Deep discounting as a marketing principle is not barred per se in India, but under certain conditions, it comes under the net of predatory pricing. Predatory pricing under our antitrust regime is described as “when any product or service is sold at a price below the reasonable cost with an intention to exclude competitors” in a relevant market specific to the product. Predatory pricing under the Competition Act, 2002 (“Act”) is an anti-competitive practice and an act of abuse of dominance by an entity. Through its recent decision in Uber (India) Systems (P) Ltd. v. CCI (“Uber case”), the Supreme Court (“SC”) has potentially changed the assessment of abuse of dominance by entities in India. The SC has instructed the Director-General to investigate into the alleged dominance and subsequent abuse of dominance by Uber with respect to its discounting strategies. The relevant market delineated was the radio taxi services market in the Delhi-NCR region. The Apex Court dismissed the appeal filed by Uber and affirmed the order of the Competition Appellate Tribunal (‘COMPAT’) which had similarly directed the Director-General to investigate the alleged abuse of dominance by Uber. The line of reasoning adopted by the Apex Court in this judgement is unprecedented and has the potential to practically end deep discounting practices for online intermediaries and E-Commerce sites. This article analyses the far-reaching implications of this judgment in reference to previous cases and suggests an alternative way to solve this issue.
CCI’s Approach on Predatory Pricing So Far
The Competition Commission of India (“CCI”) has over the years held only ‘dominant’ entities liable for predatory pricing, thus allowing new entrants to indulge in such practices without any sanctions. In order to ascertain predatory behaviour, the CCI assesses, i) whether the entity is dominant in its relevant market, ii) whether the pricing of its goods or services below the cost in its relevant market and iii) whether the entity in question does the aforementioned action with an intention to eliminate or reduce competition which is known as the predatory intention test.In Bharti Airtel Ltd. v. Reliance Industries Ltd., the CCI rejected Airtel’s claims that Reliance Jio was indulging in anti-competitive practices. It observed that Jio’s policies like launching its SIM’s for zero price were strategies to make inroads into the telecom market and to gain a foothold in it. Jio being a new entrant in the market was not “dominant” according to section 19 (4) of the Act. According to the CCI, there was no reduction or elimination of competition in the relevant market and subsequently, Airtel’s information was dismissed under section 26(2) of the Act.
When it comes to the E-commerce market, it is evident that the same principle is followed in ascertaining predatory practices. In Ashish Ahuja v. Snapdeal.com, the CCI perused that dominance was not exhibited by any of the E-commerce players which included Flipkart, Amazon, e-Bay, in their relevant market and that the E-commerce market thrived on special deals and discounts. The relevant market was delineated as a combined retail space which included both physical and e-retailers. As they were held to be not dominant, their discounting policies were deemed valid and hence were not sanctioned. A similar line of reasoning was adopted in Mohit Manglani v. Flipkart India Pvt. Ltd. and Ors, wherein the CCI opined that even if E-Portals were considered as a distinct relevant product market, the entities in question would not be dominant when isolated.
Interestingly, in Fast Track Call Cab (P)Ltd. v. ANI Technologies (P) Ltd. the questions before the CCI were similar to those in the Uber case i.e. with respect to predatory pricing. The CCI, concurred with the Director General’s investigation to come to the conclusion that Ola was not dominant in the relevant market. The informant's allegation that the predatory pricing was proof of dominance was also rejected by the CCI and it said “New entrants commonly engage in such practices to gain a toehold in the market and holding them dominant based on simple observation of conduct may have the undesirable result of chilling competition”, and accordingly, closed the case against Ola. The absence of dominance in their relevant product market helped all of these entities to continue with their deep discounting policies.
Analysis of the Present Judgement
The decision in the Uber case itself is not a very surprising one, but the reasoning adopted by the Apex Court has reopened the discussion on the assessment of deep discounting policies and the dominance of entities. The SC held Uber to be enjoying clear dominance in the relevant market. It relied on the fact that Uber was losing Rs. 204 per trip which has no economic viability, rather it indicates the cab aggregator’s intention to eliminate competition. Reliance was placed on Explanation (a) of section 4 of the Act which explains “dominant position” and the SC stated that the losses suffered by Uber would attract part (ii) of Explanation (a) as its actions are affecting its competitors in a negative manner or the relevant market.
