PROJECT REPORT

ON

PREDATORY PRICING AS AN
ABUSE OF DOMINANT POSITION
INTERNSHIP REPORT- JANUARY, 2019

SUBMITTED BY- MENTOR-

GAURAV BANGIA MR. ASHUTOSH KUMAR
PURSUING B.A. LL.B. (5TH YEAR) DD (ECO)
ILMS, GURUGRAM (HARYANA)

Page 1
 ACKNOWLEDGEMENT

I would like to take the opportunity to thank and express my deep sense of
gratitude to my mentor and guide Mr. Ashutosh Kumar for providing the
valuable guidance, advice, constructive suggestions, supportive attitude and
continuous encouragement, without which it would have not be possible to
complete the project.

I would also like to thank Mr. Ashok Raj Gupta and other divisional heads that
provide us valuable knowledge about Competition law and role of CCI as a
market regulator through orientation.

I owe my whole-hearted thanks and appreciation to the entire staff of the CCI
for their cooperation and assistance during the course of my internship.

I hope that I can build upon the experience and the knowledge that I have
gained and make a valuable contribution towards this industry in coming
future.

Page 2
 CONTENTS

1. INTRODUCTION

2. LEGAL POSITION UNDER INDIAN COMPETITION ACT, 2002

3. FACTORS ESTABLISHING PREDATORY PRICING

4. ECONOMICS OF PREDATORY PRICING

5. THEORIES OF ASSESSING PREDATORY PRICING

6. PREDATORY PRICING PRACTICES IN INDIA

7. EU CASE LAWS ON PREDATORY PRICING

8. US CASE LAWS ON PREDATORY PRICING

9. COMPARATIVE ANALYSIS OF PREDATORY PRICING

10. CONCLUSION

11. BIBLIOGRAPHY

Page 3
1. INTRODUCTION
Predatory pricing poses a dilemma that has perplexed and intrigued the antitrust community
for many years. On the one hand, history and economic theory teach that predatory pricing
can be an instrument of abuse, but on the other side, price reductions are the hallmark of
competition, and the tangible benefit that consumer perhaps most desire from the economic
system.

Predatory pricing refers to the situation where a dominant firm reduces its price to below cost
of production so that the other competing firms can‟t be able to compete and are forced to
leave out of the competition (Tapasya Roy, 2017). Once the dominant firm is successful in
driving out the existing competitors off the market and restricts the entry of new entrants, it
can increase its price to a level above the competition price level in order to recoup the losses
made during the reduction period and will make windfall gains.

Predatory pricing primarily aims at capturing and influencing the market terms. It happens
when a dominant player in the market sells its product at a price below the standard price so
as to chase away the competitors and derive higher benefits from the reduced competition.
Although in the long run the predator might recover but he will have to make a sacrifice of
his profits at the beginning as the chances of recoupment are not certain. This scheme
demands a high risk and is practicable for the dominant market participants only. It is because
of this reason that this arrangement is often viewed as a kind of “abuse of dominance‟.
(Sriraj, 2017)

The concern with predatory pricing is that firm might strategically cut prices and incur losses
in the short run to eliminate rivals and then raise long run prices to above competition level,
inflicting a net long term injury on the consumer. The problem is that such harmful predatory
pricing is often difficult to distinguish from the normal competitive price cuttings. Proving
that a business is involved in predatory pricing can be difficult because the initial signs of
predatory pricing can appear pro-competitive and there is often no clear evidence of an anti-
competitive purpose that the Commission can use to uphold an allegation. (Dugar, 2016)

However, pricing is not predatory just because the lower price means incurring losses or
foregoing profits in the short run. Such temporarily reduction of price may be an investment
made to enter a market or to make more customers familiar with the product (European
Commission, 2004).

In Re: Haridas Exports v. All India Floating Glass Mfrs. Association and Ors (Case No.
2330 of 2002), it was held that reduction in prices should not always be restricted when it has
not affected the competition in the market and is done to preserve the interests of the
consumer, which has to be noted too.

