India’s Competition Law: A Case of an Antitrust Paradox


Through a critical analysis of the case laws pertaining to the Indian e-retail market and the radio taxi services market, this paper tries to establish that the design of Section 4 of the Indian Competition Act and its enforcement by the Competition Commission of India, has promoted concentration rather than (fair) competition, and in doing so it has failed to capture the anticompetitive ramifications of some of the fundamental features of the online platforms, namely indirect network effects, vertically integrated structure and deep discounting funded by their access to deep pockets. Further, this paper also draws attention to the issue of making predatory conduct such as predatory pricing investigable only in the case of the ‘Abuse of Dominance’ by a firm, especially when this dominance is subjectively assessed.

The Competition Act 2002 (hereafter, CA 2002) aims at sustaining and promoting competition in markets within India. The introductory paragraph of the Act lays down its aim as:

“An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets in India, and for matters connected therewith or incidental thereto” (Competition Act 2002).

The CA 2002[i] replaced the Monopolies and Restrictive Trade Practices Act (hereafter, MRTPA) 1969. The MRTPA 1969 was primarily “an anti-monopoly legislation” (Singh 2000) whose stated objective was-

to ensure that the operation of the economic system does not result in the concentration of economic power to the common detriment and to prohibit such monopolistic and restrictive trade practices as are prejudicial to public interest” (Monopolies and Restrictive Trade Practices Act 1969).

In 1991 India kick-started the economic reforms famously known as the LPG- Liberalization, Privatization and Globalization- Reforms and with that commenced the transformation of the Indian economy from being a ‘command and control economy’ towards the one based on the free market principles. The MRTPA 1969 underwent a number of amendments in the pre-1991 era but it was the amendment of 1991- in the era of the LPG Reforms- that fundamentally changed the character of this Act. The 1991 Amendment to the MRTPA de-emphasized two of the core objectives of this Act, which were subsequently given up, namely, the control of monopolies and the prevention of concentration of economic power to the common detriment. Before the amendments of 1991, the MRTPA essentially was “implemented in terms of regulating big size companies, called the monopoly companies. In other words, there were pre-entry restrictions therein requiring undertakings and companies with assets more than 100 crores (about US$25 million) to seek approval of the government for setting up new undertakings, expansion of existing undertakings, etc” (Chakravarthy 2006: 45-46).

Further, in the changed economic scenario MRTPA was considered to be obsolete and the need was felt for enacting a new Competition law which would fully belong to the post 1991 LPG paradigm. The thrust of the new CA 2002 became to allow firms to grow big or become dominant without government’s interference. The new CA 2002 doesn’t frown upon the bigness of a firm. Thus, the antimonopoly, anti-size stance of the MRTPA 1969 was completely dropped under the new competition law regime. The focus of the new Competition Act was (paradoxically) shifted from curbing monopolies to promoting competition (Chakravarthy 2006). If the MRTPA 1969 was “a product of Indira Gandhi’s leftward lurch” (Bhattacharjea 2003) the move towards framing and adopting the new CA 2002 was a product of the neoliberal restructuring of the Indian economy under the aegis of the Washington based institutions and the WTO.

Deconstructing Section 4 of the CA

Section 4 of the CA prohibits the abuse of dominant position by an enterprise or a group and defines dominance in an explanation as:

“a position of strength, enjoyed by an enterprise, in the relevant market in India, which enables it to—(i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market in its favour” .

Notably, Section 4 of the Act prohibits the ‘abuse of dominance’ (hereafter, the AoD) and not the dominance of an enterprise in a relevant market[ii] within India. Additionally, this provision defines dominance as a position of strength enjoyed by a firm in any relevant market within India, which empowers that firm to act as if no other player exists in that market; that is a firm facing no competitive constraints in a relevant market. This implies that in its extreme version a dominant firm in a relevant market in India means a firm with monopoly power. In fact Section 19 (4) of the Act lists down the existence of a monopoly firm in a relevant market as one of the indicators of a dominant firm. Then as per this definition of dominance, the Act doesn’t prohibit a firm’s attempt to monopolize a market. It is only when firms through whatever means become dominant, and then abuse their market power, that the competition law becomes functional.

This means that the focus of the competition law is not on preventing the abuse of dominant position, but in taking ex post facto measures, signifying that the Act with its objective to promote and preserve competition actually ends up embracing the process of monopolization of a market, and also the existence of monopoly. And since the Act doesn’t frown upon dominance, the Act allows a firm to capture as large a market share as it can.

