[By Akanksha Sharan]
The author is a student of Hidayatullah National Law University.
Introduction
On May 6 2025, the Competition Commission of India (“CCI”) notified the CCI (Determination of Cost of Production) Regulations 2025 (“2025 Regulations”), came into effect the same day and replaced the 2009 regulations. Since the current competition law regime does not address challenges such as predatory pricing and strong digital platforms, the revision is needed now more than ever. The 2025 Regulations move away from assessing costs in each sector and introduce a common framework that addresses the needs of India’s developing and digital economy, following international standards.
The main focus of the new framework is the use of efficient and economical cost measures. The introduction of Average Total Cost (“ATC”) and Average Avoidable Cost (“AAC”) is meant to make it simpler for regulators to find below-cost prices and review the effects on the market. It is now possible to use Long Run Average Incremental Cost (“LRAIC”) for multi-product companies and digital businesses, given that fixed, variable, sunk and common costs are now included in the definition. Now, total cost also includes depreciation which lets companies estimate costs over a long period, without counting financing overheads, since these can be different for every firm. In particular, not including market value is meant to ensure that the assessment depends on a company’s own costs rather than its changing value in the market. Since large tech and conglomerate firms can impact both cost and supplies, a standard and clear way to determine prices is necessary to ensure that competition remains fair. Ensuring a proper cost analysis is important when deciding on abuse of dominance in Section 4 of the Competition Act, 2002.
Through this article, the author explores the 2025 Regulations in this article by highlighting its main changes, identifying its shortcomings and proposing plausible solutions. The discussion ends by considering how this framework could impact the way competition law is enforced in India.
A Structural Shift: Unpacking the Innovation in Cost Determination
The 2025 Regulations, introduces a new way for the CCI to review cost in abuse of dominance matters under Section 4 of the Competition Act, 2002. The new regulations replace the 2009 framework and use a streamlined, economic approach to ensure the new rules are consistent, fair and adaptable.
Four key shifts are at the heart of this new structure:-
Firstly, switching to a framework that is not limited to certain sectors. The framework under the 2009 Regulations was not formally sector-specific, but it was largely used in the traditional sectors such as manufacturing, telecommunications and pharmaceuticals where cost structure were more transparent and easier to quantify. Because of the flexible rules in 2009, each industry had different views about possible dangers which resulted in inconsistent assessments. Since manufacturing and digital sectors have their own cost standards, similar pricing actions might be understood differently. The 2025 Regulations solve these problems by introducing a single method that all sectors must follow. Therefore, it promotes certainty, helps control competition avoidance and brings Indian competition enforcement in line with the rules of the European Union (“EU”) and the OECD.
Secondly, the regulations officially include ATC and AAC as primary measures for tracking costs. ATC includes the total cost of each unit made which consists of fixed and variable costs. It provides a better overview of a firm’s costs and how its prices are likely to stand the test of time. Unlike average cost, AAC points out the amounts a firm could save simply by not creating additional units which is why it is useful for spotting predatory pricing. If the price is lower than AAC, it’s likely the company aims to remove competitors instead of competing on quality. Together, these metrics remove subjective and unreliable cost benchmarks and provide useful, proven tools instead.
Thirdly, the new definition of LRAIC now covers sunk and common costs, in addition to the usual fixed and variable costs. The importance of this has grown lately, since many companies participate in several product or service areas. Looking at the company as a whole makes it hard for a leading firm to move losses from one area to another, as everything is visible. It also supports the detection of cross-subsidisation, a way for bigger companies to push out smaller rivals.
Fourthly, when the elements of total cost are clearly identified, cost evaluation becomes more reliable and unbiased. The inclusion of depreciation allows long-term assets particularly in capital intensive sectors like infrastructure and manufacturing to be appropriately accounted for. Meanwhile, excluding financing overheads avoids the inclusion of costs like interest expenses, which vary significantly not only cross firms but also based on internal financial strategies rather than market dynamics. Additionally, by excluding the market value of assets – which tends to fluctuate and is influenced by investor sentiment – the Regulations emphasis the actual costs incurred by a company. This shift ensures that assessments are grounded in measurable, verifiable internal metrics rather than unstable external valuations.
All in all, these changes bring India’s competition system up to date and allow the CCI to address changes in the digital economy with more accuracy and fairness.
Flexibility or Fragility? Gaps in the New Regulatory Framework
While the 2025 Regulations are a significant improvement to India’s competition rules, they still have a few issues. Moving toward a technical, cost-based analysis introduces challenges that could affect both market fairness and regularity consistency. Though the framework shows promise, its application – especially across market structures requires deeper scrutiny.
One key issues is the lack of specificity regarding digital markets. Although the CCI acknowledges features like network effects, low marginal costs and scale economies, it has not issued any sector-specific guidance. While this flexibility was meant to help the system adjust, it actually leaves a gap. When there are no set limits, sample cost models or clear guidelines, regulators have a lot of power and large digital firms can organize their costs to escape review. For instance, there is no clarity on assessing costs in freemium models, two-sided markets or data-driven platforms where users are not the paying customers. This uncertainty undermines predictability—the core goal of the Regulations—and deters potential complainants who lack insight into how CCI might assess pricing in platform-dominated markets. As anti-competitive conduct can be embedded in business models, the absence of digital-specific guidance hampers precision in regulatory intervention.
Furthermore, the Regulations set up difficult cost benchmarks like AAC and LRAIC which could unfairly affect small and medium enterprises (“SMEs”). While the metrics help with analysis, they are complex to calculate using detailed data separation, allocating costs and requiring professional accounting facilities that most SMEs lack. Unlike the large firms with professional cost accountants and automated systems, SMEs rely on basic tools and lean teams. Strict adherence to these metrics creates compliance inequality: large firms can defend with detailed cost models, while smaller businesses may risk inadvertent non-compliance. This imbalance discourages smaller players from competing and entrenches the dominance of better-equipped incumbents. Without simplified formats or SME-specific guidance, the framework could stifle diversity and undermine the inclusive goals of the Competition Act.
