ECONOMICS OF ABUSE OF DOMINANT POSITION

SOUMYA MEHROTRA
4TH YEAR, IIMT(SCHOOL OF LAW), GGSIPU
NEW DELHI

ABSTRACT

Competition law has been relatively under developed in India. The need for the competition act
was felt due to the inadequacy of the MRTP Act. The competition act covers all major aspects
such as agreements, abuse of dominant position, mergers and combinations. Section 4 of the act
deals with the abuse of dominant position. Dominance as a notion of economic concept deals
with the status a firm enjoys which defines its market share. The ultimate aim of the competition
law is to curb the unfair practices by the enterprises and to ensure a fair and healthy
environment for the firms to function. Market power means the ability of an enterprise to raise
the price above the level that would prevail in competitive conditions.

The concept of abuse of dominant position in a market refers to the anti-competitive practices
which are adopted to drive out the existing competition from the market. It also refers to the
practices through which the prices a product can be decided or manipulated.

This paper deals with the concept of dominance and how it is abused. It also discusses about the
different kinds of abuses adopted by the firms.

Keywords : Enterprise , Dominance , Abuse of Dominance , etc.

INTRODUCTION

The meaning of “dominance” can be understood as “overriding” or “influential”. In terms of

economics, dominance means creating barriers to new entrants due to the substantial impact in
the market. Dominance per se is not considered bad under the Competition law, however it is
the abuse of such dominance which is prohibited or constitutes an anti-competitive practice. The
abuse of dominant position depends on various factors. The Competition Act regulates a fair and
protective environment for the enterprises to operate in a smooth and healthy environment.

Abuse is said to occur when an enterprise or group of enterprises uses its dominant position in
relevant market to exploit consumers. To understand the abuse, it is very important to understand
the meaning of relevant market. In the non presence of regulations for defining the relevant
market, the CCI does not follow the general approach in delineating the relevant market.1 CCI
has, in some cases defined the relevant market on an “all India basis”

A dominant position is always in reference to a relevant product and relevant geographical

markets.2 A geographical market is condition in which the conditions for the supply of goods
and services are completely homogenous and can be effectively distinguished. Whereas, the
relevant product market is the place where all the products or services are regarded as
interchangeable or substitutable by the consumer.

DOMINANT POSITION AND ITS ABUSE

A undertaking holding a position which is “dominating” is only possible if it has the ability to
behave independently or separately without the fear of its competitors, customers, suppliers and,
the ultimate consumer.3 A dominant undertaking or enterprise can increase or decrease the price
above the competitive level and so can to some extend act accordingly. The dominating firm has
the power to vary its price according to the firm’s demand curve.

To understand the dominant position, it is important to understand its two major aspects:

1) A position which the firm enjoys which enables it to operate independent of its
competitive rivals. This situation is causes concern if it drives out existing competition
out of the market, creates barriers or promotes unfair competition.
2) When an enterprise adopts such a price or a non-price strategy that would uplift its
profits, capture market or make an environment that would deter new competition of the
same or new product. This aspect is explained in the explanation (a)(ii) to section 4.

Section 4 of The Competition Act, 2002 deals with the Abuse of Dominant Position
Section 4: Abuse of dominant position .
(1) No enterprise or group shall abuse its dominant position.
(2) There shall be an abuse of dominant position under sub-section (1), if an enterprise
or a group.

