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PREDATORY PRICING UNDER THE INDIAN

COMPETITION ACT, 2002

COMPETITION LAW
RESEARCH PAPER

SUBMITTED TO: SUBMITTED BY:
Mrs. PRIYA VIJAY VIJAY ROHAN KRISHNA
ASSISTANT PROFESSOR ROLL: 543
NUSRL, RANCHI SEMESTER VII’ A

NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN LAW

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.10 CONCLUSION AND SUGGESTIONS……………………………………………………...7 REGULATION OF PREDATORY PRICING IN INDIA…………………………….3 BACKGROUND………………………………………………………………………3 IMPACT ON CONSUMERS………………………………………………………….4 POSITION UNDER INDIAN COMPETITION LAW………………………………………..11 2 .6 FACTORS ESTABLISHING PREDATORY PRICING……………………………... TABLE OF CONTENTS INTRODUCTION…………………………………………………………………………….7 PREDATORY PRICING PRACTICES IN INDIA……………………………………………9 CASE STUDY: OLA CASE…………………………………………………………..

3 . the demand for a particular commodity.manupatrafast. which is expressed by the cost that the consumers of the commodity are persuaded to pay for it and what they believe is the right price for that commodity. 2 Ananth Padmanabhan. for the most part. is equal to the supply of the commodity.aspx?ID=3e7817b5-23f9-4313-9ac0- fd94a329de45&txtsearch=Subject:%20Competition%20/%20Antitrust. This phenomenon is knows as predatory pricing. CARNEGIE INDIA. available at http://carnegieindia. such competitors use their dominant position to sell their goods at a lower price than the standard fixed by the market. they can raise the price of the commodity as much as they want because they have a monopoly over that particular goods or services in that market. and it is very difficult for them to reap substantial economies of scale or influence the pre-existing fixed price of the commodity.org/2017/01/16/regulationson-predatory-pricing-must-benefit-end-users-but-not-check- innovation-pub-67706. Regulations on Predatory Pricing Must Benefit End Users but not Check Innovation. all competitors are forced to abide by the market price of the goods. a situation may arise where the supply of a commodity is restricted. Predatory pricing may seem like it is beneficial to the consumers in the short term.com/articles/PopOpenArticle. to a single competitor and their position in the market is so strong that they have achieved a dominant position in the market using their lower costs of production. An Analysis of the Law Relating to Predatory Pricing in India. Consequently. INTRODUCTION BACKGROUND ‘Predatory pricing is taken to be a manifestation or sign of market dominance. MANUPATRA. it is the consumers who suffer the most. available at http://www.1 Consequently. This is done by reaping economies of scale.’ In a perfectly competitive market. 2017. the variance does not afford a significant change in the resulting product or its cost. But too often it is a precursor.2 1 Kumar Harshvardhan. That being said. In such markets. published on January 16. and by having an improved research and development department. however. which is equal to the total manufacturing cost of that commodity. every competitor in the said market has similar production and distribution methods and even if the production methods vary between competitors. After the dominant player has eradicated the competition by selling their commodity at a price lower than that of the rest of the competitors. in the long run.

