INTRODUCTION
The Covid-19
pandemic shifted the physical world into virtual world, where the physical
retail market was closed, the online retail market took its pace. With the
growing pace of online market, the risk of unfair trade practices increased. It
has become a common practice for companies to rely upon aggressive pricing to
meet competitive needs in the market. In near future, the foreign companies
will be attracted toward India and strong anti-competitive laws are required to
keep them in check. The recent dispute alleging Shopee for using predatory
pricing strategy and abuse of dominance highlighted the need for a proper
framework governing the e-commerce market. In this blog, the author analyses
the concept of predatory pricing and dominant position and highlights the
loophole in the present pricing system.
CONCEPT OF
PREDATORY PRICING AND DOMINANT POSITION
Predatory pricing
is a strategy involving sellers to impose a price so low to remove or eliminate
the competition from the market. Generally, it is adopted by companies to
increase their market power. It is determined by two factors, the market
structure and the position of the player in the market.[i]
This concept has been implied under Section 4 of the Competition Act, 2002, as
a part of “abuse of dominance”. As per Section 4, Explanation (b), “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”. This again must be followed a sustainable amount of time. However, the
Act does not explicitly mention the term “recoupment of loss” to sustain a
predatory pricing claim. But in the case of Transparent Energy
Systems Pvt Ltd v TECPRO Systems Ltd.[ii], the Competition
Commission of India (“CCI”) observed that there must
be a planning to recover the losses incurred, after the market rises again and
the competitors have already been forced out. In this very case the four
factors to determine the predatory pricing policy was laid down which included,
a) prices are below the cost price, b) recoupment of loss, after market rises
again, c) sole purpose to drive out competition and d) existing competition is
driven out. Thus, to allege an
entity of using predatory pricing strategy, the dominant position in the market
and reasonable amount of time needs to be proved. It was stated in In Re:
Johnson and Johnson Ltd.[iii],
“The essence of predatory
pricing is pricing below one’s cost to eliminate a rival”. But as stated earlier, misuse of the dominant position need to be
established.
For a company or a group to attain dominant position, the control and
influence over the market which has a significantly negative impact on the
rival competitors who holds less share in the market. Thus, it is clear that
the dominant position is determined my factors such as market share, size,
resources, structure, vertical integration, entry barrier and dependence of
consumer.[iv]
The Section 4(2)(a)(ii) of the
Competition Act, 2002, states that:
“There shall be an abuse of dominant position
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”.
Thus, these factors to determine the dominant position was established in
the case of Fast Track Call Cab Pvt. Ltd. vs. ANI
Technologies Pvt. Ltd.[v],
where the CCI held that an entity needs to have a market share for a reasonable
period of time for it to be considered as “dominant”. Moreover, the CCI in Jio Case[vi],
due to the presence of several players having same financial capabilities, did
not hold Jio to possess a dominant position. It was also observed that Jio held
not more than seven per cent of shares in twenty-two telecommunication sectors
in India. Thus, it is a technical process to determine the dominant position of
an entity. However, in Uber India
Systems Pvt. Ltd v CCI[vii]
(popularly known as “Uber” case),
the predatory pricing policy was taken into account to establish the dominant
position and subsequently, Uber was held under Section 4(2)(a)(ii) of the Act.[viii]
THE SHOPEE CASE
The CCI in the case of Vaibhav
Mishra vs. Sppin India Pvt. Ltd.[ix],
held that Shopee does not possess significant power in the market and has less
dominant position at the current stage, for which there exist no prima facie
case of violation of Section 4 of the Competition Act, 2002. In this present
case, Sppin
India Pvt. Ltd. was incorporated in July 2021 and operates an e-commerce
platform by the name Shopee. Vaibhav Mishra (the informant), under Section 19(1)(a), alleged Shopee violating
Sections 3 and 4 of the Competition Act. It was alleged that Shopee was using
discriminatory pricing strategy, such as products like kurtis, mugs and wallets
were sold at Rs. 9/- and hampers the small players and have adverse effect in
the market. Here, the discriminatory pricing strategy referred to predatory
pricing which anti-competitive under Section 4(2)(a)(ii) of the Act. Shopee
responded to these allegations by saying that it “has commitment to supporting and empowering India’s
SMEs” and have helped thousands of local businesses to connect with the
customers.[x]
Even though the fact, CCI analyses and stated that the “modus operandi” is similar to Flipkart and Amazon, that is,
following similar discounting practice but the allegations were dismissed under
Section 26(2) of the Act on the grounds that Shopee does not possess a dominant
position which is an essential condition as laid down in Section 4(2) of the
Act. The CCI also remarked that Shopee was launched in India in 2021 while
players like Amazon, Nykaa, Flipkart and so on have been operating for a
reasonable amount of time. Earlier, CCI in In Re: All India Vendors Association[xi], considered to hold
online marketplace as a separate marketplace and thereby held Flipkart not to
be in a dominant position. This decision was a wake-up call for the e-commerce
platform as their shares will be evaluated only in online marketplace and not
overall which included online and offline marketplace. The Commission, in the case of Shopee, went with the lateral interpretation as laid down in the
Section. It is clear that the observation of CCI is similar to the decision of
the cases of Fast Track Call Cab Pvt.
Ltd. and Jio.
CONCLUSION
It is evident that CCI relied on the basic ingredients of the Section 3
and 4 of the Act while deciding the Shopee case. It is evident, the lack of
‘abuse to dominate approach’ under the Act is taken as advantage by some of the
enterprises. Even though the Shopee does not have significant market power but
the predatory pricing strategy can affect the rest of the competitors in
market. It is true, not every discounting policy falls under predatory pricing,
but if the deep discounting is done in the entrant level, then the rest of the
start-ups, offline retails and small enterprises who wants to enter the market may suffer. Therefore,
a strict provision relating to predatory pricing is required which should
address possible future instances it should address.
[i] Guest,
Gauging the Scheme of Predatory Pricing: The Case of Shopee Pvt. Ltd., IndiaCorpLaw (2022),
https://indiacorplaw.in/2022/04/gauging-the-scheme-of-predatory-pricing-the-case-of-shopee-pvt-ltd.html
.
[ii] (2013) 115 CLA 575.
[iii] (1988)
64 Comp Cas 394 NULL.
[iv] Definition
of Dominant Position and the Board’s Approach,
https://www.mondaq.com/advicecentre/content/1666/Definition-of-Dominant-Position-and-the-Boards-Approach
(last visited May 20, 2022).
[v] 2015 SCC OnLine CCI 139.
[vi] Bharti
Airtel Ltd. v. Reliance Industries Ltd. & Anr., CCI Case No. 03/2017.
[vii] 2016
SCC OnLine Comp AT 451.
[viii] Guest,
supra note 1.
[ix] 2016
SCC OnLine Comp AT 451.
[x] Predatory
Pricing Row: CCI Throws Out CAIT’s Plea Against Shopee, Inc42 Media (2022),
https://inc42.com/buzz/predatory-pricing-row-cci-throws-out-caits-plea-against-shopee/
(last visited May 20, 2022).
[xi] All India Online Vendors Association v Flipkart India Private Limited and Another, CCI, Case No. 20 of 2018.
About the Author: This post is prepared by Ritesh Roshan Samartha, Law student at KIIT School of Law, Bhubaneswar, Odisha. He can be reached at riteshroshan12@gmail.com
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