Law and Economics Analysis of the Combination regime under the Competition Act, 2002

[By Manas Agrawal and Ritu Bhatia]

The authors are students at the National Law School of India University, Bengaluru.

Introductory Remarks

The Competition Commission of India (‘CCI’) has time and again failed to harness the economic benefits of the regulatory landscape of mergers and acquisitions embodied in the Competition Act, 2002(‘the Act’). To prove this, we have used a test suite of Facebook-Jio.

Through Facebook-Jio, the thesis of this paper is that ‘The duality of the fidelity towards the text of the statute and the implementation of some suggestions is required for achieving the goal of prevention of adverse effect on competition in cases of combination.’

On 24 June 2020, the CCI approved the Investment Agreement and the Master Services Agreement between enterprises related to Facebook and Jio (‘the order’).[1] This approval serves as a focal point to understand the intersection of three aspects, first, the goals of the Indian competition regime, second, the procedural requisites of combinations, and third, the substantive effects of the combination.

This is the backdrop against which this article is set. Structurally, the article is divided into two parts. The article in the first part positively analyses the crystal-ball gazing procedure mentioned in sections 5 and 6 of the Act and the substantive grounds of ascertaining appreciable adverse effects on competition (‘AAEC’) mentioned under section 20 of the Act.[2] The article in the second part normatively analyses the existing – asset turnover dichotomy mentioned in section 5 and the meaning of ‘asset’ mentioned in explanation (c) to section 5.

Unscrambling the egg problem: Ex-ante regulatory procedure

Daniel A. Crane proposed two models of law enforcement for the antitrust landscape, regulatory (ex ante) and crime-tort (post facto).[3]India follows a hybrid system, which is crime-tort in sections 3 and 4 and regulatory in sections 5 and 6.[4] Both exclusive legal positivism (‘ELP’) and law and economics justify the regulatory nature of merger control. Firstly, section 6(2) of the Act has the requirement of pre-combination notification.[5] Hence legal validity of the ex-ante procedure is established through the source-based thesis. Secondly, both section 18 of the Act and the Preamble state that (a) promoting the interests of the consumers and (b) ensuring freedom of trade is the duty of the CCI and the goal of the Act respectively.[6]A combination of (a) and (b) proves that Blaire’s and Sokol’s conceptualization of total welfare is applicable here.[7] Here, total welfare is the summation of consumer welfare and producer welfare.[8]

The rationale behind ex-ante control is to prevent unscrambling the egg problem. This is because once a combination is done, the transaction costs of undoing it are very high. Hence, consumer welfare should necessitate that ex- ante approval is required to protect against consumer harm due to AAEC. Furthermore, CCI has never passed an order under section 31(2) of the Act disallowing the combination.[9] Moreover, CCI has used its power under section 31(3) only in 2.6 percent of cases.[10]Therefore, there are insignificant/negligible transaction costs from the perspective of a producer and hence, Coase’s theorem will conclude that there is Pareto optimality.[11] Thus, ex-ante approval is conducive to producer welfare.

Till now, it is established that if the CCI does not employ ELP (regulatory model) in its order, then according to law and economics, there will be insufficient outcomes. This underpinning of the importance of statutes using law and economics, better known as the Meld Model was proposed by Mr. Rahul Singh.[12] The next step is the application of this Meld Model approach to Facebook-Jio. In this vein, this paper argues that the order is erroneous in two respects.

The percentage of acquisition of shares by Jhaadhu was 9.99 percent.[13] Hence, the correct approach would have been to assess whether the acquisition could have been exempted under Regulation 4 read with Item 1 of Schedule I of the CCI (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011. One might argue that proviso (B) to Item I is only applicable if the requirement of defenestration[14] (not a member of the board of directors and no intention to participate) is met. According to paragraph 6 of the order, Jaadhu has the entitlement to appoint a director on the Board of the target enterprise and hence exemption should not be granted.[15] However, the outcome should not precede the analysis and hence we are using an outcome agnostic approach to flag the error.

This error can be understood by the prevention-elimination dichotomy and Meld Model. The Preamble of the Act mentions ‘prevention’ of certain activities whereas section 18 of the Act mentions ‘elimination’. The difference between the two is the extent of intrusiveness. Hence, to resolve the deadlock, we will be employing Singh’s three-fold lexical priority test.[16] The first step is to take the text of the statute seriously. Here, Section 18 starts with subject to the provisions of this Act.[17] The subsections of sections 29 and 31 of the Act are bombarded by sunset clauses for each stage of the procedure.[18] Furthermore, section 6(2A) implicitly places a ceiling period of 210 days on the CCI to give an order. These provisions prove that the intention of the Parliament is to strike a balance between the costs of enforcement and protection of competition. This is precisely why the CCI has first, the option of both modification and rejection present in section 31[19] and second, section 20(4) (n) mentions cost-benefit analysis as a factor for assessing AAEC.[20] For instance, when the costs of enforcement due to rejection exceed the benefits of protecting competition, then the CCI should not order annulment.  The second step is to follow Fuller’s advice of not restricting the assignment of meaning to a single word of the statute. This combined with the principle of noscitur socii means that the single word ‘eliminate’ should not be interpreted in isolation but according to the context in which it is used.[21] When one reads the whole paragraph of section 18, it will be evident that the Act mandates the CCI has to balance the interests of different stakeholders, and thus, prevention is more appropriate.[22]

The third step is assessing the law and economic-based consequences. By omitting to consider the policy goals of the interest of all stakeholders and assessing the costs of enforcement, CCI failed to conclude whether prevention in terms of filing notification was even required in the first place. Thus, total welfare was put in danger. Furthermore, this has resulted in increased transaction costs as stakeholders will have uncertainty about whether the CCI will indulge in the analysis of regulations or not.[23]

