Economic Evidence in Competition Law Enforcement in India

Kuhn, Kai-Uwe (2013) ‘Good Economics in Administrative proceedings: Three Challenge’s’ Concurrences, Competition Law Journal, No. 3. Daniel Sokol notes a similar trend in the early years of the European Commission and observes a change towards economic evidence in recent years comparing the difference in approach between the U.S. Department of Justice and the European Commission, Daniel Sokol & Roger D. Blair, ‘Welfare Standards in U.S. and E.U. Anti-Trust Enforcement’, Fordham Law Review, vol. 81, pp. 2497–2541.

Tata Engineering & Locomotive Co. Ltd., Bombay v. Registrar of the Restrictive Trade Agreement, New Delhi ((1977)2 SCC 55), the Supreme Court held that the “rule of reason” is to be applied in evaluating certain types of agreements relating to restrictive trade practices and in the subsequent Mahindra & Mahindra v. Union of India ((1979)2SCC529) decision referred to various US antitrust judgments. These judgments were taken as landmark decisions to the run up to the Competition Act. The Competition Act 2002 was enacted over a decade after economic liberalization policies were initiated. The emphasis of these policies was on market orientation and an open economy.

Decision of the Competition Appellate Tribunal (COMPAT) Schott Glass India Pvt. Ltd., v Competition Commission of India (Appeal No. 91 of 2012, 2 April 2014). The Appellant Tribunal is the first tier of reference after the Commission. The COMPAT Order has been challenged before the Supreme Court.

National Stock Exchange of India Limited v Competition Commission of India and Another (Appeal No. 15 of 2011, August 2014).

Sec. 3(3) deals with Horizontal Agreements; Sec. 3(4) with vertical agreements; Sec.4 is on Abuse of Dominance; Sec. 5 & 6 are for Mergers and Acquisitions (Combinations) under the Competition Act, 2002.

Horizontal Merger Guidelines of U.S. Department of Justice is the reference manual.

Merger cases for clearance from the Commission was after notification of the relevant sections (5 & 6) only in 2011 i.e. full two years after the Act became operational in May 2009. Complex cases are those which go into Form II with strong possibility of raising anti-competitive outcomes and therefore require more data and market analysis.

Case No. 3/2011, Shamsher Kataria v Honda /Siel car and Ors. (dated 25/8/14). In India the servicing market consists of authorized service stations of the respective car maker and the local garages and service stations. Spare parts again are sold in authorized service stations and in retails dealer showrooms. Several spare parts are copied and manufactured and sold in spare part shops all over.

Order refers to the Orders of CCI and will be so unless the Order pertains to another competition authority. A distinction is drawn between the majority Order and the minority Order if there are two Orders.

Section 2(t) of the Act defines the: “ relevant product market” means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use;

The argument of OEMs that on the basis of substitutability in line with Section 2(t) would result in thousands of separate relevant markets, “The Commission is of the view that such submissions of the OEMs are misleading and erroneous. This is because markets where several goods are jointly demanded and supplied are referred to as cluster markets. Cluster markets are characterized by transaction complementarities between various components of a bundle of products or services. The relevant unit with respect to market definition is the bundle of goods or services that is demanded by consumers and supplied by the producers and not the individual units of such bundle although such units may not be interchangeable or substitutable with each other. In this context, the concept of substitutability or exchangeability applies to the bundle rather than to its separate components where a bundle of products or services serves as a first candidate market. Thus, the fact that bundles of goods or services are demanded and supplied in a market does not affect the basic principle of market definition, i.e., interchangeability or substitutability between competing products.” (Op. cit. Order Case No 3/2011).

EC Quoting from the U.S. Supreme Court judgment on life cycle costs in the Eastman Kodak case. The ‘Auto Parts’ case is the Commission’s ‘Kodak’ case.

The premised economic evidence was with reference to consumer response to energy products in the U.S. This no doubt is a progressive move towards using economics but changing consumer profile with a growing young and mobile crowd whose life style and patterns are more in keeping with the developed countries discussed in the earlier Transition India case was not taken into account.

(i) condition in purchase or sale of goods or service; or

(ii) price in purchase or sale (including predatory price) of goods or service.

Explanation.— For the purposes of this clause, the unfair or discriminatory condition in purchase or sale of goods predatory price) or service referred to in sub-clause (ii) shall not include such discriminatory condition or which may be adopted to meet the competition;

(b) “predatory price” means the sale of goods or provision of services, at a. price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors.

