MEANING, DEFINITION & EXPLANATION
Abuse of dominant position refers to a situation where an enterprise or group of enterprises that holds a dominant position in the relevant market engages in conduct that exploits their position in an exclusionary or exploitative manner. This distorts competition and negatively impacts consumers and other market players.
Section 4 of the Competition Act, 2002 prohibits abuse of dominant position. It states that no enterprise or group shall abuse its dominant position. The term ‘dominant position’ has been defined as 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
- Affect its competitors, consumers, or the relevant market in its favor.
The Act does not prohibit the mere possession of dominance that could be achieved through superior economic performance, innovation, or accident. It only prohibits the abuse of such dominance.
HISTORICAL BACKGROUND / EVOLUTION
Under the erstwhile Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act), dominance itself was considered bad. ‘Monopolistic trade practice’ was defined as a trade practice which has the effect of:
- Maintaining prices at an unreasonable level,
- Unreasonably preventing or lessening competition,
- Limiting technical development or capital investment to the common detriment,
- Allowing the quality of any goods to deteriorate,
- Increasing unreasonably the prices or charges of any goods,
- Increasing unreasonably the profits derived by the production, supply, or distribution of any goods or the provision of any services, and
- Preventing or lessening competition in the production, supply, or distribution of goods or provision of services by adopting unfair methods or deceptive practices.
The MRTP Act empowered the Central Government to take action against dominant enterprises indulging in monopolistic trade practices. However, the Competition Act, 2002 shifted the focus from curbing monopolies to prohibiting abuse of dominance. This aligns with international jurisprudence where dominance per se is not considered bad as long as there is no abuse of such dominance.
COMPARISON WITH OTHER COUNTRIES
Most competition law regimes globally prohibit abuse of dominant position and have similar provisions:
- United States: Section 2 of the Sherman Act prohibits monopolization and attempts to monopolize.
- European Union: Article 102 of the Treaty on the Functioning of the EU (TFEU) prohibits abuse of a dominant position.
- United Kingdom: Chapter II of the Competition Act, 1998 prohibits abuse of dominant position in a manner similar to Article 102 TFEU.
- Australia: Section 46 of the Competition and Consumer Act, 2010 prohibits misuse of market power.
CAUSES / EFFECT RELATION WITH OTHER CONCEPTS
Abuse of dominance is closely connected to other concepts in competition law, like:
- Relevant market definition,
- Market power assessment,
- Exclusionary and exploitative conduct, and
- Effects-based analysis.
Establishing abuse requires:
- Defining the relevant market,
- Assessing if the enterprise is dominant in that market,
- Examining the alleged abusive conduct, and
- Analyzing its anti-competitive effects and objective justifications, if any.
Anti-competitive agreements under Section 3 (especially vertical restraints imposed by a dominant player) and merger control under Sections 5 and 6 also interact with abuse of dominance. The Act provides for a ‘competitive assessment’ of combinations to examine if they are likely to cause an appreciable adverse effect on competition (AAEC). A combination that creates or strengthens a dominant position and raises the likelihood of its abuse may be modified or prohibited by the CCI.
TYPES / KINDS OF ABUSIVE CONDUCT
Section 4(2) provides an exhaustive list of practices that shall constitute abuse of dominant position:
- Imposing unfair or discriminatory conditions or prices (including predatory prices) in the purchase or sale of goods or services. Discriminatory conditions or prices that are adopted to meet competition are not considered abusive.
- Restricting the production of goods or services or market or technical/scientific development relating to goods or services to the prejudice of consumers.
- Indulging in practices resulting in denial of market access in any manner.
- Making the conclusion of contracts subject to acceptance of supplementary obligations which, by their nature or commercial usage, have no connection with the subject of such contracts.
- Using dominance in one market to enter into or protect other relevant markets.
The CCI determines if the alleged conduct falls into these categories and examines its actual or potential appreciable adverse effects on competition (AAEC) in the relevant market. Other abusive practices not expressly mentioned may also be examined if they fit the general framework. The list is illustrative, not exhaustive.
FORMS / MODES OF ABUSE
Abusive conduct is broadly categorized into exclusionary and exploitative practices:
- Exclusionary practices aim to exclude competitors and consolidate market power. Examples include:
- Predatory pricing,
- Exclusive dealing,
- Loyalty rebates,
- Margin squeezes,
- Tying and bundling, and
- Refusal to deal.
