Navigating the Changing Landscape: CCI’s Approach to Defining Relevant Markets in the Digital Era

[By Mohd. Fahad Ansari]

The author is a student of National University of Study and Research in Law (NUSRL) Ranchi.

 

Introduction

Recently, the Competition Commission of India (CCI) has initiated investigative operations targeting technology giants such as Amazon, Whatsapp, Zomato, and others. This move has been prompted by the increasing prevalence of dominant practices among online platforms. In response to rising consumer demand for online services and the resulting antitrust apprehensions, the CCI’s investigative actions may be interpreted as its endeavors to examine means of mitigating the unchecked dominance of digital platforms.

In this context, the CCI has been actively involved in broadening the definition of the ‘relevant market’ to encompass online platforms within the purview of competition law. Consequently, it has presented an expansive yet somewhat ambiguous interpretation of this term. While the rationale behind this broader interpretation is rooted in the purposive understanding of the ‘relevant product market‘ and the socio-economic needs of the nation, there are concerns that it might inadvertently result in adverse and undesirable consequences.

Approach of CCI to Online Intermediaries: Restrictive or Expansive?

The Competition Act, 2002 (Act) offers a comprehensive framework for curbing anti-competitive behavior by entities operating in India. However, owing to the intricate technicalities within the legal framework, the significance of the CCI as a regulatory authority has become increasingly prominent within the evolving socio-economic landscape. In this context, the CCI’s approach to addressing online intermediaries can be categorized as either ‘restrictive’ or ‘expansive.’

In the case of Ashish Ahuja v. SnapDeal (SnapDeal case) and in preceding rulings, the CCI has consistently adopted a limited viewpoint.. In this perspective, it viewed online and offline market segments as distinct distribution channels rather than a unified market entity. This interpretation can be attributed to the fundamental principle of interpreting statutes based on their plain and literal meanings, as well as considerations related to the socio-economic context aimed at safeguarding traditional offline markets.

However, subsequent to 2016, there was a notable shift in the stance of the CCI, exemplified in the Rubtub Solutions Pvt. Ltd. v. Makemytrip India Pvt. Ltd. & Anr case. In this juncture, the CCI embraced a more comprehensive perspective, considering both online and offline segments as distinct markets. This shift was predicated on the recognition of dissimilar standards and technical intricacies inherent in the delivery of services within these segments. Subsequently, this broader perspective was consistently applied in various instances, leading to the classification of applications such as Google (in the domain of online general web search), Whatsapp (pertaining to OTT messaging apps through smartphones in India), and Apple (in relation to app stores for iOS in India) as separate and distinct markets.

Comparing Substitutability Tests: Cross Elasticity vs. SSNIP Approach

The paramount factor in ascertaining the relevant market for a product is the concept of ‘substitutability’ or interchangeability of the product. This criterion finds its origins in the United Brands case, a landmark decision rendered by European courts. In this pivotal case, it was firmly established that a product’s resemblance should be evaluated concerning products within the market rather than those external to it.

It is crucial to underscore that there exist two approaches for assessing the ‘substitutability’ of a product: (a) the Demand Substitution method, often referred to as the Cross Elasticity Test; and (b) the Small but Significant Non-Transitory Increase in Price (SSNIP) Test. The Cross Elasticity Test was initially introduced in the Cellophane case, where factors such as price and product quality were deemed pivotal to its application. Conversely, the SSNIP Test posits that if an increase in the price of one product leads to a shift in the demand for another, these products are considered substitutable.

While both of these tests remain valid, the effective application of the former necessitates a thorough evaluation of consumer preferences rather than relying solely on conjecture. In this context, conducting a comprehensive survey of consumer preferences within the Indian market appears to be an undertaking yet to be realized. Conversely, the latter test has already found substantiation through the observable shift in consumer preferences toward online shopping, driven by disparities in prices thereby justifying the narrow approach of the CCI.

Adapting to the Digital Age: CCI’s Expansive Approach and Its Consequences

Based on the preceding examination, it is reasonable to conclude that the implementation of a more expansive definition of the relevant market appears challenging, and the CCI position predominantly leans towards a ‘protectionist’ stance, aimed at ensuring equitable competition within the nation. The adoption of this approach during the early stages of the online market’s evolution served a dual purpose. It, on one hand, safeguarded emerging online startups, and on the other, acted as a deterrent against the misuse of dominance, in accordance with the provisions of Section 4(2)(e) of the Act. Consequently, this approach managed to strike a balanced equilibrium, offering both incentives and prevention, with a discerning application on a case-by-case basis.