Section 4(2) (e) uses its dominant position in one relevant market to enter into, or protect, other relevant market.

The stock exchange services consist of several products which are not substitutable (Section 2(h)). Currency derivative the product in question cannot be said to be interchangeable or substitutable with the other instruments traded on a stock exchange, namely equity, debt instruments.

Explanation(a) to Section 4 of the Act:

For the purposes of this section, the expression —

In India the attempt to introduce Over the Counter OTC’s as against the prevailing Bombay Stock Exchange and NSE met with little success. The counterfactual of single stock exchanges or two exchanges as happened in India or on stock exchanges in other countries was not analyzed.

The habit which I call as ‘firing from the shoulders of the Commission’.

Juridically the Competition Act is applicable only to markets that fall within India. In the case of virtual markets as consumers have access world over the issue of jurisdictional claims have not yet been resolved. Even in financial markets such as Bitcoin there is no clarity under whose jurisdiction is the market regulated. The aspect of geographical markets was again raised in Case No. 6 of 2014, Vishal Gupta v Google Inc., in a divided prima facie opinion.

(Case No. 17/2014), Ashish Ahuja v. Snapdeal.com through Mr. Kunal Bahl, CEO &Ors., (Case No. 61/2014) M/s Jasper Infotech Private Limited v. M/s Kaff Appliances (India) Private Ltd., (Case No 80/2014), Mohit Manglani v. Flipkart India Private Limited & Ors., The market definition was premised on the prevalence of competitive constraints offered by brick and mortar companies.

(Case No. 30/2012), Consumer Unity Trust v Google Inc., and Google India Private Ltd, (Case No.7 of 2012), Consim Info Private Limited v Google Inc. and Google India Private Limited,(Case No. 6 of 2014), Vishal Gupta v Google Inc.,

See, for example, the decision of the European Commission in the Microsoft/Skype merger. In that case the European Commission found that usage shares of 80–90 % would not give the combined entity market power. The European Commission stated in its clearance decision that in the relevant services, such shares “are not the best proxy to evaluate the market power of providers” (Case COMP/M.6281, Microsoft/Skype, Commission decision of 7 October 2011, paragraph 99). The European Commission’s decision was upheld on appeal to the General Court (see Case T-79/12 Cisco Systems v. Commission, judgment of the General Court delivered 11 December 2013). In particular, the General Court found that “the consumer communications sector is a recent and fast-growing sector which is characterized by short innovation cycles in which large market shares may turn out to be ephemeral. In such a dynamic context, high market shares are not necessarily indicative of market power and, therefore, of lasting damage to competition” (paragraph 69).Similarly, in its clearance of the Facebook/WhatsApp merger, the European Commission found that in innovation-driven technology markets “high market shares are not necessarily indicative of market power” (Case COMP/M.7217, Facebook/WhatsApp, Commission decision of October 3, 2014, paragraph 99).It is notable that even under the EU regime these progressive economics-focused decisions relate to mergers, rather than antitrust enforcement.

Economic evidence have been effectively used to mention Kapoor Glass v Schott (Minority Order) Kapoor Glass., op.cit. Transitions India (Majority Order), Case No. 61/2014, Ramakant Kini v Dr. L.H.Hiranandani Hospitals (Minority Order).

References to case laws of European Union or of Department of Justice in lieu of economic evidence can best be a supplementary. Selection of economic articles have also not been discerning.

The possibility of divergence between consumer welfare and total welfare and the administrator’s inclination to intervene is seen in undue market activism of young competition authorities.

To quote from the Order pertaining to the automotive aftermarket case; “the determination of the relevant market is not an end by itself but is a means to analyze the position of strength enjoyed by an enterprise in such a market, as per the provisions of explanation (a) to Section 4 of the Act, to determine if such an enterprise is in a dominant position in such a relevant market. Therefore, the task of the Commission is to identify that relevant market where the dominance of the enterprise is being felt”.

Alan Greenspan is said to have commented that interventions of anti-trust act against innovations is ultimately to the detriment of consumers.

“We are closer to the EU competition law” as explained by the Chairman of Competition Commission of India in a recent interview to The Economic Times (13th November)

I refer to the emerging debates on whether the Law in these countries have to be modified.

As pointed by Richard Wish, Article 2(3) of the European Community Merger Regulation, as part of test for mergers with common market compatibility reference is made to ‘effective competition’.