Page 4
2. LEGAL POSITION UNDER INDIAN COMPETITION ACT, 2002

The Competition Act, 2002 outlaws predatory pricing, considers it as an abuse of dominant
position and makes it prohibited under Section 4. Explanation (b) of Section 4 defines
“Predatory Price” as the sale of goods or provision of services at a price which is below the
cost in order to reduce competition or to eliminate the competitors. In other words, Predatory
pricing is pricing one‟s goods below the production cost, so that the other players in the
market, who are not dominant, can‟t be able to compete with the price of the dominant player
and are forced to leave the market.

In the case of In Re: MCX Stock Exchange Ltd. Vs. National Stock Exchange of India Ltd.,
DotEx International Ltd. and Omnesys Technologies Pvt. Ltd.(Case No. 13 of 2009), the CCI
defined predatory pricing as the conduct, “where a dominant undertaking incurs losses or
forgoes profits in the short term, with the aim of foreclosing its competitors.”

For finding contravention under Section 4, it is sufficient if it can be shown that:

(a) an enterprise is holding a dominant position in the relevant market; and
(b) it has indulged into the prohibitive conduct enumerated in section 4 for which it cannot
provide any objective economic justification.

Only in case of predatory pricing, the intent to oust competitors or to reduce the competition
is required to be seen. The sole defence open to the contravening enterprise in case of
imposition of discriminatory or unfair condition in sale or purchase of goods or services is to
show that the conduct was adopted with a view to meet the competition.

The CCI in Re: Johnson and Johnson Ltd. (1988 64 CompCas 394 NULL) said that the
essence of predatory pricing is pricing below one‟s cost with a view to eliminate the rival. To
understand the full implication of the predatory price, let us first understand the two terms
dominant position and abusing such dominant position.

2.1 Dominant Position

An enterprise is prohibited from abusing its dominant position. This provision first
presupposes that an enterprise enjoys a dominant position in the market and then prohibits
such enterprise from abusing it to its advantage. Thus, dominant position and abusing such
dominant position are two statutory requirements that are to be established before
condemning a firm for abusing its dominance.

Dominant position is defined under the Competition Act, 2002 as the position of strength,
enjoyed by an enterprise, in the relevant market, in India, which enables it to:
(a) operate independently of competitive forces prevailing in the relevant market; or
(b) affect its competitors or consumers or the relevant market, in its favour.

Page 5
To ascertain the dominant position of an enterprise, the Commission shall have due regard to
the assessment factors mentioned under Section 19(4) of the Act such as market share,
resources, economic power, vertical integration, competitors and dependence of consumers,
technical advantage etc.

The Raghavan Committee in its report, stated that even a firm with low market share of just
20% with the remaining 80% diffusedly held by a large number of competitors may be in a
position to abuse its dominance, while a firm holding 60% market share with the remaining
40% held by a competitor may not be in a position to abuse its dominance because of key
rivalry in the market. Specifying a threshold or an arithmetical figure for defining dominance
may either allow real offenders to escape or result in unnecessary litigation. Hence in a
dynamic changing economic environment, a static arithmetical figure to define dominance
will be an aberration.

2.2 Abuse of Dominant Position

Being in a dominant position is not per se illegal but abusing such dominant position is illegal
and that abuse can inferred from the conduct of dominant enterprise. Conduct amounting to
an abuse of dominant position may also be such that it affects its competitors or consumers or
the structure of the market in its favour. Abuse is stated to occur when an enterprise or a
group of enterprises uses its dominant position in the relevant market in an exclusionary or/
and an exploitative manner.

Predatory pricing is considered as one of the abusive or unfair trade practices adopted by the
dominant firm which has an adverse effect on the competition and therefore, it is prohibited
under Section 4 of the Act. Abuse of dominant position impedes fair competition between
firms, exploits consumers and makes it difficult for the other players to compete with the
dominant undertaking on merit.

