CCI's draft regulations on cost in predatory pricing by dominant firms

In February 2025, the Competition Commission of India (CCI) released draft regulations titled The Competition Commission of India (Determination of Cost of Production) Regulations, 2025. These draft regulations seek to replace the earlier 2009 regulations on the subject. The proposed regulations aim to modernise the framework for assessing predatory pricing under the Competition Act, 2002, aligning it with contemporary economic theories in other jurisdictions and global best practices. The draft regulations invite public consultations from stakeholders until March 19, 2025, via the CCI portal.

 

Predatory pricing is an anti-competitive practice under Section 4(2)(a)(ii) of the Competition Act, defined as selling goods or services below cost by a ‘dominant firm’ with the intent to eliminate competitors. For a pricing strategy to be classified as predatory, all three conditions must be met:

 

(i) Dominant market position (defined under the Act, under Section 4 explanation (a), with the ability to control prices and restrict competition).

(ii) Pricing below cost (as defined under the new draft regulations).

(iii) Intent to eliminate competition (creating a monopoly after eliminating competitors, rather than simply engaging in competitive pricing).

 

The most significant change in the new draft regulations is the removal of “market value,” which previously caused ambiguity, and the addition of “average total cost (ATC).” Average variable cost means total variable cost divided by total output during the referred period. In specific cases, the CCI may consider other cost assessment measures as outlined in the new regulations, such as average total cost, average avoidable cost, or long-run average incremental cost, depending on the industry, market conditions, and technology involved. The CCI or the director general may seek assistance from experts to determine cost figures. Enterprises disputing the cost determination can request an independent expert review at their own expense, ensuring a fair and transparent process.

 

These proposed regulations, following the 2023 amendments to the Competition Act, reflect the CCI's proactive approach in addressing anti-competitive practices by updating its tools and methodologies in line with evolving market dynamics and stakeholder consultations.

 

CCI has so far applied the earlier 2009 regulations in limited cases and has rightly refrained from pricing interventions in the market, which should be governed by competition. Market prices depend on legitimate competition and dynamics among market participants, ensuring the best quality and price for consumers. As indicated above, for pricing to be classified as predatory under the Act, it is necessary to meet the following conditions:

(i) Dominance in the market.

(ii) Pricing below cost, as benchmarked under the new regulations instead of the ‘market’ or ‘average variable cost.’

(iii) Intent to drive competitors out of the market.

 

There may be various valid reasons for a reduction in prices, such as short-term promotional discounts, introductory offers, or limited-time discounts to attract customers. Other factors, such as government subsidies or support programmes, may also influence pricing. These are legitimate market dynamics and cannot be categorised as predatory pricing.

 

Certain sections of the media have linked these new draft regulations to ‘e-commerce’ or ‘quick-commerce,’ alleging that platforms have engaged in unfair competitive practices by reducing prices, as claimed by some brick-and-mortar traders. While CCI may examine such cases under other existing provisions of the Act, there is no direct connection between these matters and the new draft regulations, which do not affect such enterprises or platforms.

 

CCI has so far acted as a fair and mature regulator, fulfilling its role under the Preamble of the Act: "keeping in view the economic development of the country, for the establishment of a commission to prevent practices having an adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers, etc." It has also introduced several measures, such as time-bound approval of mergers and acquisitions (M&A) cases under the 2023 Act and a green channel mechanism to fast-track investment cases, establishing its reputation as a fair, impartial, and balanced regulator. In handling cases brought before it, CCI is expected to continue its role as a fair market regulator, while also encouraging investments in the fast-changing techno-economic landscape and meeting the needs of the economy.

 

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  (Dhanendra Kumar has been the first chairman of CCI and executive director at the World Bank for India, Sri Lanka, Bangladesh, and Bhutan. He is currently chairman of Competition Advisory Services India LLP (COMPAD).) 

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