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 base