DISCUSS HOW THE PREDATORY PRICING BY THE DOMINANT

ENTERPRISE CAN BE ASSESSED

Submitted By
Ramit Chowla

Division: B; PRN: 16010224110; Programme: BBA LLB

Group: A; Batch: 2016-21

of
Symbiosis Law School, NOIDA,
Symbiosis International (Deemed University), Pune

In
August, 2019
Under the Guidance of
Mr. Vijay Kumar Aggarwal

(Course-in-charge
 CERTIFICATE

The project entitled “Discuss how the predatory pricing by the dominant enterprise
can be assessed” with the help of the cases decided by the Competition Commission
of India” submitted to the Symbiosis Law School, NOIDA for Competition Law as part
of Internal Assessment is based on my original work carried out under the guidance of
Mr. Vijay Kumar Aggarwal from July, 2019 to August, 2019.

The Research work has not been submitted elsewhere for award of any degree. The
material borrowed from other sources and incorporated in the research paper has
been duly acknowledged.

I understand that I myself would be held responsible and accountable for plagiarism,
if any, detected later on.

Signature of the Candidate:

Date: 12.08.2019
INTRODUCTION

Predatory Pricing is often described as pricing of any commodity below a suitable

value for the purpose of ousting competitors in the short run and abating competition
in the long run. A practice which is detrimental to both competitors and competition,
the same proves to be a barrier for market growth as well. Usually, the decrement of
price is targeted at increasing market share, and thus, it would not be wrong to say
that Predatory Pricing creates Monopoly.

The Competition Act, 2002 is based on, the supply of a product is more often than
not, limited to the hands of a single market player, who, using his dominance has
grown so powerful because of the low production cost he has, for the simple reason
that his economies of scale are huge and research and development facilities better
than most, he can determine the price without considering the fixed price, thereby
misallocating efficiency. There are also situation in real-life, where the dominant
players in the market, using their dominant position, create barriers for the new
entrants or try to drive them out. One such method of driving out other players is
called predatory pricing.

Section 4 (b) of the Competition Act, 2002 defines predatory pricing as “predatory
price” means 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. Therefore,
predatory pricing, which is most certainly an abuse of dominant position, is made
illegal.

If dominant person indulges in predatory pricing it is not fair, the provisions of

predatory pricing are also discussed in the Raghavan Committee. The committee
discussed that identification of predatory pricing is an important issue. Also, it
observed that in view of certain difficulties the issue of predatory pricing is best left to
the cci itself which can draw its own regulation based on its own discretion. The
committee has also published the cost regulations wherein cost shall generally been
taken as average variable cost as a proxy to marginal cost, provided that in specific
cases commission may consider any other relevant cost.
ABUSE OF DOMINANT POSITION AND PREDATORY
PRICING

Explanation (a) to section 4 of the Act defines ‘dominant position’ as a position of

strength, enjoyed by an enterprise, in a relevant market, in India, which enables it to
operate independently of competitive forces or affect its competitors or consumers or
the relevant market in its favour.1 Predatory price means 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.2

Abuse of dominant position and predatory pricing are two principles which are bound
together by the an intricate web of legal rules. In simple terms, an enterprise or a
group may, illegally, abuse its dominant position; predatory pricing is just one of the
many, however the most frequently used, ways in which that enterprise or group may
abuse its position of dominance.

In the case of, Shri Neeraj Malhotra, Advocates v. North Delhi Power Ltd.,3 the
CCI observed that Section 4 of the Competition Act does not prohibit an enterprise
from holding a dominant position in a market, it does place a special responsibility on
such enterprises, in requiring them not to abuse their dominant position. The CCI
further held that Section 4 does not contain an exhaustive list of activities that would
amount to contravention of its provisions. The actions, practices and conduct of an
enterprise in a dominant position have to be examined in view of the facts and
circumstances of each case to determine whether or not the same constitutes an
abuse of dominance in terms of Section 4 of the Competition Act. 4

In substance, `dominant position’ means the position of strength enjoyed by an

enterprise that enables it to act independently of competitive forces prevailing in the
relevant market. Such an enterprise will be in a position to disregard market forces
and unilaterally impose trading conditions, fix prices, etc. The abuse may result in the
restriction of competition, or the elimination of effective competition.

1
In Re: Johnson And Johnson Ltd.,(1988) 64 Comp Cas 394 NULL..
2
The Competition Act, 2000, s 4(c).
3
Shri Neeraj Malhotra, Advocates v. North Delhi Power Ltd., Case no. 6 of 2009.
4
Brooke Group Ltd v. Brown and Williamson Tobacco Corporation, (1993) 509 U.S. 209.
When does an enterprise engage in abuse of its dominant
position?

An undertaking in a dominant position is entitled also to pursue its own interests.

