Analyzing The Abuse Of Dominance In The Field Of Digital Market
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ANALYZING THE ABUSE OF DOMINANCE IN THE FIELD
OF DIGITAL MARKET
Saumya Pratibha Tirkey, Faculty of Law, NUSRL Ranchi
ABSTRACT
Innovative markets are ever-evolving, with new and inventive products constantly making an appearance. To stay competitive, businesses need to be innovative. The application of innovation is viewed as a weapon to drive rivals out of the market in the most recent antitrust authorities' decisionmaking process. Globally, technology and internet resources have brought about a revolutionary shift in the sales and marketing industry. The digital economy, in which the market and its different entities envision an online presence, has been made possible by this paradigm shift. This paper aims to evaluate the evolving market's dimensions in the context of a rapidly evolving digital market where different rivals are fighting for a larger market share on internet platforms.
Given the goal, it is critical to evaluate whether India's Competition Act of 2002, which was created to serve offline markets, can adequately handle issues pertaining to this recently emerging field where market is driven by the technology.
INTRODUCTION
A new economy known as the digital and e-commerce economy has taken over the world. With
the advent of technology, we are living in a world where we are connected not just by words, thoughts, and expressions rather more actively with the digital world. The Internet has created unparalleled opportunities for the sharing and transferring of information, the advancement of e-commerce and the establishment of a single platform for consumers globally. Technological advancement and the benefits of the internet have brought about a radical shift in the global sales and marketing environment. The digital economy, in which the market and its different entities picture an online presence, has been made possible by this paradigm shift. It is essential to evaluate the suitability of the Competition Act, 2002, an Indian law intended for offline markets, for handling concerns pertaining to the recently emerging field of technology-enabled markets1.
It is the responsibility of the Competition Commission of India to stop actions that harm competition, promoting and safeguarding competition, protecting, and upholding trade freedom, and defending the interests of consumers and conducting inquiries in the case if any of the provisions are broken. The Competition Act, 2002 was enacted in India with the goal of promoting economic democracy within a free market structure. Among other things, it prohibits the abuse of dominant position. 2 India's pre-liberalization period, which was characterized by a largely regulated and controlled economy, can be used to trace the country's path towards a strong competition law regime. Restrictive trade practices were common during this time, which hampered competition and reduced market efficiency.
3 But India started down a path of liberalization and deregulation with the implementation of economic reforms in the early 1990s, which opened the door for the modernization of its framework for competition law. The goal of competition law is to prevent Monopolies, unfair, and prohibitive trade practices by creating laws or regulations that will improve market competition and competitive outcomes, and by enforcing sanctions against anti-competitive behaviour. However, the level of competition influences domestic market business's capacity to compete against imports in local markets as well as in export markets, which in turn affects a nation's ability to remain competitive. Digital market presents several challenges for competition law enforcement,
1 The Competition Act, 2002, Act No. 12, 2003 (India).
2 Monopolies and Restrictive Trade Practices Act, 1969, No. 54, Acts of Parliament, 1969 (India).
3 Dash, A. P. Evolution of competition law in India: An overview. Competition Law Journal (2009).
including determining market power, addressing anti-competitive conduct, preventing databased discrimination, and addressing cross-border competition. These challenges highlight the need for ongoing updates and strengthening of competition laws, as well as increased international cooperation between competition authorities. Because of digitalization, the competitive factors of the economy have shifted, opening new markets, and altering ones that already existed. For regulators and policymakers dealing with competition, this poses a complex challenge. They must deal with new kinds of misconduct, analyse markets whose exact borders are not clear, and deal with uncertainty in quickly changing markets.4 A dominant position denotes that something is superior than another for a given reason. Section
4 of the Competition Act of 2002 defines dominant position as the ability to independently
dominate a market and have an impact on competitors. A dominant position in the digital market refers to a situation where a specific company or a small group of companies holds a significant share of market control, influence, and power in a particular segment of the digital economy. This dominance can manifest in various ways, such as having a substantial market share, strong brand recognition, and the ability to set market standards and other players in the industry. Being in a dominant position, however, does not hurt anyone unless that power is being abused. Therefore, abusing a dominant position based on one's superiority is deemed inadequate, rather than having a dominant position itself being bad.
