Why Acknowledging Collective Dominance Matters In Perpetually Shifting Market Dynamics

Om Chandak & Ranish Bhagat

4 July 2024 12:50 PM GMT

  • Why Acknowledging Collective Dominance Matters In Perpetually Shifting Market Dynamics

    There is a need to include Collective Dominance in India's Competition Act, ('the Act')which stems from several crucial factors. Firstly, the Indian market landscape has witnessed a proliferation of oligopolistic structures across various sectors, ranging from the food delivery industry to the airline industry. In such environments, the risk of collusion and tacit coordination...

    There is a need to include Collective Dominance in India's Competition Act, ('the Act')which stems from several crucial factors. Firstly, the Indian market landscape has witnessed a proliferation of oligopolistic structures across various sectors, ranging from the food delivery industry to the airline industry. In such environments, the risk of collusion and tacit coordination among dominant players poses a significant threat to market dynamics and consumer interests.

    Tuis analysis refers to the shortcomings of Section 3 of the Act., to identify tacit coordination. Ultimately, underscoring the significance of incorporating Collective Dominance into Section 4 of the Act., drawing insights from the European Union ('EU'), and reinforcing the fundamentals of the preamble to ensure fair competition and consumer protection.

    Tacit Coordination –

    Tacit Coordination is purported to manifest when two or more firms in a relevant market arrive at a mutual understanding of their interdependence and engage in tangible parallel actions that restrict competition, leading to higher prices and reduced output. The economic term “Nash Equilibrium” describes a situation where each player in a game has chosen the best strategy given the strategies chosen by the other players. In the current context, it helps explain how firms in an industry coordinate their behaviour without explicit collusion or agreement.

    Tacit coordination is particularly relevant in oligopolistic markets, where there are few dominant firms, and their actions and decisions significantly impact the market dynamics. There is a similarity between Parallel pricing and Tacit coordination; however, what differentiates Tacit Coordination is that firms display the intention to conspire, not when it results from market practices. Nonetheless, the distinguishment between parallelism resulting from collusion and parallel pricing stemming from market forces is not bestowed. Remarkably, Monopolies & Restrictive Trade Practices Commission in 1983 recognised the tacit coordination between two ice cream companies who collectively held 4/5th of the market share and engaged in introducing congruent marketing and pricing strategies.

    If it can be established that the companies intended to collude, Section 3(3) can be invoked in the presence of circumstantial evidence of the presence of an agreement. However, the lacuna of Section 3 can't recognise symptoms of tacit coordination owing to the absence of homogenous standards to recognise such coordination. The identical circumstantial evidence that results in liability under Section 3 is deemed sufficient to establish liability in one case. It is regarded as inadequate and fails to meet the required threshold in another.

    Difference between Cartelization and collective dominance-

    The Competition (Amendment Bill) 2012 rightly recommended the inclusion of the concept of Collective Dominance under the ambit of Section 4 of the Act. The Competition Law Review Committee dismissed the recommendation. The reasoning was that the given issue was already covered under Section 3. The Committee has failed to differentiate between Sections 3 and 4 and how the inclusion of the concept of Collective Dominance under Section 4 is the need of the hour. The purposes of Sections 3 and 4 are different. Section 3, on the one hand, tries to bar agreements that result in an appreciable adverse impact on the competition, Section 4 bars abuse of a dominant position by a dominant entity. The purpose and language of Sections 3 and 4 are different. For violation of Section 3, the presence of a contract is an essential factor. The contract can be implied or expressed, but for violation of Section 4, the presence of the contract is not a factor that should be considered. Two or more entity without any implied or express contract can still use their dominant position to create an appreciable adverse impact on the competition through the presence of their economic linkage. The impact of both these Sections is also different. Section 3 is used when two or more players in a market through agreement affect the competition. In Section 4 the impact is different because there is a tacit coordination between two 'dominant entities'; the gravity of offence increases when the two entities have substantial market power. These factors pin down the liability of the entities and there is a chance that an entity might escape the liability because of the loophole present.

