Prevention of Abuse of Dominant Position in the Market

The article provides an insight into the basic concept of the Competition Law, i.e. Abuse of Dominant Position by any of the players in the market. It also covers the powers provided to the Competition Commission of India to prevent any such abuse and maintain healthy competition in the market to protect the interests of consumers and other players in the market which do not hold the dominant position.

Introduction

When a seller tries to attain the funds of the buyer so the seller can achieve that market share or profits is known as competition. Various theories of economics have suggested that quantities and prices help maintain the equilibrium in the market in order to produce efficient results. Also, competition helps not only to maintain transparency and accountability but also to reduce lobbying and corruption in the market.

It is important to promote competition as it provides an increase in the supply of products with high quality at a lower rate. Instead of putting a full stop to competition, Competition policies and laws help encourage competition by classifying anti-competitive practices as offences and providing punishments for the same.

The Indian Parliament came out with the Competition Act in 2002 to regulate competition in the market by repealing the Monopolies and Restrictive Trade Practices Act of 1969.

The Competition Act of 2002 has been amended twice, once in 2007 by virtue of The Competition (Amendment) Act, 2007 and then in 2009 by virtue of The Competition (Amendment) Act, 2009. There are two principal features of the Competition Act of 2002, namely, the establishment of the Competition Commission of India not only to promote competition which is positive and healthy in nature but also to prohibit all the anti-competitive practices prevailing in the Indian market.

The Act is drafted in such a way that it lays down certain tools and legal frameworks in order to make sure that the competition policies are being followed and to do away with the anti-competitive practices and if any of such policies is followed, the Act provides punishment for the same. The Act, inter alia, works upon protecting the free, fair and healthy competition in the market, freedom of trade and interests of the public at large.

The Act was brought with the following objectives:

1. Providing a framework so that the Competition Commission can be established
2. Preventing monopolies and promoting competition in the market
3. Protecting freedom of trade for all the entities and individuals that participate in the market
4. Protecting the interests of the consumer

The Act works in a direction to put a full stop to some Anti-competitive practices such as Mergers and Acquisitions, Abuse of dominant positions and anti-competitive agreements. Let's look at the second component, i.e. abuse of the dominant position and its prevention.

I. Abuse of Dominant Position

Whenever an industry reaches such a height that it ousts all the competitors in the market and becomes the only ruling party, thereby acquiring complete control over not only the market but also the consumers, it is considered that such an industry has acquired the dominant position in the market.

It is deemed that an enterprise or a person holds a dominant position in the market when any such entity is in possession of a position of strength, and with the help of such a position, that entity can operate independently from any of the competitive forces that are capable of producing an effect on consumers or competitors or any other force that is available in the market.[1] A very wide ambit has been provided to the dominant position in the competition law regime of other jurisdictions across the world.

The dominant position in the market is used by the industry to:

1. Operate in an independent manner irrespective of all the forces that prevail in the market
2. Affecting its market or consumers or competitors in its favour, it is considered that the industry has abused its dominance.

CCI had penned down certain points to determine whether there is an abuse of dominance by any industry or enterprise, such as :

1. If it causes limitations on scientific development or any kind of production
2. If it denies any kind of market access to anyone
3. If it imposes any kind of discriminatory or unfair condition or price in sale or purchase
4. If it takes into use its position in one relevant market to protect or enter into a relevant market
5. If it comes into agreement subjected to supplementary obligations

The market where the determination of adverse effects on the competition is to be done is known as the relevant market. Sec 2 (r) of the Act provides a framework that helps determine the relevant market. The broad term ‘relevant market’ can be broken down into two small terms with a limited scope: ' relevant product market’ and ‘relevant geographic market’.

A relevant product market takes a market into its ambit where the services and products are of such a nature that they can be substituted or interchanged by other services and products that are readily available in the market.[2] However, relevant geographic market refers to that market in an area where there exists a homogeneous condition for varied aspects of commerce and trade.

These conditions differ from those carried out in the market of the neighbouring areas.[3] the commission must refer to either the ‘relevant product market’ or ‘relevant geographic market’ or both.