Abuse of a dominating position leads to unfair competition between the firms, consumer exploitation, and make it difficult for other players to catch up with the dominant business based on excellence. Abuse of dominance is deemed anti-competitive by the Act, rather than dominance itself.
CHARACTERISTICS OF THE DIGITAL MARKET
Digitalization has altered the competitive dynamics of the economy by generating new markets and changing existing market. It is important to identify key features of the digital market to assess whether changes are required to the existing competition policy or not. It includes following features:
1. A multifaceted market: one wherein digital product act as a link between various consumer
segments. For instance, on a digital content platform, content producers and consumers might be on one side, and advertisers would be on a different side.
4 Kher, Competition law and policy in India (2006).
2. Robust network influence: this refers to the idea that a product's value to users rises with its
user base.
3. Considerable economies of scale and scope: Given that many digital markets have high fixed
costs and low or zero variable costs, businesses can quickly expand their geographic reach, scale up, and enter new markets by utilizing their assets in an existing market.
4. Switching costs: these are the expenses a customer bears when they move brands or goods.
For instance, a user may lose the time and effort they have put into building a profile or a reputation as a provider on an exchange platform
5. Personalized service: Digital marketing offers products that are tailored to the needs of
individual customers. Additionally, it can track each customer's hobbies and sales habits and make recommendations for related products. Thus, internet marketing is an inexpensive and simple way to promote products.
6. Access to variety of goods and services therefore less time consuming and cost friendly.
E-COMMERCE AND THE COMPETITION LAW
Due to the ability to offer more affordable and effective goods and services, the emergence of e-commerce has helped businesses improve both their market presence and rank. As previously stated, it has reduced the barriers to entry for small businesses, giving consumers even more options. Despite these advantages, E-Commerce has exposed companies to anti-competitive behaviours since it has made vertical agreements possible. Consequently, Section 3 of the Act, which governs anticompetitive agreements, including vertical restraints, must be reviewed for any E-Commerce agreement that anticipates competition and is likely to have an AAEC (appreciable adverse effect on competition). Section 4 of the Act applies to the actions of dominant players in the relevant market as well. It also regulates actions that lead to the abuse of a dominant position.
Likewise, if E-Commerce enterprises engage in mergers and acquisitions irrespective of whether they are finalized in India or in any other foreign territory, the extraterritorial jurisdiction of the Act comes into play, thus, Section 5 and Section 6 of the Act are also applicable to such combinations and must be notified to the CCI (Competition
Commission of India) if they cause an AAEC on the Indian market. 5 It is important to remember that the Test of Recoupment has also been used by the CCI to assess predatory behaviour by an entity. To pass this test, the CCI must determine the likelihood that the concerned entity will raise prices in the future to make up the short-term losses it suffered from selling its goods at a discount. While there are some situations where predatory pricing may be mistaken for predation, although it is not. As stated in Ashish Ahuja's case and reiterated earlier, the CCI has stated that E-Commerce entities are not the actual sellers in the market but merely provide a platform for those sellers to sell their goods and services. Secondly, in India, there is a plethora of E-Commerce players unlike that of the United States wherein Amazon is most definitely a dominant player.
The normal threshold to determine dominance is if the entity has more than 50% of market share, however, due to the number of players in the said arena, there are plenty of players such as Amazon, Flipkart, Ajio, etc. , competing amongst themselves and are dominating the market regardless of the position of their competitors. Thirdly, as also reiterated earlier, E-Commerce is not a separate market, e-tailers, and retailers all form part of the same market. Fourthly, selling discounted and underpriced products did not hamper competition in anyway. On the contrary, in Flipkart's situation, most of its competitors were offering similar discounts on the same products which only provided the consumers with a deluge of options to choose from, furthering healthy competition.
