MODULE 3 COMPETITION LAW

• Dominance in the Market - Relevant Market - Appreciable Adverse Effect on Competition in the Market -
• Abusive Conducts under the Competition Act, 2002 – Penalties, Prevention of Abuse of Dominance, Inquiry
process in Abuse of Dominant Cases;
• Essential Facilities Doctrine

DOMINANCE IN THE MARKET

The term “Dominant Position” has been defined under Section 4 of the Act. A firm or an enterprise is said to enjoy a
dominant position in the market if it has a position of strength in the relevant market, which means it can do the
following:

• It can operate in the market independently without being affected by the competitive forces in the relevant
market.

• It can substantially affect other competitors, consumers, and the relevant market in its favour.

Section 4 of the Act, which talks about “abuse of dominant position,” came into force on May 15, 2009 though the
Act came into force in 2002 only.
dominant position” means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which
enables it to— (i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect its
competitors or consumers or the relevant market in its favour.

CCI will promote competition only in relevant market, either product or geographic market.

FACTORS DECIDING DOMINANT POSITION

The Commission shall, while inquiring whether an enterprise enjoys a dominant position or not under section 4, have
due regard to all or any of the following factors, namely:—

(a) market share of the enterprise;

(b) size and resources of the enterprise;

(c) size and importance of the competitors;

(d) economic power of the enterprise including commercial advantages over competitors;

(e) vertical integration of the enterprises or sale or service network of such enterprises;

(f) dependence of consumers on the enterprise;

(g) monopoly or dominant position whether acquired as a result of any statute or by virtue of being a Government
company or a public sector undertaking or otherwise;

(h) entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing
entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers;

(i) countervailing buying power;

(j) market structure and size of market;

(k) social obligations and social costs;

(I) relative advantage,by way of the contribution to the economic development, by the enterprise enjoying a
dominant position having or likely to have an appreciable adverse effect on competition;

(m) any other factor which the Commission may consider relevant for the inquiry.

Determination of abuse of dominant position

A firm that, according to the Competition Commission of India, enjoys a dominant position is said to abuse the same
in the following circumstances:

• Unfair conditions- When the enterprise imposes unfair or discriminatory conditions during the purchase or
sale of goods and services in the market, it is said to abuse its dominant position.

• Predatory pricing- When a powerful firm with large resources prices their goods and services at such low
rock-bottom levels that other competitors cannot compete, such a practice is known as predatory pricing.
Such pricing is aggressive and harmful to competition.

• Limiting production and development- If the dominant firm in the market limits or restricts the production
of goods and services in the market to benefit itself and creates shortages or restricts any technical or
scientific development in goods and services that causes prejudice to the consumers, it is said to abuse its
dominant position in the market.

• Denial of market access- If a dominant firm in the market does not allow other competitors to enter the
market and denies them access, it is abusing its dominant position.

• Imposition of contract- When the dominant firm makes contracts with other parties and such contracts
consist of supplementary obligations, these supplementary obligations have no relation to the main contract
but are simply advantageous for the dominant firm.

• Protection of relevant market- When a dominant firm in a market uses its position in one market to enter
another market and, in the meantime, prevents other players from entering the same market, it is said to
abuse its dominant position.

Relevant market

Each enterprise will be assessed by the Commission for abuse of its power only within the relevant market. The
definition of relevant markets has been discussed in the above passages. The Commission, while investigating the
abuse of dominant position, will first analyse and demarcate the relevant market. The relevant market is with
reference to-

a. Relevant Product Market, and

b. Relevant Geographic Market.

Relevant geographic market [S.19 (6)]

The relevant geographic market for the purpose of determining the abuse of dominant position by a firm will
comprise the area in which the conditions of competition for the supply and demands of the goods and services are
distinctly homogeneous and they can be distinguished from the neighbouring market. The Competition Commission
of India, in order to determine the relevant geographic market, looks into the following factors, amongst others:

• The present regulatory trade barriers;

• Any local specification requirements of the market;

• The national procurement policies present;

• All the distribution facilities present in the market;

• The cost of transportation;

• The language;

• The preferences of the consumers in the market;

• The need for regular supply in the market and the after-sales services.

Please note : This is a non-exhaustive list of factors.

Relevant product market [Section 19 (7)]

The relevant product market for the purpose of determining the abuse of dominant position by a firm will comprise
all those products and services that are regarded as interchangeable and substitutable by the consumers in the
market. The products are substitutes for each other due to their characteristics, price, or uses.

For example- In order to determine if an umbrella producer is abusing its dominant position or not, the Commission
will look into the umbrella product market only and not the chocolate product market.

The Commission looks into the following factors to determine the relevant product market to establish the abuse of
dominant position by a firm, they are:

• The physical characteristics of the goods and their ultimate end use;

• The price of the goods and services;

• The preferences of the consumers in the market;

• The exclusion of in-house production;

• The presence of any specialised producers of the product in the market;

• The classification of industrial products.

