-by Parina Muchhala
The Draft Competition (Amendment) Bill, 2020 (hereinafter, Draft Bill), based on the 2019 Report of the Competition Law Review Committee (hereinafter, Report) was recently released, and much has been written on the many interesting changes that have occurred subsequently in India’s competition regime. This article, however, is restricted solely to an analysis of the Committee’s findings on the idea of ‘collective abuse of dominance’ (hereinafter, collective dominance). Tracing the emergence of this idea in economic theory, this post examines its benefits to competition regulators and whether the same ought to have been imported into the Draft Bill at this stage.
Collective Dominance and the 2019 Report
Collective dominance can be defined as a situation where two or more entities together hold a ‘dominant position’ in the market – akin to a ‘single economic entity’ vis-a-vis other players in the market. Such conduct often occurs Section 4 of the Competition Act, 2002 (hereinafter, the Act) is the only provision that deals with abuse of dominant position. However, a necessary jurisdictional requirement to attract Section 4 is that such dominance must be held only by one individual firm. Thus, it does not provide for penalisation in situations where two entities, albeit not individually dominant for the purposes of the Act, can come together and dictate terms in the market. Recognising the potentially disastrous consequences such situations can have on fair competition and consumer welfare, the EU has recognised collective dominance in Article 102 of the Treaty on the Functioning of the European Union (TFEU).
While the Competition Law Review Committee reviewed the need to expand the scope of Section 4 to include ‘collective dominance,’ it concluded that the same was not necessary. It believed that the conduct that collective dominance wishes to penalise is provided for under the Act since no cases even in other jurisdictions have penalised firms unless there is an explicit connection existent between them. The presence of such ‘connection’, therefore, becomes an investigation undertaken in pursuance of a Section 3 allegation and negates the very need to import collective dominance into Indian competition law jurisprudence. Interestingly, however, the Committee made no reference to the Competition (Amendment) Bill, 2012 in its analysis, which proposed importing collective dominance into Section 4 of the Act.
The Oligopoly Problem
The nature of oligopolistic markets, which facilitate collective dominance, poses an interesting dilemma for competition regulators. Since the number of players in these markets is few, their interdependence on one another is higher, leading to instances of conscious indulgence in parallel behaviour.[i] Thus, the market structure dominates the conduct of the firms and hence goes beyond the law of cartels. On one side, there naturally arises a duty on competition regulators to be particularly vigilant in such markets. However, what problematizes regulation on the other is the possibility that penalisation based solely on intangible market links may deter innovation and competition altogether.[ii]
Nevertheless, it is still important to recognise collective dominance into the Act because it otherwise allows non-dominant firms to evade liability automatically, simply because they do not have the necessary market share to attract the Act’s provisions. The economic argument in favour of penalising such conduct is that market power, and not market share, is at the core of fair competition. Consumers are likely to be adversely affected by such conduct because each player will adopt similar pricing and non-pricing strategies, which only vitiates their ability to exercise a rational, free choice. Thus, even a market structure that enables the players to take advantage of it and reap benefits, whilst ultimately decreasing consumer welfare, ought to be addressed by competition law. Furthermore, as the Committee itself noted, cases in USA and Japan have increasingly shown that even legally non-dominant firms have the ability to abuse their position in the market owing to enormous customer loyalty, a synonym for market power.
Understanding the Draft Bill and the Act
Currently, the Draft Bill also does not equip the Act to deal with collective dominance. The Competition Commission of India (hereinafter, CCI) has expressed its inability to recognise collective dominance on numerous occasions, reiterating that the Act can only be made applicable to unilaterally dominant conduct. This has, in fact, helped firms escape liability. For instance, in Ashok Kumar Vallabhaneni v. Geetha SP Entertainment LLP, the CCI not only dismissed the possibility of recognising collective dominance in the Act but also chose to examine cartelization allegations solely on the basis of evidence rather than the market structure of the Telugu film market. In Sonam Sharma v. Apple & Ors. and Royal Energy v. IOCL, BPCL and HPCL, only the presence of common members on the Board of the Companies were examined, and an unexplained reference to the absence of ‘structural links’ was made. In the Fast Track case (famously called the Ola-Uber case), the CCI held that the presence of two strong players in the market must indicate competitiveness and not generally attract suspicion. Overall, this indicates a narrow view of the concept of ‘abuse’ altogether, much in favour of firms, downplaying the economics behind oligopolies altogether. If collective dominance is imported into Section 4, it will expand the DG’s focus even during investigation towards the market itself. These cases would have also reached a different verdict.
In the Draft Bill’s amendment to Section 3, it provides that entities that do not engage in similar trade can also be penalised if found to be “actively participating in the furtherance of such agreement.” While it may be argued that this seeks to indirectly incorporate collective dominance into the Act by penalising otherwise intangible conduct, this penalisation is restricted only to such contributory conduct as can be imputed to the furtherance of any situation that meets the test of an “agreement” for Section 3. Furthermore, as argued earlier, any allegation under Section 3 will also require the existence of some sort of explicit agreement (indirect forms may include the exchange of communication, joint meetings and conferences, etc.) between the two firms itself too. Thus, the current framework of the Act effectively ignores the idea of collective dominance altogether.
Considering the impact of such conduct on consumer welfare, it is imperative to recognise collective dominance into the Act. In addition to this, the objective of the Statute and a plain reading of Section 18 of the Act make it clear that the CCI is also has a power and duty to recognise practices which dilute consumer interest in any manner.
Ways to Recognise Collective Dominance within the Act
Countries such as Canada and the EU, which penalise collective dominance, have laid down parameters to help regulators determine when collective dominance has occurred. The first step towards doing so would be to amend Section 4 to provide for abuse of dominant position “singly or jointly,” akin to its European counterpart. This will equip the Commission to additionally look into the market structure and nature to determine consciously parallel conduct that abuses dominance.
However, in order to carve out a balancing act, the limitations of the ‘the oligopoly problem’ must be recognised as redeeming and mitigating factors to help firms evade allegations of collective dominance. Such factors can include conduct motivated by the possibility of a dearth of resources; the existence of fair competition in the market (evident through conduct and marketing strategies), economies of scale, entry barriers and non-price competition that has the effect of enhancing consumer welfare must be carved out. A proper economic analysis of the market’s oligopolistic structure may also prove to be beneficial when evaluating allegations of collective dominance. Another way to achieve middle ground is by extending the idea of ‘objective justifications’ to allegations of collective dominance under Section 4, which can be investigated by the CCI on a case-by-case basis. Otherwise, competition regulators, not unnaturally, will tend to interpret any similar pricing in a particular market to necessarily indicate collective dominance and will make the regime counterproductive.
The views are personal.
Image Courtesy: Steve Buissinne from Pixabay.
ABOUT THE AUTHOR
Parina Muchhala is pursuing B.A.LL.B (Hons.) from Maharashtra National Law University Mumbai.
[i] RICHARD WHISH AND DAVID BAILEY, COMPETITION LAW, 584-585 (9th ed., 2018)
[ii] Jay Pil Choi, Recent Developments in Antitrust: Theory and Evidence, 67 (1st ed., 2007).