Predation is an exclusionary behaviour and can be indulged in only by enterprises(s) having

dominant position in the concerned relevant market. Thus, the major elements involved in the
determination of predatory behaviour are:

(a) Establishment of dominant position of the enterprise in the relevant market;

(b) Pricing below cost for the relevant product in the relevant market by the dominant
enterprise;
(c) Intention to reduce competition or eliminate competitors.
(d) Firm must be able to recoup its losses made during the predatory period.

Page 6
3. FACTORS ESTABLISHING THE PREDATORY PRICING

3.1 Dominance in the Relevant market

Predatory pricing can be only practiced by the player who has dominance in the market
because large capital reserves are needed to sustain the losses during the below cost selling
period. The dominant position can be analysed by identifying the relevant product and
relevant geographic market and by examining the demand and substitutability of the product
or services.

3.2 Certain level of entry barrier to prevent competitors to re-enter the market
Successful Predatory pricing requires some sort of entry barrier in the market otherwise the
other rivals would immediately re-enter the market once the predator raises its price of the
product in order to recoup the losses and will drag the price to the competitive level. Entry
barrier subsists as the new player will have to incur few costs like the fixed cost investments
which the dominant player currently holding the market will no longer bear. On the other
hand, re-entry barrier exists when a firm that has left the market seeks to come back then it
has to bear significant expenses in order to reopen its business.

3.3 Excess capacity

Excess capacity is a pre-requisite for predatory pricing. The dominant player in the market
must be capable of absorbing all the new demand created by its price cuts, and the predator
must also be able to absorb the rival‟s sales. If predator cannot do both these, demand will
exceed its output and prices will have to rise, which will allow the competitors to re-enter in
the market.

3.4 Deep pockets of the Predator

Dominant enterprise should have sufficient financial reserves for being successful in
predatory pricing. It would be easier for the firm operating in multi market to have access to
funds which can easily be derived from profits of other market in which it successfully
operates. While selling at the low cost, the predator will incur losses over a considerable
period of time and it is obvious that the predator should have greater financial resources than
its rivals so that it can bear such losses.

3.5 Non-price Predation

It includes product differentiation, product innovation; the main object is to increase the cost
of the rivals. If the cost of the rivals grows, the dominant player takes advantage of the
situation and gains profit even if the competitor stays in the market

Page 7
4. ECONOMICS OF PREDATORY PRICING
The economics of predatory pricing is straight forward. The Predator, already a dominant
firm, sets its prices so low for a sufficient period of time that its competitors leave the market
and others are deterred from entering. Assuming that the predator and its competitors are
equally efficient firms, this implies that the predator and the victims had suffered losses and
these losses are significant. (Dugar, 2016)

For the predation to be rational, there must be some expectation that these present losses, like
any investment, will be made up by future gains. Thus, in turn implies that the firm has some
reasonable expectation of gaining exploitable market power following the predatory episode
and the profits of this later period will be sufficient great to warrant incurring present losses
or forgoing present profits. (OECD, 2016)

5. THEORIES FOR ASSESSING PREDATORY PRICING

It is difficult to develop standards to detect and prevent predatory pricing because of two
reasons. Firstly, predation causes the price to fall benefitting the consumers so it has to be
made sure whether the price cut is beneficial and pro-competitive or is part of the large
scheme of predation in the market. Various tests have been developed to check whether the
prices are too low to potentially have anti-competitive effect in the long run. Secondly, rules
and enforcement standards that attempt carefully to distinguish between pro- and anti-
competitive can be complex, vague and challenging for agencies and for companies, which
may leave the firm uncertain as to whether their contemplated conduct complies with the law.
(ICN, 2016)

5.1 Short-run cost-based rules (Areeda-Turner test)

This test is used to examine whether the firm is incurring the losses for legitimate reason or
for predatory pricing. Areeda and Turner suggested that a price should be deemed predatory
under US law where it was below a dominant firm‟s Average Variable Cost (AVC).

This test focuses first on short-run costs and presumes prices to be predatory if they are below
the short-run marginal costs of providing the product or service, unless it is higher than ATC.
Since marginal costs are notoriously difficult to determine, they would substitute them with
AVC as a more practical proxy.

