Abuse of Dominance in India
From Advocatespedia, The Law Encyclopedia
The term abuse of dominant position refers to anticompetitive business practices in which a dominant firm may engage in order to maintain or increase its position in the market.
Dominant position means a position of strength, enjoyed by an enterprise in the relevant market in India which enables it to:
1. Operate independently of competitive forces in relevant market
2. Affect competitors, consumers or relevant market in its favor
Section 4 of the Competition Act, 2002 prevents any enterprise or group from abusing its dominant position. The Act also provides circumstances under which there is abuse of dominant position. Section 4(2) of Act prevents following acts resulting in abuse of dominant position:
1. Impose unfair or discriminatory condition or price in sale and purchase of goods or services;
2. Limit or restrict;
3. Production of goods or services
4. Technical or scientific development relating to goods or services to the prejudice of consumers;
Indulges in practice resulting in denial of market access;
1. Make conclusion of contracts subject to acceptance by other parties;
2. Use its dominant position in one market to enter into other relevant market;
This is a widely known term and has been explicitly incorporated in competition legislation of various countries. It refers to an anticompetitive business practice in which a dominant firm may engage in order to maintain or strengthen its position in the market. Such business practices by the firm may be considered restricting competition in the market. The different types of business practices that are considered as being abusive vary across countries as well as on a case by case basis. The business practices which have been contested in actual cases in different countries, not always with legal success, have included the following but not limited to: charging unreasonable or excess prices, price discrimination, predatory pricing, price squeezing by integrated firms, refusal to deal/sell, tied selling or product bundling and pre-emption of facilities. As part of liberalization and on recommendation of high powered Raghvan Committee, the Competition Act, 2002 was enacted in India. Before the commencement of the 2002 Act, this phrase was not relevant in Indian context. Now, abuse of dominance is covered under section 4 of the Competition Act, 2002. in India, which has come into force from May 20, 2009. Abuse of dominance in Indian law has similar meaning as in other competition legislations. The said provision is applicable to all enterprises including public sector enterprises and Government. The said Act vests power in Competition Commission of India to investigate and inquire into instances of abuse of dominance and correct/penalize enterprise behaviour and help establish a competitive market. Commission has started receiving many cases relating to various aspects of abuse of dominance. Abuse is stated to occur when an enterprise or a group of enterprises uses its dominant position (As per Competition Act 2002, dominant position is position of strength enjoyed by an enterprise in a relevant market, which enables it to operate independently of competitive forces prevailing in the relevant market; or affect its competitors or consumers or the relevant market in its favour) in the relevant market in an exclusionary or/and an exploitative manner. Such practices shall constitute abuse only when adopted by an enterprise enjoying dominant position in the relevant market in India.
Following are the elements of Dominant position in India:
• Market Share- An enterprise holding high market shares does not necessarily enjoy dominant position. Different parameters are employed to measure market share depending upon the nature of sector and the issue under investigation. As the Raghavan Committee reported, “a firm with a low market share of just 20 per cent with the remaining 80 per cent diffusedly held by a large number of competitors, may be in a position to abuse its dominance, while a firm with say 60 per cent market share with the remaining 40 per cent held by a competitor may not be in a position to abuse its dominance because of the key rivalry in the market. Specifying a threshold or an arithmetical figure for defining dominance may either allow real offenders to escape or result in unnecessary litigation. Hence, in a dynamic changing economic environment, a static arithmetical figure to define “dominance” will be an “aberration.”[x] The Competition Act, 2002, therefore does not state a percentage of market share as the measure of dominance. However, a high market share usually indicates limited ability of the customer to shift to other undertakings.
• Size and Importance of Competitors- Not only the size and value of the enterprise but also the size and importance of its competitors are crucial when determining dominance. The largest firm’s market share should be evaluated relative to its competitors; the smaller the shares of the competitors, the largest firm is more likely to have dominance.
