On July 29, Facebook, Amazon, Google and Apple faced the US antitrust hearings for their anti-competitive practices. Several of these allegations were made in India over the years for multiple times, without any resolutions. Earlier this year, Google and Facebook, invested in Jio Platforms, the telecom and digital subsidiary of the Reliance Industry Limited. This is the first time that both the global tech giants invested in the same entity anywhere in the world. These investments have raised questions regarding the anti-competitive nature of such deals. For government initiatives like Atmanirbhar Bharat, Make in India etc., to be successful, India requires a range of practices that ensures prevention of few firms dominating the whole market and restricting competition in a bid to preserve their dominant role.
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What are antitrust laws?
- Antitrust laws, which are also known as competition laws, are statutes aimed at protecting consumers from predatory business practices.
- They also ensure fair competition between businesses in an open-market economy.
- In the absence of these laws, consumers will have limited options for goods and services, which can be costly and be of lower quality.
What are the applications of antitrust laws?
Antitrust laws apply to a wide range of questionable business activities. Some of these include the following:
- It is a scheme between two entities aimed at keeping business activities at specific geographic territories or targetting a specific type of consumers.
- This scheme is also called a regional monopoly.
- It is an illegal practice involving two or more entities colluding to choose who would win a contract.
- Under this scheme, the “losing” parties would deliberately make lower bids to allow the “winner” to succeed in securing the deal, in return for getting a chance to win the next auction.
- This enables a cartel of companies to retain the current market share and price, thereby preventing competitions from the market.
- Bid rigging can be of various forms:
- Bid Suppression: Competitors would desist from bidding or withdraw a bid for the winner’s bid to be accepted.
- Complementary bidding: Also called cover or controversy bidding, it involves competitors colluding to submit unacceptably high bids for the buyers or including special provisions in the bid for it to be nullified. These are the most frequent form of bid-rigging. They are designed to deceive purchasers by creating an illusion of a genuinely competitive market.
- Bid rotation: It involves competitors taking turns at being the lowest bidder on a variety of contract specifications.
- Businesses intentionally fix prices, without allowing market forces to determine them naturally.
- This is to attain maximum profits and avoid price wars between similar entities.
- It is the dominance of an industry or a sector by one company or a firm while cutting out competition.
- Market dominance by a certain entity is considered illegal only when it is acquired through exclusionary or predatory practices.
- The types of monopolistic behaviour that can be deemed illegal include the following:
- Exclusive Supply Agreements: These agreements would prevent a supplier from selling to different buyers. This stifles competitions against monopolies, as they would be able to buy supplies at lower costs and prevent competitors from manufacturing similar products.
- Tying the Sale of Two Products: A monopolist has a dominant market share for one product. When this entity wants to gain market shares for another product, it can tie sales of the dominant product to the second product. This forces consumers to buy the second product even if they do not need it.
- Predatory pricing: It is considered to be monopolistic if the price-cutting firm can cut prices far into the future and has enough market share to recoup its losses down the line.
- Refusal to Deal: Monopolies making use of their market dominance to prevent competition by not making business deals.
Mergers and Acquisitions:
These can be divided into horizontal, vertical and potential competition mergers:
- Horizontal mergers: It involves the merger of firms with dominant market shares. Such mergers would be able to exert monopolistic and anti-competitive pressures on the remaining firms.
- Vertical mergers: Mergers between buyers and sellers can improve cost efficiency and business synergies, which can result in competitive prices for consumers. However, such mergers can hurt market competition because of the competitor’s inability to access supplies.
- Potential Competition Mergers: These are pre-emptive mergers between dominant firms and would-be or new market entrants.
What is the history of antitrust laws in India?
Monopoly and Restrictive Trade Practices Act, 1969 (MRTP Act):
- MRTP Act is India’s first antitrust law aimed at preventing the concentration of economic power in private hands and prohibiting monopolistic, restrictive and unfair trade practices.
- The MRTP Commission launched many investigations. However, it rarely managed to punish businesses for their predatory practices due to the lack of adequate resources and the inability to penalise businesses.
- Furthermore, this Act was implemented during a time when the government had an overarching influence on business matters through licencing.
- Thus, any dominance that existed under such a scenario was mainly by design and not by market forces.
- This Act was amended several times to keep pace with the rapid changes brought forth by the economic reforms of the 1990s.