Alternatively, Section 4 of the Act defines a dominant firm as the one that possesses sufficient market power to steer the market in its favour. Since the act doesn’t prohibit a firm from holding dominant position, these two definitions of dominance imply that the Act by its very design is blind to the path taken by firms to grow bigger/ to acquire and amass market power. Now this is extremely problematic when the strategies adopted by firms to become dominant have anticompetitive ramifications such as the creation of high entry barriers or when such strategies are themselves anticompetitive such as predatory pricing. In other words, allowing an enterprise in any market to march unchecked towards dominance, by a legislative framework which intends ‘to prevent practices having adverse effect on competition’ can be strongly counterproductive. This is especially when, the path taken by firms to establish dominance is significantly underpinned by their access to deep pockets, which facilitate sustained cash burn by these firms despite the resultant colossal amounts of losses.

In fact, the Section 4 (2) of the Act ties predatory pricing to the AoD. According to Section 4 (2) (a) of the Act if a dominant enterprise or a group undertakes the following practice then it is said to be an abuse of its dominant position:

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”.

The Section 4 of the Act defines predatory pricing as:

“ the sale of goods or provision of services, at a. price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors”.

That is, the Act is concerned with anticompetitive practices or an anticompetitive conduct such as the predatory pricing by a firm only when such a firm is found to be dominant. Further, as per the scheme of Section 4 of the Act, the assessment of AoD by the Competition Commission of India (hereafter, the CCI) is a three step procedure- firstly, the CCI needs to determine the relevant market; secondly, it needs to determine if the accused enterprise is dominant in that relevant market and only if it finds the accused enterprise to be dominant, the third step that is whether there is AoD by that enterprise can be looked into, otherwise the CCI as per the scheme of the Act has to simply dismiss the litigant’s claim. As per the Act, the burden of proving the AoD lies with the litigant.

The CCI needs to look into the provisions of Section 19 (4) of the Act to determine the dominance of the accused enterprise. The Section 19 (4) of the Act lays down thirteen factors such as ‘market share of the enterprise, size and resources of the enterprise, size and importance of the competitors, any other factor which the Commission may consider relevant for the inquiry’ etc[iii], on the basis of which the CCI shall determine whether the accused enterprise is dominant or not; and it can base its decision on all these thirteen factors or on any one of those factors as it deems fit. In other words, the dominance of an enterprise gets established on the basis of the subjective satisfaction of the CCI. The Act lays down no objective criteria for the ascertainment of the dominance of a firm.

I shall now discuss how the above elaborated design of the Act has played out in two of the Indian markets- the radio taxi services market and the e-retail market. I shall do so by discussing some of the case laws pertaining to the said markets.

Indian E-retail Market and It’s Duopolistic Structure

The Indian e-retail market at the current juncture is dominated by two players which operate as an online marketplace namely, Walmart owned Flipkart and Amazon India. One of the key strategies deployed by these players to eliminate competitors and thus to monopolize the Indian retail market is that of burning mammoth sums of cash in the form of deep discounts despite the colossal losses (Dalal and Verma 2014; Dalal and Sen 2018; Mishra 2018; Mukherjee 2018; Peermohamed and Choudhry 2017; Sharma 2018). And these deep discounts are funded by their deep pocketed investors (Dalal and Verma 2016; Dalal and Sen 2017; Dalal and Shrutika 2018; Mishra 2018; Mukherjee 2018; Peermohammed 2017; Sharma 2019; Variyar 2017).

Besides the convenience entailed in the doorstep delivery of our online ordered goods, it is these deep discounts that have enticed the Indian shoppers increasingly towards online shopping, to the detriment of brick-and-mortar retailers. The discounts on the marked price of different categories of goods can be as high as 80 percent (‘Amazon India, Flipkart fight it out in first sale of 2018 with 80% discounts’, 2018). The idea is “to burn cash and wipe out competitors before one really starts looking for profits” (Varman 2017). Such a path to dominance is fundamentally underpinned by these players sustained access to deep pockets. In this light Parashar, Shah and Bose raise the following concern:

“[t]he market may eventually tip in favour of the player that may not necessarily have the most innovative product or service, but one that succeeds in obtaining more capital and enticing more users in the early days, using subsidies. While seeming beneficial for consumers in the short run, such practices raise concerns about competition on account of the creation of market power, and elevated prices for consumers in the following years when losses are recouped” (Parashar, Shah and Bose 2017, 4).

These deep discounts have helped these online marketplaces in establishing strong indirect network effects for their respective platforms. An online marketplace platform structures two sided markets with two distinct user groups on either side of the market who interact directly through the platform, where the benefit derived from joining the platform by the members of one user group depends upon the size of the other user group on the same platform. In the case of online retail based platforms such as Amazon India and Flipkart, these two distinct user groups are the end consumers and the third party sellers and the platform acts as a match maker between the two distinct user groups.

Indirect network effects or cross-group network effects are central to the working of an online marketplace. In the words of Hagiu and Wright:

“A cross-group network effect arises if the benefit to users in at least one group (side A) depends on the number of users in the other group (side B) that join. An indirect network effect arises if there are cross-group network effects in both directions (from A to B and from B to A) and side B's participation decision depends on the number of participants on side A so that the benefit to a user in side A depends (indirectly) on the number of users on side A” (Hagiu and Wright 2015, 5).

