An Attempt to Economically Objectivize Determination of Violation of Section 4(2)(e) of Competition Act, 2002
A player holding significant share in a market opens avenues for investing in other areas. This investment may be for the sake of advertisement, or for secondary monetary gains, or to procure and expand into new market conditions. Exempli gratia for the three mentioned instances are – Byju’s being a sponsor to the IPL team; Apple Inc. purchasing the stock of another company as a short-term investment of excess cash; TATA Ltd. opening Tanishq or TATA Cliq opening Westside. Such business strategies are not unlawful under the Competition Act, 2002 unless the player is dominant in the market.
Judicial precedents show that a pre-requisite for conviction under Section 4(2)(e) of the Act is that the player must have dominance in the market. Hence, it must abuse its dominance to enter into another market. The determination of this purely depends on the evidence presented before the CCI by the Informant as well as the Opposite Party on Appreciable Adverse Effect on Competition (AAEC). In the case of Bharti Airtel Ltd. v. Reliance Industries Ltd.[1], the OP having ample power to invest into a heavy sector such that of telecommunications and acquire the infrastructure, the Court still dismissed abuse of dominance by relying on certain economic reports and concluding it to be not dominant. Whereas, in the case of Google LLC v. CCI[2], the Court noted the ‘relevant turnover’ to deem it a dominant player and declared their tie-in arrangement with playstore and youtube of pre-installation into the operating system as anti-competitive and “digital feudalism”.
Thus, it can be observed that there is no hard and fast checklist for determining a player as dominant in the market. The strategies of the players can be interpreted as just business ventures or as an attempt to expand into new markets. One can argue for both sides, based on the type of services and relevant market drawn up. As a result, an attempt can be made to use economics tools to draw up the requisites for establishing dominance based on players’ behaviour.
The premise on which Game Theory primarily builds upon is information asymmetry. Suppose one considers the pay-off scenario under game theory, which dictates that the players should act in accordance with their best response. This translates to, if a player is dominant in one market or has unbridled access to resources to expand into another product market, that may not lead to the deduction that it may be a dominant player (like in the case of Reliance). On the contrary, if a player strategizes to upgrade his services by a joint venture in another market, his financial standing to upgrade, may be convoluted to be of dominance. Thus, this is the disadvantage of penalizing ‘abuse of dominance’ and not just the act.
Game theory studies strategic decision-making when outcomes depend on interactive choices between multiple rational players. Information asymmetry exists when a player possesses superior private information shaping its decisions and consequently influencing counterparty behaviors and final payoffs unknown to others.[3] One of the potential outcomes of the game theory paradox is the Prisoner’s Dilemma[4]. It refers to a situation involving decision-making by two rational individuals who cannot reach an optimal settlement when deciding in their own self-interest. In other words, the prisoner’s dilemma depicts that in a non-cooperative situation, even a more attractive strategy can result in getting worse results.
The Prisoner’s Dilemma Plot
Suppose that the police arrest two suspects of the same crime and hold them captive in two different cells so that both the suspects are not in a position to communicate with each other. The police officer then presents them with the opportunity to either remain silent or blame the other suspect for the crime. Consequently, in case both the suspects remain silent, the suspect who remained silent would serve 5 years in the prison whereas the other suspect will be set free. In the above scenario, both the suspects are unaware of the decisions taken by the other suspect. Therefore, as a ratio nal individual, the dominant strategy would be to blame the other suspect. For example, suspect A is afraid to remain silent as then he will have to serve 5 years in prison if suspect B chooses to blame him while he remains silent. Suspect B is also thinking along the same line, and accordingly, suspect B is also going to blame suspect A.
Although the decision of remaining silent by both the suspects would provide a more potential pay-off, it is not a rational decision to make because both the parties are mechanized to act in their self-interest. In contrast, the decision of blaming the other suspect is a rational decision from the perspective that it provides Nash equilibrium despite the worse pay-off.
Applying this theory to analyse the case of Bharti Airtel Ltd. v. Reliance Industries Ltd., if Reliance was not a dominant player in its own market, it would not have been able to invest with OP 2 in the case and acquire major assets in the telecommunication sector. The case itself mentions –
“…OP-1 is stated to be one of the biggest private companies in India in terms of its size, revenue, assets and value, leading it to be one of the financially strongest companies in the country. OP-1 is engaged in several businesses such as exploration and production of oil and gas; petroleum refining and marketing; manufacture and sale of petrochemicals comprising polymers, polymer and fibre intermediates, textiles, retail; etc. It has been claimed that OP-1 has the largest market share in polyester fibre and yarn industry and petroleum products industry not only in India but also globally. OP-1 is also stated to be India’s first private sector company to feature in the Fortune Global 500 list of ‘World’s Largest Corporations’.”
Thus, the low prices offered by the OP 1 in this case was possible because they held a majority market share. Game theory suggests that when there is lack of information, the player will behave in interest of best outcome for themselves. There was predatory pricing as per the requisites of MCX Stock Exchange v. NSE[5],
- The player offered lowest prices that no other competition could match.
- This was done with the intention to drive the competitors out of the market.
- The player is the sole service provider in the market, and increases the prices higher than what was present before its intervention.
CCI didn’t delve into the possibility of 2nd and 3rd pointer occurring in the near future.
Conclusion
The case of Meru Travel Solutions Private Limited v. Uber India Systems Private Limited,[6] underscores the importance of economic tools and analysis in assessing dominance and competitive behaviour. The CCI focused on whether Uber held a dominant position in the relevant market, considering factors like market share, economic power, and competitive constraints. Despite Uber’s significant market presence and aggressive pricing strategies, the CCI did not conclusively establish Uber as a dominant player. The central allegation was that Uber engaged in predatory pricing to oust competitors. The CCI scrutinized Uber’s pricing strategies but ultimately found insufficient evidence to prove intent or that Uber’s pricing would lead to an appreciable adverse effect on competition (AAEC).
Even with significant market power and resource advantages, proving abuse of dominance requires clear evidence of intent and resultant harm to competition. The analysis of previous rulings, such as those involving Reliance Industries and Google, provided a framework for evaluating Uber’s conduct. The lack of a definitive checklist for determining dominance and abuse emphasizes the role of judicial interpretation and economic evidence in each unique case. Just as rational individuals in the Prisoner’s Dilemma may act in their self-interest, leading to a sub-optimal outcome, dominant players in a market may engage in strategies that appear predatory or exclusionary, driven by their own self-interest and the lack of complete information about their competitors’ actions. Ultimately, the determination of dominance and its abuse is a case-specific exercise that requires a careful balancing of various factors and evidence.
[1] CCI Case No. 03/2017.
[2] Google LLC v Competition Commission of India, Competition Appeal (Appellate Tribunal) No. 1 of 2023, decided on 29-03-2023.
[3] Nieuwveld, L. B., & Sahani, V. S. (2017). Third-Party Funding in International Arbitration (2nd ed.). Kluwer Law International.
[4] Eric Posner & Jack L. Goldsmith, “A Theory of Customary International Law” [1999] CLR 1113.
[5] CCI Case No. 13/2009.
[6] Case No. 96 of 2015,
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