- However, these amendments were inadequate to address the demands of the rapidly changing economy.
Competition Act, 2002
- This legislation brought India’s competition regime on par with international standards.
- Its objectives are to:
- Prevent practices that may have adverse effects on competition
- Protect consumers’ interests
- Ensure freedom of trade carried on by other participants in markets
- Sustain competition in markets
- The competition authority under this Act is divided into two:
- The Competition Commission of India (CCI) as an administrative expert body
- The Competition Tribunal (COMPAT) to carry out adjudicatory functions
- The COMPAT was scrapped in 2017. Its functions were taken over by the National Company Law Appellate Tribunal (NCLT).
- The provisions under this Act aim to control various forms of anti-competitive practices.
What are the key provisions of Competition Act, 2002?
Regulation of anti-competitive agreements:
- Competition Act, unlike the erstwhile MRTP Act, has an extra-territorial reach.
- It grants the CCI jurisdiction over any agreement, abuse of a dominant position or combination that takes place outside India as long as such agreements, conduct or both have or are likely to have an Appreciable Adverse Effect on Competition (AAEC) in India.
- This Act regulates two kinds of agreements:
- Anti-competitive agreements between/amongst competitors (horizontal agreements)
- Anti-competitive agreements between entities or individuals at different stages of the production chain (vertical agreements)
- Under the Competition Act, several horizontal agreements are presumed to cause AAEC.
- This presumption does not mean that all alleged horizontal agreements are necessarily anti-competitive.
- The parties who enter into such agreements are allowed to provide evidence that their agreement does not result in an AAEC and rebut the presumption.
- The Competition Act provides a list of horizontal agreements that could lead to AAEC in India. These agreements, which are known as “cartel” arrangements include the following:
- Price fixing agreements
- Agreements to control/limit production, supply or market access
- Market sharing agreements
- Bid-rigging agreements
- The presumptions that these types of horizontal agreements cause an AAEC does not apply if the agreement is entered into by way of joint ventures aimed at increasing efficiency in the production, supply, distribution etc. without harming the other competitors.
- These agreements are subject to a detailed examination for the possibility of AAEC in India.
- This assessment involves looking into the possibilities of the agreement driving existing competitors out of the market and foreclosure of competition by hindering the entry into the market.
Abuse of dominant position:
- The Competition Act bans an enterprise that enjoys “dominant position” from abusing its position of dominance.
- “Dominant position” means the position of strength enjoyed by an enterprise in the relevant market that enables it to operate independently of market forces and to affect its competitors, consumers or the market to its favour.
- The Act does not specify the criteria for the “dominant position”.
- However, it provides a list of factors to be considered by CCI while determining dominance. These include market share, size and resources of the enterprise and its competitors and the purchasing power of the market.
Mergers and acquisitions:
- All high-end mergers, acquisition and amalgamations require prior notification to and approval from the CCI.
What is the anti-competition scenario in India?
- An analysis of 2,035 companies across 298 industry groups reveals that in 33% of all industry groups, there is a single company controlling over 50% of the net sales in the sector.
- Several of these dominant entities are legacy firms that have influenced over a long period.
- Over the past decade, the number of industries or sectors with dominant firms has declined.
- However, during the same period, dominant firms’ market cap in their respective industries has increased.
- The consolidation of market power in these dominant firms has led them to be in a position to dictate terms.
What is the criticism against CCI?
- The CCI is a statutory body mandated to regulate anti-competitive activity in India.
- It started its full-fledged operations in 2010 after the repealing of the MRTP Act.
- Since the inception until 31st March 2019, this body has noted more than 1,000 instances of anti-competitive practices.
- The highest number of cases were seen in the real estate sector (over 20%), followed by automobiles (10%).
- In the year 2018-19 alone, the CCI received 68 cases related to anti-competitive agreements and abuse of dominant position.
- It passed prima facie orders in 65 of these cases.
- It had completed investigations in 51 instances and imposed fine of Rs.357.85 crores.
- However, only Rs.1.41 crore was actually realised as on 31st March 2019 as most of the CCI orders are under appeal before the NCLAT or challenged in HC or SC.
- Over the past decade, the CCI imposed penalties accounting to more than Rs.13,000 crore. However, less than 1% of that amount has been realised.
- Around half of this fine amount has been refunded to the offending parties.
- In August 2016, the CCI has imposed its largest-ever penalty of over Rs.6,700 crore on 11 cement companies and their trade association for cartelisation and price-fixing.
