Introduction
The advent of the Covid-19 induced pandemic led to the shifting of the physical world to the virtual world. The dependence on the digital market swelled as government policies allowed transportation facilities for essential services and the public at large were required to stay at home. This drew the attention of the Competition Commission of India towards the relevant markets in digital spaces. The soul of any economy lies in a free and fair market. The markets which are free from entry and exit barriers along with homogenous goods is considered perfect market, but this concept is impossible to achieve the government through their policy’s decision strives to create a market close to perfect competition. The Raghavan Committee, in the year 2002, realized that merely keeping the monopoly in control will not help the market to become an ideal market for globalization. The evils of anti-competitive agreements, predatory pricing and combinations should be kept in control to keep the market practices fair.[1]
Concept Of Predatory Pricing
The concept of predatory pricing is seen as a part of the abuse of dominant position under section 4 of the Competition Act 2002. Predatory Pricing is considered as perplexing and a source of dilemma for market regulators over years. History had witnessed Predatory Pricing as an instrument of abuse and mode to show dominance over the market but also allowed the existing market players to provide better quality products at an affordable price and in a huge variety. The idea behind anti-trust law in developing nations is consumer welfare-oriented and predatory pricing has allowed the gifts of quality, affordability and accessibility of goods and services for Indian markets. The concept of predatory pricing of goods and services is selling or providing goods at as low prices so that other market players are forced to leave the market. The big players often abuse their dominant position by controlling production, price and distribution channels. The market watchdogs often try to keep a check on such unlawful acts of creating a monopoly by pushing out the competitors. While they are performing their tasks, they rely on a redressal mechanism instead of providing equality of opportunity and freedoms as thought by the framers of this forgoing Act.[2]
Essentials Of Predatory Pricing
The essence of predatory pricing is keeping the price below the production costs with a sole view to eliminated rivals.[3] The big Corporation often reduce the price in one sector and recover the loss from other sectors but the entity whose only area of business is this sector is often then, forced out as it does not has deep pockets to survive continuously loses and cuts of operational costs. [4] The combined reading of sub-section 2 of Section 4 and sub-section 4 of Section 19 of Competition Act 2002, allows the CCI to check the abuse of dominant power on the barometer of relevant product market and relevant geographical market, in addition to the following attributes of the market:
- In respect of market; its size, number of players, shares of each player, the dependence of consumers over that market, entry and exit barriers along with government policies governing the market.
- In respect of enterprise; it’s share, size, resources at disposal, economic power, vertical integration, availability and proximity with competitors, monopoly or dominance because of being government company, public entity or statutory company along with its fulfilment of the social obligation.[5]
The CCI while investigating the instances of abusing the dominance in the market by way of predatory pricing, check for specific instances and schemes of under-pricing in the economic sense. The test laid down in MCX Stock Exchange Case, specifically points out the size of the defendant and the impact of its underpricing strategy on competitors. If the firm by its predatory price actions can with ease drive out the competitors, the allegations may be presumed to be true for predatory pricing. [6]
The test of predatory pricing stand on pillars of
- existence of demonstrative scheme of driving out of competitors due to low prices, and
- post leaving of competitors, the ability of the defendant become monopoly and intention to raise the price of the product or service in near future.[7]
- The defendant’s conduct creates entry barriers in future due to low prices.[8]
Remedy Available
The remedy available against prevalent predatory pricing in the market under Section 27 and 28 is a complaint before CCI by
- A firm, company or corporate entity
- By the respective market regulator
- State government
- Central government
- And the CCI then can issue an order to
- Alter, modification, cancel, delete or novate the agreement creating such abuse
