<b>Akash Gupt & Shweta Dubey:</b> Nurturing competition

In the last few months, several players have approached the Competition Commission of India (or CCI), complaining about the conduct of their competitors with a common theme: The competitors have either engaged in below-cost pricing or are using other strong-arm tactics, such as restricting access to essential facilities. The interesting differentiation in these complaints has been that players are now complaining about two or three big players abusing their dominance, unlike earlier complaints, which usually revolved around one big player bullying smaller players. As CCI deals with such complaints, it may have to revisit its powers under the Competition Act, 2002, especially in relation to interfering in markets where more than one player may have market power. 

At present, CCI interferes with the standalone conduct of an enterprise only if it is a dominant player. The competition watchdog’s mandate — to determine who is a dominant player — becomes difficult in concentrated markets where there is more than one strong player. The easiest answer would be that no enterprise is dominant in such markets. Therefore, CCI cannot intervene even if players engage in anti-competitive activities. However, this response would have consequences for a large number of fringe players or potential/new entrants, which suffer the onslaught of anti-competitive practices adopted by one or more players in such markets. It is akin to saying that the law will protect you against one bully, but if there is more than one bully in the market, you are on your own. 

Such an understanding of law appears to be contrary to the fundamental objectives of competition law. CCI is required to promote and sustain competition and eliminate practices that have an adverse effect on competition. Though the phrase “promote and sustain competition” has not been explained in Indian law, one presumes that it would entail protection of equally efficient players. Whether one player does harm or two should actually not be the criterion for a regulator to act; the real test is whether there has been any adverse effect on competition as a result of anti-competitive conduct on the part of one or more enterprise. 

At present, anti-competitive conduct by players in concentrated markets is not examined by CCI because, as long as there is one more effective player left in the market, there is adequate competition. While it is true that the presence of one or more competitors would generally keep other competitors in line, conduct such as predatory pricing challenges this presumption. What if one player in a concentrated market engages in predatory pricing? All other players typically follow suit or risk extinction. Rather than being competition on merit, it can become competition on the basis of who has everlasting resources. Taking it further, what happens if two or more equally strong players in the market engage in similar anti-competitive practice?

Nurturing competition Photo: iStock

A closer look at the legislative history of the Competition Act reveals that the legislature gave enough powers to CCI to deal with such situations. It defines dominance as “…to affect its competitors or consumers or the relevant market in its favour”. Under this definition, it is not necessary that all competitors be affected; only a significant number of competitors are required to be affected by the conduct of an enterprise for such an enterprise to be held dominant. 

Interestingly, CCI’s view that there is only one dominant player in a market is not based on any conceptual objections. Its view about single-firm dominance is based on its reading of Section 4(2) of the Competition Act, 2002 which provides that “[t]here shall be an abuse of dominant position…, if an enterprise or a group (a) directly or indirectly, imposes unfair or discriminatory (i) condition in purchase or sale of goods or service; or (ii) price in purchase or sale (including predatory price) of goods or service.”

CCI opined that had the legislature’s intent been to recognise more than one dominant player in the market, it would have provided “any enterprise” instead of “an enterprise”. This opinion is at variance with the government’s explanation of the same clause at the time of introduction of the Competition Bill. The explanatory statement provided to the Parliamentary Standing Committee on Home Affairs on the Competition Bill states that “[t]he clause prohibits abuse of dominant position by any enterprise”. 

In fact, one cannot ignore the coincidence that at the time when the Competition Bill was drafted, US anti-trust authorities had successfully argued that two or more players can be dominant in a market, in a case where two dominant players in the credit card market had abused their dominance. While adopting best practices of advanced jurisdictions, the Indian law must have taken into account such conduct and therefore, provided adequate mechanism in the statute to deal with similar situations. 

There is no constraint in law or otherwise that prevents CCI from taking action against enterprises which engage in anti-competitive conduct in concentrated markets. Economic laws such as competition law must keep pace with changing economic and business realities. Therefore, the legislature armed CCI with enough powers to prohibit anti-competitive conduct by players in the market. All that CCI needs to do now is to revisit its thoughts on the issue, while keeping in view the fundamental objective of competition law to promote competition and the legislative intent that two wrongs cannot make a right.  

The writers are with PwC. These views are personal