What the presence of indirect network effects then entails is that the size of the seller’s group and the size of the buyer’s group on an online platform positively influence each other, such that indirect network effects can lead to strong positive-feedback loops between the two types of user groups and thereby can increase the market share of an online marketplace to the point of tipping the market in its favor (Katz and Shapiro 1994). This is so because these feedback loops between the two distinct user groups entails the scaling up of the users on the either side of the market which is structured by an online platform, and which ceteris paribus can take a life of its own. Clearly, indirect network effects play a crucial role in establishing and entrenching the dominance of online platforms, and this makes indirect network effects one of the major constituents of the market power of online platforms.

But setting in of indirect network effects and hence taking advantage of these effects requires the platform providing entity to attract sufficiently large numbers of users which is called ‘the critical mass of users’ on either side of the market (Evans and Schmalensee, 2013). Flipkart and Amazon India enjoy very strong indirect network effects, such that acquiring the critical mass of users on either side of the platform for a new e-commerce-based platform shall be an uphill task. Thus, indirect network effects act as a strong entry barrier in platform markets. In this regard, any new entrant will require to burn even greater amount of cash in the form of deep discounts in order to lure customers on its platform and so the deep pockets of Flipkart and Amazon also act as a huge entry barrier in the e-retail market.

In the case of All Delhi Computer Traders Association (ADCTA) v Flipkart & Ors (2014) and Mohit Manglani v Flipkart & Ors (2014) , Flipkart and Amazon have been accused of abusing their dominant position. ADCTA alleged that these e-retail companies were undertaking predatory pricing in the form of their deep discounting strategy, which was harming their livelihoods. ADCTA is an association of brick and mortar retailers who sell computer and computer hardware devices.

The CCI, without undertaking a detailed economic analysis so as to assess the dominance of the accused e-retail companies, as per its subjective satisfaction simplistically stated that since there were many players in the online retail market which offered similar services to their customers, none of the accused e-portals (which included Flipkart, Snapdeal, Amazon India) could be said to be dominant.[iv]Since the Act remains blind to the allegations of predatory pricing unless the accused firm is found to be dominant, All Delhi Computer Traders Association’s (hereafter, ADCTA) allegation of predatory pricing against the said firms could not be evaluated by the CCI; and which implied that to the detriment of brick and mortar retail, deep discounting by e-retail players shall continue without attracting antitrust scrutiny.

In the more recent case of the All India Online Vendors Association (AIOVA) v Flipkart India Pvt. Ltd. & Flipkart Internet Pvt. Ltd (2017), AIOVA has accused Flipkart- Flipkart India being a wholesaler and Flipkart Internet being the owner and operator of of using its vertically integrated structure to favour its in-house brands and sellers, and as a result of which the sellers constituting the AIOVA are unable to compete with those preferred sellers on In this case as well, the CCI did not find Flipkart dominant in the ascertained relevant market[v]. The CCI gave the following explanation for not holding Flipkart dominant-

“As per the data available in the public domain, it appears that presently Flipkart and Amazon are the bigger competitors; moreover, there are other players like Paytm Mall, SnapDeal, Shopclues etc. No doubt, the size and resources of Flipkart are large; yet, it cannot be disputed that the closest competitor to Flipkart is Amazon which has a valuation of around 700 billion dollars and has a global presence. With regards to entry barriers, it has to be noted that it is possible for new entrants to create online marketplace platforms, but the advantage gained by incumbents due to network effects may be difficult to breach. However, Flipkart has pointed out that there are several new players which have entered or propose to enter the ecommerce segment, such as Paytm Mall, thus indicative of low entry barriers” (Case No 20 of 2018 (Competition Commission of India, 6 November 2018), 28).

It must be noted that the CCI has itself taken note of the fact that the e-retail market structure is significantly concentrated or duopolistic in character with Amazon and Flipkart individually wielding significant market power. One fundamental question here is, that how big a firm is too big so as to attract antitrust scrutiny? Further, the CCI has outrightly ignored two of the most important factors in assessing Flipkart’s dominance which are also listed in Section 19 (4) of the Act- firstly, a very high entry barrier emanating from Flipkart’s continual access to deep pockets and secondly, Flipkart’s vertically integrated structure. Also, Paytm Mall is backed by extremely deep pocketed investors like the Japan based SoftBank and the China based Alibaba Group who have repeatedly pumped hundreds of crores of rupees into it, to fund the steep discounts offered on this platform (Verma 2018), and so, Paytm’s entry cannot be taken as a sound indicator of low entry barriers. Further, Snapdeal has now gone bust in the face of fierce competition from Amazon India and Flipkart (Sen and Dalal, 2017). Snapdeal could no longer sustain burning cash in the form of deep discounts because of its mounting losses (Singh 2017).

