J 2015 PL Comp L December 59 919466513286 20221018 100222 1 8

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(2015) PL (Comp. L) December 59
OLA Cab Case: The Tale of Predatory Pricing in the Radio Cab Market
OLA CAB CASE: THE TALE OF PREDATORY PRICING IN THE RADIO CAB MARKET
by
Garima Nagpal and Akshita Gupta*
By an order dated 24-4-2015, the Competition Commission of India directed the
Director General to investigate into the matter of abuse of dominant position by OLA
Cabs as alleged by the Informant, Fast Track Call Cabs (P) Ltd. The CCI ordered DG to
investigate holding prima facie that ANI Technologies (P) Ltd., that provides radio taxi
services under the brand name “OLA”, enjoyed a dominant position in the relevant
market and was prima facie abusing this dominant position by indulging in unfair
practices like predatory pricing1 .
In order to prove abuse of dominant position, the relevant market must be
identified and dominant position of the firm must be established in that relevant
market. In Fast Track Call Cab (P) Ltd. case2 , the CCI identified the relevant market to
be the market for “Radio Taxi services in the city of Bengaluru”.
Identification of the Relevant Market
Section 19(5) of the Act provides that for determining the relevant market, due
regard must be given to the “relevant product market” and “relevant geographic
market”.
Relevant product market is defined under Section 2(t) of the Act as comprising all
products which are interchangeable or substitutable by the consumer. The
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Commission held the radio taxi market as the product market because it was
convinced that there are a considerable number of value added services that are
offered by the radio cab services but not by other modes of road transport, e.g. pre-
booking facility, round the clock availability, ease of availability even at obscure
places, point-to-point pick and drop, payment through card etc. There is a dedicated
category of commuters who use radio cabs, who will not substitute it with any other
means of transport under normal conditions. Determination of relevant product market
in this case is different from that in Mohit Manglani, In re3 , where the CCI held that
online and offline retail markets do not constitute separate relevant markets because
they are merely different distribution channels that can be substituted. This is so
because the set of consumers is same in case of online retail and there are no such
value added services provided by the online retail market as in this case.
Relevant geographic market has been defined under Section 2(s) of the Act as the
market comprising the area in which the conditions of Competition for supply of goods
or provision of services or demand of goods or services are distinctly homogenous and
can be distinguished with the conditions prevailing in that area. CCI has determined
the relevant geographical market to be Bengaluru by stating that a customer willing to
commute within a city will have to rely on radio cab services available within that
particular city only as it is not feasible to opt for radio cab services from other city.
Dominant Position of OLA
Section 4 deals with abuse of Dominant Position in relevant market. Explanation (a)
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of the section defines dominant position 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”
Section 19(4) further lists the factors on basis of which CCI can determine
dominant position of an enterprise such as market share, size and resources of the
enterprise, size and importance of competitors, etc.
CCI determined the dominant position of OLA on the basis of its market share in
Bangalore which is around 69% (including the acquired share of Taxi for Sure) on the
basis of various counts such as number of trips per day, active fleet size, total cars
available, etc. as well as its strong market position achieved within three to four years
of operation.
Even if India as whole is considered as the relevant geographic market, Ola
emerges as a dominant player holding around 80% of the market after acquisition of
Taxi For Sure4 , deep pockets and strong market position.
Abuse of Dominant Position
Section 4(1) of the Competition Act provides that there shall be no abuse of
dominant position by an enterprise. Thus, if an enterprise holds a dominant position in
the relevant market, it is not enough to hold it liable under this section. There must be
an abuse of such a dominant position. Clause (2) of the section further lists the acts
which can constitute abuse of dominant position. Section 4(2)(a)(ii) reads that if an
enterprise directly or indirectly, imposes unfair or discriminatory prices in purchase or
sale (including predatory price) of goods and services. Thus, the act itself clearly
provides that if an enterprise engages in Predatory Pricing, it shall constitute an abuse
of Dominant Position.
However, explanation appended to sub-clause (a) provides that if an enterprise
adopts unfair or discriminatory conditions or prices as mentioned under Section 4(2)
(a)(i), (ii) in order to meet the competition, it shall not be regarded as an abuse of
dominant position.
Thus, even if CCI concludes that the prices were unfair or discriminatory, OLA can
escape liability under this section if it can prove that the prices were reduced to such
an extent to meet the competition.
What is Predatory Pricing?
When a dominant firm in the relevant market reduces the prices of its products
below the cost and thereby incurs losses, in order to eliminate the existing competitors
and prevent entry of new players in the relevant market. When the firm succeeds in
driving out the competitors, it can then increase the prices and recoup the losses.5
This is known as Predatory Pricing. Section 4(2)(a)(ii) of the Competition Act, 2002
expressly provides that
Page: 61
predatory pricing shall constitute an abuse of dominant position under Section 4(1) of
the act. Explanation (b) of section 4 defines predatory price as “the sale of goods or
provision of services, at a price which is below 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.”
Pre-requisites of Predatory Pricing

