Regulation of Abuse of Dominant Position

AUTHOR: MUSTAFA KHAN, INTEGRAL UNIVERSITY, LUCKNOW

The balance of power among companies in a competitive market affects the growth of the market, fair trade practices and consumer welfare. Dominant position refers to when one entity holds significant power and that entity has the potential to either abuse its position to stifle competition or enhance market growth.  The issue of abuse of dominant position in the Indian market is addressed by section 4 of the Competition Act, 2002. In this blog, we will understand what is abuse of a dominant position and what is the definition of a dominant position according to the Competition Act 2002. 

The term dominant position refers to the position of any company or entity in a competitive market in which they gain significant power in the market which leads to allowing them to act independently of competitors, suppliers or consumers in a particular market.  This dominant position lets them dictate the market according to them like exerting control over prizing and change-making terms according to their convenience or controlling the quality of the product and output due to a lack of effective competition. According to Section 4 of the Competition Act 2002, it does not target the existence of a dominant position rather it targets the misuse of it and this view is discussed in Shri Neeraj Malhotra, Advocates v. North Delhi Power Ltd by the Competition Commission of India. This regulation is very important to protect small and medium-sized enterprises and also protect consumers from exploitation. 

To determine the dominant position of any company or entity the competition law provides the term relevant market so by considering the relevant market of any company we can determine the dominant position which involves the relevant geographic market and relevant product market. The relevant product market encompasses products that consumers consider interchangeable or substitutable.  Now if a brand monopolises the market the consumer can turn to alternative brands if the price rises but if there is no substitute then its power is significant. On the other side when we talk about relevant geographical markets it has areas where conditions of competition are homogenous.

After determining the relevant market, the competition Act 2002 outlines factors that determine the dominance under section 19(4) which includes: 

• The enterprise size and resources 

• Share of the entity in the relevant market 

• Entry barriers faced by new firms who attempt to enter the market 

• Power of the enterprise and ability to influence the price, supply and demand 

• Dependency of the consumer on whether consumers have different enterprises to depend on in case of a price hike or not. 

According to the above conditions CCI decides whether the enterprise holds a dominant position in the market or not. 

In order to monitor if a dominant position is being abused, the CCI looks at dominance that has been established within the market. Here are the factors that screen any alleged supreme abuse of market position specifically referred to in the provisions of Section 4 of the Competition Act: 

• Unfair or Discriminatory Pricing: Consumers and competitors may be a victim of price discrimination by dominant firms to gain an advantage or charge them excessive prices. This practice can be defined as charging different prices to different parties for the same good without proper justification. 

• Predatory Pricing: When a firm that holds market power systematically undercut their prices, it's called Predatory Pricing. Dominating firms intentionally do this to get rid of competition and once they do, they are free to abuse consumers and raise prices back to its initial point or higher as they have made back their losses. This is quite a vicious tactic as it leads to the compromise of competition and control of the entire market. 

• Limiting Production or Market Access: Setting hurdles for potential rival firms by controlling the production of their product(s), supply of goods, or setting a limit for the production of goods that can occupy the market are However, such circumstances allow competitive firms to charge exorbitant prices and hold steadfast control over the market.

• Imposing quarter-related rules on transactions: Certain dominant enterprises might have customers perform unrelated tasks which are not part of the principal transaction. This might be the case for a mobile operating system provider forcing the use of its app store in order to use the system, thereby limiting the choice of the consumers and restricting competition.

• Squeezing the Upper Hand in One Market to One in Another: A firm which dominates one market might use the opportunity to gain an upper hand in another one which is similar to the first one. For example, a company with a monopoly in the mobile operating systems market could use its market position to push its applications in favor of its own rather than its competitors.

On November 18, 2021, the Competition Commission of India (CCI) issued a final order against WhatsApp in connection with an investigation into a privacy policy update made in 2021, charging the messaging giant 213.14 crore rupees and directing it to modify several of its practices within three months. According to the CCI statement, they stated that the platform should not share user information obtained through the application with other Meta products or services for a period of five years. he CCI said the WhatsApp’s policy update on a ‘take it-or-leave-it’ basis constituted an unfair practice in that it forced all its users to accept the broadened terms of data collection as well as data sharing to the Meta group without any exit option. As argued by the regulator, this undermined the control of the users and was also an act of abuse to the positioning of Meta as a dominant brand in the industry.

The active provisions under Section 4 of the Competition Act perform a pivotal role of safeguarding fair competition practices, especially in respect of abuse of dominant position under competition law. The Act is consumer protection focused by suppressing abuse of certain practices, preventing oppression, and facilitating a free market. There is no doubt, dominance per se is not bad, but it is the abuse or use of excessive dominance which creates the problem. With effective enforcement by the CCI, India manages to sustain the principles of competition law by ensuring that while the dominant companies grow, fair chances are made available to newer and even existing players.

1. Payal Malik, Neha Malhotra, Ramji Tamarappoo & Nisha Kaur Uberoi, Legal Treatment of Abuse of Dominance in Indian Competition Law: Adopting an Effects-Based Approach, 54, 430, 435-464, (2019).

2. Jemy Gatdula, Dominant position in competition law, BusinessWorld, (Nov. 20, 2024, 7:00 PM).

3. IOWA STATE UNIVERSITY, https://www.econ.iastate.edu/ask-an-economist/what-does-dominant-market-position-mean-it-acceptable, (Nov. 20, 2024).

4. Legal Service India.com, https://www.legalservicesindia.com/article/1680/A-Comparative-Understanding-of-Dominant-Position.html, (Nov. 21, 2024)