Contributed by Tanya Sara George and Abhishek Sanjay

Introduction

The surge of new-age businesses operating under modern business models has disrupted traditional markets and rendered the conventional antitrust framework obsolete. Start-ups frequently enter markets as ‘non-dominant’ players and employ aggressive pricing strategies to rapidly gain market share. The present competition regulations were primarily designed to factor in traditional business models, employing a ‘dominant position’ approach concerning pricing mechanisms outlined in Section 4 of the act. Consequently, it often struggles to address the complexities that are brought on by modern business models employed by new market entrants or non-dominant players.

Recent cases of Jio Mart’s aggressive pricing strategies in the online grocery sector, Ola’s low-cost offering in the digital taxi market and Campa Cola’s competitive pricing in the beverages industry pose substantial concerns about the efficacy of current regulatory mechanisms in combating predatory pricing. This article analyses these cases and highlights how new market entrants can exploit legislative lacunae, potentially leading to market monopolisation in the long run. 

The authors’ aim is twofold. Firstly, they examine the domestic antitrust framework’s inadequacies in defining a clear criterion for predatory pricing. Secondly, they question the exclusion of ‘non-dominant’ players within predatory pricing, thereby leading to the question: What is dominance? Finally, they propose adopting a recoupment criterion instead of the current market share criterion to define a ‘dominant’ player in predatory pricing.

Deficiencies in the Framework

In India, predatory pricing is defined under Section 4(a)(ii) of the Competition Act. It is a process where a firm prices below cost to gain market share and exclude competitors. However, the inherent ambiguity in the provision lies in its failure to specify any criteria or factors to be considered for an action to be deemed as predatory pricing. This creates difficulties in distinguishing predatory behaviour from legitimate competition. The fine line between low prices resulting from aggressive but lawful competition and those from predatory tactics is often blurred, making it difficult to ascertain the intent and impact accurately. Under the current legislation, predatory pricing is defined as a scenario where a firm with market power prices below cost to drive competitors out of the market, thereby acquiring or maintaining a dominant position. This definition itself highlights the challenge of differentiating pro-competitive pricing from predatory behaviour. In practical terms, predatory pricing can often only be conclusively identified retrospectively after the competitor has exited the market and the predator has established a monopolistic position. However, the effectiveness of any law designed to prevent predatory pricing is contingent on its ability to act pre-emptively before the competitor exits the market.

Further, the current provisions for addressing predatory pricing fail to account for modern business models like that of Reliance Jio’s that prioritize the expansion of the customer base over immediate profit maximization. As these entities do not fall under the definition of a dominant player within the framework, they begin to enter the market and aggressively expand their customer base by lowering prices without being labelled predatory under the existing legal framework.

Dominance

Section 4(2)(a) of the Competition Act defines “dominance” as the position of strength enjoyed by an undertaking that enables it to operate independently of competitive pressure in the relevant market and to appreciably affect the market, competitors, and consumers by its actions. This definition, however, fails to encompass a wide variety of factors that are used by new entrants, such as substantial impact on the market and creating barriers to new entrants. Although Section 19(4) acknowledges that determining dominance is fact-specific and includes a wider range of factors to establishing dominance, courts have usually opted towards taking the narrow approach of dominance laid out in Section 4 by focusing solely on the market share threshold, thereby allowing non-dominant players to disrupt the markets.

While market share remains an essential factor, it must not be the sole factor, as a high market share with effective competition indicates non-dominance in the present framework, but a low share with significant influence can surpass the law. Non-dominant players employing aggressive pricing strategies can significantly influence market dynamics, challenging the traditional reliance on market share as a definitive factor for determining dominance under the present legal framework.