Nevertheless, the dynamics have shifted in contemporary times, with online startups now holding dominant positions within various markets. In light of this, the prevalence of online players’ dominance can only be mitigated by their endeavors to enter or safeguard other relevant markets. Furthermore, the adoption of a more expansive approach renders the relief provided under Section 19 of the Act inapplicable in instances of unilateral agreements, owing to the condition stipulated in Section 19(5). This outcome, in turn, has adverse repercussions on offline retailers.

Nonetheless, it appears that the broader approach adopted by the CCI has not posed a substantial impediment to its regulation of the online market. The Indian regulatory authority has been actively addressing contemporary concerns by pursuing allegations of discriminatory practices and by invoking measures to prevent other market participants from entering the arena. While the actions taken by the CCI may offer interim solutions, they tend to constrain the utilization of the diverse legal remedies made available by the Act. Moreover, in contrast to previous circumstances, the contemporary challenges extend beyond the mere abuse of dominant positions, encompassing issues such as unfair pricing, discounting practices, and unilateral commissions imposed upon offline retailers. Consequently, these evolving dynamics necessitate a reconsideration of the CCI’s position.

Finding Equilibrium: CCI’s Struggle Between ‘Broad’ and ‘Narrow’ Interpretations

The balance between the ‘broad’ and ‘narrow’ interpretations primarily leans towards the former, as favored by the CCI. While this shift is purportedly motivated by a commitment to fostering fair competition, the aforementioned analysis lends credence to the notion of reinstating the previous stance as exemplified in the Snap Deal case. Although this approach may appear to diverge from the definition outlined in Section 2(t), a coherent interpretation of this provision in conjunction with the definition set forth in Section 19(7), coupled with the application of the SSNIP test, renders the earlier position more pertinent in contemporary circumstances.

The standpoint can be further substantiated through an examination of the geographical market delineation for online entities in the contemporary context. In this context, it is advisable to accord precedence to the definition stipulated in Section 19(6) over that found in Section 2(t), given the latter’s prerequisite of a comprehensive demand assessment. Additionally, the application of the SSNIP test, as introduced in the HT Media Ltd v. Super Cassettes Industries Ltd. case, offers compelling rationale for classifying online markets within the same relevant market category as their offline counterparts.

While it could be argued that reverting to the ‘narrow’ approach may potentially result in adverse repercussions, particularly concerning discrimination against offline sectors, the CCI retains the ability to exercise control through two distinct avenues. In this context, the CCI can employ Explanation (a) of Section 4, effectively categorizing unfair and unreasonable practices directed at offline counterparts as ‘dominant practices’ subject to prevention under Sections 4(1) and 4(2). Additionally, the CCI possesses the option of utilizing alternative provisions such as Section 19 and Section 4(2)(a) within the Act to regulate the discriminatory conduct exhibited by online intermediaries. This broader regulatory scope affords the Indian regulatory authority increased oversight capabilities.

Conclusion

Digital platforms have secured a predominant standing, capitalizing on the growing consumer demand. While the misuse of this dominant position remains unverified in numerous instances, the CCI is diligently undertaking measures to proactively forestall any potential for such misconduct, in alignment with its mandate to oversee Indian markets. Although the wider approach has generally garnered favor, as attested by the CCI’s rigorous interventions, it is imperative to acknowledge that this has resulted in a concomitant reduction in the Act’s scope and jurisdiction.

In this context, the modus operandi of the CCI should be oriented towards safeguarding the interests of both enterprises and consumers, without discrimination based on their financial capacity or market magnitude. Such an approach aligns with the core objectives and intent of competition law in India. The ‘narrow’ perspective, in this regard, not only deals with the concerns addressed by the ‘broad’ approach but also exhibits a more effective response to various contemporary challenges.

Moreover, the extended purview and expanded regulatory authority vested in the CCI, stemming from the adoption of a ‘narrow’ approach, stand to achieve not only equitable competition but also a harmonious equilibrium between the interests of online and offline stakeholders. In light of the CCI’s heightened involvement in addressing the conduct of major tech industry players, it becomes imperative to rectify any erroneous perspectives in alignment with the genuine legislative intent. This rectification process is essential for reinstating fairness within the competitive landscape of the nation’s markets, addressing the contemporary imperative.

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