The Glossary provided by the European Commission describes that when a firm can perform its functions independently of its customers, suppliers, consumers, and competitors, it is considered to be in a dominant position. However, the Competition Act, 2002 provides an explanation of the dominant position and states that it is directly proportional to the relevant market, as mentioned above.

Henceforth, to figure out the presence of any dominant position in the market, the very first task is to figure out whether the enterprise in question has occupied a dominant position about a particular kind of product market as well as the demarcation of the market geographically for the purpose of that particular product.

Presumption of Appreciable adverse effect

It is presumed that an enterprise with the dominant position in the market uses all the tools to create an appreciable adverse impact on the competition prevailing in the market. The whole concept of appreciable adverse effect[4] has been put under the head of subjective since it differs from person to person.

Horizontal agreements are covered under Section 3 (3) of the Competition Act, 2002. There arises a presumption in the case of such agreements that there exists an appreciable adverse effect on the prevailing competition in the market. However, any such effect is not considered in the case of vertical agreements[5]; pursuant to this, the anti-competitive agreements are under strict rules and regulations.

The Indian Evidence Act provides that any fact that is produced before the court has to be presumed as a fact by it until and unless the contrary gets proved.[6] Hence, it becomes clear that the presumption regarding the appreciable adverse effect on the competition with respect to the Horizontal Agreements as provided under Section 3 (3) is subject to be rebutted, but the person who is in power to undertake such trade practice has to come forward and prove otherwise.

II. Powers of Commission

The Commission is empowered to control the abuse of dominant position by any of the players in the market and pass orders by virtue of Section 27 of the Competition Act, 2002.

It may give directions to the parties to discontinue the existing agreement or not to re-enter into any such agreement ever or may give directions to do modifications in the agreements or may give directions to the concerned enterprises to follow all the orders that are passed by the Commission or abide all the directions passed by it, along with the payment of costs. Further, the Commission is also empowered to pass any other order as required by the situation.

III. Inquiry

The Competition Commission of India is empowered to proceed with inquiry[7] in all those matters that are contrary to the provision prescribing for abuse of dominant position by any if the players of the market. When a prima facie case of such abuse can be made as per the satisfaction of the Commission, it is empowered to give directions to the Director General to investigate the matter and submit the report.

The Commission is granted powers that are equivalent to that of the civil court prescribed under the Civil Procedure Code. Some of the powers can be enlisted as receiving evidence on affidavit, production and requirement of documents on oath, enforcing or summoning attendance of any person on oath and so on.

IV. Penalty

The Commission is also empowered to levy penalties on the offenders. The amount of penalty can range up to 10 per cent of the average turnover of the company during the last three financial years upon all those enterprises or the individuals that are parties to such offences of bid rigging.

There can be other situations where the enterprises have entered into such offences with the help of cartels, the Commission is empowered to provide them with a penalty of around three times of the profit for all those years during which the agreement was continued or ten per cent of the turnover for all those years during which the agreement was continued, whichever is higher between them to all those who are parties to the agreement may be service producers, traders, distributors, sellers or producers.

This indicates that the penalty imposed by the Commission can be severe and can lead to high financial losses to the offenders.

However, if a company makes a full, true and vital disclosure pursuant to which such cartels can be busted out, the Commission is empowered to show some mercy to such enterprises and reduce the amount of their penalty.[8] If it is found that the party made partial disclosure or furnished false evidence or if the disclosure is not vital in nature, the Commission may opt to not show any of such leniency.

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[1] Section 4 Explanation (a) of the Competition Act, 2002

[2] Section 2 (t) of the Competition Act, 2002

[3] Section 2 (s) of the Competition Act, 2002

[4] Section 3 (1) of the Competition Act, 2002

[5] Section 3 (4) of the Competition Act, 2002

[6] Section 4 of the Indian Evidence Act

[7] Section 19 of the Competition Act, 2002

[8] Section 46 of the Competition Act, 2002

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1. Competition Commission of India: Overview
2. Competition Law; Notes, Case Laws and Study Material