, for use within the plastics sector. AKZO’s competitor (one of), ECS, decided to expand upon its use of the aforementioned product into the plastics sector, capturing one of AKZO’S largest clients as a result. The retaliation was to offer large discounts to ECS’ flour customers. An appeal was subsequently raised by ECS, citing predatory pricing as an abuse of dominant position. 9 Held – The Commission, in this instance, found predatory pricing was occurring to force ECS from the plastics sector. AKZO were fined ECU 10 million and were also ordered to terminate the infringement. This judgment provided new definition for predatory pricing.
It was contrary to the criteria laid down in the Areeda- Turner Test, clearly distinguishing the courts’ approach from the test AKZO Test
9 AKZO Chemie BV v Commission 3 July 1991.
Prices below Average Variable Cost are presumed to be predatory. i. Prices above Average Variable Cost but below Average Total Costs are not presumed ii. predatory, but can be presumed predatory if they are part of a plan to eliminate a competitor. II.
MCX Stock Exchange v. National Stock Exchange of India Ltd., DotEx International Ltd. and Omnesys Technologies Pvt. Ltd. (2011) The CCI defined predatory pricing as the conduct where a dominant undertaking incurs losses or forgoes profits in the short terms, with the aim of foreclosing its competitors. The CCI was of the opinion that NSE obtained undeniable advantages from its operations in
other markets, allowing them to provide stock exchange services for free, thereby occupying a dominant position in the market. Zero pricing was adopted by NSE – clear method of leveraging done with the intention to impede future market access to potential competitors and foreclose existing competition. This case also laid down the Areeda – Turner Test, which is based on the economic concept that a firm cannot price its products or services below marginal cost of production, otherwise it will prefer to shut down its production in the short run to minimize losses, unless and until it has some other intent – the Average Variable Cost used as a proxy to Marginal Cost10 III.
Dhanraj Pillai & Ors. v. M/S Hockey India (2011) Facts ;The informants in this case were a group of former Olympians and professional Indian hockey players including the likes of Dhanraj Pillai, Gurbax Singh Grewal and V. Baskaran (the “Informants”).11 The opposite party, HI, was formed in May 2009, and is the apex governing body for the sports of men and women’s hockey in India and has the sole mandate to govern and conduct all related activities. HI is also the national sports federation for the sport of hockey in India and is affiliated to the Indian Olympic Association (“IOA”), Asian Hockey Federation (“AHF”), the FIH (International body
10 MCX Stock Exchange v. National Stock Exchange of India Ltd., DotEx International Ltd. and Omnesys
Technologies Pvt. Ltd. (2011)
11 Dhanraj Pillai & Ors. v. M/S Hockey India (2011)
governing hockey) and the Indian Hockey Federation (IHF). FIH had set some regulations for conducting a league WSH and noting these regulations, HI formulated and modified its Code of Conduct Agreement with the players to include clauses related to disciplinary action in case of participation in any unsanctioned events .The disciplinary action for any player participating in any unsanctioned event was disqualification from selection to the Indian national team. Against these modifications itself, the Informants filed before the CCI for inquiring into alleged anti-competitive activities of HI.
CCI Held – With respect to the allegation under S. 4(2)(e), that HI was using its dominance
in conducting international events in India to enter into the market of conducting a domestic event in India, the Commission defined the relevant market differently to the definition adopted by the Informants. It distinguished between representative events and private professional leagues, and was neutral to the definitions of domestic and international events in the FIH Regulations. Accordingly, the Commission found no validity in the allegations that HI was using its dominant position in one relevant market to enter into, or protect, another relevant market.
In its order, the CCI exonerated HI from all allegations of entering into anti-competitive agreements and abuse of dominant position and also held that HI had not contravened any of the provisions of the Act Conclusion The abuse of dominant positions is therefore becoming more common as a result of industry consolidation and changing times; therefore, it is crucial to curb this phenomena by enforcing competition laws more strictly. The competition law of a nation facilitates the assurance. The market and business operate autonomously. It offers equitable opportunities to all individuals seeking to engage in business. The punitive measures and adjudicative authority established by the new law discourage industries from using their dominating market position, as such actions result in both financial penalties and damage to corporate goodwill.