Lastly, because of the risks and competition involved in the E-Commerce market, it is inevitable for the entities to incur at least some short-term losses. This does not prove that the entity was engaging in predation by incurring short term losses for long term profits
ABUSE OF DOMINANT POSITION
The CCI has also noted that Section 4 of the Act may be violated by e-commerce companies. Section 4 forbids any business or organization from “abusing its dominant position”. “Section
4 of the Competition Act stipulates in subsection (1) that no group or enterprise may misuse its
dominant position. It is not the dominant position that is forbidden, but rather its abuse.” It should be noted that section 4 did not apply to groups of enterprises prior to the Competition (Amendment) Act, 2007; however, because of the 2007 Amendments, section 4 now applies to groups of enterprises as well. Being dominant is not always viewed negatively. When a 5 Digital Economy, Innovation and Competition, Organisation for Economic Co-operation and Development (OECD), Available at: http://www.oecd.org/competition/digital-economy-innovation-and-competition.htm.
business or group of businesses takes unfair advantage of their dominant position in the relevant market, it is said to be abused. It was claimed in “Anuj Kumar Bhati v. Sony Entertainment Television” that the opposing parties were engaging in foul play in the contestant selection process and had tricked the participants of the television game show "Kaun Banega Crorepati-4" (KBC-4). The primary accusation was that the opposing parties, who held a dominant position, engaged in unfair practices when choosing the questions to be asked during the show and discriminated when choosing the contestants, in violation of “section 4 of the Competition Act”.
Based on viewership ratings, the Competition Commission noted that KBC's share of viewers was not high enough to suggest that it was dominating all other shows when compared to every other Hindi-language television program or show that appears during India's prime time. Depending on their interests, preferences, and demographic profile, viewers had a wide variety of primetime program options. Each program has a specialized audience, so the KBC show had no negative effects on any other programs. Considering this, the Commission determined that neither section 3 nor section 4 of the Act had been violated and as a result, section 26(2) of the Act was used to close the case. 6 A “dominant position” is described as a “strength that an enterprise in the relevant Indian
market enjoys that enables it to function independently of the competitive forces that prevail in the relevant market or to alter the market, its competitors, or its customers in its favour as stated in Explanation (a) to Section 4 of the Act”. Thus, in accordance with the Act's provisions, proving abuse of a group's or company's dominance involves three steps: "(a) Defining the relevant market; (b) Determining dominance in the relevant market; (c) Determining abusive conduct in the relevant market.” Dominance in India can be evaluated considering the relevant marketplace. “The relevant markets for products and locations, or both may be taken into consideration by the Competition Commission when determining the relevant market.” 6 Anuj Kumar Bhati v. Sony Entertainment T.V. (Set) & Ors, Competition Appellate Tribunal (Sept. 16, 2011)).
When a product or business is directly competing with another in the business world, it is referred to as a relevant market. The market where the competition is held is, therefore, the relevant market. The product and geographic markets are the two facets of the relevant market. According to the demand viewpoint, all the options that a buyer would pick if the price of the product under focus increased make up the market for related products. From a supply-side perspective, this would encompass all manufacturers who could transition to producing these replacement goods using their current facilities. It is possible to define the relevant market's geographic boundaries in a similar manner. Identifying the geographic region in which competition takes place is part of the geographic dimension.
Depending on the circumstances of each situation, relevant geographic markets may be local, national, international, or occasionally even global. Transportation expenses, perishability, patterns of consumption and shipment, and the presence of obstacles preventing the movement of goods between adjacent geographic areas are some of the elements that are important to the geographic dimension. Given the higher expenses associated with cement transportation, the area surrounding the production plant could be the pertinent geographic market. The Competition Commission must consider the elements specified in Section 19(4) of the Act when assessing whether an enterprise has a dominant position.
The Competition Commission does not offer any guidelines on how the CCI should interpret these factors; however, it is authorized to consider any additional factor that it deems pertinent in determining dominant position. In the Continental Car Co. case, the court stated that an organisation is in a “dominant position” when it possesses the ability to act independently, placing it in a position to take decisions without considering its suppliers, buyers, or competitors. Even though the extent of their influence on the various partial markets varies, this power does not necessarily come from an absolute domination that allows the enterprises that hold it to eliminate dislike on the part of their economic partners. Rather, it suffices that they be powerful enough collectively to guarantee to those undertakings an overall independence of behaviour.
