Abuse of Dominant Position & Predatory Pricing

16th May, 2023 - 9:28 am Categories: Competition Law Legal Issues 0 Comments

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.

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.

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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, 12^th 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/