by reducing the price of a commodity well below the standard price.4 IMPACT ON CONSUMERS The Raghavan Committee was formed to analyse the condition of the competitive markets in India and to suggest ways to supress anti-competitive practices in Indian markets.html 4 Ibid. predatory pricing is an arrangement in which the price of a particular good or service is reduced below the market price.5 The Committees findings were discussed by the Supreme Court in the case of Haridas Exports v. predatory pricing is often seen as a kind of ‘abuse of dominance’. Association and Others. However.com/article/l267-Predatory-Pricing.legalserviceindia.3 Therefore. Consequently. this does not always happen. the predator recovers their investments and losses that they suffered because of selling the commodity at a lower price. Predatory pricing is a high risk venture and can only be practised by competitors who are already dominant in the market place. In the long term. the Apex Court held that just because a commodity is sold at a price that is lower than the average cost does not mean that it should be deemed to be anti-competitive. 5 ‘Raghavan High Level Committee. predatory pricing and its impact on consumers was also discussed in detail. The aim of this strategy is to beat the competition and oust them from the market. available at http://www. Among the deliberations of the Committee. and also restrict the entry of new contenders into the market. 2000’ 6 AIR 2002 SC 2728 4 . It's all Dominance that's crucial in Predatory Pricing. and sometimes even below the cost of production so as to adversely affect competition and reap profits in the long term. a dominant competitor can chase away other plays in the market and derive higher profits due to a lack of competition. 3 Sriraj. The test to see whether the diminution in price has an appreciable adverse effect on competition. All India Floating Glass Mfrs. the market practices of firms that have higher market share by reason of their high efficiency (and consequently.Therefore.6 In this case. Report on Competition Law and Policy. LEGAL SERVICE INDIA. lower prices) should not be restricted. the practice may only be restricted when it is established that the dominant player intended to affect the competition in an adverse manner. However. Therefore.

2016. The former situation is very harmful to the consumers because as soon as the dominant player has sufficiently secured a dominant position in the market in respect of that commodity.7 7 Atyotma Gupta.wordpress. the can elevate the prices so as to make up for the losses suffered by them during the period of reduction.com/2016/08/11/legal- positionof-predatory-pricing-an-analysis-in-india/. 5 .Therefore. COMPETITIONLAWOBSERVER. Legal Position of Predatory Pricing: An Analysis in India. published on August 11. available at https://competitionlawobserver. care ought to be taken while separating between a purposeful endeavour to harm the opposition and a diminution in price because of higher effectiveness of the predominant market player.

Predatory Pricing in India.8 FACTORS ESTABLISHING PREDATORY PRICING a. p. 6 . International Research Journal of Human Resources and Social Sciences. and highly advanced research and development.’ Under the Act. at a price which is below the cost. the value at which the product is traded or the services rendered should be lower than the standard cost of that commodity. three conditions must be satisfied in order to determine if a dominant player is guilty of predatory pricing. predatory pricing is construed as a deliberate and intentional method of chasing away competitors by dominant market players. by selling their goods at a very low price.  Lastly. 151. and its substitutability. Vol 4 p. of production of the goods or provision of services. the enterprise that is engaging in such an anti-competitive practice should have a dominant position. the alleged enterprise should have indulged in this practice in order to injure the competition or to rule out the competitors. POSITION UNDER INDIAN COMPETITION LAW In the majority of jurisdictions. sound infrastructure. This can only be done by competitors who have a dominant position in the market in the form of a large amount of capital. 9 Ibid.9 8 Bhatnagar. predatory pricing is considered to be an anti-competitive practice and punishments are imposed against such practices. Dominance As discussed above. with a view to reduce competition or eliminate the competitors.  Firstly. as may be determined by regulations.  Secondly. 2002 specifies that predatory pricing is included in practices that constitute an ‘abuse of dominance’ and states that ‘the sale of goods or provision of services. Section 4 of the Indian Competition Act. the practice of predatory pricing involves that the commodity sold should be priced at a price below the average cost or the cost of production of the same. which is sometimes even lower than the cost of production. the demand for the product. Consequently. This position can be determined by the market share of the competitor.