A sizeable portion of the product in question is under their control when it comes to pricing, production, and distribution. Dominant refers to market power, or the ability to compel a buyer to do something that he would not do in a competitive market, as was noted in the “Eastman Kodak Co. v. Image Technical Services Inc. ” case. However, most of the time, the attempt of market dominance depends on the functional attributes of the goods and consumer behaviour patterns. Here in this
case “the informant contended that the DTH operators had abused their position of dominance in the Direct-to-home (DTH) Services Case because they were each operating as distinct dominant firms in the relevant market. The Commission dismissed the argument, stating that no player in a significant market can be said to have a prevailing and consistent approach to gathering, analysing, and assessing information. According to the act's provisions, the DTH operator was therefore considered to have a dominant position. The Commission also noted that the idea of dominance is not based on the idea of efficient market control, which can be achieved by a single initiative or a small group of market participants. Therefore, it is important to determine whether a business gains a dominant position and, if it does, whether it is abusing that position.
As a result, the following elements need to be determined: A) Identify the relevant marketplace because dominance cannot exist in a vacuum; rather, it
must be understood with respect to the market in which the business operates. B) evaluating the market's strength to determine whether the venture has a certain amount of
market power C) Taking into consideration whether the undertaking's actions result in the abuse of a dominant
position.
PRACTICES CONSTITUTING ABUSE OF DOMINANCE
Sub-section (2) of section 4 of the Competition Act provides a list of practices that shall constitute abuse of dominant position and thus prohibited. According to this provision, there shall be an abuse of dominant position of an enterprise or a group; a. Directly or indirectly, imposes unfair or discriminatory: (1) condition in purchase or sale of goods or service (2) price in purchase or sale (including predatory price) of goods or service b. limits or restricts- • Production of goods or provision of services or market therefor • Technical or scientific development relating to goods or services to the prejudice of consumers
Indulges in practice or practices resulting in denial of market access in any manner; or • Makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts, or • Uses its dominant position in one relevant market to enter, or protect, other relevant market.
CONSEQUENCES OF THE ABUSE OF DOMINANCE
The Competition Commission, after an inquiry into the abuse of dominant position, may pass all or any of the following orders under section 27 of the Competition Act: Ø Order an organization in a “dominant position” that is abusing that position to stop doing so. Ø Penalties for individuals or businesses involved in such abuse should not exceed 10% of the average turnover for the three previous fiscal years. Ø Instruct the relevant businesses to follow any further orders the Commission may issue and to do as instructed, including paying any associated costs. Ø Section 28 of the Competition Act gives the Competition Commission” the power to order a division of a business enjoying a dominant position to ensure that it does not abuse that position according to the directives.
ABUSE OF DOMINANT POSITION BY THE DIGITAL MARKET
The digital sector has undergone rapid and significant expansion. Regarding all types of online platforms, competition in the digital market has grown to be a key focus of competition law and policy formulation. It is crucial to illustrate what the word dominance abuse means in this context. There is little doubt that the misuse of dominance in enforcement will be an issue in the digital marketplaces. The dominance of certain companies in online markets has raised several issues and concerns that are specific to the digital realm. Market Power and Competition are Some online platforms, such as e-commerce marketplaces, search engines,
and social media platforms, have achieved dominant positions. This concentration of market power can limit competition and innovation by making it difficult for smaller players to enter the market and for consumers to have a variety of choices. Data Privacy and Security are Dominant online platforms often collect vast amounts of user data. This raises concerns about how this data is used, who has access to it, and whether users' privacy is adequately protected. Data breaches and misuse of personal information can have significant negative impact. Consumer Choice is Dominant platforms might manipulate search results or algorithms to prioritize their own products or services, limiting consumers' ability to make unbiased choices. This can result in a lack of diversity in offerings and potentially disadvantage smaller businesses.
