Predatory Pricing and its Legal Remedy in India

INTRODUCTION:

Predatory pricing poses a dilemma that has perplexed and intrigued the antitrust community for many years. On the one hand, history and economic theory teach that predatory pricing can be an instrument of abuse, but on the other side, price reductions are the hallmark of competition and the tangible benefit that consumers perhaps most desire from the economic system[1].

Predatory pricing is the practice pricing of goods or services at such a low level that other firms cannot compete and are forced to leave the market. Thought this practice was mostly used by the government agencies to put a check on the unlawful activities and control monopolies of the agencies, it acted as a redressal mechanism rather than a threat to the equality and freedom as promised under the law.

The Competition Act, 2002 outlaws predatory pricing, treating it as an abuse of dominant position, prohibited under Section 4. Predatory pricing under the Act means 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. Predatory pricing is pricing one's goods below the production cost, so that the other players in the market, who aren't dominant, cannot compete with the price of the dominant player and will have to leave the market[2].

INDIAN SCENARIO PROVIDING LEAGAL REMEDIES AGAINST PREDATORY PRICING:

The problem of monopoly and restrains to competition in the market are not something new to India. These problems date back to the early age of British rule when the English East India Company had a complete monopoly in trading with India. This monopoly, however, was not a result of predatory pricing as such. Post-independence, the Monopoly and Restrictive Trade Practices Act (MRTP) were established in 1969 as India’s first Competition law. However as the economy grew and there was economic liberation in 1991, the MRTP Act became archaic[3]. Replacing it, the Competition Act was enacted in 2002 as an instrument to prevent anti-competitive trade practices. Predatory pricing is one such anti-competitive trade practice that is addressed by this Act. The dealings of predatory pricing under the Act have been borrowed from the English Competition Act, 1988, and Clayton Anti-trust Act, 1914.

To ensure a healthy competition in the market amongst the players the Competition Act, 2002, has been introduced in replacement of the Monopolies and Restrictive Trade Practices Act, 1969, seeks to ensure the welfare of the consumers. Upon realizing the risk and challenges posed by predatory pricing, which mostly a clear abuse of the 'dominant position' in the market, which per-se is illegal; the dealings of predatory pricing in India, as expressed under the Competition Act, 2002, have been borrowed from the English Competition Act, 1998 and the Clayton Anti-Trust Act, 1914. The provision reads as below:[4]

Section 4(2) (a) of the Competition Act, 2002 states that:

There shall be an abuse of dominant position under Sub-section (1), if an enterprise,-

(a) directly or indirectly, imposes unfair or discriminatory-

(i) condition in the purchase or sale of goods or service; or

(ii) price in purchase or sale (including predatory price) of goods or services. Explanation.- For the purposes of this clause, the unfair or discriminatory condition in purchase or sale of goods or service referred to in Sub-clause

1. and unfair or discriminatory price in purchase or sale of goods (including predatory price) or service referred to in sub-clause
2. shall not include such discriminatory condition or price which may be adapted to meet the competition;

As per explanation (b) at the end of Section 4 predatory pricing refers to a practice of driving rivals out of business by selling at a price below the cost of production.16 Denial of market access briefly referred to in this section, if read conjunctively, is expressly prohibited under Section 4 (2) (c) of the Competition Act, 2002.

Section 4 of the Competition Act, 2002 corresponds to Clause 4 of the Notes in clauses of the Competition Bill, 2001 which reads as follows:

This clause prohibits the abuse of a dominant position by any enterprise. Such abuse of dominant position, inter alia, includes imposition, either directly or indirectly, or unfair or discriminatory purchase or selling prices or conditions, including predatory prices of goods or services, indulging in practices resulting in a denial of market access, making the conclusion of contracts subject to acceptance by other parties of supplementary obligations and using a dominant position in one market to enter into or protect another market .17

However, in 2007, Section 4 of the Competition Act, 2002 was amended by the Competition (Amendment) Act, 2007. The objects and reasons for such amendments were given in the Notes on clauses of the Competition (Amendment) Bill, 2007 which says that:[5] This clause seeks to amend Section 4 of the Competition Act, 2002 relating to abuse of dominant position. The existing provisions of Section 4 apply only to an enterprise and not to the group of enterprises. Clause (c) Sub-section (2) of Section 4 states that there shall be an abuse of dominant position if an enterprise indulges in practice or practices resulting in a denial of market access.

CONCLUSION:

The economic development of a nation is depended upon the freedom of business activities and the protection of the rights of the consumers. The Competition Act of 2002 was established with a view of promoting the economic development of the country by regulating practices that have an adverse effect on competition, protection of consumer interests, and ensuring freedom of trade. It is needless to say that the competition laws of India have been doing justice to their objectives. In matters of predatory pricing the CCI has been quite efficient in regulating it, however, upon a detailed analysis of the competition law provisions of India, it can be understood that the main emphasis lies upon the ‘dominant position’ of the company which is alleged of predatory pricing. Only if the company is established to have a ‘dominant position’, does the abuse of that position come into question. Determination of dominance of a company is a complex and unwieldy process as there is no straight-jacket formula by which it can be determined. This creates a possibility of erroneous determination which will have a negative impact on the competitiveness of the companies. The CCI should focus more on the abuse rather than the position of dominance since it is quite possible that a non-dominant company can eliminate market competition by indulging in the practice of predatory pricing[6].

This article is authored by Tanzim Surani, a 4th-year student pursuing a 5-year law course [BA LLB (Hons.)] at the GLS Law College, Gujarat University.

Disclaimer: The article is an original submission of the Author. Niti Manthan does not hold any liability arising out of this article. Kindly refer to our terms of use or write to us in case of any concerns.

[1] PREDATORY PRICING:STRATEGIC THEORY AND LEGAL POLICY - Patrick Bolton, Joseph F. Brodley and Michael H. Riordan

[2] In Re: Johnson And Johnson Ltd., (1988) 64 Comp Cas 394 NULL

[3] ViswanathPingali et al., Competition Law in India: Perspectives, 41(2) Vikalpa: The Journal for Decision Makers 168, 169-70 (2016), ALSO AVAILABLE ON URL, https://ilsijlm.indianlegalsolution.com/, last accessed on, 13/07/2020

[4] https://www.mondaq.com/india/antitrust-eu-competition-/576894/predatory-pricing-a-synopsis-on-the-indian-telecom-sector

[5] Hovenkamp, H., Federal Antitrust Policy-The Law of Competition and its Practice 339 (3rd ed., 2005)

[6] Ibid.