Market studies by CCI: Towards healthy competition

Published: June 23, 2020 4:45 AM

Market studies have a wider scope than enforcement and allow competition authorities to understand the industry practices that may give rise to anticompetitive concerns, not necessarily captured by other competition law rules alone

Market studies are now widely regarded as an integral part of the competition authorities’ toolkit.Market studies are research projects that help examine the causes as to why particular markets may not be working well, the regulatory architecture governing a sector, and its implications for competition

By Payal Malik

In May 2019, the Competition Commission of India (CCI) launched a market study of the electronic commerce sector, the findings of which were released in January 2020. It has been a year since that study was launched and it evoked a lot of reaction in the press. In the absence of a credible industry report on the practices in this sector, the study proved to be a valuable tool for the CCI’s advocacy efforts and helped in identifying concerns and articulating self-regulatory measures to be adopted by industry.

This year, a market study on the telecommunications sector has been initiated by the CCI. Given the criticality of telecom services and their overarching interface across the economy, it becomes imperative for a market regulator to keep a close watch on the developments in the sector. The new market construct has thrown up many questions, such as whether concentration has negated the objectives of competition or the current level of competition is sufficient? There are also questions on whether the market power in telecom can be used or misused in monopolising any niche market critically dependent on telecom services? It has been designed to answer, inter alia, broad issues such as change in competition strategies with the adoption of new technology, analysis of the market/s and assessment of level of concentration and competition, vertical integration between access and content services, impact on competition of regulatory and policy developments.

Market studies are now widely regarded as an integral part of the competition authorities’ toolkit. Market studies are research projects that help examine the causes as to why particular markets may not be working well, the regulatory architecture governing a sector, and its implications for competition. They help uncover the harms to competition that are caused not only by firm behaviour, but also by structural infirmities such as existence of information asymmetries, high barriers to entry, government intervention, etc. In that sense, market studies have a wider scope than enforcement and allow competition authorities to understand the industry practices that may give rise to anticompetitive concerns, not necessarily captured by other competition law rules alone.

Competition authorities may take a cue from the market study and that may trigger enforcement action, when anticompetitive behaviour is suspected. The authorities may take the advocacy route if it is perceived that the markets are not functioning well for consumers as well as producers, leading to recommendations for governments, sector regulators, businesses, and business associations.

The legal framework laid down in a jurisdiction’s competition mandate would determine the success of market study as a tool. Some jurisdictions have formal powers to conduct studies, and others have formal powers to gather information that can be used to conduct studies. However, some authorities still manage to conduct studies even in the absence of formal powers. In India, the power to conduct a market study is derived from Section 18 of the Competition Act, 2002, which casts a duty on the CCI to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers, and ensure freedom of trade carried on by other participants, in markets in India. Moreover, the CCI is also required to give opinion on competition issues on reference(s) received from any statutory authority under Section 21 of the Act and to undertake competition advocacy for creating public awareness under Section 49 of the Act.

The central government or a state government, in formulating policy on competition including laws related to competition, may make a reference to the CCI for its opinion on the possible effects of competition. However, the opinion provided by the CCI may not be binding on the government, but this mandate bestows an advisory role on the CCI that requires a deep understanding of markets. This role is extremely important as the micro foundations of well-functioning markets have an inextricable link with the macro aspects of the economy.

In CCI v SAIL, the Supreme Court abundantly clarified: “…Under the scheme of the Act, this Commission is vested with inquisitorial, investigative, regulatory, adjudicatory and to a limited extent even advisory jurisdiction…” In Mahindra Electric v CCI, it was further emphasised, “it is held that CCI does not perform only or purely adjudicatory functions so as to be characterised as a tribunal solely discharging judicial powers of the state; it is rather a body that is in parts administrative, expert (having regard to its advisory and advocacy roles) and quasi-judicial…” In the same order, it is observed that the CCI’s task as the primary regulator of marketplace and watchdog with regard to anticompetitive practices was conceived by Parliament to be a composite regulator and expert body.

While competition authorities have the power to compel stakeholders to provide requisite information for market studies, the CCI has collected information on voluntary basis to reinforce the separation of market study from enforcement actions, and to build cooperation and trust amongst stakeholders.

Increasingly, the world over, there has been a technocratic shift in antitrust authorities’ approach such that enforcement is free of political ideology and is based on well-grounded research of markets. Prof Daniel Crane, in his paper on ‘Technocracy and Antitrust’, observes: “In order to make antitrust an expertized, administrative enterprise focused on managing market structures and industrial practices as opposed to a populist, generalist-driven one focused on locating and punishing forbidden bad acts, antitrust enforcement is moving in the direction of more expert administration and problem-solving approaches rather than relying so heavily on adjudication.”

The CCI had expressed the achievement of this objective in its mission statement that reads as follows: Competition Commission of India aims to establish a robust competitive environment through: (i) proactive engagement with all stakeholders, including consumers, industry, government and international jurisdictions (ii) being a knowledge intensive organization with high competence level and; (iii) professionalism, transparency, resolve and wisdom in enforcement.

An evidence-based approach of antitrust policy with the help of market studies would go a long way in achieving this well-intentioned mission statement of the CCI, and provide the necessary building blocks of being a knowledge-intensive organisation.

The author is advisor, Economics, and head of the Economics Division, Competition Commission of India. Views are personal

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