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.
“The CCI’s decision has ramifications for every industry governed by a dealership network including automobile, electronics and fast-moving consumer goods,” says Abir Roy, a co-founder of Sarvada Legal in New Delhi.
Unlike the auto sector, fast-moving consumer goods and white goods are sold across multiple channels.
“Any suggestions of manufacturers controlling the lowest possible price could raise red flags with the antitrust authority,” says a Bengaluru-based antitrust lawyer who wishes to remain anonymous, “especially when some of these companies have their dealership setups or exclusive stores”. He cites Apple’s online store and Samsung SmartCafe.
Agreements that allow manufacturers to control the minimum price are usually unlawful because they prevent retailers from offering lower prices, or setting prices independently, to attract more customers.
All enterprises position their business policy to improve their business economics, but a failure to disregard the notion of fair play in the market can have heavy costs, says Roy.
Sakle says that in India, car showrooms are usually exclusive dealerships and not multi-brand showrooms.
“Controlling the maximum discount one can offer may deter some from entering into a dealership agreement with certain manufacturers as they would not be able to sell at lower prices,” he says. This would ultimately result in an appreciable adverse effect on competition.
Maruti, in its defence, told the CCI that dealers had entered into an agreement among themselves to police the discounts offered, and that it only played the role of enforcing the discount control policy on their behalf as an independent third party.
However, the CCI did not buy the argument. “This phenomenon creates an obstruction for consumers to avail the benefit of competition in pricing across different brands as well,” it said.
The Briefing is prepared by Freny Patel