Additionally, the Regulations do not outline how the 2009 framework should be changed to meet the requirements of the 2025 regime which creates an essential procedural gap. There is nothing in the new rules that covers how pending investigations, ongoing cases or previous cost submissions should be handled. Without transitional provisions, it’s unclear whether the updated framework applies retrospectively or prospectively. This ambiguity has real implications: investigations may be delayed as parties dispute applicable procedure, and courts. Frequent regulatory updates without corresponding procedural clarity can compromise both fairness and enforcement efficiency. In contrast, mature jurisdictions routinely incorporate transitional provisions, sunset clauses, or phased rollouts. The absence of such mechanisms in India exacerbates uncertainty for litigants, legal practitioners, and the CCI itself – eroding confidence in the fairness and consistency of enforcement. This procedural oversight is particularly striking given the context of broader competition law reform.
Overall, while the 2025 Regulations enhance structure in cost determination, their effectiveness will depend on how remaining ambiguities, sectoral blind spots, and transitional inconsistencies are addressed. Without clear guidance and procedural safeguards, the framework risks privileging form over substance and creating an uneven regulatory playing field.
Balancing Uniformity and Flexibility: Global Lessons for the CCI
While adopting a uniform cost-based framework aligns with global trends, international experience underscores the need for sectoral nuance and interpretative clarity. The EU under Article 102 TFEU, has long relied on AAC and LRAIC to assess predatory pricing. Decision such as Post Denmark and France Telecom decision confirm that below-cost pricing is considered abusive when it impacts equally efficient competitors. Specifically, the commission offers additional guidance for digital sectors that helps regulators understand how to measure costs in these businesses.
In the United States, Brooke Group v. Brown & Williamson set a high bar: plaintiffs must prove both below-cost pricing and the likelihood of recoupment. While this approach allows more business freedom, it offers limited preventive tools – promoting India to adopt clearer metrics.
The UK’s Competition and Markets Authority (“CMA”) uses AAC and LRAIC but also supplements them with detailed notes on cross-subsidisation and digital sector dynamics, such as in its 2021 digital advertising study.
These jurisdictions demonstrate that while cost metrics are essential, their effectiveness depends on contextual interpretation and institutional readiness—both of which India must now strengthen.
Bridging the Gap: Reforming for Clarity, Capacity and Consistency
A fair, transparent and enforceable cost-based framework can only succeed if the 2025 Regulations are supported by targeted institutional ]reforms and well-defined procedures. The priority should be to improve how the Regulations are carried out and how they are understood, mainly in fields where the market is more complicated.
A crucial reform is the development of industry-specific explanatory notes, particularly for digital markets, pharmaceuticals and capital-intensive sectors. While the Regulations claim sector neutrality, this often masks real-world costs complexities. The digital economy, for instance, relies on multi-sided markets, freemium models and monetization through data – none of which align neatly with conventional cost measures like ATC or AAC. The European Commission’s 2022 Guidelines on Exclusionary Abuses, offer tailored models and thresholds. India can adopt a similar strategy without compromising its uniform approach. Rather than altering the framework’s core, the CCI could publish interpretive notes that aid both regulators and businesses in understanding sector-specific cost dynamics – enhancing fairness without sacrificing accuracy.
Another important reform is the establishment of independent cost auditing mechanisms, particularly for large firms producing across multiple markets. Dominant entities often manipulate internal costs allocations to justify below-cost pricing. To avoid relying solely on party-submitted data, the EU frequently uses external cost experts in such investigations. India can draw on successful domestic models too – like SEBI’s use of independent valuers and TRAI’s engagement with third-party consultants. Performing third-party cost audits in key or big data cases would ensure similar approaches and make it easier for the regulator to compare costs. Additionally, the creation of standardized cost-reporting templates, in collaboration with the Institute of Cost Accountants of India, would facilitate more reliable and comparable submissions.
The long-term credibility of the 2025 Regulations also depends on periodic review and updating. Without a built-in review mechanism, the framework risks becoming outdated as business models, cost structures, and legal interpretations evolve. Jurisdictions globally revise their guidance to reflect market realities, technological change, and judicial developments. India must adopt a feedback loop where enforcement outcomes inform future amendments. Codifying a mandatory review clause – say every three years would ensure responsiveness and reduce the need for disruptive overhauls.
Ultimately, the goal is not to overhaul the 2025 Regulations but to refine and future-proof them. By combining global best practices with sectoral insights and institutional capacity, India can ensure that the cost-based approach genuinely fosters fair competition in an increasingly complex economy.
Conclusion
The 2025 Regulations are an important milestone in how India handles competition issues. The Competition Commission of India has chosen a sector-independent approach based on costs which supports global standards and helps it address the role of digital platforms in India. Choosing to use ATC, AVC and a new definition of LRAIC proves that authorities are more committed to fighting predatory pricing and other problems in markets.
Their success depends on how they are carried out in practice, not only on how well they are thought out. If there are no clear ways to implement regulations, especially in digital markets that require significant investment, the flexibility could cause issues and create unclear laws. It is also necessary to help smaller firms and fill any gaps in understanding by building strong regulatory systems and providing details for each industry.
The new framework is an appropriate response to the current changes in the world of competition. With open procedures, ongoing participation by stakeholders and routine reviews, it can become a key aspect of modern competition law in India, making fair play the norm and removing barriers to its enforcement in different fields.