What is very important is the quality of the regulator, the whole principle; architecture ultimately depends on the calibre, quality and the professional capability of those who are going to actually carry on the process of regulation. Thus spoke Ashok Chawla, chairman, Competition Commission of India (CCI) while launching the CUTS/CIRC third biennial report on the State of Competition & Regulation, 2011 in Delhi on December 27. The report inter alia bares the quality of regulation and the independence of regulators, including the competition agency, in India. Perhaps, Mr Chawla was expressing his angst on how they are doing.
The CCI, the acronym for the Competition Commission of India, and not the Cable Corporation of India or several other CCIs, is still the first hit you would find If you were to run a web search for CCI to look for this news item. The CCI came into full splendour in 2009, and has made its presence felt ever since. With over 200 orders, it has been anything but a silent spectator to the competition distortive practices across the various sectors of the Indian economy. At a nascent stage still, its orders evince a level of understanding and reasoning of relevant issues that could do with a little more maturing. This is however not true for every case and it gives me great pleasure to speak about some of the orders that have indeed exhibited high standards of analysis.
Competition law is an economic law and thus the rule of reason is the standard applied to cases being tried under the law. Unlike other civil laws, it does not operate on a cut-and-dried rule of law approach, because of the intricacies of cases that come up. It is therefore a distinct science on the interstice of law and economics.
In a my article Making the case for NSE on July 14, 2011 (http://goo.gl/ UG9IZ), I wrote about the order of the CCI on the predatory pricing charge against MCX. While the majority order had some grave errors, the dissenting order was an excellent piece of economic analysis using the latest well-received economic theories that were brought to bear on the case at hand in a highly commendable way. In a more recent piece titled CCI needs to pull up its socks (http://goo.gl/OBJS6), I made a case for building capacity of the CCI such that its main orders reflect a similar grasp of economic reasoning on competition issues.
In the NSE dissent order, members of the Commission went into deep analysis of leveraging of market power and what constitutes predatory pricing (the test including recoupment of lost profits) and attempted to dispel with good reasoning the commonly held belief that zero pricing necessarily constitutes predatory pricing, dwelling deeper into the complexities of two-sided markets or network industries. In doing so, it took several examples from the more evolved jurisdictions such as the US and the EU. Other than the NSE order, however, there have been many others where we can witness surprisingly a better understanding and analysis that is almost comparable to jurisdictions that have been around for decades now. In the dissenting order in Kapoor Glass Private Ltd, CCI undertook an in depth analysis of: (i) the relevant market definition, (ii) dominance (iii) abuse of dominance. The relevant product market was carefully defined as distinct for upstream and downstream channels of operation.
For the assessment of dominance, instead of solely relying on market shares which would have been an approach devoid of much economic analysis, many other relevant factors were additionally taken into consideration. These were: the size and resources of the allegedly dominant enterprise and that of its competitors, vertical integration, impact on consumers, countervailing buyer power, entry barriers in the market which included a detailed analysis of the different types of barriers: regulatory, technical, structural, etc. Its assessment of abuse was even more thorough, looking at complex anti-competitive behaviour in detail such as predatory conduct, price discrimination by way of target discounts, resulting foreclosure or exclusionary effect, leveraging of dominance in one market (upstream) to protect another (downstream), bundling, refusal to deal, etc.
Similarly, in GKB Hi Tech Lenses Pvt Ltd, the Commission undertook a detailed analysis of the market definition looking at product characteristics, demand side substitutability and the ability to exercise competitive restraints on one another. It then undertook a thorough analysis to ascertain dominance and its abuse before concluding that the alleged firm was not operating in contravention with Section 4 of the Competition Act of India. Another such example can be found in the case of Prints India where similar intensive analysis was undertaken to ascertain relevant market and dominance and the complexities involved in the publishing industry which exhibits characteristics of a two sided market much like the network industry. Looking at several practices including margin squeeze, etc, the Commission found that the alleged firm was not dominant in the relevant market.
The definition of relevant market especially in the real estate sector is not free from controversy. A case in point is the DLF matter where the allegation pertained to abuse of dominant position by way of imposing highly arbitrary, unfair and discriminatory conditions on the customers in the housing project. In a very recent minority order by Dr Geeta Gouri, in the DGCOM Buyers and Owners vs DLF, the nuances of the real estate sector were thoughtfully brought to light appreciating the difficulties in defining the relevant market in these cases and thereby requesting the Director General, CCI, to undertake investigation under Section 26(1) of the Act instead of dismissing the case as had been done by the majority.
A lot can be said about the CCIs abilities to come out with some excellent reasoning in its judgments. With time, we hope that this is a pervasive feature of all of its orders. Needless to say, achieving this would require more professional staff, some training and capacity building measures as well as revisiting our competition regime with necessary amendments (guidelines for calculation of penalties to be imposed in cartel cases, for example) to better equip the Commission in carrying out its enforcement functions. For more on guidelines, please see my next article.
The author is secretary general, CUTS International. Natasha Nayak of CUTS contributed to this article