Experts look at implications of CCI's probe into Maruti's discount practice

Maruti Suzuki logo
Intent to promote intra-brand competition

Rahul Goel
The automobile sector has witnessed competition law/antitrust investigations in several countries, including India. Subject-matter of such investigations varied from allegations of anti-competitive conduct on part of car manufacturers (OEMs) and their dealers. The Competition Commission of India (CCI) has inquired into 104 cases (as on March 31, 2018) relating to anti-competitive conduct in the automobile sector.

Recently, the CCI once again exercised it suo moto powers to cause an investigation against Maruti Suzuki India (Maruti). The origin of the case was an anonymous e-mail that was received by the CCI.  The e-mail alleged that Maruti in the Maharashtra region (other than Mumbai and Goa) was not permitting its dealers to give an extra discount to their customers (amounting to resale price maintenance). It further alleged that if a dealer is found giving a discount more than the permitted level, Maruti penalises the errant dealer.  

The initiation of the investigation into the allegations of discount control policy, appointing mystery shopping agencies, and penalty clause for giving extra discount shows the CCI’s clear intent to promote and conserve not only inter-brand but also intra-brand competition. Discounts and policies to control discounts are issues of concern across industries and sectors.

This is a warning signal for all companies to course-correct their dealings and policies as a simple anonymous e-mail can result in the initiation of an investigation against them. 

Also, companies now fully realise that competition law investigations could have drastic consequences on their businesses, including loss of reputation. To avoid the occurrence of any such event, an internal policy is a first step to ensure compliance with the competition law at all levels of the organisation. Additionally, it may also act as a mitigating factor in case of unforeseen circumstances, resulting in alleged violation of the competition law.

Also, it may be a matter of concern for some that any e-mail — even with incorrect data or false allegations — could result in a competition investigation. The CCI has witnessed a few cases wherein it has contended that fabricated documents and false statements were used to get the investigation initiated. Still, no one can take away the credit from the CCI for creating a healthy competition enforcement regime and trust in people to come forward and disclose anti-competitive conduct.

The writer is partner, IndusLaw. Anu Monga, a partner, contributed to the article
Fixing discount maintains dealership network

Geeta Gouri
The anti-competitive allegation against Maruti Suzuki in anti-trust literature falls in the category of vertical restraints under Section 3(4) of the Competition Act, 2002. With 15 car manufacturers in India, what is perplexing is whether car manufacturers, including Maruti, are dominant and can, therefore, assert their dominance over its dealers by fixing discounts. There was an earlier decision by the CCI to fine Maruti and other car manufacturers for the restriction imposed on spare part manufacturers from the open market sale of spare parts to authorised garages, which amounted to stifling the competition between authorised and private garages to limit consumer choice of garages.

Verticals refer to business agreements between two parties in the vertical chain of production and distribution. Normally, business arrangements are considered sacrosanct and not interfered into by competition authorities unless there is strong ground to believe that as in these two cases Maruti has imposed restraint on its verticals to garner a larger part of the profit share.

Let us look at Maruti’s business practices with its component manufacturers and dealers. Has it foreclosed the market, reduced competition and maintained exclusivity among its dealers by insisting on i) use of genuine spare parts in authorised garages, and ii) by insisting on a uniform discount policy by its dealers. Rather than looking at profit margins of manufacturers, dealers and distributors, a quick look into whether consumers lose or gain from these restraints provides valuable insights into the case under investigation.

In the automotive spare parts case, the emphasis was on the restrictive policies of car manufacturers to non-branded spare parts and service centres. The argument for consumers’ gain was premised on behavioural economics that consumers in India do not change cars frequently, falling into the category of a lifetime asset. Ignoring the already emergent second-hand car market left one wondering who had gained from the decision.

In the current case, similar concerns remerge. The argument that consumers gain when they can bargain from dealers for better discounts sounds attractive. But in a highly competitive market, an important dimension of business strategy is to provide access to consumers. Fixing the discount price ensures maintaining this network of dealers. Imagine if a dealer, say in Gurugram, offers the car at factory gate price. Consumers, even from Madurai, would rush there, forcing all other dealers to close their business.

The writer is a former member, Competition Commission of India & distinguished fellow, India Development Foundation

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