Abuse of Dominant Position & Predatory Pricing

Introduction to Predatory Pricing

“Predatory Pricing has been explained to mean that the sale of goods or provision of services at a price which is below the cost of production of the goods or provision of services.”[1]

In layman’s language, “predatory pricing” refers to lowering the prices of a particular good or commodity so low which ultimately results in creating a monopoly in the market and washing out other potential competitors present in the market. The ‘predator firm’ creates such a situation in the market by offering discounts/free scheme which lures the majority of consumers resulting in the killing of its predators and also restricting any new entrants in the market.

Predatory Pricing

The main objective of predatory pricing is to establish a dominant hold in the market. “The purpose of such dictatorial pricing is to reduce competition or to eliminate competitors[2]. The predator himself suffers losses while lowering the price, but the entity is already acquiring a dominant position in the market that it does not care about the losses incurred to it. The act impedes newer entrants from entering the market and kills the existent, thus in a way creating a monopoly.

[Image Sources : Shutterstock]

Relevant Statute and Provision

The Monopolies and Restrictive Trade Practices Act, 1969 (MRTP) was passed by the Government of India to curb unfair trade and monopolistic practices. Later, the Competition Act, of 2002 was introduced to cut down dominating abuse and monopolistic practices on one hand and to protect the consumers from dominant entities, and improvement of the economic fabric of the country.

As per Explanation (b) of Section 4 of the Competition Act, 2002, “predatory pricing” has been defined.  It defines predatory pricing as rendering goods and services at lower costs than determined by any regulation so as to drive any competitors out of the market.

In the case of M/S Transparent Energy Systems vs Tecpro Systems[3], it was held:

“23. In order to find out whether the opposite party resorted to predatory pricing, the Commission has to give a finding that the prices of the goods or services of the OP were at a very low level with the object of driving out competitors from the market, who due to low pricing would be unable to compete at that price. In predatory pricing, there is always significant planning to recover the losses if any after the market rises again and the competitors have already been forced out. It is considered that only a dominant company in such a market may have inclination and resources to finance such a strategy.”

Predatory Pricing cannot be read in isolation, but instead, it is read along with the dominant position of the alleged entity in the relevant market, as per Section 4 of the Competition Act. The Competition Commission of India in various cases has taken a narrower view thus dismissing claims of predatory pricing only because the entity alleged did not occupy a ‘dominant position’ in the market. For example, the case of Ola- Uber, Flipkart, and Amazon offering various customer discounts which in turn increased the sales of these e-platforms. The CCI in these cases held that they will not come under the ambit of Section 4 as these apps do not have a ‘dominant position’ in their respective markets.

Similar was the view taken by the Telecom Appellate Tribunal deciding the case of RelianceJio by Bharti Airtel, where it refuted the case stating Reliance Jio to be not a “significant player” in the telecom industry.

Requirements of Predatory Pricing

The Competition Commission of India in the case of Mcx Stock Exchange Ltd. & Others vs National Stock Exchange of India[4], held that:

8.4.3.8 To achieve the recoupment requirement of a predatory pricing claim, a claimant must meet a two-prong test: first, a claimant must demonstrate that the scheme could actually drive the competitor out of the market; second, there must be evidence that the surviving monopolist could then raise prices to consumers long enough to recoup his costs without drawing new entrants to the market.”

Thus, analyzing the above, we get the following requirements

  1. Setting of prices lower than prescribed for any particular good/service.
  2. The act should be such that it can be established prima facie that it could drive the competitors out of the market.
  3. It can be established that there can be a creation of monopoly by the predator.
  4. That monopolist can then raise the prices to gain profit in the long run, without new competitive entities entering the market.

Effects of Predatory Pricing

The short-term cost benefits given by the companies to the consumers create competition among the other competitors and the customer enjoys lower prices and different choices. But if one company unconditionally lowers its prices then the other competitors are forced to leave the market. This then creates a monopoly for the company and it can raise prices in the future and the consumers will then be left with no other alternative. This scavenger hunt by the predatory company is the main long-term effect of predatory pricing. Rest includes reduction of competition in the market and thus no checks and balances on the company.

Conclusion

The Act deals with three kinds of practices which are treated as anti- competitive and are prohibited. These are:

  1. Where agreements are entered into by certain persons with a view to cause an appreciable adverse effect on competition;
  2. Where any enterprise or group of enterprises, which enjoys dominant position, abuses the said dominant position;
  3. Regulating the combination of enterprises by means of mergers or amalgamations do not become anti- competitive or abuse the dominant position which they can attain. [5]

“….the major elements in the determination of predatory behaviour include :  (a) Establishment of the dominant position of the enterprise in the relevant market, (b) Pricing below cost for the relevant product in the relevant market by the dominant enterprise, (c) Intention to reduce competition or eliminate competitors, which is, traditionally known as the predatory intent test.”[6]

The CCI keeps checks and balances on the activities of the enterprises. Thus, it can be concluded that the dominant position of an enterprise is not prohibited, but its abuse is.

Author: Amolpreet Saini., A Student at Campus Law Centre, Faculty of Law, University of Delhi, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.

REFERENCES:

  1. ABIR ROY & JAYANT KUMAR, Competition Law in India, Ed.2011.
  2. PROFESSOR (DR.) V.K. AGGARWAL, Competition Act, 2002 (Principles and Practices), Ed. Second (2019).
  3. Himanshu Sharma & Martand Nemana, Predatory Pricing: A Brief Synopsis On The Indian Telecom Sector, “Predatory Pricing: A Brief Synopsis On The Indian Telecom Sector – Antitrust, EU Competition – India (mondaq.com)
  4. Dhruv Rajain, Shubhankar Jain, & Aakriti Thakur, Predatory Pricing — Not only abuse but also proof of dominance, https://www.scconline.com/blog/post/2020/02/07/predatory-pricing-not-only-abuse-but-also-proof-of-dominance/.

[1] Avtar Singh, Competition Law, 12th Ed. (2012).

[2] Ibid.

[3] Case Number 13 of 2013 (Competition Commission of India)

[4] 2011 Comp LR 129 (CCI)

[5] Competition Commission of India v. Bharti Airtel Limited & Others., (2019) 2 Supreme Court Cases 521.

[6] Advocacy Booklet on Provisions Relating to Abuse of Dominance, https://www.scconline.com/blog/post/2020/02/07/predatory-pricing-not-only-abuse-but-also-proof-of-dominance/

Leave a Reply

Categories

Archives

  • February 2024
  • January 2024
  • December 2023
  • November 2023
  • October 2023
  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • September 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010