Author - Riya Gulati
Designation: Paralegal at Law Offices of Caro Kinsella & Youth Ambassador for the ONE Campaign, Ireland.
Abstract: The chief objective of this blog aims to answer: “Whether or not the concept of buyer’s abuse could be covered under the ambit of Abuse of Dominance?”, And, if yes, then under what circumstances? Furthermore, it will provide an abridgement of Section-4&Section 19(4) of the Competition Act 2002, differentiate between buyer’s cartel and buyer’s group& peruse an assessment of dominance and abusive conduct.
Keywords: competition law, exploitative abuse, dominant position, competition authority, abuse of dominance, buyer’s cartel
Introduction:
Dominant position is a locus of puissance, enjoyed by an undertaking, in a relevant market, in India, which entitles it to function autonomously of competitive forces or influence its contenders or customers or the relevant mart in its favor. Monopolization, or abuse of a dominant position, is one of the most exigent section of the competition law in both developed and emerging marts.Section 4 of the Competition Act 2002 interdictsentities holding a dominant position in a relevant mart from abusing such a locale.The dominance rules apply to all entities, encompassing state-run, public enterprises, and government departments that are employed in an economic pursuit. The 2002 Act does not differentiate between dominant suppliers and purchasers and thereby the abuse of dominance provisions exerts to both. The specific forms of abuse includes: rebate schemes, tying & bundling, exclusive dealing, predatory pricing, price or margin squeezes, refusals to deal & denied access to essential facilities, predatory product design or a failure to disclose new technology, price discrimination, exploitative prices or terms of supply, abuse of administrative or government process and mergers & acquisitions as exclusionary practices.
Section 19(4) of the Act embarks assorteddeterminants that the Competition Commission of India must contemplate in appraising whether an entity enjoys a dominant position, such as market share, resources available to it, size of the entity, significance of contenders, financial power, commercial advantages, vertical integration, customerreliance, entry barriers, mart size and structure. The preamble and Section 18 of the Act connotes that the object of the Act embracesclinching fair competition in India. The yardstick is largely economic, with a view to averting practices that have an appreciable adverse repercussion on competition, fostering and sustaining competition in marts, and safeguarding the interests of customers.
Whether buyer’s abuse could be covered under theAbuse of Dominance
The regulation pertaining to the abuse of dominance is incorporated under Section-4 of the Competition Act which forbids the abuse of a dominant position by any ‘enterprise or group’, and expounds dominant position as a position of strength enjoyed by an enterprise in the relevant market that empowers it to:
• Operate and regulate without the support of anyone (independently) of the competitive forces prevailing in the relevant market; or
• Affect its present competitors or consumers or the concerned market into its favour.
For the ascertainment of the abusive conduct of a dominant enterprise or group, a three-step analysis is required to be undertaken which involves the determination of the relevant market, assessment of dominance and the assessment of the abusive conduct.
•Relevant market: The relevant market is an aggregation of the relevant geographic market and the relevant product market. The relevant product market is defined as a market for all the products or services regarded as substitutable or interchangeable by the consumer, based on the attributes of the product, its price and its intended use. With regards to the product market definition, the Competition Commission has primarily considered the demand-side substitution to be a determining factor in outlining the relevant product market. With regards to the cases concerning the abuse of buyer’s power, the Commission has applied the concept of demand-side substitutability ‘in reverse’ (i.e., from the perspective of suppliers and their ability to switch between various procurers when ascertaining the relevant market).
• Assessment of dominance: While determining dominance, the Commission considers factors as listed under Section-19(4) of the Competition Act.
• Assessment of abusive conduct: Section-4 of the Act categorizes two types of abuses: exclusionary abuses (which include practices of the dominant entity having the effect of excluding other players in the relevant market) and exploitative abuses (which include practices of the dominant entity that tend to exploit their position by imposing unfair or discriminatory restrictions on the consumers and other players the market).