Areeda and Turner then transpose this group of rules to an AVC test and argue that price at or
above reasonably anticipated AVC should be per se legal and prices below that level per se
illegal. In addition to these basic rules, Areeda and Turner would bar the dominant firm from
“meeting competition” if it meant bringing its price below average variable cost and would
likewise bar promotional spending, especially promotions designed to meet a competitor‟s
promotion or new entry, if those additional expenses brought average variable cost above
price. (OECD, 2016)

Page 8
5.2 No Rule

Bork argues that in practice predation is so rare and is too expensive for the predator; that the
predator will not earn monopoly profits until some distant future time when the new firm has
disappeared; and if it is easy to drive firms out, it will be correspondingly easy for the new
firms to enter when the predator begins to reap a monopoly profit in the future. If this is true,
it should not be a matter of concern for competition policy officials. (Bork‟s Anti-trust
paradox, 1978)

6. PREDATORY PRICING PRACTICES IN INDIA

6.1 Cost Measures adopted in Indian Competition Law

The CCI has adopted Average Variable Cost as the appropriate measure of cost, which is by
and large the measure of cost adopted in all jurisdictions. There is a presumption in most
cases that where the enterprise sets in sale price below its AVC, it has engaged in a predatory
pricing practice contrary to Section 4. However, prices falling between the ATC and AVC are
also subject to inquiry, but in such case specific intent would have to be shown. Prices set
above the ATC are unlikely to be challenged. (Nair & Hussain)

The CCI also has proposed certain regulations with respect to determining cost in cases of
multi-product enterprises, Joint products and By-products, transfer pricing, and captive
consumption.

Once a predatory price allegation is established, the enterprise would be said to have abused
its dominant position. Where after inquiry, the CCI finds that an enterprise in a dominant
position is in contravention of the provisions of Section 4, it may pass any of the orders
specified under Section 27 of the Act and may further under Section 28 of the Act direct the
division of an enterprise enjoying a dominant position to ensure that such an enterprise does
not abuse its dominant position.

6.2 CASE STUDY-

6.2.1 FAST TRACK CALL CABS PVT. LTD. AND MERU TRAVEL SOLUTIONS PVT LTD. v.
ANI TECHNOLOGIES PVT. LTD. (Case No. 6 & 74 of 2015)

This case relates to the dispute between two radio taxi service providers (namely Fast Track
Call Cabs Pvt. Ltd. and Meru Travel Solutions Pvt. Ltd.) and Ola (ANI Technologies Pvt.
Ltd.), which is an app based taxi aggregator. It was alleged by the informants that Ola had
abused its dominant position by engaging in predatory pricing in the relevant market by

Page 9
offering heavy discounts to passengers and incentives to cab drivers which is in contravention
of Section 4 (2) (a) (ii) of the Act.

Based on the high market share of Ola, the Commission was of the prima facie view that Ola
held a dominant position in the relevant market of “Radio Taxi services in the city of
Bengaluru” and directed the Director General (“DG”) to conduct a detailed investigation into
the matter.

The DG analysed the Indian taxi industry in general with that of Bengaluru and recognised
that the relevant product market would be the “market for radio taxi services” and the
relevant geographic market would be the city of Bengaluru.

In order to ascertain whether Ola was dominant in the relevant market, the DG assessed
market dominance of Ola on the basis of number of trips from June 2012 to September 2015.
It was found by the DG that Meru was on the lead position till August 2014, and from
September 2014, Ola took the lead, with Uber at second position since March 2015. It was
also noted that between January to September 2015, Uber‟s trip size grew at 1200 percent,
whereas Ola‟s trip size grew at 63 percent.

Based on the findings, DG opined that for a player to have a dominant position in the relevant
market, it should be able to hold its market share for a reasonable period of time. Here, Ola‟s
market share has started declining as Uber entered the relevant market almost three years
after Ola‟s entry. Therefore, it can‟t be said that the Ola was holding the dominant position.

The Commission agreed with the DG and further observed that the Uber‟s pricing strategy
was more aggressive than the Ola‟s pricing strategy. Moreover, it was the Uber who has
started the pricing war and in its response, Ola has reduced its pricing in order to meet the
competition or to sustain in the market.