Now since the CCI did not find Flipkart Internet dominant, as per the design of the Act, it cannot look into AIOVA’s allegations of AoD by Flipkart and thus Flipkart’s conduct escaped antitrust scrutiny. And this in effect means that in case the AIOVA’s allegations against Flipkart Internet, about the latter using its vertically integrated structure and its ascendancy as an online platform to favor its preferred/captive sellers and its private label products -all to the detriment of the independent/non preferred sellers- is true, then such anticompetitive practices shall continue unfettered. Thus, defeating the very purpose of having a competition law in place!

In fact, WS Retail is well documented as one of Flipkart’s preferred sellers – a seller with whom Flipkart doesn’t have an arm length distance- which buys goods at discounted prices from Flipkart India (that is below the purchase price of Flipkart India) and then sells at highly discounted prices on (FDI Escapades 2014).[vi] And AIOVA in their aforementioned case have alleged that Flipkart Internet charged significantly lower fees like lower freight charges, lower commission charges etc from WS Retail vis-à-vis its non-preferred or the independent sellers. But the alleged unfair conduct of Flipkart has evaded antitrust scrutiny as elucidated above.

In fact in the case of Delhi Vyapar Mahasangh(DVM) v Flipkart and Amazon India (2020), the CCI has ordered investigation against Flipkart and Amazon India on prima facie basis, for the same allegations as those raised by the AIOVA against Flipkart.. But this order was passed under Section 3 and not Section 4 of the Act. Section 3 of the Act is concerned with the prohibition of anticompetitive agreements. DVM is a member association of the Confederation of All India Traders and consists of ‘Micro, Small and Medium Enterprises’ traders who sell smart phones and related accessories offline, and also online through marketplaces such as Amazon India and Flipkart.

Ola, Uber and Deep Pockets Again

Like Amazon and Flipkart, Ola and Uber driven by their quest for establishing monopoly, offer -venture capital and private equity capital funded- deep discounts to customers- and steep incentives to drivers-,despite the resultant heavy losses (Paul 2017). In several cases against Ola, Uber, Meru (like Fast track in Fast track v Ola (2015)) has- inter alia- alleged that due to the massive venture capital and private equity funds continually received by the opposite parties (hereafter, OPs) that is by Ola and/or Uber, the OPs were giving steep discounts to customers (in addition to charging already low fares), and heavy incentives to drivers despite the resultant losses, for a sustained period of time and, the resultant below-the-cost pricing was harming its business to the point of elimination from the market. Meru inter alia argued that by undertaking predatory pricing, Ola and Uber had achieved very high market shares and were dragging other efficient players to the point of irrelevance.

In the last six cases, as arr to assess the dominance of Ola and/or Uber (as the case may be), the CCI has relied solely on the criteria of market share of a firm in a relevant market, but only to conclude that even a high market share of over 50 percent can’t be taken as a conclusive indicator of dominance especially when the Act itself doesn’t prescribe any numerical threshold. Hence, in each of these cases the CCI found the absence of dominance of the OPs. Further, in each of these cases the CCI opined that as long as fierce competition existed between Ola and Uber, none of these two could be called as dominant as both exercised competitive constraints on each other.

One of the key factors that the CCI has missed while looking for dominance, in each of the last six cases mentioned in the above table, was that of the financial strength/ financial resources of Ola and Uber. In Fast Track and Meru v Ola (2015) the CCI took into account the factor of huge financial strength of Ola but only to discount it, by arguing that firstly, Uber had deeper pockets than Ola and secondly, that Uber was the initiator of below -the cost- pricing and thirdly, that by doling out steeper discounts, Uber was undertaking ‘substantially higher’ losses than Ola during the period of investigation.[vii]

Since in all the eight cases mentioned in the above table, the CCI (as per its discretion) found neither Ola nor Uber- as the case may be-as dominant, bound by the scheme of Section 4 of the Act, the CCI did not examine whether the alleged below-the-cost pricing behavior of Ola/Uber amounted to predatory pricing or not. This implies that in case the pricing behavior of OPs was indeed predatory, it shall continue unfettered, to the detriment of traditional, smaller but efficient cabs who shall face unfair competition from the OPs and the eventual elimination from the market.

In fact in Fast Track and Meru v Ola (2015) the CCI did say that :

“The Commission does not fully disagree with the informants that the low prices of OP are not fully because of cost efficiency, but because of the funding it has received from the private equity funds” (Case No 6 and 74 of 2015, 122).

But the Scheme of the Act at the outset disallowed the CCI to go in to the legitimacy of Ola’s pricing strategy as Ola was not found to be dominant.[viii]