For the determination of dominance under the Act, the Commission is required to consider various factors such as size and resources of the enterprise, size and importance of competitors, market structure, economic power, entry barriers and dependence of consumers on the enterpriseetc.
Buyer’s Cartel
The Competition (Amendment) Bill 2020 was drafted and put forward for the public opinion on February 2020. The bill encompassed few key points that were earlier overlooked by the legislators whilst formulating the Competition Act, 2002. In the Bill, the prime focus has been laid down in recognizing the buyer’s cartel.
The Bill widens the definition of ‘cartel’ to embrace the practice of Buyer’s cartel as well. The buyer’s cartelincludesthe players who impact the price associated with their purchases and try to wipe out competition from the market by getting into collusions or by curbing the behavior of the producers in the market. Such arrangements by the buyers might lead to predatory buying, where they buy certain products at a specific rate from a particular sellerso as to eliminate other competitors. Consequently, such collusive arrangements have an appreciable adverse effect over the competition in the market, hence, it makes these types of arrangements as anti-competitive.
It is to be noted that mere formation of the buyer’s group in the competition domain is distinct from the buyer’s cartel and are prima facie not considered as unlawful. There lies a slight difference between a buyer’s group and buyer’s cartel. The former fundamentally uses the combined buying power to procure volume or desired discounts on goods and services for the purchase, use or resale.Whereas the only objective of the formation of cartel is to create, allocate, associate and exploit the buyer’s power to influence the market forces and thereby affect the competition. The current definition of cartel as provided in the Act includes producers, sellers, distributors, traders, or service providers, therefore, the Indian Courts find it difficult to interpret “buyers” in the same footing. The buyer’s side of the market has received less attention from the legislators as the arrangements for anti-competitive practices are more sellercentered. Hence, it becomes crucial for the legislature to recognize such an arrangement and bring in provisions that will provide a sturdy mechanism in order to proscribebuyer’s cartel affecting the competition in the market.
It is a settled proposition that fundamental premise of an anti-competitive practice is that it has an appreciable adverse effect on competition. This proposition is chiefly neutral as it does not specifically state as to who should be behind that anti-competitive practice, i.e., seller or buyer. The definition of cartel as provided under Section 2(c) of the Act explicitly mentions the aspects related to the seller. Realistically, it is the buyer cartels which can appreciably affect the competition adversely. Buyer cartels mainly include a group of competitors who focus on the input side of the market and attempt to eliminate competition therein either by decreasing the price associated with their purchases or by curbing the conduct of the supplier. Such cartels may result in predatory buying, wherein the group created out of a collusive arrangement purchases inputs at a high price so as to drive out competitors. This may also result in the supplier granting more favorable terms to the group than those normally offered. A collusive behavior of this form has the propensity to avert suppliers to invest in the innovation.
The U.S. courts have penalized the buyer cartels that indulged in predatory buying. Whereas in India, the cases which could have prompted the court to take an appropriate action against buyer cartels are considered as missed opportunities. So far, the Commission has not imposed any penalty on buyer cartel.But the buyer cartel may be penalized if the changes proposed by the Ministry of Corporate Affairs to the Competition Act are enacted as The Draft Competition (Amendment) Bill, 2020 expanded the definition of cartel to include a buyer’s cartel as well.
Conclusion: In India, the ascertainment of dominance is based on a qualitative assessment of the prevalent market dynamics and the relative position of strength enjoyed by the market participant. Hence, the buyer abuse could be covered under abuse of dominance under specific circumstances.
References :
1. Shweta Chopra, ‘Dominance in India’ (Lexology, 28 May 2019) Source (accessed 1 July 2020)
2. MM Sharma, ‘Impact of competition law on Indian real estate sector- an analysis of the recent order’ (Antitrust & Competition Law Blog) Source(accessed 1 July 2020)
3. R.S. Khemani, A framework for the design and implementation of Competition Law and Policy (World Bank Publications 1999)
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