There are two phases in Predatory pricing (a) Sacrifice or Predation Phase: when the
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enterprise suffers heavy losses due to low prices; (b) Recoupment Phase: when the
enterprise recovers the losses suffered during sacrifice phase by increasing the cost
products.6 There are several pre-requisites of predatory pricing. According to the Issac
and Smith experiment, these are (conditions conducive to producing predation).
(a) Dominant position in the relevant market under Section 4 as defined in
explanation (a);
(b) Deep pockets requirement to bear the brunt of heavy losses in sacrifice phase7 ;
(c) Excess production capacity to meet the increased demand8 ;
(d) Certain level of entry barriers to prevent new players in the market when the
prices increase. Entry barriers exist when the entrant has to bear costs that the
dominant firm need not bear or no longer bears such as fixed cost investments.
These sunk or non-recoverable costs burden the entrants along with the under-
pricing by dominant form and thereby acting as an entry barrier.9 There may be
some entry barriers due to statutory or regulatory requirements.
In this case, OLA can be said to be in a dominant position (as discussed above)
with deep pockets valued at $1 Billion10 , given the funding from agencies like Tiger
Global Management, Soft Bank Corporation, Matrix Partners India etc.11 . The pre-
requisite of excess capacity is also being fulfilled as at the present OLA is adding
around 1500 drivers on its network daily.12 However, since technology solutions like
those involved in Cab Aggregation do not involve huge fixed cost investment, the
entry barriers can be said to be relatively low and thus, OLA may take defence of non-
existence of this pre-requisite.
Elements of Predatory Pricing
A number of issues are relevant in determination of prevalence of Predatory Pricing.
Three major issues out of them13 have been discussed below:
(a) Pricing Below Cost
Assessment of Pricing below cost involves a three prong approach14
(a) Assessment of relevant time period over which the alleged predatory prices
prevailed or could reasonably be expected to
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prevail. This depends on the case at hand.
(b) Assessment of relevant revenues generated and hence the relevant price which
depends on the case at hand.
(c) Assessment of Relevant Cost Benchmark out of:
(i) Variable costs: the costs that vary directly with output.
(ii) Avoidable costs: the costs which could be avoided if the undertaking were to
cease the activity in question over relevant time period.
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(iii) Incremental costs: Additional cost of increasing output beyond a benchmark