Since Ola was not in the dominant position, there can‟t be any further question arises for
abuse of such dominant position.

6.2.2 M/S Mega Cabs Pvt. Ltd v. M/S Ani Technologies Pvt. Ltd (Case No. 82 of 2015)

It was alleged by the informant that by way of multiple rounds of venture funding, the OP has
managed to raise huge investments in order to acquire a position of dominance in the Delhi-
NCR region and has engaged itself in abusive tactics like predatory pricing, offering
periodical discounts to consumers and incentivising drivers with the sole aim to eliminate
competition from the market. It was further alleged that the incentives and discounts offered
by the OP are unrealistic and difficult to match, thus, creating entry barriers for the potential
entrants in the market.

After hearing both the parties at considerable length, the Commission, however finds that
inability of the existing players or new entrants to match the innovative technology or app
developed by any player or the model created for operating in a particular industry cannot be
said to be creating entry barriers in itself. Further, the route of venture funding, with which
the OP is bearing the costs of giving incentives to its drivers and discounts to the consumers
are not exclusively available to the OP. Any existing player or new player entering the market

Page 10
can access the venture funding source subject to the mandatory procedure involved therein.
Therefore, no case of predatory pricing was made out.

6.3 CCI’s and COMPAT’s INTERPRETATION ON PREDATORY PRICING

6.3.1 MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd., (Case No. 13
of 2009)
The issue for consideration before the Commission was: Is Zero Pricing Predatory?
It was alleged by the MCX that NSE had introduced predatory pricing by waiving transaction
fee, admission fee for membership, annual subscription charges and advance minimum
transaction charges in newly established Currency Derivatives (CD). The DG found NSE was
abusing its dominance. NSE contended that since, it was not incurring any variable cost for
running CD segment and therefore, zero pricing could not amount to predatory pricing. It was
further claimed by NSE that such low prices was a promotional policy for the nascent market
and hence, not predatory.

DG, however, held that the NSE could not have survived on zero pricing had it not had any
other segment to support its income and further observed that the NSE could run operation in
the CD segment only due to substantial fixed cost, which it had already incurred for all the
segments. If the pricing of any segment is to be linked only to the variable cost, NSE would
have zero pricing for all segments, because none of them would have any variable cost.
Furthermore, the Commission observed that the waiver policy was a strategy and not a bona
fide step for preserving or developing an otherwise nascent market. (Dugar, 2016)

However, it is interesting to note that the CCI did not consider the pricing to be „predatory‟ in
the strict sense of the term. Instead it was considered to be „Unfair‟ and possible only by
virtue of its deep pockets and could not be sustained by its competitors.

The Commission further commented that “if even zero pricing by dominant player cannot be
interpreted as unfair, while its competitor is slowly bleeding to death, then this Commission
would never be able to prevent any form of unfair pricing including predatory pricing in
future.”

6.3.2 H.L.S. Asia Limited, New Delhi v. Schlumberger Asia Services Ltd.(SASL),
Gurgaon {2013 CompLR 85 (CCI)}

It was held that the divergence in Bid quote cannot in itself be declared predatory.
It was alleged that the SASL indulged in predatory pricing in respect of wireline logging and
perforation service required for Oil & Natural Gas exploration. It was contended by the
informant that SASL quoted unreasonably low rates for the standard services which were to
be the basis for evaluation of tender while considering the financial bid of the parties by
ONGC and thus, by quoting unreasonably low rates, SASL succeeded in ousting the
informant from the contract with ONGC. It was stated that prices quoted by SASL were
approximately 40% lower than the internal estimates of ONGC and 50% lower than the
previous running contract rates.

Page 11
The Commission stated that the cost estimates given by a party seeking bids cannot be
considered as the price of the party supplying the service. Further observed that, SASL had
lowered its prices from the previous tender prices and the prices quoted by it were below the
cost estimate of ONGC. However, as per the Commission, such divergence cannot be held to
be declared as predatory.