The line of reasoning adopted by the Apex court is extremely problematic as it has equated Uber’s pricing strategy to its dominance. Instead of considering the aspects given in section 19(4) of the Act–market size, structure, the strength of the competitors, etc, the SC has considered Uber’s behaviour with respect to its huge discounts to determine dominance, an approach which is unprecedented. The approach of the CCI in cases of abuse of dominance has been to analyse all the factors given in section 19(4) to assess an entity’s dominance in it relevant market which can be clearly understood from its approach in Fast Track Call Cab (P)Ltd. v. ANI Technologies (P) Ltd., Ashish Ahuja v. Snapdeal.com. The Apex Court also erred by ignoring the fact that for an entity to be in a dominant position, it has to enjoy a “position of strength”. The court has surprisingly made no such analysis on whether Uber enjoys a “position of strength” or not which makes its analysis of Uber’s dominance flawed. Further, over the years, the CCI has never used predatory pricing to determine dominance rather it has considered it as a condition subsequent to dominance.
In MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd., the CCI analysed the zero pricing strategy of NSE and concluded that the fact that NSE was able to continue with such pricing strategy which allowed it to go past the competition helped it ascertain the “position of strength” of NSE. But, its pricing strategy was not equated to its dominance. In this judgement, the Supreme Court has wrongly analysed section 4 and has mixed the concepts of “dominance” and “abuse of dominance” into one i.e. abuse determining dominance, which is dangerous reasoning as it can be effectively ending numerous upcoming companies’ deep discounting strategies permanently, even though it is not a barred practice under the statute.
Plausible Alternative Approach
It is important to understand that the Supreme Court’s intent, in this case, is in the right direction; however, the reasoning to justify the intent is wrong. Although the criteria used for analysing abuse of dominance in India has allowed a lot of entities to aggressively give unreasonable discounts under the garb of lack of dominance in their respective market, this has caused severe distortion in the market and needs to be addressed swiftly as well. A plausible way of solving both these issues is to introduce the concept of “penetrative pricing” into the legislation. Penetrative pricing is a marketing strategy when a non-dominant entity reduces the price of its items or services provided by it with the intention of gaining a foothold in the market with already multiple players competing. The purpose is to penetrate the market and build a base at the cost of suffering losses initially, however after penetration using the market base to recoup the very losses suffered. The distinction between penetrative and predatory pricing can be understood by the test of intention and recoupment. In these situations, the intention is used to ascertain whether the pricing by the entity in question is causing harm to consumers and eliminating competition. Recoupment essentially means that if an entity is presumed to undertake predation to enhance their profits, then the entity must have expected that the profit in the short-run would generate a sufficient profit in the long-run to render the overall strategy profitable.
In AKZO Chemie BV v Commission of the European Communities, the European Court of Justice connected intent and recoupment and stated that the strategy of lowering prices by a dominant entity is only done with the intent of wiping out competition which will allow it to gain a monopolistic position and then consequently raise prices to compensate the loss. Penetrative pricing was considered in MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd. and in Fast Track Call Cab (P) Ltd. v. ANI Technologies (P) Ltd., but was successfully applied and accepted for the first time in Bharti Airtel Ltd. v. Reliance Jio Industries Ltd, Its pro-consumer-aspect was appreciated as the CCI perused that short term incentives in an already competitive market would not harm the competitors, but would rather expand the choices for the customers which would serve the object of the Act i.e. which is to protect and support the consumers. Such a short-term business strategy of an entrant to penetrate the market and establish its identity cannot be considered to be anti-competitive in nature. CCI had delineated some criteria to analyse this strategy; however, it was not part of the ratio of the order and rather was the opinion of the court.
Therefore, the CCI should insert an amendment or set up certain guidelines which define ‘penetrative pricing’ and set out its conditions and restrictions. This would help restrict entities which use such abrasive policies under the garb of pro-consumer and consumer first policy to penetrate the market, which in the long run harms the consumer and strengthens the possibility of monopolistic behaviour. Rather than interpreting the statute wrongly, the legislation must be broadened in scope to tackle this unique situation.
The Way Forward
Competitive pricing must not be mistaken as predatory as it, in turn, hampers price competition in the economy. However, under the garb of competitive pricing, predatory pricing must not be allowed to function as it may lead to inflated prices later. Considering how precarious the considerations are in this discounting discourse, the Supreme Court has acted rather negligently in the Uber case and has created a dangerous precedent for a host of cases in the future. The CCI must continue with its present approach of not taking action against entities unless predatory pricing can be established with substantial authority.
[i] K. Amoghavarsha is a third-year law student at National Law University Odisha with a keen interest in Dispute Resolution and Competition Law. For any discussion related to this article, he can be contacted via mail email@example.com
Preferred Citation: K. Amoghavarsha, Uber v CCI – Death Knell for Deep Discounting in India? Arbitration & Corporate Law Review, Published on 6th August, 2020.