New chapter in competition law probes

The interpretation of competition law in India could have unexpectedly received a vital course correction. The Supreme Court last week upheld a direction to the Competition Commission of India (CCI) to investigate alleged predatory pricing by Uber. But this is not just about predatory pricing, but about whether more than one player in the market can be “dominant” for the purposes of competition law.

To begin with, predatory pricing is a controversial subject of competition law across the globe. Predatory pricing involves, at least at first blush, selling of goods or services by enterprises that are “dominant” at prices that do not even recover the cost. In other words, it would be an evidently economically-irrational decision whereby a dominant player would supply goods or services at consciously loss-making prices, which would have the potential of burning competitors to death.  

In many jurisdictions, this alone would not be enough — there has to be evidence to suggest that after killing competition, there would be an attempt to recoup the losses by raising prices for consumers in the market already captured by such predatory practices. In India, Section 4 of the Competition Act, which deals with abuse of dominance requires establishing that there is dominance by an enterprise, and that the dominance is being abused. Towards this end, the term “dominant position” is defined, among other things, as a position of strength enjoyed by an enterprise in the relevant market, which enables it to affect competitors or consumers in its favour, or, operate independently of prevailing competitive forces.

The complaint against Uber was that it was charging a price per trip in the Delhi market that was nearly half the cost incurred per trip. The CCI refused to hold that the matter needed investigation. On appeal, the National Company Law Appellate Tribunal, which hears statutory appeals from decisions of the CCI, held that the CCI ought to have investigated the matter on the ground that pricing was irrationally below cost and being a dominant player, the matter needed a probe.

The Supreme Court, rejecting Uber’s appeal, has pithily ruled that if facts showed that the pricing is such that a loss is made for the trips made, there would be a prima facie case made out that the enterprise is in a position to dominate the market. According to the court, such pricing would certainly affect competitors in the market. The court also ruled that pricing of services at below cost (which is the definition of predatory pricing) would, prima facie, be an indicator of abuse by a dominant player. Therefore, the decision of the Appellate Tribunal to probe, was upheld, rejecting the decision of the CCI to rule out any need to even investigate, despite being faced with a consistent pattern of pricing policy that would accumulate losses on its balance sheet.

The allegation was that Uber would finance such repeated losses simply by infusing more capital — in other words, the capital was being infused to take advantage of a lax regulatory regime that enabled wiping out competition. The court ruled that it would be very difficult to say that there is no case for investigation made out. In its initial years, the CCI had been rather timid with its approach to enterprises that were technology-heavy, and typically, arguments about how innovative the technology was, or arguments on how state agencies should not stymie innovation would suffice to stave off investigation. The Supreme Court ruling puts paid to this approach.

Another policy position that the CCI has historically adopted in market abuse cases has also been finally disturbed with this ruling. It would invariably be argued (and accepted) that if more than one person were to price his offerings below cost, it would mean that there is no one with a dominant position. This is a rather piquant policy position because two enterprises may come together and become dominant and collectively abuse the market. Alternatively, each of the two enterprises could have the capacity to dominate and adversely affect competition, and thereby inflict injurious pricing policy on the market.

The CCI has historically endorsed the view that there cannot be more than one dominant enterprise in a market. With the Supreme Court ruling it is now evident that so long as any enterprise is able to consistently price itself below cost, it would be in a position to dominate. If more than one enterprise were to do so, it would then mean that there is more than one dominating enterprise. According to the court’s rationale, every enterprise that is able to so dominate, is liable to be investigated.

The last court of the land has spoken. A new chapter in investigating market abuse under competition law will now be written.

The author is an advocate and independent counsel. Tweets @SomasekharS