7. EC CASE LAWS ON PREDATORY PRICING

7.1 AKZO Chemie BV v. Commission (Case C-62/86)

The Commission first considered the Predatory pricing in AKZO‟s case.
ECS was small UK firm which produced benzoyl peroxide. AKZO, a multi-national chemical
company also produced benzoyl peroxide but concentrated on the plastic sector. The
Commission found that when ECS started to expand its operation in the plastic sector,
thereby capturing one of the AKZO‟s largest customer, AKZO retaliated by threatening to
attack ECS's business in the UK flour sector by reducing prices. It then supplied benzoyl
peroxide to the UK flour sector at low prices, offering large discounts to ECS's best
customers. ECS complained to the commission that AKZO abused the dominant position.

AKZO appealed in the Court. It argued that it could not be guilty of an abuse since it had not
reduced its prices below Average Variable Cost (AVC) and that under the Areeda-Turner
test, its prices were therefore not predatory.

The Commission found that AKZO had abused its dominant position and it declined to adopt
the Areeda and Turner test of predatory price cutting, according to which pricing above AVC
should be presumed lawful.

On appeal, the Court of Justice upheld the Commission‟s finding of predatory pricing and
also confirmed the Commission‟s rejection of Areeda-Turner test. The Court established the
standards to determine whether prices are predatory and laid down(WHISH & BAILEY,
2015):
(a) Where a dominant firm is charging prices above ATC, it is not guilty of predation.
(b) Where a dominant firm is selling at less than ATC, but above AVC, it is guilty of
predation where this is done as part of a plan to eliminate a competitor.
(c) Where a dominant firm is selling at less than AVC, it is presumed to be acting abusively
since every sale would generate a loss for the dominant firm.

7.2 Tetra Pak International SA vs. Commission EU (Case C-333/94)

Tetra Pak, producer of aseptic machines and cartons with a market share of 92% sought to
monopolise the neighbouring market for non-aseptic machines and cartons by engaging inter
alia in selling below-costs on the Italian market and to eliminate its rival Elopak from the
maket.

Of particular interest is the ECJ`s finding that Tetra Pak engaged in predatory pricing on a
market in which it was not dominant. The question involved in this case was in what
circumstances a dominant firm on one market can anticipate that the conduct
implemented on another market where it is not dominant, will be caught by Art. 82 or,
in other words, the main issue was to establish a link between the dominant position in
one market and the abuse in the other.

Page 12
The ECJ found that such a close relationship existed between the markets and this may be
interpreted in that way that a firm dominant in one market is put under a special responsibility
on those markets where these links are present and could use its economic power to weaken
competition on the other market.

Further, it was argued by Tetra Pak before the Court of Justice that EU law should require
proof of recoupment before condemning price cutting. The Court of Justice, upholding the
finding that Tetra Pak was guilty of abusive predatory pricing, remarked that:

“it would not be appropriate, in the present circumstances of the case, to require in addition
proof that Tetra Pak had a realistic chance of recouping its losses. It must be possible to
penalise predatory pricing whenever there is a risk that competitors will be eliminated."

7.3 Deutsche Post case {OJ (2001)L 125/127

In its decision against the Deutsche Post AG (DP) in 2001, the Commission found that DP
engaged in predatory pricing in the market for business parcel services. DP`s competitor on
the parcel-delivery sector UPS complained to the Commission that DP could sell parcel-
delivery services below costs, only because of its revenues from the letter-mail monopoly. In
addition to that it was found that DP had given fidelity rebates to its large mail-order
customers and was find 24 million Euros for this.