Excess Capacity The dominant player in the market must be equipped for drawing in all the demand that is created by the fake chopping down of costs. ACADEMIA. the predator should likewise. Non-price Predation Another method of carrying out the process of predatory pricing is to increase the cost price of the competitors whilst also decreasing their own price. the dominant player will not be able to elevate the prices of the commodities. Predatory Pricing as an Abuse of Dominant Position.10 REGULATION OF PREDATORY PRICING IN INDIA The Competition Act. the other competitors may leave the market when the prices are low and enter the market again as soon as the prices start normalizing. If the cost of production of the other contenders grows. d. c. then the demand will outgo the yield of the predator and resultantly. have the capacity to pull in the customers of the contenders. they have to create roadblocks so that the ousted competitors and also the new competitors cannot gain entry into the market.academia. available at https://www. If no such roadblock is put into place. b. This is important because if the entry into the market by new competitors is allowed. 2002 empowers the Competition Commission of India (CCI) and Competition Appellate Tribunal (COMPAT) to restrict the practices that are anti-competitive in nature. Preventing entry as well as re-entry of competitors Once the dominant player has successfully ousted their competition from the market.edu/6974733/PREDATORY_PRICING_AS_AN_ABUSE_OF_DOMINANT_POSITIO N 7 . the dominant player may take advantage even though the competition is not eliminated from the market. 10 Tapasya Roy. On the off chance that the predator neglects to do this. the contenders will get an opportunity to remerge and thrive in the market. in order to recoup their losses.

the COMPAT held that the fee waivers that are facilitated by the NSE in the currency derivatives were unjust and that the Exchange was abusing its dominant position. 14 it was held that three conditions are needed to be satisfied in order to prove that a firm or company is indulging in predatory pricing. 2013 8 . TECPRO Systems Ltd. Lastly.. 09 of 2013. Brown & Williamson Tobacco Corp. it was held that in the determination of the existence of circumstances of predatory pricing. 11 Case No. then the dominant player is said to be indulging in predatory practices.L. In the case of MCX Stock Exchange Ltd. 12 509 US 209 (1993) 13 Case No.12 the Apex Court of America decided that if the price of the commodity is lower than the standard cost and the dominant player has the opportunity to recuperate the losses incurred by him due to sales at a lower price.The primary issue for the CCI is to ascertain that if a commodity is sold at a price below the cost of production or the average cost. New Delhi v. the setting of the price is such that it is intrinsically illegitimate under the anti-competitive jurisprudence under Indian law. v.  The selling price of the goods or the services rendered by the dominant player is lower than their cost of production. 5/12/2014). Such cost must be more than the price of the commodity in order to prove predatory pricing. Asia Limited. 13 of 2009 (COMPAT. Ltd.  There is a future arrangement so as to recover the losses incurred throughout the period of reduction once the rivals are driven out from the market. the average variable cost of the goods must first be determined. in the case of M/s. v. 2013.S..  This reduction in the price of the commodities was practiced by the dominant player in order to rule the rivals out of the market. in the case of Brooke Group Ltd. National Stock Exchange & Others11. Transparent Energy Systems Pvt. 80/2012. Furthermore. In the case of H. This test is known as the test of recoupment and has been followed by the CCI and the COMPAT in a number of cases relating to predatory pricing. Schlumberger Asia Services Limited13. 14 Case No. v.

com/opinion/predatory-pricing-and- thelaw/article6541819. if any. 2014. Therefore. THE HINDU BUSINESS LINE. A number of factors may be used to determine if a firm is a dominant player in the market like economic analysis. if a firm or a company is not a dominant player in the market.15 Furthermore.ece. In order to reduce this difficulty. direct expenses. during the referred period.”16 “Total Cost means the actual cost of production including items. quality control cost. business realities.”19 15 Paku Khan and Manas Chaudhuri. 19 Regulation 2(c)(iii). “Average Variable Cost means total variable cost divided by total output during the referred period. However. 9 . predatory pricing is prohibited only by the dominant players in the market. 2009. research and development cost. another requirement of predatory pricing is that the commodities are sold at a price which is lower than the cost of the commodity in the market or the cost of production. predatory pricing is not applicable.”18 “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. published on October 28. 18 Regulation 2(c)(ii). it has become increasingly difficult to determine which of these prices shall be taken into consideration. direct wages and salaries.thehindubusinessline. ‘‘Predatory pricing’ and the law’. 17 Regulation 2(c)(i). PREDATORY PRICING PRACTICES IN INDIA Under the Competition Act. consumer preferences. work overheads. law and many more. 16 Regulation 2(b). packaging cost. available at http://www. a number of types of cost have been defined in the Competition Commission of India (Determination of Cost of Production) Regulations. such as cost of material consumed.”17 “Total Variable Cost means the total cost minus the fixed cost and share of fixed overheads. finance and administrative overheads attributable to the product during the referred period.

