Understanding Competition Act Section 4: Abuse of Dominant Position

Tripti Malu 14 Oct 2023 4,224 Views 0 comment Print Corporate Law | Articles

Introduction:

In the realm of competition law, Section 4 of the Competition Act, 2002, stands as a sentinel guarding against the exploitation of dominant market positions. In this article, we embark on an insightful journey into this pivotal section, unraveling the essence of ‘Abuse of Dominant Position.’ We aim to shed light on its multifaceted aspects, revealing how it strives to strike a delicate balance between fostering innovation and safeguarding the competitive process.

Let’s understand the topic effortlessly.

Abuse of dominant position occurs when a business uses its market power to unfairly harm its competitors or consumers. This can happen in a number of ways, such as:

Charging excessive prices: A dominant business may charge higher prices than it would if it faced more competition.
Offering predatory discounts: A dominant business may offer discounts so low that its competitors cannot compete, forcing them out of the market.
Refusing to deal with competitors: A dominant business may refuse to sell its products or services to competitors, or to buy their products or services.
Tying and bundling :A dominant business may force consumers to buy one product or service in order to get another.
Exclusive dealing arrangements: A dominant business may force its suppliers or distributors to only deal with it.

In the recent past, The CCI has investigated and found cases of abuse of dominant position in various sectors. Such as,

Google LLC (2022): Google was found to have abused its dominant position in the Android mobile device ecosystem by engaging in a number of anti-competitive practices, including requiring Android device manufacturers to pre-install certain Google apps and services on their devices in order to access the Google Play Store.
Grasim Industries Ltd. (2020): GIL was found to have abused its dominant position in the market for viscose staple fibre (VSF) by engaging in discriminatory pricing.
Auto Parts Case (2014): 14 car companies were found to have abused their dominant positions by requiring customers to purchase spare parts and diagnostic tools solely from the respective car manufacturer or their authorized dealers.

Here’s the Better understanding of the section, in the table below:

Serial

Legal Provision

Illustrations for understanding

Section 4

Abuse of dominant position

Sec 4(1) No enterprise or group shall abuse its dominant position.

Sec 4(2) There shall be an abuse of dominant position 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

(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, another relevant market.

Explanation

♦“dominant position” means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to operate independently of competitive forces prevailing in the relevant market; or n affect its competitors or consumers or the relevant market in its favour.

♦“predatory price” 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.

Case Reference:

♦Predatory Pricing: MCX-SX vs. NSE: The CCI investigated allegations of predatory pricing by NSE in the currency derivatives segment. NSE was accused of offering low-cost services and incentives to traders to capture the market. The CCI found that NSE’s actions were anti-competitive and imposed penalties.

♦Discriminatory Pricing: Bharti Airtel vs. Reliance Jio: Allegations were made against Bharti Airtel for offering discriminatory data tariff plans to different customers. The CCI examined these allegations and found that such discriminatory pricing could harm competition by creating an unfair advantage. Bharti Airtel was asked to modify its pricing strategy.

♦ Excessive Pricing: CCI V/s Pharmaceutical industry: The Competition Commission of India investigated the pharmaceutical industry for allegations of excessive pricing. In this case, pharmaceutical companies with dominant positions were accused of charging excessively high prices for essential medicines. The CCI found that these practices were anti-competitive and detrimental to consumers. Penalties were imposed on some of the companies involved.

♦ Refusal to Deal: CCI V/s DDA: The CCI investigated a case where the Delhi Development Authority (DDA), a government body, was alleged to have abused its dominant position by refusing to deal with certain landowners. The DDA’s refusal to consider applications for land development caused significant harm to the landowners. The CCI ruled against the DDA and took corrective actions.

Conclusion

In this article, we discussed Section 4 of the Act, which prohibits abuse of dominant position. As we have seen, abuse of dominant position can have a number of harmful effects on consumers, businesses, and the economy as a whole. Section 4 of the Competition Act helps to protect competition and promote consumer welfare by prohibiting abuse of dominant position.

It is important to be aware of the signs of abuse of dominant position so that you can report any suspected cases to the CCI. If you are a consumer, you can also protect yourself from abuse of dominant position by being informed about your rights and by shopping around for the best deals.

Also, readers are encouraged to stay tuned for future articles in this series, in which we shall explore other sections of the Competition Act of 2022 in more detail.