1
http://ijlljs.in/wp-content/uploads/2017/04/Online_Paper.pdf.
2
https://www.lawctopus.com/academike/perfect-competition-and-abuse-of-dominant-position/#_edn2.
3
http://ijlljs.in/wp-content/uploads/2017/04/Online_Paper.pdf.
 (a) directly or indirectly, imposes unfair or discriminatory—
(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 or service referred to in sub-clause (i) and unfair or
discriminatory price in purchase or sale of goods (including predatory price) or service
referred to in sub-clause (ii) shall not include such discriminatory condition or price
which may be adopted to meet the competition; or
(b) limits or restricts—
(i) production of goods or provision of services or market therefor; or
(ii) technical or scientific development relating to goods or services to the prejudice of
consumers; or
(c) indulges in practice or practices resulting in denial of market access; or
(d) makes conclusion of contracts subject to acceptance by other parties of
supplementary obligations which, by their nature or according to commercial usage,
have no connection with the subject of such contracts; or
(e) uses its dominant position in one relevant market to enter into, or protect, other
relevant market.
Explanation.—For the purposes of this section, the expression— (a) “dominant position”
means a position of strength, enjoyed by an enterprise, in the relevant market, in India,
which enables it to— (i) operate independently of competitive forces prevailing in the
relevant market; or (ii) affect its competitors or consumers or the relevant market in its
favour. (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.

The provisions of the act clearly explains the dominant position and what would account fot its
abuse. However the abuse of the same would differ accordingly in depending upon the facts of
each case. Dominance has been defined in terms of: first, the enterprise ability to operate
independently of competitive pressure; and secondly; its ability to appreciable affect the relevant
market, competitors and consumers.4

4
http://shodhganga.inflibnet.ac.in/bitstream/10603/74926/7/chapter%204.pdf.
FACTORS WHICH DETERMINE DOMINANT POSITION

1) MARKET SHARE
Market power may be defined as the possibility of the undertaking to profitably maintain
prices that are higher than the competed level, or to profitably limit production or quality
below the competed level. 5A dominant firm holding such market power would have the
ability to set prices above the competitive level to sell products of an inferior quality or to
reduce its rate of innovation below the level that would exist in a competitive market. 6
An enterprise may directly or indirectly use its market power without effecting its market
share which it prominently enjoys. In most cases the dominant position is also determined
by the pattern of consumer behavior or the characteristics of the product.
2) ENTRY CONDITIONS
Entry conditions include a number of factors such as :
i. Number of competitors in the market
ii. Bargaining power of the customers
iii. Customer dependence on the enterprise
iv. Prevailing market conditions

All of these factors may individually or collectively influence the dominance which an
enterprise enjoys in the market.

Section 19 basically highlights the duty on the Competition Commission to look at these aspects
while dealing with the factors of dominant position by this we can conclude as to consider these
crucial steps while establishing whether an enterprise holds a dominant position and whether it is
abusing it :

1) Defining the relevant market.

2) Assessing the market strength to ascertain whether the enterprise holds significant power.

3) Consider whether the conduct of the undertaking amounts to abuse.7

5
https://www.kkv.fi/en/facts-and-advice/competition-affairs/competition-restraints/abuse-of-dominant-position/.
6
http://www.concurrences.com/en/competition-law/glossary-of-competition-terms/Dominant-position.
7
http://ijlljs.in/wp-content/uploads/2017/04/Online_Paper.pdf.
ABUSE OF DOMINANCE

Holding a dominant position is not per se wrong or anti competitive. It is the abuse of such
dominance which is illegal. The enterprise or a group of enterprise uses its dominant position in
the relevant market in an exploitative manner. The abuse of dominant position can also be when
the degree of the competition in a relevant market is weakened by the degree of measures taken
by the effected entity which is generally not acceptable in the supply of goods or services in the
market community. This hinders effective and healthy competition in the market and results in
anti- competitive practices. The act does not prohibit an enterprise becoming “dominant”. The
whole idea behind the act is to prevent the abuse of such dominance by the enterprise. The act
prohibits and declares such activities as anti-competitive which results in the “abuse of dominant
position” and not “dominant” position.

Therefore if an enterprise just hold big position or is classifies as “huge”, it won’t be classified as
anti-competitive or illegal. The “hugeness” of a firm is also very important as due to this there is
market or product innovation in an industry. The provisions of competition act will not interfere
where the size of the undertaking is huge or it differs in the product innovation. However, in an
oligopoly, the provisions of section 4 of the act is required as there are only a few firms in the
market.

