When does CCI consider low pricing predatory?

By Lagna Panda and Prachi Agarwal, Chandhiok & Mahajan
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Predatory pricing can be an abuse of dominance under Indian competition law. While the Competition Commission of India (CCI) is yet to issue a final ruling on predatory pricing by an enterprise, its decisions provide guidance, though limited, on how predatory pricing should be examined.

When does CCI consider low pricing predatory? Lagna Panda
Lagna Panda
Managing Associate
Chandhiok & Mahajan

Under the Competition Act, 2002 (act), for any pricing to be considered predatory, it has to be below cost and should be “with a view to reduce competition or eliminate competitors”. The meaning of cost has been clarified in the Competition Commission of India (Determination of Cost of Production) Regulations, 2009 which provide that cost should generally be considered as average variable cost. However, depending on the industry, sector and market concerned, the CCI may use a different cost concept.

In the Reliance Jio decision, in dealing with allegations of predatory pricing by Reliance Jio Infocomm Limited, the CCI observed that predatory pricing should have an “anti-competitive objective” of excluding competition or competitors. In other words, the intent behind a pricing strategy is a relevant factor.

Recently, in Meru Travel Solutions Pvt Ltd v Competition Commission of India and Others, the National Company Law Appellate Tribunal (NCLAT) dismissed appeals challenging the order of the CCI (Ola decision), which had closed an investigation against ANI Technologies Pvt. Ltd. (Ola). The CCI had found that Ola was not dominant in the market for radio taxi services in Bengaluru. In its decision, the NCLAT made certain observations on intent. The NCLAT observed that Ola’s pricing strategy was not made with a view to “dislodge any competitor from the market” but to “establish itself as an effective and reliable brand”.

When does CCI consider low pricing predatory? Prachi Agarwal
Prachi Agarwal
Senior Associate
Chandhiok & Mahajan

The NCLAT also concluded that Ola did not engage in below-cost pricing for a “sustained period of time” and therefore, its pricing could not be considered as predatory pricing. In other words, predatory pricing can be considered to reduce competition only where it continues for a sustainable period of time.

Further, the act does not expressly specify recoupment of loss as an essential criterion for predatory pricing. However, the CCI, in Transparent Energy Systems Pvt Ltd v TECPRO Systems Ltd, had observed that in case of predatory pricing, “there is always significant planning to recover the losses if any after the market rises again and the competitors have already been forced out”.

The European Court of Justice (ECJ) has taken a different view on preconditions for predatory pricing. In France Télécom, the ECJ held that proving the possibility of recoupment of losses is not necessary for abusive pricing. The court held that pricing below average variable cost would be presumed to be eliminatory and would be abusive. If pricing is above average variable cost but below average total cost then an intention to eliminate competition has to be shown for such pricing to be considered abusive.

It may be noted that the CCI, in the MCX/NSE decision, concluded that the zero pricing policy of the National Stock Exchange of India (NSE) in the currency derivatives (CD) segment was unfair and amounted to abuse of dominance. The CCI was of the view that pricing that is not predatory may still be unfair and would amount to an abuse of dominance if it is intended to harm a customer or a competitor. The CCI found that NSE’s zero pricing policy had imposed severe constraints on its competitor, MCX, which operated only in the CD segment.

In the Ola decision, the CCI did observe that low pricing by Ola may not have been because of cost efficiency but because of funding received from private equity funds. However, the impact of the pricing strategy adopted is difficult to determine, given that the market in question is still evolving. These observations of the CCI are relevant, since low pricing may often be a result of strong price competition. Interference in markets with low pricing could very well go against the very objective of the act, which is to protect and promote competition. Therefore, any allegation of unfair and predatory pricing will have to be carefully examined to ensure that the competitive processes of markets remain protected.

Lagna Panda is a managing associate and Prachi Agarwal is a senior associate at Chandhiok & Mahajan

competition law

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Email: office@chandhiok.com

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