Platform Fees and Practices are Some dominant platforms charge fees to third-party sellers or service providers that use their platforms. There have been concerns that these fees could be excessive or that the platforms may change their fee structures in ways that negatively impact sellers. Economies of, low scale marginal costs, high upfront sunk costs, and user data collection are characteristics of digital platforms. Digital platforms may be encouraged to enter other related industries by the desire to accumulate vast collections of data and to have control over said data. If these elements are combined, they might be enough to give these platforms market power and allow them to act in an anticompetitive manner.
Referring “Shri Shamsher Kataria v Seil Honda” it was contended that “exclusionary practices are those in which a dominant entity uses its influence to keep rivals out of a specific market. In situations where there was an agreement between the dominant corporations and the foreign suppliers of special vehicle parts that prohibited the foreign suppliers from providing parts to free repairers, such agreements were deemed anti-competitive because they restricted the entry of new enterprises. ” It was claimed in “Mohit Manglani v. Flipkart and others” that product sellers and e-commerce websites signed exclusive contracts to sell the selected item only on the specified portal, with no access to other e-portals or physical channels. Furthermore, it was claimed that every eportal possessed a 100 percent market share for the product it sold solely, resulting in its dominance.
Since most of the products the informant mentioned were being sold through exclusive e-partners were dealing with competitive challenges, the Commission was unable to find any foreclosures. The informants' claim that the behaviour resulted in an AAEC was dismissed on the grounds that customers could receive their purchases whenever it was convenient for them and thus saved time by not having to visit physical retail locations. The
informant claimed that every unique product offered by every e-portal could be a relevant market. However, the Commission rejected this claim regarding Section 4 allegations. A group of medium-sized and small-sized companies made an accusation against Amazon and
Flipkart, the two biggest online retailers in India, in “Delhi Vyapar Mahasangh v. Flipkart Internet Ltd & Amazon. ” The complaint claimed that “both platforms had entered into multiple vertical agreements with their preferred sellers, or sellers who are either directly or indirectly connected to or under the control of these e-commerce platforms7. According to the Competition Act of 2002, it was claimed that both e-commerce platforms participated in anticompetitive agreements and abuses of dominance by deep discounting, preferential listing, and exclusive partnerships for both preferred sellers and their own private labels”. Significantly, in the above case, the accusations only pertained to the selling of smartphones on these platforms; they did not extend to other product categories.
As a result, the CCI opened a thorough investigation after initially determining that the claims had merit. they are currently conducting this investigation. In accordance with section 3(4) of the Competition Act, Amazon is being investigated for entering into anti-competitive vertical agreements (with preferred sellers). Regarding abuse of dominance under section 4 of the Competition Act, Amazon is not being investigated currently”. In Lifestyle Equities v. Amazon, the CCI declined to open an inquiry after Amazon, who was accused of engaging in comparable practices in the online fashion retail space. The distinct market structures and competitive dynamics in the two markets were used as justifications for the separate results.
Online sales of smartphones were thought to be less competitive than online fashion retail, and there was also no indication of exclusive partnerships in the former. In addition, the main accusation made against Lifestyle Equities concerned the illegal sale and counterfeiting of goods that fell outside the purview of competition laws. An appeal has been filed against the CCI's decision to close the Lifestyle Equities case, and the National Company Law Appellate Tribunal will soon decide on the matter. 8 7 Delhi Vyapar Mahasangh v. Flipkart Internet (P) Ltd. & Ors. , Competition Commission of India (CCI) Order No. 110/2020 (Jan. 13, 2020). 8 Lifestyle Equities CV and another (Respondents) v Amazon UK Services Ltd and others (Appellants) [2022] UKSC 10 (Jan. 18, 2022).
INQUIRY INTO THE ABUSE OF DOMINANCE
The Competition Commission of India may investigate any alleged violation of section 4 (1) of the Act, which prohibits abuse of dominance, in the exercise of the authority granted by Section 19 of the Act. A comprehensive list of considerations is provided in Section 19(4) for the Commission to consider when looking into any claims of abuse of dominance. Several factors include the company's market share, its size and resources, the size and significance of its competitors, the reliance of customers, entry barriers, social obligations, and costs in the pertinent product and geographic markets. After concluding that there is a likely instance of abuse of dominance, the Commission will order the “Director General” to launch an investigation and provide a report.