For example: Y is a businessman and keeps huge stocks of fruits. The being the best wholesaler
in town, enjoys dominant position in the market and all the retailers gets supplies from him.Y
being in the dominant position, stopped supplying bananas to the retailers. As a result of which
the supply of bananas diminished from the market and its demand increased. As the demand of
the product, i.e, bananas increased in the market, the prices also increased. This act done by Y is
called abusing the dominant position in the market. The customers in need of bananas will buy it
at whatever price dictated by the seller of the product.

In Sh. Surinder Singh Barmi vs Board For Control Of Cricket India,8 held that BCCI was
dominant in that market. This was held for the following reasons : (a) BCCI was de facto
regulator for cricket in India;(b) BCCI was empowered by ICC by-laws with the right to sanction
/approve cricket lawsand events in India and consequently, its approval is required by any
prospective private professional league; (c) BCCI was at significant commercial advantage by

8
https://www.lexology.com/library/detail.aspx?g=ce867123-0993-4908-8cf0-1afc943f0ff2.
owing infrastructure;(d) BCCI controlled a pool of cricket players under a contract. It was held
by CCI that BBCI abused its dominant position by (1) denying market access to potential
competitors to the IPL by “binding itself” not to organize, sanction , or recognize any private
professional league and (2) limiting number of franchisees in one private professional league.

The abuse of dominant position in the market can be broadly specified into two categories :

1) Exploitative Behavior : An exploitative abuse can be characterised as a use of a

dominant position which is illegitimate because of a direct adverse effect on the interests
of customers.9 Exploitative practices includes :
i. Predatory Pricing : It is the type of discriminatory practice wherein a firm
sacrifices short term prices in order to gain long term benefits. Section 4(b) of the
act explains it as a practice by which the competition in the market can be curbed
by lowering the price of a good or a service. It is done t eliminate the customers
from the market. Predation is exploitative behavior and can be indulged in only
by the enterprise having dominant position in the relevant market.
ii. Imposing unfair price or conditions: This type of practice involves charging
unfair prices from the customers or imposing such conditions as may deem unfair
on the sale of the commodities. Imposing unfair prices is slightly different from
predatory pricing. However, both of them tend to injure competitors. But,
predatory pricing includes price discrimination as well. Price discrimination
involves charging different prices for the same product from different individuals
whereas predatory pricing involves lowering down the prices for the same
product.

2) Exclusionary Behavior : Exclusionary abuses comprise all practices that a dominant

undertaking may use to obstruct others, restrict their options, establish entry barriers and
therefore remove or weaken the potential competition. 10
Exclusionary practices includes:
i. Limiting the supply: The enterprise in order to obtain large position in the market
may limit the supply of the product in the market so that the prices can shoot up.
The perfect example of this is the supply of diamond. Diamond is available in

9
http://www.reckon.co.uk/solutions/competition-law/exploitative-abuse/.
10
https://wikis.fu-berlin.de/display/oncomment/Types+of+abusive+conduct#Footnote2.
 abundance but its supply is limited, hence, making it an expensive commodity to
purchase.
ii. Creating entry barriers: This type of practice involves creating entry barriers or
such conditions which limits the entry of other competitors in the market. This
also includes first move advantages given to a product. Entry barriers are also
created by a group of colluding suppliers controlling the market share,.
iii. Refusal to supply: this type of practice involves the enterprise refusing to supply a
product in the market. This has negative impact on the market since there arises
scarcity of a product. This also leads to an anti- competitive practice.

Alleged abuse of Dominant Position by Hospital and Stem Cell Bank Service Provider 11 :
CCI received information against Hiranandani Hospital that while availing maternity services
from the hospital, the patient was not allowed to use the LifeCell’s ‘umbilical cord stem cell
banking services’. This hospital insisted the patient to use the services from Cyrobanks, with
which the hospital had an exclusive tie-up. This was an allegation made by the patient about the
abuse of the dominant position enjoyed by the hospital.

After the investigation, it was found by CCI that the hospital did have the tie-up with the services
of the Cyrobank, i.e, if they wanted to preserve the stem cell of the baby, they have to avail the
services as provided by the Hospital,. Further, the hospital was also found to be dominant in the
market as it enjoys 75 per cent of the market share in providing maternity services. Therefore the
condition imposed by the hospital for availing the services was found to be one of abusing the
dominant position in the market.

