CCI puts brakes on Maruti discount controls

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The Competition Commission of India (CCI) in August fined India’s leading automobile manufacturer, Maruti Suzuki, for dictating the discounts that dealers can offer, and penalising dealerships and individuals when they failed to toe the line.

The antitrust watchdog imposed a penalty of INR2 billion (USD27 million) on Maruti for indulging in resale price maintenance by restricting and controlling the discounts its dealers could offer consumers.

It is the second instance where the CCI has fined an auto manufacturer for indulging in resale price maintenance. In 2017, it penalised Hyundai Motor INR870 million for controlling the discounts its dealership offered.

“The underlying assumption is that a player with a significant market share engaging in resale price maintenance not only restricts intra-brand competition – between distributors of the brand – but also lowers inter-brand competition,” says Anshuman Sakle, a Mumbai-based partner in the competition practice at Cyril Amarchand Mangaldas.

Sakle says the assumption that lowering intra-brand price competition has a chilling effect on this activity is based on the premise that a market leader, such as Maruti, will inevitably serve as the price benchmark for various categories of products.

“Other competing brands will take a cue from the prevailing retail prices of Maruti, at various dealerships across India, to remain competitive with its price positioning, thus leading to an unvirtuous cycle of discount control across brands,” he explains.

The CCI’s decision could impact manufacturers across all industries, lawyers say, advising that companies should relook at existing exclusive arrangements.

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The Briefing is prepared by Freny Patel