- Though this was upheld by the NCLAT, the SC in 2018 stayed this order, directing these companies to pay only 10% of the penalty amount.
- The CCI’s inability to consistently enforce punitive measures may be because of the certain loopholes and ambiguities in the provisions of the Competition Act.
- For instance, the law allows the CCI to leave some leeway for relative advantage to contribute to economic development.
- This may allow larger firms to justify their anti-competitive practices in the name of development.
How are Indian anti-trust laws different from the US?
- The Competition Act, 2002 has much in common with the US and EU enforcement structure.
- However, the system differs in the matter of level and quality of enforcement.
- As opposed to the Indian framework comprising of single legislation and a single agency, the US enforcement framework comprises of multiple agencies and laws.
- In the US, two federal agencies – the Antitrust Division of the US Department of Justice (DoJ) and the Federal Trade Commission (FTC) – bear the major responsibility of enforcing anti-trust laws.
- While the Antitrust Division of the DoJ is a part of the executive branch, the FTC is an independent administrative agency like that of CCI.
- The Sherman Act, 1890 is the oldest antitrust statute that deals with anti-competitive and monopoly agreements between the firms.
- The Clayton Act, 1914 deals with specific business practices like price discrimination and tying, exclusive supply etc.
- The Clayton Act also regulates the mergers.
- This Act prohibits mergers that can substantially lessen competition or tend to create a monopoly.
- Unlike in India where the CCI is empowered to approve or prohibit merger, the US system requires the agencies to approach the federal courts to enjoin a merger.
- The DoJ and FTC independently enforce the Sherman Act and the Clayton Act.
- If their violation entails criminal prosecution, the DoJ has the exclusive authority to prosecute.
What are the challenges faced by CCI in the digital age?
- CCI is facing numerous challenges related to telecom, internet and big technology.
- Its functions overlap with those of regulatory bodies like the Telecom Regulatory Authority of India (TRAI).
- The distinguishing feature of internet and telecom market is the ‘network effects’ – a phenomenon whereby a product or service gains an additional value as more people use it.
- The big tech companies can pose anti-competitive challenges due to their dominance arising from network effects.
- This is precisely the potential risk posed by Jio Platforms, which holds a dominant position in the Indian telecom sector.
- The CCI’s scrutiny of Facebook’s investment in Jio Platforms for potential misuse of user data concluded with the deal being termed as “pro-competitive” with high benefits for consumers and small and local businesses.
- It did not consider the network effects emerging out of this deal.
- Jio Platform’s deal with Google could only expand its position further, with several large American tech companies rolled into one for the dominance of the Indian market.
- It has already secured over 50.7% of all global telecom deals in 2020.
- Similar risks are also found in India’s emerging internet economy.
- These risks are difficult to assess as many of the firms are either unlisted private entities or listed in stock markets outside the country.
- However, it is estimated that Facebook and Google together account for 68% of India’s digital ad market revenues, while Amazon and Flipkart servicing the majority of e-commerce orders.
- In the absence of robust anti-competition regulation, these firms can potentially misuse their market dominance to further expand at the expense of consumers and competitors.
How should India’s competition regime adapt to the digital age?
- The reformation of the Competition law to address the needs of the digital age should focus on the actual cause for harm and then tailor remedies that address the cause.
- The foundation of Competition Act, 2002 is rooted in arguments of economic efficiency without factoring in data as an economic asset.
- Data-driven innovation is central in identifying efficiency gaps in traditional business models and fixing them using an assortment of data mining and predictive analysis.
- Higher the number of consumers and sellers transacting over the digital platform, the more essential and indispensable the platform becomes for both sides.
- The consumers benefit from various initiatives undertaken by the digital platform to promote purchase.
- On the other hand, the sellers would have limited bargaining power with the digital platform.
- Furthermore, startups would find it difficult to compete with dominant digital platforms because of the latter’s control over a large amount of data.
- The current Competition Law does not capture this scenario.
- The Competition Law Review Committee, headed by Injeti Srinivas, submitted a report to the Corporate Affairs Ministry in July 2019.
- This report recommended scrutiny of mergers above a certain deal value over the existing practice of scrutiny based on asset value to address acquisition by large digital platforms.
- This recommendation is based on the fact that though many digital platforms have limited assets, they are valued based on their network and data wealth.