- Exploitative abuses directly exploit customers and suppliers. Examples include:
- Unfair/excessive pricing,
- Imposing unfair trading conditions, and
- Price discrimination.
Some conduct may have both exclusionary and exploitative dimensions—e.g., price discrimination may exploit some customers while excluding rival suppliers of those customers.
ESSENTIALS / ELEMENTS FOR ESTABLISHING ABUSE
To establish a case of abuse of dominant position, the following elements are essential:
- The enterprise/group must hold a dominant position in the relevant market.
- The enterprise/group must engage in conduct that is abusive.
- The abusive conduct must cause or be likely to cause an appreciable adverse effect on competition (AAEC) in the relevant market.
The burden of proof is on the Competition Commission of India (CCI) or the informant to establish these elements. The dominant enterprise may rebut by showing that the conduct was reasonable/proportionate to meet competition or resulted in benefits that outweighed anti-competitive effects.
DEFENCES / EXCEPTIONS
Section 4 does not provide any express defences once abuse of dominance is established. However, some possible justifications that dominant enterprises rely on include:
- Meeting competition defence for unfair/discriminatory prices under the Explanation to Section 4(2)(a).
- Reasonable commercial justification for imposing allegedly unfair terms.
- Demonstrating benefits that outweigh anti-competitive effects, such as efficiencies, consumer welfare, or innovation.
- Objective necessity and proportionality of conduct.
The CCI considers these on a case-by-case basis. There are no blanket defences or safe harbors. The dominant enterprise bears the burden to establish that the conduct was reasonable and proportionate to the purported objective.
RELEVANT MARKET ANALYSIS
The first step in an abuse of dominance case is defining the relevant market in which the alleged abuse occurs. This sets the stage for assessing dominance and anti-competitive effects. Singularity of dominance cannot be assessed without a definition of the area of business where such strength is seen.
As per Section 2(r), the relevant market is defined as the market determined by the Commission with reference to the relevant product market or the relevant geographic market, or with reference to both.
Relevant Product Market
Section 2(t) defines the relevant product market as a market comprising all those products/services regarded as interchangeable/substitutable by the consumer, by reason of:
- Characteristics of the products/services,
- Their prices, and
- Intended use.
Section 19(7) provides additional factors to be considered:
- Physical characteristics or end-use,
- Price,
- Consumer preferences,
- Exclusion of in-house production,
- Existence of specialized producers, and
- Classification of industrial products.
In Mahindra & Mahindra Limited (‘M&M’) v. CCI and Ors [2019 SCC OnLine SC 946], the Supreme Court held that M&M was dominant in the market for the supply of Original Equipment Manufacturer (OEM) spare parts for Mahindra brand automobiles. There was limited interchangeability and substitutability between OEM parts and generic/spurious spare parts due to differences in quality, safety, reliability, and warranty conditions.
Relevant Geographic Market
Section 2(s) defines the relevant geographic market as a market comprising the area in which the conditions of competition for supply/demand of goods/services are distinctly homogenous and can be distinguished from conditions prevailing in neighboring areas.
Section 19(6) lists factors like:
- Regulatory trade barriers,
- Local specifications,
- National procurement policies,
- Transport costs,
- Language, and
- Consumer preferences, to define the relevant geographic market.
In MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd. [2011] 110 CLA 203 (CCI), the relevant geographic market for stock exchange services was held to be ‘India’. Despite some regional variations, the conditions of competition were found to be homogenous across India.
The relevant product and geographic markets are considered cumulatively to determine the relevant market in which dominance and anti-competitive effects are assessed. Market definition is a dynamic exercise that depends on market realities at the time of assessment.
MARKET POWER ASSESSMENT
The second major step is assessing whether the enterprise holds a position of dominance in the relevant market. As stated above, dominant position is a position of strength enabling the enterprise to operate independently of competitive forces or affect its competitors, consumers, or the relevant market in its favor.
Section 19(4) provides factors to assess dominance:
- Market share,
- Size and resources,
- Size and importance of competitors,
- Economic power, including commercial advantages over competitors,
- Vertical integration and sale/service network,
- Dependence of consumers,
- Monopsony or statutory/government-granted dominance,
- Entry barriers,
- Countervailing buying power,
- Market structure and size,
- Social costs/obligations and contribution to economic development, and
- Any other factor considered relevant by the CCI.