level of output by some pre-specified amount (the increment).
In India, The Competition Commission of India (Determination of Cost of
Production) Regulations, 200915 determines the cost benchmark. As per Regulation 3
(1) of the said regulations, Cost as referred to in explanation to Section 4 must be
taken as average variable cost. The proviso to the same provides that in specific cases,
the Commission may, depending on the nature of the industry, market and technology
used, consider any other relevant cost concept such as avoidable cost, long run
average incremental cost, market value. However, the reasons for doing so must be
recorded by the Commission.
Important Terms for Cost Assessment
Regulation 2 of the Competition Commission of India (Determination of Cost of
Production) Regulations, 200916 defines important terms of cost assessment as
follows:
1. “total cost” means the actual cost of production including items, such as cost of
material consumed, direct wages and salaries, direct expenses, work overheads,
quality control cost, research and development cost, packaging cost, finance ant
administrative overheads attributable to the product during the referred period;17
2. “total variable cost” means the total cost referred to in clause (i) minus the fixed
cost and share of fixed overheads, if any, during the referred period;18
3. “average variable cost” means total variable cost divided by total output during
the referred period;19
4. “total avoidable cost” means the cost that could have been avoided if the
enterprise had not produced the quantity of extra output during the referred
period;20
5. “average avoidable cost” is the total avoidable cost divided by the total output
considered for estimating “total avoidable cost;21
6. “long run average incremental cost” is the increment to long run average cost on
account of an additional unit of product, where long run cost includes both
capital and operating costs;22
7. “market value” means the consideration which the customer pays or agrees to
pay for a product which is sold or provided or can be sold or provided, as the
case may be;23
8. “Marginal cost” is the change in total cost that arises when the quantity produced
changes by one unit.24
Cost Tests for Predatory Pricing
1. Areeda-Turner Test: In 1975, Areeda and Turner proposed a test under which a
price lower than reasonably anticipated Short Run Marginal Cost is considered
predatory.25 “Reasonably anticipated” implies that conduct of firm should not be
judged ex-post facto. Since, SRMC cannot be possibly computed, AVC is used as an
alternative.
Page: 65
According to this test, a price at or above reasonably anticipated AVC should be

