1. Challenges before the competition panel

Challenges before the competition panel

The deterrence value of anti-trust decisions is significantly weakened if they are routinely overturned in appellate courts.

By: | Published: February 5, 2016 12:12 AM

Ashok Chawla recently retired as chairman of the Competition Commission of India (CCI) and Devender Kumar Sikri has been appointed to lead the institution. It is an opportune moment to look back at Chawla’s legacy and see what has been achieved. Also, what challenges lie ahead for the agency in charge of competition in one of the world’s fastest-growing economies and with shared responsibility for delivering the government’s Digital India initiative.

Under Chawla’s chairmanship, CCI managed a significant case-load with limited resources and was successful in increasing awareness of competition issues among industry, both through outreach programmes and guidance papers, and through some of its enforcement activities. It successfully managed to allay concerns about the potential delay caused by merger control reviews, something not all new enforcers have been able to achieve. Through the publication of reasoned merger control and antitrust decisions, it increased transparency and introduced some predictability in enforcement and combination reviews. Today, CCI engages in relatively more interaction/coordination with other agencies and more discussion on the similarities and differences in ongoing cases.

Although much has been achieved, Chawla acknowledged in his outgoing interview that CCI was a “house half-built”. There are still significant challenges ahead for chairman Sikri. The principal of those challenges will be to guide CCI into the next phase of its development. This involves increasing the depth, sophistication and procedural robustness of CCI decisions (including through capacity-building). This becomes essential in light of recent judgments from CCI’s appellate body (for example, one which overturned CCI’s R6,316 crore penalty in the matter involving cement manufacturers and delivered a stinging judgment on the substance of CCI’s analysis in the Hiranandani matter). Such improvements would not only grant CCI decisions a better prospect of surviving a review by COMPAT, but very importantly they would also give them greater precedence- and deterrence-weight, resulting in better societal outcomes and more compliance.

In concrete terms, CCI needs to continue along the path of recent cases in which it demonstrated a detailed analysis of complaints, had clearly and narrowly defined theories of harm, and looked critically at all factors surrounding the case (including the nature and motivation of the complainant).

In the Intel case, CCI considered very carefully whether Intel had abused its dominance by restricting distributors from dealing with competitors, setting unrealistic targets and discriminating on price. CCI focused on whether there had been actual foreclosure in the market, which is essentially a question of whether Intel’s conduct produced anti-competitive effects that harmed consumers. CCI rejected the complaint because it did not find any harm.

In the digital cinema case, CCI rejected claims by a digital cinema provider that a consortium of Hollywood studios had abused their dominance by forcing it to comply with certain technology standards. CCI found that these standards had actually improved the quality and security of movie exhibition. This benefited rather than harmed consumers. Thus, no enforcement action was judged necessary.

In the Uber case, CCI rejected that Uber had a dominant position, in particular by discarding a dubious market report submitted by a slower-moving competitor. In doing so, it affirmed that disruptive innovation and resultant competition and innovation are good for consumers.

In the Air India case, CCI recognised that abuses of dominance are rare where consumers have choice and exercise that choice, even where the exercise of choice results in the favouring of an incumbent supplier.

These precedents exhibit a practice of clearly identifying and evaluating the potential harmful effects of each case. They show CCI is taking careful and strategic decisions on which cases to pursue, with the objectives of consumers, as opposed to competitors, in mind. And they demonstrate that CCI is not necessarily attracted to cases by the name or public profile of the investigated party. These factors are important to CCI’s continued success and should be borne in mind for the future handling of high-profile cases, such as those involving Google which concern high technology markets where vigorous competition and disruptive effects through the process of continuous innovation is commonplace.

Improving due process and procedure should also be high among chairman Sikri’s priorities, especially in light of the recent guidelines provided by COMPAT to CCI in the cement, BCCI and Hiranandani cases. There is sometimes a difficult balance to be drawn between deterrence achieved through swift decisions and procedural fairness. In combinations, the balance likely leans towards speed, whereas in investigations the balance leans towards procedural fairness. That is because the deterrence value of anti-trust decisions is significantly weakened if they are routinely overturned in appellate courts. It may have been CCI’s intention to avoid turning its process into a legalistic, or quasi-judicial one. Unfortunately for CCI, given its draconian powers, the process is necessarily quasi-judicial, even quasi-criminal. So CCI will now have to focus on ensuring that its procedure meets that standard, even if that means cases take longer.

Finally, chairman Sikri should maintain the goals of sponsoring innovation and investment, in line with the government’s objectives and the interest of consumers. His aim should be to ensure that CCI’s interventions are targeted, proportionate, and based on a solid understanding of the facts and products at issue. Ultimately, CCI will have a role in fostering market developments, such as in services or information technology, and must not stifle success and disruptive innovation.

Under Chawla’s leadership, CCI has made significant progress. I have no doubt that chairman Sikri is well placed to take on newer challenges.

The author is former advisor, Raghavan Committee on Indian Competition Law, and the World Bank Group

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