• Dependence of Consumers on the Enterprise- Customers have a bargaining power and influence the pricing and conditions of the market. If in the relevant market, the dependence of consumers on the enterprise is high for example a specific medicine that is non-substitutable; the enterprise providing that medicine will be determined as dominant. Likewise, a consumer of electricity in India, at present, does not have a choice of supplier.
• Entry Barriers – Barriers to entry, exit or expansion and durability to market power have been identified as very important factors in the assessment of dominance. If entry barriers faced by the rivals are low, the undertaking which have high market share may not be able to continue with significant market power for long.[xi] The barriers could be structural, regulatory or strategic one. Common barriers to entry a specific markets includes legal patents as well as first mover strategic advantages.
• Countervailing Buying Power – In a market, the buyer also has bargaining power which affects the price of a product. A strong buyer affects the dominance of an enterprise just as much as a strong competitor.
• Market Structure and Size- Market structure can be characterised by a sole supplier of goods/services either on stand-alone basis or by virtue of common ownership.
These factors individually or collectively may result in an enterprise being determined as having “dominance” over the relevant market. A few types of abuse of dominant position are analysed as under-
1. i) Predatory Pricing- Section 4(b) of the Act defines it as “the sale of goods or provision of services, at a price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors.”[xiii]
2. ii) Refusal to supply- This leads to a serious interference with the independence of small and medium sized firms and their commercial relations. This has a heavy negative impact on the state of fair competition in the relevant market.
iii) Limiting Supply- A perfect example of this is the diamond market. Even though large quantities of them are in storage, only a small quantity is polished and made available to the buyers, resulting in its high price.
1. iv) Barriers to entry or denial of market assess- Barriers to entry includes patent as well as strategic first mover advantages.
2. v) A group of colluding suppliers appreciably affecting the relevant market.
Under World Common Law:
The European Court defines dominance as:
“A position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers” [Case 27/76 United Brands v EC Commission (1978)]
The European Court also held that:
“such a position does not preclude some competition...but enables the undertaking which profits by it, if not to determine, at least to have an appreciable influence under which competition will develop, and in any case to act largely in disregard of it so long as such conduct does not act to its detriment”
[Case 85/76 Hoffman La Roche v EC Commission (1979)]
a) US differs from the EU as it does not prohibit exploitation
b) In the US the view is that market power generally results from skilled competitors applying sound business acumen and efficient practices so more permissive so as not to dull incentives to innovate
c) In the EU case law establishes that a dominant firm has a special responsibility not to allow its conduct to impair genuine undistorted competition
Related case summaries:
In Re Shri Shamsher Kataria v Seil Honda, where there existed agreements between the dominant entities and the Overseas Suppliers of original car parts which prevented the Overseas Suppliers from supplying parts to independent repairers, such agreements were held to be anti-competitive as they restricted entry of new firms.
In Mr. Ramakant Kini v Dr L H Hiranandani Hospital, Powai, Mumbai the Commission was assessing the dominance of the Hiranandani hospital. The relevant market was for provision of maternity services by super specialty and high-end hospitals within a distance of 12 kilometers from the Hiranandani Hospital. The Commission, in the case, clarified that the market shares of an entity is 'only one of the factors that decides whether an enterprise is dominant or not, but that factor alone cannot be decisive proof of dominance'.
In Dhanraj Pillay v Hockey India in that case, Hockey India, a dominant entity in the market for organisation of private professional hockey activities in India and for services of hockey players, decided against adding World Hockey Series in the list of sanctioned events, thus, disincentivising players from participating in the same. The Commission noted that sanctioning of events was a regulatory function of Hockey India, and could not be found, per se, of violation of competition laws. Creating a further distinction between means and ends, the Commission noted that it had to proven that the clause in contention was applied by Hockey India in a discriminatory/unjust manner. So, what is left somewhat in the grey is whether the activity is in contravention of the Act if it results in abuse, or if it is done in a discriminatory manner.