However, such an undertaking engages in abusive conduct when it makes use of the
opportunities arising out of its dominant position in such a way as to reap trading
benefits which it would not have reaped if there had been normal and sufficiently
effective competition. For the purposes of this section, the conduct of a party would
be tested on the basis of the end effect i.e. whether access to a market has been
denied not. In other words, the same conduct by different parties may attract
provisions of Section 4(2) of Act depending on whether the conduct of the parties
results into denial of market access in any manner. As per Section 4(2)(c) of Act of
the Act, there shall be an abuse of dominant position if any enterprise indulges in a
practice resulting in denial of market access in any manner. 5

In the case of Jupiter Gaming Solutions Pvt. Ltd. v. Government of Goa & Ors.,6
the CCI while determining alleged abuse of dominance by Government of Goa stated
that dominance per se is not bad, but its abuse is bad in Competition Law in India.
CCI further opined that abuse is said to occur when an enterprise uses its dominant
position in the relevant market in an exclusionary or /and an exploitative manner. In
the case the Government’s tender bid of lottery contained certain conditions which
apparently restricted the size of bidders such as, minimum gross turnover of the
participating entity, participating entity should have experience of at least three
years. The CCI held that the Government of Goa by imposing such conditions abused
its dominant position denial/restriction of market access to the other parties in the
relevant market.

How to examine dominant position of an enterprise?

In the case of Fast Track Call Cab Pvt. Ltd. and Ors. vs. ANI Technologies Pvt.
Ltd.,7 adjudged by Competition Commission of India dated July 19, 2017. The

5
Standard Oil Co. v. Trade Comm’n , 340 US 231 (1951).
6
Jupiter Gaming Solutions Pvt. Ltd. v. Government of Goa & Ors., Case No. 15 / 2010.
7
Fast Track Call Cab Pvt. Ltd. and Meru Travel Solutions Pvt. Ltd v. ANI Technologies Pvt. Ltd., Case
No. 6 & 74 of 2015.
Informant alleged that the Respondent has abused the dominant position and offered
the relevant market by offering heavy discounts to the passengers and incentives to
the cab drivers associated with them which amounts to predatory pricing. The
Commission directed the Director General to conduct detailed investigation into the
matter.

Observation and Findings

The issue before the DG under this case were:- (i) whether, Respondent held a
dominant position in the relevant market or not; and (ii) if it held a dominant position,
whether its conduct would amount to abusive practice (predatory pricing) within the
meaning of Section 4(2)(a)(ii) of the Indian Competition Act.

The DG has opined that for a player to have a dominant position in the relevant
market, it should be able to hold its market share for a reasonable period of time
whereas the market share of the Respondent declined due to entry of another
participant i.e. Uber.
The DG noted that in the absence of dominance of an entity, the question of abuse
would not arise. However, the DG analysed the pricing strategy of Respondent vis-à-
vis its competitors and rather found Uber to be a more aggressive player, in terms of
below-cost pricing, in the relevant market than the Respondent. Thus, DG opined that
both Respondent and Uber have adopted 'below-cost pricing strategy'.

However, since the scheme of the Act only attracts the provisions of Section 4 when
an incumbent is found to be dominant, the DG stated that OP can be said to have
indulged in abuse by way of predatory pricing, only if it is found to be dominant in the
relevant market. Since OP was not found to be dominant, the DG concluded that
Respondent did not contravene the provisions of Section 4 of the Act.
Through this decision of the court it has clarified the regime of predatory pricing in
India to a significant extent, wherein the Court has narrowed down the contours of
Dominant entity in Indian market. The Court has expressly denied labelling an entity
as “Dominant Entity” just because the same possesses a novel concept or superior
technological solution.
CONCLUSION
The law relating to predatory pricing was introduced in India by the Competition Act,
2002, because most dominant companies from the West, before the enactment of the
Act, chose predatory pricing as a tool to drive out Indian competitors from the
market. The huge population of the country, which serves as a big market, coupled
with the cheap labor meant that companies from the West who were dominant
players in the relevant market only had to price predatorily to drive out the Indian
companies from the market.

The Indian companies never had too much capital and were generally small
competitors. The selling below price policy of the enterprises made sure that the
Indian companies stumbled and eventually, sold their companies to these giant,
dominant players. Therefore, they succeeded in driving out all the small Indian
competitors from the market, and turned it into a monopolistic or a duopolistic
market, instead of the earlier existing oligopolistic market. The choices of the Indian
consumers were limited and many people were rendered jobless as most Indian
companies were shut down or sold. In addition, after driving the competitors out, the
companies went for recoupment, which meant that the prices of the monopolistic or
duopolistic market were sky high and it was the consumers who actually suffered
from it, as they neither had the freedom to choose between products, nor were they
paying the right amount for the essential or lifestyle products. 8

Therefore, a need was felt to control and curb this abuse of dominance and predatory
pricing. Although, the drafting committee did a satisfactory job in expressly
prohibiting predatory pricing, it failed to provide a much needed exhaustive definition
of predatory pricing. However, because of this approach many new entrants and small
competitors are still being challenged, as the dominant enterprises are selling
products below their total cost of manufacturing i.e., without causing any profit.
Therefore, the legislature should take a clear standpoint and make the law relating to
predatory pricing a little more exhaustive. This will act as a stimulus to the new
entrants and small competitors and will help in fostering competition and maximum
welfare.

8
Fx Enterprise Solutions India v. Hyundai Motor India Limited, CCI (Case no. 36 &42 of 2014)