Please note : This is a non-exhaustive list of factors.

Tools to determine relevant market

The Competition Commissions around the world, in order to determine the relevant market, also use various
economic tools. We shall discuss the few important and noteworthy tools used:

SSNIP Test

One of the most effective tools used by the Competition Commission is the SSNIP test. SSNIP stands for Small but
Significant Non-Transitory Increase in Price. In this test, the invigilator monitors the market to see if the monopolist
or dominant player increases the price of the product by a small and significant amount over a non-transitory
continuous period of time. The invigilator then monitors the number of buyers who will switch to other products and
at some point, the increase in price will be unprofitable for the dominant player. All the substitutes for the product
are included in the new product market and this same process is repeated until there are no close substitutes. This is
how the relevant market can be determined. This substitutability has to be looked into from both the demand and
supply sideof the market.

SSNDQ Test

Another tool for determining the relevant market in Competition Law is the use of the SSNDQ test. SSNDQ stands for
Small but Significant Non-Transotory Decrease in Quality. In this test, the invigilator monitors the market when the
dominant player slowly decreases the quality of the product over a small and significant non-transitory continuous
period of time. The invigilator then monitors how the buyers switch to other products as the quality slowly
decreases. The products that the buyers see as substitutes are included in the new relevant market. This test can be
continued until there are no more substitutes.

Belaire Owners Association v. DLF Ltd. (2010)

The DLF builders had launched a new housing complex called the Belaire, which was set to be completed within 36
months. However, the initial sanctioned plan was changed and the number of flats increased significantly. As a result,
there was less space, the additional facilities were removed and the completion time was increased by 2 years,
although the payments were made on time.

The Belaire Owners Association filed a complaint before the CCI for abuse of dominant position through the
imposition of a contract on the owners. The Apartment Buyer’s Agreement was unfair, unreasonable, and arbitrary.
The CCI established a prima facie case against DLF for abuse of dominant position. The relevant product market was
high end residential buildings and the relevant geographical market was Gurgaon.
The CCI held that DLF had almost a 45% share of the real estate market and there was minimal competition due to
the very low entry of new players; thus, it was in a dominant position. DLF abused its dominant position by
unilaterally altering the provisions of the Apartment Buyer’s Agreement. DLF had the power to change its
geographical market from residential buildings to commercial; hence, it was established that it had made unfair and
discriminatory conditions in the sale of services. A penalty was imposed by the CCI against DLF.

Penalties/ Punishment
In cases where an undertaking is found to have abused its dominant position in the market, the Competition
Commission possesses the authority to impose various punitive measures. These actions aim to rectify the anti-
competitive behaviour and restore fair competition. Here are some of the measures that the Competition
Commission can take:

1. Cease and desist orders: The Competition Commission can issue cease and desist orders, directing the
undertaking to immediately cease engaging in the abusive conduct. This measure aims to halt any ongoing
anti-competitive practices and prevent further harm to competition.

2. Divestiture: In cases where the abuse of dominant position involves the acquisition of assets or merger of
entities, the Competition Commission can order the undertaking to divest certain assets or unwind the
merger. This action is intended to restore the pre-existing competitive landscape and create a more level
playing field for market participants.

3. Structural remedies: The Competition Commission may also impose structural remedies, such as the
separation of divisions or the creation of independent entities. These remedies aim to alter the structure of
the undertaking to reduce its dominance and promote competition.

4. Behavioural remedies: Behavioural remedies involve imposing specific conduct requirements on the
undertaking. These requirements can include restrictions on pricing, output, or market behaviour. The
objective is to modify the undertaking’s conduct to ensure that it aligns with competitive principles.

5. Fines and Penalties: The Competition Commission has the authority to impose substantial fines and
penalties on undertakings found guilty of abusing their dominant position. These financial sanctions serve as
a deterrent against anti-competitive behaviour and compensate for the harm caused to consumers and
competitors.

The penalties for abuse of a dominant position can include:

1. A fine of up to 10% of the average turnover of the entity for the preceding three financial years

2. A direction to cease and desist from the anti-competitive conduct

3. Divestiture of assets or businesses

4. Break-up of the entity

In addition to the above penalties, the CCI can also recommend to the government to take appropriate action, such
as amending the relevant laws or regulations, to prevent further abuse of the dominant position.

6. Compliance monitoring: The Competition Commission may appoint independent monitors to oversee the
undertaking’s compliance with the imposed remedies. The monitors regularly assess the undertaking’s
conduct to ensure adherence to the prescribed requirements.

The Competition Commission’s actions in punishing undertakings that abuse their dominant position are crucial for
maintaining a competitive market environment. By taking these measures, the Commission aims to protect
consumers, promote innovation, and safeguard the overall health of the economy.