conclusively presumed lawful and vice versa. However, predatory conduct is possible
even when price is below ATC and above AVC. In AKZO Chemic BV v. Commission of
the European Communities26 the European Court held that when the prices are below
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ATC but above AVC and the intent to drive out the competitor can be established, the
conduct can be regarded as predatory.
The Competition Commission of India has adopted this test as the appropriate
measure of cost.27
2. Price below Average Total Cost: An alternative to the Areeda-Turner test was
suggested by Greer in 1979. According to this test, Pricing below Average Total Cost
should be considered predatory only if there is substantial evidence of predatory
intent. Intent is fundamental in these cases. A number of legitimate commercial
reasons for decreasing the price below average total cost are permitted under this test
such as-unanticipated shocks, economies of scale and new product, short run
promotions, loss leading etc.28
3. Price below Average Avoidable Cost: Baumol proposed this predation rule based
on average avoidable cost. The theory behind this test is similar to average variable
cost test. Even if the price of a product or service is above average avoidable cost but
their combination does not generate enough revenue to cover average avoidable
cost.29
In the case at hand, an investigation by the Director General has already been
ordered in this respect. It is yet to be seen as to whether CCI will adopt the AVC
approach as a cost test or drift from the same as in MCX Stock Exchange Ltd. v.
National Stock Exchange of India Ltd.30 , in which ATC was adopted as a cost
benchmark and an approach similar to AKZO rule was adopted.
(b) Intention to eliminate the competitors
In EC and UK laws for Competition, following factors are considered relevant for
assessment of intention of an enterprise to eliminate competitors:
(1) Direct evidence of intention: e.g. evidences in form of documents especially
internal documents that demonstrate the intention of the enterprise to use low
prices in an attempt to drive the competitors out of the relevant market.
(2) If the conduct of the enterprise makes no commercial sense apart from harm to
competition, it shall be considered as the enterprise's intent to indulge in
predatory pricing. It must be noted that pricing below AVC leads to presumption
of abuse. In fact, even when the prices are above AVC but the enterprise prices
below AAC, it is intentionally incurring a loss when it could have earned more
profits. This is indicative of its intent to eliminate competition. 31
(3) Other behavioral evidence of intention: e.g. when an enterprise targets price cut
against a competitor, maintaining higher prices in other markets, a predatory
intent is evident.
In India, there is no jurisprudence available as to determination of intent in the
cases of predatory pricing. Even the act is silent on this point. MCX Stock Exchange
Ltd. v. National Stock Exchange of India Ltd.32 , which dealt with the
Page: 66
question of predatory pricing, was decided by CCI without any proper discussion on
the issue of determination of “intention”. CCI merely stated that the mala fide intent
was clearly manifested through the abusive conduct of NSE. Thus, it is yet to be seen
how CCI will determine the intention of the enterprise behind any kind of price
reduction. Nevertheless, the question of intent is relevant in determining whether the
behavior of an enterprise is predatory or not.33
In OLA case, if CCI holds that the prices are below AVC and no legitimate reasons
for the same are provided by OLA, this can be considered as a commercial behavior
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that is intended to drive out competitors from the relevant market. Given the lack of
Jurisprudence on this point, CCI will have tough time deciding this case as without
strong evidence of predatory intent, predation cannot be determined.
(c) Feasibility of recouping losses
The Supreme Court of US in Brooke Group Ltd. v. Brown & Williamson Tobacco
Corpn.34 held that in order to prove predatory pricing the plaintiff must also prove that
the competitor had reasonable prospect of recouping its investment in below-cost
prices. This is an important element of predatory pricing theory and evidence of below
cost pricing alone is not enough to infer probable recoupment and injury to
competition. In absence of sufficient evidence of power of the enterprise to raise the
prices in recoupment phase, no inference as to feasibility or sustainability of
recoupment can be drawn.
However, the European Court in Tetra Pak International SA v. Commission35 , held
that whenever there is a risk that the competitors will be eliminated; there is no need
to prove the possibility of recoupment. This is because the weak state of competition
in the relevant market in which the enterprise holds dominant position will by itself
ensure that the losses are recouped.
In this case as well, if it is established that the policy adopted by OLA projects a
risk of elimination of competitors, it may be presumed that there is a feasibility of
recouping the losses incurred in the sacrifice phase. However, mere proof of pricing
below the cost will not prove that the company can recoup the losses. Any conclusive
comment on this can be made only after the DG's report and the cost analysis.
While DG's report is awaited, one thing is certain that CCI must decide this very
cautiously as this case will lay down the jurisprudence for predatory pricing in India on
a number of issues. Moreover, CCI must not forget that with advancements in
technology, the market will be revolutionized and the traditional market players will
face challenges against the technology based enterprises who will have better
networking, funding and economies of scale as they are a response to failures of
existing market players. Till now, CCI has not analyzed the costing strategy of OLA in
any of its order or the benefits caused to customers due to introduction of such
technology in market. These cab aggregators provide services at cheaper rates than
regular radio cab services along with a number of value added services. Thus, CCI
must ensure that in the process of playing its role of preserving competition, it does
not kill the budding technological advanced market players providing fair price and
effective competition in the relevant market.
———
* The views of the authors are personal and should not be considered as those of RMLNLU.
1 Fast Track Call Cab (P) Ltd., In re, 2015 CCI 88.
2 2015 CCI 88.
3 2015 CCI 7.
4 Goutam Das, “Taxi Wars” (Business Today, 30-8-2015) http://www.businesstoday.in/magazine/cover-
story/india-taxi-market-war-heats-up-ola-cabs-uber-strategy-leaders/story/222542.html.
5 Cargill Inc. v. Montfort of Colorado Inc., 93 L Ed 2d 427 : 479 US 104 (1986).
6 Christopher R. Leslie, “Predatory Pricing and Recoupment” (2013) 113(7) Columbia Law Review 1695.
7 OECD Commentary on Predatory Pricing, 1989 p. 15 http://www.oecd.org/competition/abuse/2375661.pdf.
8 Ibid.
9 OECD Commentary on Predatory Pricing, 1989 p. 15 http://www.oecd.org/competition/abuse/2375661.pdf,
Patrick Bolton, Joseph Brodley and Michael H. Riordan, “Predatory pricing: Response to Critique and further
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Elaboration” (2001) 89 Georgetown Law Journal 2495.