The CCI examines these factors holistically. Market shares are an important indicator but not the sole determinant of dominance.
In Re: Shri Shamsher Kataria v. Honda Siel Cars India Ltd. (‘Automobile Parts Case’) [2014] 116 CLA 237 (CCI), the Original Equipment Manufacturers (OEMs) were held to be dominant in their respective after-markets for spare parts despite having a relatively lower share in the broader automobile market.
The CCI has also relied on qualitative factors like:
- Presence of entry barriers,
- Vertical integration,
- Dependence of consumers,
- Countervailing power, and
- Statements made by the enterprise itself.
For instance, in DLF Limited [2011] 106 CLA 465 (CCI) and NSE [2011] 110 CLA 203 (CCI), dominance was determined based on overall market dynamics and not just market shares. A case-by-case assessment based on a practical, business-oriented framework is required.
PREDATORY PRICING
One of the most common exclusionary practices examined in abuse of dominance cases is predatory pricing. Explanation (b) to Section 4 defines ‘predatory price’ as the sale of goods or provision of services at a price below cost, as determined by regulations, with a view to reduce competition or eliminate competitors.
The CCI (Determination of Cost of Production) Regulations, 2009 specify that the cost benchmark is the Average Variable Cost (AVC) of production. This is the total variable costs (costs that vary with the quantity produced) divided by total production. The regulations also provide guidance on the treatment of:
- Multi-product firms: Costs are to be allocated and apportioned between the specific products/services under scrutiny.
- Joint products/by-products: Joint costs are to be apportioned based on relative sales value or other equitable methods.
- Transfer pricing: Intra-firm transfer prices are to be adjusted to reflect actual cost.
- Captive consumption: Notional value at prevailing market prices is to be assigned.
To establish predatory pricing, the CCI must show that:
- The prices are below AVC (or a similar appropriate cost benchmark),
- There is intent to reduce competition or eliminate competitors, and
- The predatory prices have an actual or likely appreciable adverse effect on competition (AAEC) in the relevant market.
Determination of predatory intent requires examining factors like the duration/extent of below-cost pricing, relative market power, likelihood of recoupment, and exclusionary effects on rivals.
INVESTIGATION AND PENALTIES
The Director General (DG) investigates abuse of dominance cases when directed by the CCI under Section 26(1). The DG collects evidence and records findings on dominance and anti-competitive effects in a detailed investigation report. The CCI may also invite objections/suggestions from the public under Section 26(7). The parties are given opportunities to make submissions and arguments before the CCI.
If abuse of dominant position is established after considering the DG report and party submissions, the CCI may pass orders under Section 27, including:
- Requiring discontinuation of abuse,
- Imposing penalties up to 10% of average turnover for the last 3 preceding financial years,
- Modifying agreements,
- Ordering payment of costs, and
- Passing any other order/direction as deemed fit.
The CCI may also divide the enterprise under Section 28 to ensure it does not abuse its dominant position. Failure to comply with CCI orders attracts criminal penalties under Section 42A.
Landmark CCI decisions on abuse of dominance include:
- NSE [2011 CCI]: Imposing unfair transaction fees in the currency derivatives segment.
- DLF [2011 CCI]: One-sided apartment buyer agreements and unfair terms.
- Coal India Limited [2013 CCI]: Unfair/discriminatory fuel supply agreements.
- M&M [2014 CCI]: Denial of market access and after-market restrictions on the sale of spare parts.
- Google Search Bias [2018 CCI]: Search bias and leveraging in the online search ads market.
The CCI has investigated both exclusionary and exploitative abuses across sectors like real estate, energy, automobiles, commodities, and technology.
CONCLUSION
Abuse of dominant position is a major pillar of competition law enforcement in India. It seeks to ensure that enterprises holding positions of economic strength do not use it in a manner that harms competition, competitors, and consumer welfare. While dominance itself is not prohibited, its abuse is.
The Competition Act provides a comprehensive framework to:
- Identify relevant markets,
- Assess dominance, and
- Examine alleged abuses.
The CCI and appellate authorities play a crucial role in developing consistent jurisprudence through reasoned case-by-case analysis.
With the rapidly evolving business environment and proliferation of technology markets, abuse of dominance will remain a key focus area. The CCI must continue to evolve its enforcement tools and strike a balance between policy considerations. Enterprises operating in India must build robust competition compliance frameworks to mitigate risks.