Prevention of Abuse of Dominance

Inquiry process in Abuse of Dominant Cases

In exercise of powers vested under Section 19 of the Act, the commission may ask into any supposed negation of
Section 4(1) of the Act that states about the abuse of dominant position. Section 19(4) gives a detailed list of
elements that the Commission will consider while asking into any claim of abuse of dominance. A portion of these
components is the market share of the endeavor, size, and assets of the venture, size, and significance of the
contenders, reliance of buyers, passage obstructions, and social commitments and expenses in the pertinent
geographic and item showcase.

The Commission, on being fulfilled that there exists an at first sight instance of abuse of dominant position, will guide
the Director-General to cause an examination and outfit a report. The Commission has the forces vested in a Civil
Court under the Code of Civil Procedure in regard to issues like summoning or authorizing the participation of any
individual and examining him on the pledge, requiring revelation and creation of records and accepting proof on an
affidavit. The Director-General, to complete an examination, is vested with forces of the civil court other than forces
to lead 'search and seizure'.

Powers of the Commission

After request, the Commission may pass inter-alia any or the entirety of the following orders under Section 27 of the
Act:

1) direct the parties to suspend and not to reappear into such an understanding;

2) direct the endeavor or enterprise concerned to alter or change the agreement

3) direct the enterprise concerned to submit to such different requests as the Commission may pass and conform to
the bearings, Including payment of expenses, assuming any; and

4) pass such different orders or issues such directions as it might esteem fit.

5) can force such punishment as it might consider fit. The punishment can be up to 10% of the normal turnover for
the last three preceding financial years of endless supply of such people or ventures which are parties to bid-rigging
or collusive bidding.

6) Section 28 enables the Commission to coordinate the division of a venture or enterprise appreciating the
prevailing situation to guarantee that such an undertaking doesn't showcase an abuse of dominant position.

Thus the available remedies are, when the abuse of dominant position has been built up, the competition specialists
can take certain measures for the same:

1. A restraining order.

2. The penalty which might be 10% of yearly turnover.

3. Direct the enterprise to make a move which the authority regards fit.

4. Give any other request which it might think fit.

5. Divide the prevailing endeavor.

6. In the instance of allure to the Competition Appellate Tribunal, the Tribunal may arrange for payment to the party
bearing misfortune

Interim Order

Under Section 33 of the Act, during the pendency of an Investigation into abuse of dominant position, the
Commission may incidentally control any party from duration with the alleged offending act until the completion of
the order or until further order, without giving out to such gathering, where it esteems fundamental or necessary.

Appeals

The Competition Appellate Tribunal (COMPAT) is set up under Section 53A of the Act, to hear and discard claims
against any course given or a choice made or order passed by the Commission underdetermined or specific sections
of the Act. An appeal must be documented inside 60 days of receipt of the order/direction/choice of the
Commission.

Essential facilities’ doctrine

The concept of the ‘essential facilities’ doctrine (“the doctrine”) differs greatly across jurisdictions. Simply put, the
doctrine means that a player in the market who is a monopolist or is in a dominant position is obligated to share its
resources with other players in order to facilitate healthy competition. In other words, the doctrine implies that if not
shared with its competitors, any facility created by a player will act as a barrier for the entry of other players into the
relevant market. This doctrine is critical because the denial of minimal facilities or ‘essential facilities’ would lead to
unjust refusal of access of new entrants to the market, which would hinder healthy competition in turn.

Legal Framework in India

The Competition Act, 2002 provides the basis for addressing anti-competitive practices, including those relevant to
the essential facilities doctrine:

1. Section 4(2)(c): Abuse of Dominance

Prohibits a dominant enterprise from denying market access to competitors, which can include refusing
access to essential facilities.

2. Section 19(4): Dominance Assessment

Factors to assess dominance include market share, economic power, and control over critical infrastructure.

Key Applications in India

While the essential facilities doctrine has not been explicitly labeled in Indian jurisprudence, elements of it have
surfaced in several cases:

1. Reliance Jio v. Cellular Operators Association of India (COAI)

The Competition Commission of India (CCI) investigated whether incumbents denied interconnection
facilities to Reliance Jio, impacting competition. Though the case was resolved, it highlighted issues around
access to infrastructure.

2. Shamsher Kataria v. Honda Siel Cars India Ltd. (2014)

In this case, car manufacturers were accused of restricting access to spare parts and diagnostic tools. The CCI
held that such practices restricted competition in the aftermarket and amounted to abuse of dominance,
drawing parallels to the essential facilities doctrine.

3. Indian Railways Cases

Indian Railways’ control over railway infrastructure and refusal to provide equitable access to private
operators has occasionally been questioned under the doctrine, though no landmark judgment has firmly
applied the principle.

Challenges in India

1. Lack of Explicit Recognition:

The doctrine is not explicitly mentioned in Indian competition law, leading to ambiguity in its application.

2. Infrastructure Sectors:
Key sectors like railways, ports, and telecommunications often involve state-controlled monopolies, making
enforcement politically and administratively complex.

3. Balancing Regulation and Innovation:

Compelling access to essential facilities must ensure it does not disincentivize investment and innovation by
dominant firms.