- Though many small digital platforms were wiped out of the market by bigger platforms, such acquisition does not always lead to excessive profits.
- For instance, Flipkart had to shut down the online retail platform Jabong, which was acquired for $70 million, because of huge losses.
- Thus, instead of scrutinizing the deal value, the reform should focus on potential data dominance in relation to the acquisition in the tech industry.
- The value of big data analytics is derived from veracity, velocity, volume and variety of data.
- Of these, the enhancement of data variety on account of acquisition is probably the most harmful as it permits technology platforms to extend their dominance to other sectors.
- Therefore, the CCI must target the variety of data in the hands of the acquirer and compare that with the variety of data in the possession of the acquired.
- It should then assess whether the variety of data controlled by the merged entity or acquirer firm would be such that it could lead to long-term undesirable consequences on data-driven innovation, like excessive centralisation of power.
- For this regime to be effective, the CCI would require staff with specialised knowledge on technology and modern industrial economics.
Draft Competition (Amendment) Bill, 2020:
What is Draft Competition (Amendment) Bill, 2020?
- The Competition (Amendment) Bill, 2020 was drafted based on the recommendations by the Competition Law Review Committee, which was constituted in 2018 to study the current market trends and examine whether the Competition Act, 2002 is on par with the market practices and recommend changes if necessary.
- The Bill aims to bring major changes to the existing antitrust regime in the country.
What are the key features of the Draft Competition (Amendment) Bill, 2020?
- Under this Bill, a governing body would be set up consisting of part-time members and ex officio members.
- This governing body will be responsible for all the quasi-legislative functions and policy decisions. This reduces the burden on the CCI.
- The introduction of part-time members and ex officio members will bring in external perspective. This results in the strengthening of democratic legitimacy and accountability of the CCI.
- The Bill also intends to merge the offices of Director General (DG) constituted under the Competition Act as an investigative branch of the CCI.
- Currently, the DG was accountable to the Central government and not the CCI.
Changes in CCI functions:
- The Bill introduces provisions to allow settlement or consent orders in case of antitrust proceedings.
- It would permit an investigated party to offer a settlement or voluntary commitments in relation to anti-competitive vertical agreements or abuse of dominance.
- This is to enable the CCI to resolve antitrust cases faster so as to allow businesses to avoid long investigation procedures and uncertainty.
- The Bill also reduces the time within which the CCI has to issue its preliminary opinions on whether the combination would cause AAEC from 30 working days to twenty calendar days.
Changes in provisions related to combinations:
- The Bill introduced several changes regarding the regulation of combinations.
- The Act prescribed certain specific grounds that would constitute combination and parties involved in such transactions are required to notify CCI before the execution of such agreements.
- The Bill empowers the Centre, in consultation with the CCI, to identify any other grounds that would constitute combination.
- Furthermore, the Bill also allows the Centre to delist any grounds that would otherwise constitute combination.
- The Bill, through these provisions, intends to include several digital transactions that are currently out of the CCI’s ambit.
Green Channel Process:
- The Bill provides statutory recognition of Green Channel Process.
- This is to hasten regulatory approvals for the vast majority of mergers and acquisitions that may have no adverse effects on competition.
- The objective here is to move towards a disclosure-based regime with strict penalties for providing inaccurate and incomplete information.
- The power of the Green Channel will also be extended to approve resolutions arrived at in an insolvency resolution process under the IBC.
- The Act has not defined the minimum standards required to establish control.
- Therefore, the CCI uses certain yardstick for assessing the ability to exercise ‘decisive influence’ and ‘material influence’.
- The Bill proposes statutory recognition to standards of ‘material influence’
- This is to reduce uncertainty, bring in the consistency to the decision-making process and ensure scrutiny of a larger number of transactions while maintaining the investment-friendly economy.
- The Bill aims to expand the scope of the Competition Act to cater to the needs of the digital markets.
- For this, the Bill is making numerous changes in the existing antitrust regime.
- The Bill includes the “control over data” or “specialised assets” under the list of conditions that constitute dominance of a company in the market.
Empowering CCI and DG:
- Under the Bill, non-compliance to the directions of DG or CCI would attract imprisonment of up to 6 months or fine up to Rs.1 crore.
- It introduces the maximum cap of penalty as the 10% of the income of the individual in the preceding three years, in case of cartels.