Non-Dominant Predation

The Indian landscape assumes that non-dominant enterprises cannot engage in predatory pricing as they cannot influence the market and must heed to competitive forces. As laid out in Section 4, a prerequisite to establishing predatory pricing is that the enterprise must prima facie hold a dominant position in the market. However, this view fails to consider that the predatory behaviour employed by non-dominant firms leads to engineering their dominance in that market, effectively resulting in the same attempted monopolisation that the provision seeks to prevent. Aggressive pricing, such as predatory pricing or deep discounting, can drive competitors out of the market, reduce consumer choices, and establish a de facto monopoly. This practice can distort competition and create entry barriers, leading to long-term anti-competitive effects even if the market share of the aggressor is initially low. The case of  ANI Technologies Pvt. Ltd. (Ola) vs. Fast Track Call Cab Pvt. Ltd. (Meru) stands as evidence of this issue, where Ola’s aggressive pricing strategy significantly impacted the market despite not fulfilling the dominance criteria based on market share.

While Section 19(4) lists various factors for ascertaining dominance, the commission has often taken a rigid approach by merely looking for factors such as market dominance and the existence of other competitors. This erroneous approach can be shown through Bharti Airtel Limited v. Reliance Industries Limited, wherein the court held that Jio’s pricing strategy would not amount to predatory due to the same reasons. Within 8 years of its initiation, Jio is now a dominant player, holding 40% of the telecom market owing to its aggressive pricing strategies. The view that a new entrant is prima facie termed as non-dominant despite wielding substantial power is a flawed assessment of predation as they have the ability to sustain their low pricing strategies along with the influence to exclude other competitors in the market, fulfilling both the prerequisites for the recoupment test of predatory pricing, while avoiding any legal repercussions.

Let us take, for example, the recent case of Campa Cola. The Cola wars have long been dormant after Pepsico took over the market after 1991. However, in March 2023, with the revamp of Campa Cola, consumers witnessed the influence that a non-dominant player can have in the market. The revamped brand, with financial backing from the market giant Reliance, has been able to sell its beverages at prices significantly lower than those of major players like Coca-Cola and Pepsi. Despite being a non-dominant player, their pricing strategy has forced giants to drastically lower their prices to remain competitive, demonstrating how a non-dominant player’s influence can substantially impact market dynamics, mirroring the effects of predatory pricing without falling under its legal definition.

Similarly, various e-commerce companies such as Flipkart and Amazon raise investments through private equity and provide deep discounts that often lead to the exclusion of offline retail markets. Thus, the exclusion of non-dominant players in the current framework for adjudging predatory pricing prohibits the provision from mitigating anti-competitive predation. This necessitates the inclusion of a more holistic approach in examining predatory pricing, similar to that existing in international jurisdictions.

The Recoupment Criterion

Recoupment is central to unlawful predation, defined as the ability to gain back the losses and profit from the predation. The present framework, as shown by the Jio and Campa Cola cases, where the entity was backed by market giants, does not account for these contingencies. These traditionally non-dominant players have a wide array of economic resources, pervasive influence, and the ability to exclude competitors, which inevitably establishes dominance in the market.

The National Stock Exchange precedent held by recognizing recoupment and the ability to exclude competitors as key thresholds for unlawful predation. Incorporating a recoupment criterion would require courts to consider factors like loss-sustaining ability, economic strength, and market influence, which are often overlooked under the current approach. By focusing on these objective factors, courts could better assess predatory behaviour, moving beyond the limitations of the dominant player and market share thresholds.

Conclusion

The ambiguity in predatory pricing provisions blurs the line between competitive pricing and anti-competitive tactics, complicating enforcement. To ensure market stability, legislation must be refined with clear guidelines to prevent predatory pricing without penalizing legitimate competition.

The existing antitrust framework, centred on the premise of ‘dominance’, fails to address modern enterprise strategies, which may lead to long-term monopolistic echoes. The CCI’s current overreliance on market share to establish dominance diminishes the potency of anti-competitive mechanisms to counter predatory pricing. The authors argue that to meet the demands of the modern market, the CCI must follow a recoupment-based threshold, akin to the factors laid in Section 19(4) and international jurisdictions, independent of the firm’s market share. This requirement poses an adequate solution by prioritising factors utilised by non-dominant enterprises and applying to firms regardless of their ‘dominance’.