10Saritha Rai, “India's Cab-hiring App Market Growing at Breakneck Speed Despite Uber Setback” (Forbes, 15-1-
2015) http://www.forbes.com/sites/saritharai/2015/01/15/indias-cab-hiring-app-market-growing-at-breakneck-
speed-despite-uber-setback/.
11 Fast Track Call Cab (P) Ltd., In re, 2015 CCI 88, paras 2, 3.
12
Sneha Johari, “Updated: Ola claims 80% of online cab market share, Uber says its 50%” (Medianama, 3-8-
2015) http://www.medianama.com/2015/08/223-online-cab-market-share-in-india-by-vehicles/.
13 Maher M. Dabbah, EC and UK Competition Law: Commentary, Cases and Materials (Cambridge 2004) 398.
15 No. L-3 (5)/Reg-Cost/2009-10/CCI.

16 No. L-3 (5)/Reg-Cost/2009-10/CCI.
17The Competition Commission of India (Determination of Cost of Production) Regulations, 2009, No. L-3 (5)/Reg-
Cost/2009-10/CCI, Regulation 2(c)(i).
Cost/2009-10/CCI, Regulation 2(c)(ii).
19The Competition Commission of India (Determination of Cost of Production) Regulations, 2009 No. L-3 (5)/Reg-
Cost/2009-10/CCI, Regulation 2(b).
Cost/2009-10/CCI, Regulation 2(c)(iii).
21
The Competition Commission of India (Determination of Cost of Production) Regulations, 2009 No. L-3 (5)/Reg-
Cost/2009-10/CCI, Regulation 2(c)(iv).
Cost/2009-10/CCI, Regulation 2(c)(v).
Cost/2009-10/CCI, Regulation 2(c)(vi).
Cost/2009-10/CCI, Regulation 2(f).
25
Phillip Areeda, Donald F. Turner, “Predatory Pricing and Related Practices under Section 2 of the Sherman
Act” (1975) 88 Harvard Law Review 697.
26 [1991] ECR I-3359.
Cost/2009-10/CCI.
28Douglas Greer, A Critique of Areeda and Turner's Standard for Predatory Practices (1979) 24 Antitrust Bulletin
223.
29
William Baumol, “Predation and the Logic of Average Variable Cost Test” (1996) 39 Journal of Law and
Economics 49.
30
2011 CCI 41.
32 2011 CCI 41.
33
Aspen Skiing Co. v. Aspen Highlands Skiing Corpn., 86 L Ed 2d 467 : (1985) 472 US 585.
34 125 L Ed 2d 168 : (1993) 509 US 209.
35 1996 ECR 1-5951; See also Aberdeen Journals Ltd. v. Office of Fair Trading Ltd., 2003 CAT 11.
Disclaimer: While every effort is made to avoid any mistake or omission, this casenote/ headnote/ judgment/ act/ rule/ regulation/ circular/
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or omission or for any action taken or omitted to be taken or advice rendered or accepted on the basis of this casenote/ headnote/ judgment/ act/
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rule/ regulation/ circular/ notification. All disputes will be subject exclusively to jurisdiction of courts, tribunals and forums at Lucknow only. The
authenticity of this text must be verified from the original source.

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SCC Online Web Edition, © 2022 EBC Publishing Pvt. Ltd.

Page 1 Tuesday, October 18, 2022

(2015) PL (Comp. L) December 59

of the section defines dominant position as “a position of strength, enjoyed by an

Pre-requisites of Predatory Pricing

prevail. This depends on the case at hand.

(iii) Incremental costs: Additional cost of increasing output beyond a benchmark

According to this test, a price at or above reasonably anticipated AVC should be

Elaboration” (2001) 89 Georgetown Law Journal 2495.

15 No. L-3 (5)/Reg-Cost/2009-10/CCI.

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