What constitutes a market? Back to basics for CCI as its orders go awry

This year, the CCI has passed a string of orders ranging from suspected cartels formed by aviation companies to corner fuel to anti-competitive behaviour by a chess federation

In a first of sorts for India’s regulators, the Competition Commission of India (CCI) has begun to reopen some of its past orders and has hired 24 reputed institutions to conduct surveys to help it understand what constitutes a market. 

The introspection has been spurred by more than one embarrassing court verdict staying its orders. The latest order is from the Delhi Bench of the National Company Law Appellate Tribunal (NCLAT). The NCLAT told the CCI it had made a mistake in penalising Hyundai Motor India a sum of Rs 870 million for alleged “anti-competitive practices” under Section 3 and Section 4 of the Competition Act.  

The NCLAT also stayed the CCI’s order against Google in February for “abuse of dominance”, which carried a penalty of Rs 1.36 billion.

This year, the CCI has passed a string of orders ranging from those on suspected cartels formed by aviation companies to corner fuel to anti-competitive behaviour by a chess federation.

In a nutshell, the work of the CCI is to ask companies to stop setting prices or getting into bed with others when it is convinced that such a move would hurt consumers. This is known as market distortion and is the basis of all CCI orders. 

But to make such a judgment, it needs to define a relevant market, especially if there are competitors who can undercut such price fixing or dominance. 

“The commission has recently empanelled 24 reputed institutions to conduct surveys to collect primary data and undertake economic analysis of markets based on secondary data,” said Sudhir Mittal, chairman, CCI. 

Armed with this knowledge, the CCI believes it will be more certain that it is taking the right call when it stops a merger, for example, in order to protect consumer interests. It has already started reviewing a few of its merger decisions. “The commission is keen on taking up a few merger review decisions for ex-post assessment. One assessment has already been done internally,” said Mittal. 

Unfortunately, as of now, companies are not keen on making these results public. “Confidentiality claimed by the parties on the data used for the exercise is one issue that comes in the way of bringing out the results in the public domain,” said Mittal.

  

As the Hyundai and Google cases show, the financial stakes are very high. Companies watch carefully to see how the CCI reads anti-competitive behaviour and how it leans on mergers and acquisitions. The regulator’s nod is essential to keep pricing arrangements and inorganic growth strategies in place in the large Indian market on track if the economy is to become the third-largest in the world.

Seven years after it was set up, the CCI has therefore, begun an exercise to sharpen its understanding of what makes a market, especially a digital market. In its early years, the CCI had conducted some studies in different industry sectors to obtain what it called “a broad overview of market structures”. But this time, the scale is going to be far wider. In the list of 24 institutions are IITs, IIMs, and other non-profit institutions. They will be asked by the commission to study a sector and collect primary and secondary data to arrive at an understanding of what defines a market. 

“Definition of the relevant market (often) gets mired in an inexplicable controversy of two-sided and multi-sided platforms, confusing markets with innovative business models,” said former CCI member Geeta Gouri. In misreading the situation, the CCI could end up stifling competition instead of nurturing it.  
 

The CCI’s operations have been subjected to intense review by the government over the past two years. The latest of these is a plan by the Ministry of Corporate Affairs to review the competition law announced in October. The ministry’s review committee includes the CCI chairman, the secretary of the ministry, and a host of other officials. 

Given that India’s Competition Act and its rules borrow from similar watchdogs set up in countries like Japan and the US, Mittal said it was important that international best practices should be followed by all nations so that cross-border competition issues can be effectively addressed. “In that sense, we welcome such a review process of the competition law,” he said. 

In April, the Cabinet approved a reduction in the number of members in the CCI from seven, including the chairman, to four. “The faster turnaround in hearings is expected to result in speedier approvals, thereby stimulating the business processes of corporates and resulting in greater employment opportunities in the country,” said a government press note. 

The reduction seems to have scotched plans to create more Benches of the CCI in cities other than Delhi.