However, the predatory pricing was not fined, since the relevant measure of costs that a
multi-product or multi-service postal operator benefiting from a reserved area has to meet
competitive activities has not been clarified previously, with the Commission adding that the
economic cost concepts used to identify predation were not sufficiently developed at the time
the abuse occurred. Now however, situations where a firm can cross-subsidise between a
monopoly market and a competitive market a monopolist`s activity in the competitive market
are considered predatory if they do not cover their incremental costs, i.e. the costs which
occur only when a certain activity, eg. a new product line, takes place and which would be
avoided if the activity ceased. This was the first formal Commissions decision in the postal
sector under Art. 82 EC Treaty, prohibiting predatory pricing conduct as an abuse of a
dominant position

8. US CASE LAWS ON PREDATORY PRICING

8.1 Utah Pie vs Continental Baking Co., {386 U.S. 685 (1997)}.
The US Supreme Court ruled that the price below the full cost was taken to be predatory. In
its first “modern” decision on predatory pricing, the Supreme Court in 1967 condemned the
pricing conduct of three wholesale baking companies that operated in several different
geographical markets. In the Salt Lake city area they were in fierce competition with a small
local company, Utah Pie Co., which only operated locally. The national companies sold
bakery goods at lower prices in Salt Lake City than they did elsewhere, selling at prices
below their costs. The market share of Utah Pie Co. fell substantially, but at the end of the
price competition they still held a market share of over 45%. The Companies were making
profits the entire time.

Page 13
Nonetheless, the Court held that the declining price structure had lessened competition as a
result of discriminatory pricing by the national companies. More likely, the three defendants
were stripping the plaintiff of its monopoly position rather than predatory conduct. (Christian
Barthel)

8.2 Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. (Case No. 333/94)
In this case, US Supreme Court observed that a claim alleging predatory pricing requires 2
requisite to be proved and established. Firstly, plaintiff seeking to established competitive
injury resulting from rivals low prices must prove that the prices complained of are below an
appropriate measure of its rivals costs. Second pre-requisite of holding a competitor liable is
a dangerous possibility of recouping its investment in below cost prices.

8.3 Matsushita v. Zenith Radio Corp. {475 U.S. 574 (1986)}

The US Supreme Court rejected the claim made by Zenith Radio Corp. that the Japanese companies
conspired and sold their products below-cost in the US, while selling similar products in Japan at
higher the cost level in order to cross-subsidize the loss sales in US. The Court held that the firms
charged with predation does not possess a lot of market power and there is no possibility of
recoupment of loss.

9. COMPARATIVE ANALYSIS OF PREDATORY PRICING-

US:
In the US two test screens i.e. sales of below cost and a market structure conductive to
recoupment, have made it extremely difficult for a plaintiff to succeed in a predatory pricing
claim. Failure to prove the possibility of recoupment is an independent defence to a predatory
pricing claim and most courts have looked first to the recoupment standard, especially when
the measure of costs is unclear (McCariens). The Supreme Court, however, did not pass on
the merits of the Areeda-Turner test, makes the test play only an ancillary role and instead
focused on the possibility of recoupment which should be considered first before proceeding
to cost calculations.

In the case of Brooke Group v. Brown &Williamson Tobacco, 1993, it was observed by the
U.S. Supreme Court that predatory pricing is an irrational practice and the laws designed to
prevent it only inhibit competition. Hence it can be said that the U.S. Courts are reluctant to
tag any practice of lowering of the selling price as a case of predatory pricing.

EU:
The relevant law on this point under the E.U. law is found under Article 82 of the Treaty of
the European Communities. The ECJ also uses a two-tier test, but contrary to the US practise,
uses a cost based test as the first screen. The ECJ in AKZO case rejected the Areeda-Turner
test as inappropriate given the facts of the case, but nevertheless incorporated the idea that
prices below AVC should be presumed predatory.

In the AKZO case, AKZO would not have been able to recoup its profits lost in the siege of
predation. The ECJ focused on the problem of eliminating or disciplining a competitor, in
contrast with US jurisprudence, which reflects the worry that legal protection against a
competitor`s low prices is likely to be costly to consumers, who are denied the advantage of

Page 14
low pricing. The ECJ subsequently confirmed its position in Tetra Pak II, that recoupment is
not a necessary element of a predatory pricing case, which is a pre-requisite under the US
laws.

When assessing the market structure in order to determine the dominance of a firm, the proxy
of market share is another element which is used differently across the Atlantic. Whereas in
the EC lower levels might suffice to establish a firms dominance, high shares are required in
the US.