The Code of Civil Procedure grants the Commission the authority granted to a Civil Court in regards to matters such as calling someone to appear in person or requiring their attendance, questioning them under oath, requiring the production of documents, and receiving evidence in the form of affidavits. In addition to having the authority to perform "search and seizure," the Director General also has civil court authority to carry out investigations. “Section 27 of the Act” permits the Commission to issue any or all the following orders following an investigation: Ø direct the company to end this agreement and never enter again. Ø Instruct the relevant business to make changes to the contract. Ø instruct the concerned businesses to follow any other orders that the Commission may issue and to follow the instructions, which may include paying any associated costs.
Ø pass any additional directives or orders that it may see fit. Ø Might impose whatever punishment it sees fit. For every individual or business involved in bid-rigging or collusive bidding, there can be a penalty of up to 10% of the average turnover of the three previous fiscal years. Ø In order to prevent an enterprise that enjoys a dominant position from abusing it, Section 28 gives the Commission the authority to govern divisions within such enterprises. Section 33 of the Act states that the Commission may temporarily stop any party from
continuing with the alleged offending act until the investigation is finished or until further orders are issued, without providing the party with notice, if it thinks it necessary, while the investigation into abuse of dominant position is ongoing. Section 53A of the Act establishes the Competition Appellate Tribunal (COMPAT), which is tasked with hearing appeals against any orders, decisions, or directives issued by the Commission pursuant to certain sections of the act. Within 60 days of receiving the Commission's order or decision, an appeal can be filed.
CONCLUSION
Due to its ability to provide customers with better prices and services while creating new opportunities for market players, e-commerce has fundamentally changed the way that transactions are conducted today. As time goes on, its significance will only grow. However, this emerging medium has several problems of its own that could violate competition laws. Even though conventional retail establishments and e-commerce share many of the same concerns about competition, e-commerce is a product of technology and has its own set of unique problems that need to be anticipated by the governments to effectively legislate.
After considering all the aspects of the digital market and how they affect the competition regime, it is reasonable to conclude that the competition law that is currently in effect is too narrow to cover the changing barriers that have arisen as a result of digitalization, and that new legislation and regulatory bodies will be required to address these growing issues. In the digital age, a wide range of information is readily available to us. But these technological advancements have also given us a whole new set of problems to deal with. Large companies' presence in the digital market necessitates a new set of controls to prevent monopolistic effects on competition. These businesses build brand-new types of barriers to entry.
Additionally, these businesses engage in new types of predatory pricing, cartelization, and collusion to influence consumer preferences in the market due to the dynamic nature of the market. although providing a wide choice of options to customers, these companies regularly take acts that could be detrimental to social fairness and consumer welfare. Controlling the digital marketplaces has become more difficult for regulatory and competition organisations worldwide. The Competition Act's objectives include safeguarding consumer interests, fostering and maintaining market competition, and ensuring that all market participants are free to engage in business. It is important for competition law to support local firms as well as their participation in international competition. Consequently, a strategy that balances potential concerns about
competition while ensuring that local businesses have the infrastructure and assistance, they need from the government is necessary. The traditional market dynamics have been dramatically altered by the digital economy. the digital market poses a variety of difficulties for the enforcement of competition laws. These include things like defining the market, identifying dominating market positions, and evaluating the likelihood of anti-competitive behaviour. To address the new types of difficulties brought by digital supremacy, CCI must have enough power. New ideas have been offered by the Competition Amendment Bill, 2022 to address issues raised by platform dominance. Though the process of enacting the bill as an Act is still ongoing.
It may be challenging for competition authorities to keep up with advancements and successfully enforce the law due to the rapid rate of technical change and the worldwide character of digital markets. To encourage fair competition and safeguard consumer welfare, it is crucial for competition authorities to adapt and continue enforcing the law in the digital market despite these difficulties.