- Impose cost not exceeding turnover of last three years as a penalty
- Discontinue such product or service for sale or hire[9]
Allegations put on Shopee
The allegations were pertaining to the flash sales. The flash Sales daily at 10 AM, 12 noon, 2 PM, 4 PM and 8 PM allow products at as low as the price of Rs. 1, Rs 9 and Rupees 49 used to conduct the sale. The low sales are aimed at attracting large consumer bases and acquiring data of consumer preferences along with buying habits. This data was further used to lure the consumers and used for the advantage of the company. These allegations were also put against the other platforms like Flipkart for its Big Day Sale and Amazon’s prime day sale.[10]
Submissions Presented By Shopee
Shopee has clarified, regarding the FDI rules violation, that Shopee is a Singapore based company that is registered and is having head office in Singapore itself. [11] So, there is no violation of FDI rules as Singapore does not share any land border with India. While justifying cost-efficient products, Shopee referred to the absence of middlemen and low or no infrastructural cost by sellers as reasons for such flash sales. They considered these affordable and quality products as a result of their commitment and support of local sellers which ultimately lead to empowering the Small and Medium Enterprises in India. They also promise that the platform will connect the thousands of local businesses across the countries with widespread consumers through their digital marketplace. [12]
Findings of CCI
The CCI concluded that the alleged digital market players Shopee, Amazon and Flipkart are not abusers of their dominant position[13]. In fact in CCI’s opinion, these entities are called new entrants and have very little say before established players. The CCI, though acknowledging the growing dependence on online shopping and the need for regulation of these markets, found Shopee to use similar discounting practices as by other digital market applications. While pointing to Shopee’s market share and the existence of competitors, the CCI considered Shopee as not an abuser of dominance in the market. In addition, CCI reiterated the need for influence and holding of a large share of the market for the constitution of the offence of predatory pricing. The well-established market practice, large share and long-standing in the market were seen as essential to establish dominance in the market with clear intention to eliminate competition.[14]
Concluding Remarks
The Indian economy is growing at a rapid pace and strong anti-trust regulation laws will attract foreign players. The companies in the market often rely upon aggressive pricing and deliberate reduction in price to meet competitive needs. The advent of the digital market and no proper legislative framework to govern the digital markets has intensified the problem of anti-competitive practices. The Shopee predatory Pricing allegation and CCI’s investigation drew attention to the need for a proper legislative framework to govern competition in the digital market. The flash deals and big seasonal sales have led to the cutting of intermediary costs and providing accessible, affordable and quality products but have created the problem of loss of employment for local shopkeepers. Questions related to relevant geographical markets have almost vanished as the digital platforms and good transportation facilities have led to the availability of the product from across borders at our doorsteps. The CCI must be vigilant in treating the anti-competitive practices before it. The investigation in the Shopee case also drew attention towards Singapore based companies that are often used as an instrument by blacklisted companies to enter Indian markets.
Author(s) Name: Anukriti Mathur (Himachal Pradesh National Law University, Shimla)
References:
[1] Avtar Singh, Competition Law, (7th Edn, Lexis Nexis, 2019) 34
[2] SC Tripathi, Competition Law,(1st Edn, Central Law Publication, 2019) 42
[3]Johnson And Johnson Ltd., (1988) 64 Comp Cas 394 para 4
[4] Avtar Singh, Competition Law,(7th Edn, Lexis Nexis, 2019) 52
[5] T Ramappa, Competition Law,( 3rd Edn, Oxford University Press, 2013) 26
[6] MCX Stock Exchange Ltd v. National Stock Exchange of India Ltd., DotEx International Ltd. and Omnesys Technologies Pvt. Ltd , 2011 Comp LR 0129 (CCI) para 28.2
[7] Versha Vahini, Textbook on Indian Competition Law, (1st Edn, Lexis Nexis, 2020) 19
[8] MCX Stock Exchange Ltd v. National Stock Exchange of India Ltd., DotEx International Ltd. and Omnesys Technologies Pvt. Ltd , 2011 Comp LR 0129 (CCI) para 4.2
[9] Competition Act 2002 (India) Section 27
[10] In Re: Vibhav Mishra (CCI, 3rd March 2022) para 6
[11] Ibid para 3
[12] Ibid para 4
[13] Ibid para 6
[14] Ibid para 12