To sum it up, it can be said that in the EC, competition authorities are willing to accept more
predatory pricing claims, whereas in the US it seems under current case law virtually
impossible to have a successful case.

10. CONCLUSION

Predatory pricing, however, is a complex form of anti-competitive conduct. It requires the perpetrator
to incur substantial losses or at least to forego present profits in the hope that those losses can be more
than recouped in the future through the exercise of market power. Thus, market conditions play a key
role in determining whether price predation is a feasible tactic for a firm to employ. The predator must
have a very substantial share of the market or at least the capacity to acquire such a share. In addition,
entry conditions must be such that market power can be exercised for some period of time following a
predatory episode in order to provide recoupment for the predator's “investment”. To the extent that a
predator mistakes market conditions his self-inflicted losses will not be regained and in this sense
predation can be said to be self-deterring.

The United States Supreme Court, however, has expressed doubts about the likelihood that
firms would engage in below-cost pricing. First, a decision to engage in below-cost pricing is
very costly, as it is unclear how long the prices have to be set below cost in order to drive out
competitors. Second, the last firm standing must be able to raise prices to an anti-competitive
level so as to recoup the losses it has suffered. Almost inevitably high prices invite new
entrants, reducing the predator‟s profits, making the strategy unworkable. Given the
considerable cost, uncertainty and risk present in any decision to engage in a below-cost
pricing campaign, the United States Supreme Court reached the conclusion that „predatory
pricing schemes are rarely tried, and even more rarely successful.

The main challenge in penalising predatory pricing is that it is hard to distinguish between
fair, aggressive pricing (which is an essential ingredient of competitive market) and unfair
predatory pricing.(Nair & Hussain, 2017) Further, the Competition agencies finds it difficult
to distinguish whether the reduction in price below the cost level is pro-competitive or
predatory behaviour.

After the entire research, it can be concluded that predatory pricing is a very complex mix of
situations, intentions and accounts. It is impossible to adhere to any one or more of the
practices tests as a conclusive test to prove predatory pricing. In fact all the tests employed
are merely indicative. In India, predatory pricing is at its nascent stage and therefore,
Competition agencies relies mostly on the Judgments of the EU and US courts while
adjudicating the case. However, it can‟t be denied that the certain elements of predatory
pricing are seen in the markets and have its harmful effects.

Page 15
 BIBLIOGRAPHY
 Maher M Dabbah; EC and UK Competition Law, Commentary, Cases and Materials;
Cambridge University Press.
 Joanna Goyder and Albertina Albors; Llorens, Goyder‟s EC Competition Law;
Oxford University Press.
 Doris Hildebrand; The Role of Economic Analysis in the EC Competition Rules;
Kluwer Law International.
 Indian Competition Act,2002
 Richard Posner (2001); Antitrust Law: An Economic Perspective; 2nd edn; University
of Chicago Press.
 W. Kip Viscusi, Joseph E. Harrington, JR John, M. Vernoni; Economics of
Regulation and Antitrust; MIT Press.
 The Myth of Predatory Pricing; Thomas J. DiLorenzo.
 Frank Easterbrook (1981); Predatory Strategies and Counterstrategies; University of
Chicago Law Review.
 The Sherman Act.
 Richard Whish; Competition Law; Oxford Publication.
 Eugene Buttigieg; EC Competition Law; Wolters Kluwer Law and Business.
 Richard Lindberg; The Ambiguity of Predatory Pricing: Strategy as a Clarifier.
 Areeda and Turner (1975); Predatory Pricing and Related Practices.
 Journal article by Greg Le Blanc; Rand Journal of Competition Law; Signalling
Strength; Limit Pricing and Predatory Pricing.
 SM Duggar; Guide to Competition Law
 Choudhury and Makkar; Predatory Pricing: Aspects and Regulation
 OECD; Predatory Pricing
 Bhatnagar: Predatory pricing in India
 Ramappa T., Competition Law in India, (Oxford India Paperbacks, New Delhi, 2009)
 Douglas F. Broder, A guide to US Antitrust Law, 2005, Sweet & Maxwell Ltd.

Page 16