Coming to the second error, paragraph 54 of the order states that “any anti-competitive conduct resulting from any data sharing in the future could be taken up by the Commission under sections 3 and/or 4 of the Act”.[24]

We will again apply the lexical priority test of the Meld Model. Section 20 (4) is the relevant statutory provision here. Section 20(4) mentions fourteen factors for assessing AAEC for combinations.[25] Firstly, the provision uses the word “shall have regard”, secondly, section 20 does have a catch-all provision like section 19(4) (m), and thirdly, section 20 (4) (a)through source-based thesis validates unilateral (section 4) and coordinated effects (section 3) to be taken into account for AAEC. Hence, using sections 3 and 4 as an escape hatch mechanism rather than dealing with it upfront violates ELP. Though the source thesis validates that CCI does not have the obligation to look at multiple factors (all or any), the second step of Fuller’s interpretative technique should have been employed.[26] For instance, after the acquisition, the combined shares of the two entities translate to around 50 percent in the relevant market of consumer communication applications.[27] However, the delta change in HHI Index is less than 100.[28]

[{(x) 2 + (y) 2 + (50)2 + ….} – {(x) 2 + (y) 2 + (45)2 (market share of Whatsapp and Messenger) + (5)2 (market share of JioChat)}],

Hence, even though the outcome would have been the same, this approach would have the advantage of ensuring certainty in cases where the factors of market share and low entry barrier are in opposite directions. Furthermore, holding that post facto infringement of section 3 and/or are potential remedies violates Kaldor-Hicks’ efficiency.[29] This is because of such delays, the entities engaged in the combination will have a short-term benefit. However, the winners will not be able to able to compensate the losers such as consumers who might suffer data privacy violations or competitors who may be locked out due to network effects.

Normative suggestions for Digital Markets and the way forward

The first suggestion relates to the asset-turnover threshold requirements mentioned under section 5 of the Act. The asset-turnover threshold is underinclusive as it fails to capture the essence of acquisitions in digital markets.[30] In these acquisitions, the target companies may either have insignificant assets/turnovers because of providing free services. Hence, a deal value threshold on the lines of countries like Germany and Austria[31] should be introduced to alleviate the problem.[32]

The second suggestion relates to the definition of assets. The current definition mentioned in Explanation (c) to section 5 is exhaustive (shall be determined) and excludes data (book value of the assets as shown, in the audited books of account). However, since data is the new oil,[33] acquisition of data or control over data should be relevant for filing notification under section 6(2) of the Act.

The two sections of this article prove that Facebook/Jio acquisition serves as a perfect example to firstly, highlight the adverse consequences of non-fidelity towards the law (consumer harm, increased transaction costs, violation of Kaldor-Hicks efficiency) and secondly, the need for prescriptive implementations (deal value threshold and data as an asset).


[1]Jaadhu Holdings LLC Combination Registration No. C-2020/06/747 [55].

[2]‘Duties, Powers and Functions of the Competition Commission of India (CCI)’ (Taxmann, 9 June 2022) <> accessed 6 May 2022.

[3] Daniel A Crane, The Institutional Structure of Antitrust Enforcement (OUP 2011) chp. 1, pg. 25.

[4] Ministry of Corporate Affairs, Report of the Competition Law Review Committee (MCA, 2019) chp. 7, para 1.1.

[5] The Competition Act 2002, (‘the Act’) s. 6(2).

[6]Ibid s. 18, Preamble.

[7] Roger D Blair and D Daniel Sokol, ‘Welfare Standards in US and EU Antitrust Enforcement’ (2013) 81 Fordham L aw Review 2497; ‘Lesson Overview: Consumer and Producer Surplus’ (Khan Academy) <> 1 May 2022.


[9] MCA (n 3) para 4.4


[11] Ronald Coase, ‘The Problem of Social Cost’ (1960) 3 Journal of Law and Economics 1.

[12] Rahul Singh, ‘The Meld Model: The Holy Grail of Indian Corporate Jurisprudence’ (2021) 7(advanced article) NLS BLR 1.

[13]Jaadhu (n 1) [1].

[14] Competition Commission of India (Procedure in regard to transaction of business relating to combinations) Regulations 2011 (‘the Regulations’), sch 1, item 1, proviso (B).

[15]Jaadhu (n 1) [6].

[16] Singh (n 11) 5-6.

[17] The Act, s. 18.

[18] The Act, ss. 29, 31.

[19] The Act, ss. 31(3), 31(2).

[20] The Act, s. 20(4) (n).

[21] Lon L Fuller, ‘Positivism and Fidelity to Law: A Reply to Professor Hart’ 71 Harvard Law Review (1958) 630, 663.

[22] The Act, s.18.

[23] Singh (n 11) 18.

[24]Jaadhu (n 1) [54].

[25] The Act, s. 20(4).

[26] Lon (n 20) 663.

[27]Jaadhu (n 1) [18].

[28] The Regulations, reg 5(2), Form II, para 11.6; Aircel Limited , Dishnet Wireless Limited, Reliance Communications Limitedand Reliance Telecom Limited, Combination Registration No. C-2017/01/47; Suyash Bhamore, ‘The Indian Competition Watchdog’s Application of the Herfindahl-Hirschman Index’ (IndiaCorpLaw, 4 July 2018) <> accessed 7 May 2022.

[29] Singh (n 11) 18-19.

[30] MCA (n 3) chp. 7, para 5.3.

[31]Ibid, chp. 7, para 5.7.

[32]Ibid,chp. 7, para 51.4.

[33] ‘The World’s Most Valuable Resource is no Longer Oil, But Data’ (The Economist, 6 August 2017) <> accessed 7 May 2022.


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