    The jurisprudence of Sections 3 and 4 is taken from EU laws. EU law recognises the concept of Collective Dominance. It was first held in the Italian Flat Gascase and then furthered through different instances in which Collective Dominance was more defined. Article 101 also includes the concept of Cartelization, and still, the EU has infused Collective Dominance under Article 102. EU recognises the difference between Articles 101 and 102.

    Analyses of precedents-

    There have been instances where an entity might have done unfair acts but still were not held liable because the conditions of Section 3 were not fulfilled or they are a dominant entity. Like in the NRAI case, NRAI claimed that the market share of Zomato and Swiggy is very high. Zomato, through its acquisition of Uber Eats, has strengthened its dominance. Informant have made their case under Section 3 only, and CCI held that there was no violation of Section 3. The judgment took a very narrow approach to Section 3, and the informant has not even claimed the violation of Section 4 because, according to Indian law, there can only be one dominant entity. If Collective Dominance had been in place, these two orders and deliveries would have been scrutinised under Section 4 of the Act. Two players hold substantial shares in the relevant market and charge exorbitant service charges to the food places. Such conduct would not have been escaping under violation of abuse of dominance. In Rohit Arora's case, Zomato was not held as a dominant party because Swiggy had a substantial market share.

    The case of In Re – Aluminium Phosphide TabletManufacturers scrutinised India's highly concentrated Aluminium Phosphide industry, where only four significant producers dominated the market, constituting an oligopolistic structure. This market dynamic was subjected to scrutiny, and all of the firms were found to be in contravention of Section 3 of the act. However, no proceedings were initiated on the grounds of Section 4 as none of the firms individually held a dominant position but colluded to hamper competition through Se in the relevant market. Section 4 was yet again extraneous as there is no recognition of the abuse of Collective Dominance by the firms because of a lacuna in the law.

    The Indian Aviation Industry is also dominated by a few significant players (Indigo, Air India, SpiceJet, and Go Air). In Re: Alleged Cartelization in the AirlinesIndustry they were accused of parallel pricing practices leading to higher airfares and limited consumer choices. It was observed that the comparable cost structures among airlines appeared to enable price collusion. Additionally, despite variations in base fares and fuel surcharges, the end fares charged by all airlines were strikingly similar. In specific routes, such as the Delhi-Pune-Delhi, there was negligible variance during 2011-12.

    Further technical advancements have complicated the competition as each airline can monitor competitors' pricing in real time and engage in tacit coordination. Price parallelism was also present in the case; however, the Director General held that there was no contravention of Section 3. With clear guidelines on Collective Dominance, parallel prices could be readily tackled despite their potential to harm consumers.

    There are also instances where two entities with dominant positions and held liable under Section 4 were collectively not held liable because of the absence of provision. CCI In the People Interactive Pvt., case has been held that Google is violating Section 4 of the Act. Google was held guilty of charging exorbitant service charges and discriminatory charging. Apple's App Store also follows the same service pattern. In the case against Apple, it was held prima facie liable under Section 4 for charging high commissions to app developers. If the concept of collective had been in place, then the court would be able to sue both of the entities together. The app store is a dominant entity, and the Apple app store is one of the most prominent players in the market.

    These two entities, through tacit coordination, would have created an adverse impact on the competition. Apple is also charged in the UK for charging a high commission rate from app developers.

    Recognising Collective Dominance is pivotal when looking at the precedents cited and analysing the changing market structure. Recognition of Collective Dominance will ensure fair competition and that no firm can escape because of the shortcomings of the provisions. The case of food delivery and aviation industry highlights the limitations and lacuna in the current legislative framework. Moving forward, there's a pressing need for more comprehensive regulatory measures that differentiate between various forms of anti-competitive behaviour and provide clear enforcement guidelines. By enhancing regulatory clarity and enforcement mechanisms, policymakers can promote fair competition, protect consumer interests, and foster a more dynamic and equitable marketplace.

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