In Belaire Owners' Association vs Dlf Limited12, DLF launched the project called ‘Belaire’, a
premium development in Gurgaon. The possession was to be delivered within 3 years which did
not happen. And the project was delayed. Also, the number of floors were arbitrarily increased to
29 from 19. The agreement which was entered between the buyers and the builders also
empowered the builder to make changes without taking the buyer’s consent. CCI held that DLF
was abusing its dominant position in the market and imposing unfair conditions on flat buyers in
Gurgaon. Also it was observed that there was unfair clauses imposed on the flat buyers. The CCI
imposed a penalty of Rs.630 crore on DLF for the abuse of dominant position in the relevant
market of “High End Residential Units”.

11
http://www.cci.gov.in/sites/default/files/Newsletter_document/Newsletter_Dec.pdf.
12
http://www.cci.gov.in/sites/default/files/DLFMainOrder110811.pdf.
In January 2013, CCI passed a supplementary order to modify the agreement between DLF and
buyers of its apartments, pursuant to a direction from COMPAT. 13 The terms of the agreement
was modified keeping in mind the interest of both the buyers and sellers. It was observed by CCI
that DLF was in a position to effect the demand and supply of the flats in relevant market.

CCI’s Power to check the abuse of Dominant Position

The competition commission of India under section 27 of the Act has been empowered to take
steps if an enterprise or group of enterprises have been held for abusing the dominant position
enjoyed by them. This includes :

i. The commission may direct the enterprise to discontinue such practices or not to re-enter
into such an agreement which accounts for such a abuse in dominant position.

ii. The commission can impose the penalty on the enterprise as it may deem fit. The penalty
shall not exceed ten per cent of the average of the turnover for the last three preceding
financial years.

One drawback of this provision is that it does not exactly provide for a method to calculate the
penalty to be imposed on the enterprise. It only establishes the upper limit for the same.
However, COMPAT( The Competition Appellate Tribunal) has imposed some restrictions on
awarding penalties. The COMPAT has established that the penalty needs to be calculated on the
basis of “relevant turnover”. 14 In the DLF case, COMPAT held that the penalty imposed by CCI
was kept keeping in mind the relevant turnover of the company. The Commission can pass an
order to cause the division of the dominant enterprise such that does not abuse its dominant
position. (S.28)15

CONCLUSION

Such practices by the enterprise which results in unfair competition effects the demand and the
supply of the product in the market. The behavior of the undertaking which enjoys dominant

13
http://www.cci.gov.in/sites/default/files/Newsletter_document/Newsletter_jan.pdf.
14
EXCEL CROP CARE LIMITED. V. COMPETITION COMMISSION OF INDIA AND ANOTHER W I T H
CIVIL APPEAL NOS. 53-55 OF 2014.
15
https://cis-india.org/a2k/blogs/abuse-of-dominant-position-in-indian-competition-law-a-brief-guide.
position in the market should be kept in check. The actual meaning of dominant position is the
strength and power enjoyed by the firm or an undertaking which helps it to acquire market share.
The enterprise enjoying dominant position is in the position to manipulate or fix the prices of the
product which amounts to be abusive and also eliminates fair competition from the market.

India being a competitive and growing economy, needs such authorities which can keep the
unfair practices by the economy in check. Therefore, it is very important for India to have
authorities such as CCI and COMPAT. The competition act came in force for curbing
monopolies and keep in check the growing abuse of dominant position by the enterprise. Thus,
through its authorities, it keeps in check he growing unfair trade and other malafide practices in
check on a receipt of any complaint. Issues like abuse of dominant position can be tackled only if
there is a strong enforcement of anti- competitive agreements and mergers. The act recognizes
almost all kinds of abuses and also, the abuse of power done by a group. Although, the concept
of “collective dominance” is differently defined in the Indian law as compared to EU Law.

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