c

‘Dominance per se is not illegal, but the abuse of the position of dominance is illegal’. Analyzing Abuse of Dominance under competition act 2002

The Dominant position is generally considered as a position of superiority and the ability to exert dominance upon another competitor. Competition act of 2002 has explained the term dominant position in the following words:

A dominant position means a position of strength enjoyed by an enterprise.

in the relevant market in India, which enables it to:

a) operate independently of competitive forces prevailing in the relevant market;

b) affect its competitors or consumers or the relevant market in its favour. [1]

Three steps for Determination of Abuse of Dominant Position.

Following are the three steps to determine abuse of Dominant position by an enterprise.

Step:1 Determine the relevant market 

The relevant market has been defined by the competition act, 2002 in the definition clause, ‘relevant market means the market which may be determined by the commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets’[2]

Therefore, the relevant market is bifurcated into two segments, i.e., Relevant Geographic market (RGM) and Relevant Product market (RPM) which are further defined under sections 2(s) & 2(t) of the act.

Table showing the components of RGM and RPM

Relevant Geographic Market Relevant Product market
A market comprising the area in which the competition for

a)  Supply of good

b) Provision of services

c)  The demand for goods or services are

  • Distinctly homogenous
  • Can be distinguished from conditions prevailing in the neighboring areas

Section 19 (6) of the act states that the commission shall, while determining RGM shall have due regard to the following factors:

a) Regulatory trade barrier

b)  Local specification requirement

c)  National procurement policy

d)  Adequate distribution facilities

e)  Transport costs and, etc[3]

A market comprising products and services which are regarded as interchangeable or substitutable by the consumer, for the reason of:

a) Characteristic of the product or services

b)  Their prices

c)  Intended use[4]

Section 19 (7) provides that the commission shall, while determining the RPM shall have due regard to all or any of the factors:

a)  End-use of good

b)  Consumer preferences

c)   Exclusion of in-house production

d) Classification of industrial products[5]

 Step 2: Determine dominance in the relevant market

The next step is to determine whether the enterprise enjoys a dominant position in the relevant market. Factor given under section 19 (4) [6] are to be considered while determining the dominant position: Section 19 (4) of the act states few factors to be kept in the mind by the commission while enquiring into the dominant position of an enterprise, have due regard to all or any of the following factors, namely: market share of the enterprise; size and resources of the enterprise; size and importance of the competitors; economic power of the enterprise, including commercial advantages over competitors; vertical integration of the enterprises, or sale or service network of such enterprises, etc.[7]

Step 3: Determine the abuse of dominant position 

Now the last step is to determine whether the enterprise is abusing its dominant position. Thus, section 4 (2) of the competition act, 2002 provides a list of abusive conducts by the enterprise which shall amount to abuse of a dominant position.[8]

Abuses specified under section 4 (2) of the competition act, 2002 falls into two categories:

Analysis of Abuse of Dominance under competition act 2002

1. Exploitative Practices: where the enterprise uses the tactic of price discrimination, which includes predatory pricing. The ultimate aim of the enterprise is to exploit the customers.

In Belaire owner’s Association V. DLF Ltd[9] and the case of Pankaj Aggarwal v. DLF Gurgaon home developers private limited[10], Commission concluded the one-sided term and conditions which were only in favour of the opposite party (DLF) in the buyer’s agreement to be highly exploitative and abusive under section 4 (2) (a) (i)[11].

2. Exclusionary Practices: where the enterprise indulges in exclusionary practices. For example, denial of market access.

The CCI found automobile manufacturers to be guilty of contravention under section 3 and section 4 of the competition act as they were engaged in the anti-competitive agreement such as:

  • Restricting authorised service providers from selling spare parts to independent service providers;
  • Restricting original equipment suppliers (OESs) from selling spare parts directly in the market;
  • Restricting the availability of diagnostic tools in the open market.[12]

Conclusion

The competition act has clearly stated that the dominant position prima facie is not void, but no enterprise is entitled to abuse its dominant position. [13] Thus, ‘it is not dominance, but its abuse, which is prohibited in law’.[14] Therefore, it is safe to conclude that section 4 of the competition act is a substantive provision that specifically prohibits abuse of dominant position. Thus, the burden of proof falls upon the CCI to prove the existence of dominance and abuse of such a dominant position. Therefore, ‘Dominance per se is not illegal, but the abuse of the position of dominance is illegal’.

[1] Competition Act 2002, s 4 (Explanation a)

[2] Competition Act 2002, s 2(r)

[3] Competition Act 2002, s 19(6)

[4] Competition Act 2002, s 2(t)

[5] Competition Act 2002, s 19(7)

[6] Competition Act 2002, s 19(4)

[7] ibid

[8] Competition Act 2002, s 4(2)

There shall be an abuse of dominant position 4 [under sub-section (1), if an enterprise or a group].—-

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

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

(ii) price in purchase or sale (including predatory price) of goods or service.

(b) limits or restricts—

(i) production of goods or provision of services or market therefor; or

(ii) technical or scientific development relating to goods or services to the prejudice of consumers; or

(c) indulges in practice or practices resulting in denial of market access  [in any manner]; or

(d) makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts; or

(e) uses its dominant position in one relevant market to enter into, or protect, other relevant market

[9] [Comp. LR 0239(CCI)]

[10] CCI Case No. 13 & 21 of 2010 and Case No. 55 of 2012.

[11] Competition Act 2002

[12] Shamsher Kataria v. Honda Siel cars, Pvt Ltd 2014 Comp LR 1 (CCI)

[13] Ibid s 4 (1)

[14] Shri Neeraj Malhotra, Advocates v. North Delhi Power Ltd, CCI Case No .06/2009.

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