”22 CASE STUDY: OLA CASE23 In the present case. it was found out that the market share that was occupied by the respondents was not adequate enough to allege that they had a dominant position in the market. 2015. Fast Track Call Cab Private Ltd. 10 . the DG stated that respondents can be said to have indulged in abuse by way of predatory pricing. The DG concluded that the respondents. However. as the case may be. the DG concluded that Respondent did not contravene the provisions of Section 4 of the Act. This respondents are the proprietors of the OLA cab service. since the scheme of the Act only attracts the provisions of Section 4 when an incumbent is found to be dominant. along with their other competitors were indulging in predatory pricing. the question of its abuse through predatory pricing did not arise and the petition was dismissed. 22 Regulation 2(c)(vi) 23 M/s. only if it is found to be dominant in the relevant market. Ltd. Case No. The CCI commanded the Director General (DG) to investigate into the case under Section 26(1) of the Act. It was contended by the appellants that the respondents were indulging in anti-competitive activities like predatory pricing with a goal to drive other competitors like the appellants out of the market. 2002. since the respondents were not in a position of dominance. 20 Regulation 2(c)(iv). ANI Technologies Pvt. a petition was filed against the respondents for the violation of certain provisions of the Competition Act. Hence. 21 Regulation 2(c)(v). where long run cost includes both capital and operating costs. In this investigation. Consequently. it was found that the service was giving out more inducements and discounts than the revenue that was generated by it.“Average Avoidable Cost is the total avoidable cost divided by the total output considered for estimating 'total avoidable cost'. v. Order dated September 03.”20 “Long Run Average Incremental Cost is the increment to long run average cost on account of an additional unit of product.”21 “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. Since the respondents were not found to be dominant. 6 of 2015.

the author makes the following suggestions. However. a composite analysis of the market is required where the effects of these anti-competition activities have happened or are likely to happen. monopolization conduct etc. COMPETITION COMMISSION OF INDIA. instead of being applied to each case in its own microcosm.psu.24 Predatory Pricing is a complex form of an anti- competitive conduct. It will function as a stimulant for the fresh entrants and the small market player and will also assist in encouraging competition and maximum welfare. In order to determine this. The Indian law on competition and the regulators under the Act appear to have assumed that the dominant position is inherent to big firms and companies. available at http://citeseerx.646. Abuse of Dominance: Predatory Pricing.  Competition courts should apply economic principles along with legal ones to identify predatory pricing. and yet it went wrong in providing a much required comprehensive definition of predatory pricing. like the test of dominant position and the test of recoupment must be applied by doing an economic analysis of the market as a whole. In light of these facts.ist. entry conditions in the market.9414&rep=rep1&type=pdf.  Competition authorities are required to ensure whether the market structure endures predatory pricing. the roadblocks to entering the market and the ability of the rivals. 1. Firms may also enter into strategy of non-price predatory pricing i.e.edu/viewdoc/download.e.jsessionid=ED81A511464E75FE198F1BD2701F1342?doi=10. the lawmakers should be clear in their viewpoint and make provisions in law concerning predatory pricing more comprehensive. It comprises the dominant position of the enterprise. Predatory pricing shall not be only strategy adopted by firms to gain market dominance. The various legal grounds enumerated by the courts and the law. there is ample evidence to show that smaller participants are also engaging in anti-competitive activities in order to unfairly attract the markets. 11 . Hence. The drafting committee has done a satisfactory task by disallowing predatory pricing. abuse of dominance. CONCLUSION AND SUGGESTIONS The object of the Competition law is to shield the consumers and to protect the competitors from the adverse effect of predatory pricing. 24 Ashish Ahluwalia. The prevailing market conditions play a vital role in determining predatory pricing i.1. raising the cost of competitors or acting in collaboration with competitors in price cutting strategy.