"The commission has always maintained that fixed cost will not be considered while charging a company for under-pricing a product. The advisory committee has also now approved the commission's approach," said CCI Acting Chairman Vinod Dhall.
"If a product like the Nano car is introduced in the market, there was a general view in the committee, that such cases should not be considered as predatory pricing," Dhall added.
The decision would help large corporate houses who had raised concerns with the commission over inclusion of fixed costs in deciding allegations of predatory pricing.
"The committee approved the commission's approach that for determination of costs, average variable cost should be considered as the cost for predatory pricing," he said.
According to the CCI, a dominant player can be accused of predatory pricing if it sells its products below the average variable cost with the intention of eliminating competition.
Predatory pricing means a dominant player selling a product below the prevailing market price with the intention of reducing or eliminating competition.
This implies, Dhall added, that if a dominant market player sells below the average variable cost like that of labour or raw material with the intention of eliminating or reducing competition, then only can he be considered as resorting to predatory pricing.
The Competition Act has been formulated to keep an eye on abusive market practices like cartelisation, abuse of dominance, predatory pricing, etc. The Act, once fully functional, will replace the Monopolies and Restrictive Trade Practices Commission (MRTPC) Act.
Further, if an enterprise launches a new product at a low introductory price, it is unlikely to be regarded as predatory pricing, Dhall said.
The Competition Act, 2002, as amended in September last year, is likely to become operational by the year-end. The Ministry of Corporate Affairs has already invited applications for appointing chairman and members of the commission. The government has also initiated the process of recruiting experts on the panel.