- The Bill also introduces a provision that allows reduced punishment to the investigated cartel if it discloses some relevant information of some other existing cartels.
What are the drawbacks of the Amendment Bill?
- The committee recommended the governing bodies to have the power to perform quasi-legislative functions and policy decisions. It does not allow adjudicatory functions.
- The Bill fails to clearly demarcate such powers.
- It also does not elaborate on the procedure of electing the part-time members and ex officio members. This creates concerns regarding their independence.
- The integrated agency model adopted by the Bill could impact the system of check and balance established by separating the investigative and adjudicatory branches of the anti-trust regime.
- In fact, this model is against the SC verdict where the apex court provided greater independence to the office of DG. It had empowered the DG to include new facts in its report.
- The Bill also does not consider the protective measures recommended by the Committee. These include:
- The DG, to maintain functional autonomy, must directly report the Chairperson of the CCI.
- The parties should have adequate right to representation and examine evidence
- Setting up of a strong appellate forum
- The Bill merely introduced the concept of compounding of offences by the NCLAT. It does not provide for the procedure to be adopted by the NCLAT on this regard.
- The Bill also does not include the setting up of a Bench of NCLAT dedicated to hearing appeals under the Competition Act.
- Since the scrapping of COMPAT, the rate of disposal of appeals has decreased considerably.
- In its absence, there will be a huge hindrance to the national initiatives like the Make in India.
Why do the recent US antitrust hearings on big tech matter to India?
- Google, Facebook and Amazon play dominant roles in the Indian market.
- Amazon offers the cheapest products and Google and Facebook provide free services.
- However, these entities, through their market dominance, can shut out smaller rivals by acquiring them or driving them out of business with their influence.
- They also collect data related to consumers, which is then used to manipulate their behaviour and dictate outcomes.
- In addition, they are able to survive rapid changes in the markets caused by government policies/decisions, SC verdicts and crises like the on-going pandemic.
- Demonetisation and GST were initiated explicitly to drive the formalisation of the economy.
- However, these government decisions have caused bigger and better-organised players like Amazon to gain more at the cost of smaller entities.
- The Insolvency and Bankruptcy Code (IBC), which was intended to solve the problem of NPAs of banks, led to the consolidation in many sectors.
- The SC verdict on telecom sectors has resulted in just a few companies’ dominations over the sector.
- The pandemic has caused only a few companies to have cash or raise capital to take over their competitors who are struggling with debt servicing.
- In India, these aspects have resulted in only two or three companies dominating several sectors like telecom, organised retail, ports and airports.
- Thus, dominance has become an endemic feature in many sectors across the Indian economy.
- The US’ anti-trust hearing is especially significant, as India has banned a host of Chinese apps, giving American companies like Amazon and Google to gain bigger market share.
Should the allegations leveled against big tech companies by the US government be a concern for India?
The charges against the big tech companies during the recent US antitrust hearings are highly relevant in the Indian context as several of the discussed issues are of major concern within the country.
Mistreating of third-party vendors:
- India’s small vendors have often accused Amazon of weakening them through anti-competitive practices.
- They allege that their data is being used by Amazon to design its own private labels and selling products of certain “preferred sellers” at deep discounts.
- Such allegations are worrisome as over half a million third-party sellers are using the Amazon platform.
- Amazon was questioned on the monopolistic abuse of lowering prices to drive competitors out of the market and then raising prices again.
- In India, trade bodies that represent around 70 million small merchants have frequently protested against Amazon’s deep discounting.
- The 2018 e-commerce policy aims to address this issue by barring the platforms in controlling the prices. However, little success was seen.
- Big firms were accused of mishandling of data to hurt competition and gaining advertisers.
- The Indian government, though is currently concerned over the data privacy issue, has proven to be ineffective.
- Apart from banning several Chinese apps, its response has been limited to asking all global internet players to store information of Indian users within the country.
- Even these limited measures are difficult to execute because of inadequate infrastructures and other aspects.
Abuse of dominance:
- The tech giants were accused of enjoying the power to pick winners and losers and suppress competition that is against their favour.
- Google, for instance, was accused of manipulating election results.
- The internet search giant, during the 2014 Indian elections, was accused of swinging votes through search manipulation.
- The CCI, in 2018, fined this company for abusing its dominant position.
- Amazon was accused of earning money out of counterfeit product sales.
- The Indian e-commerce market is inundated with counterfeits.
- In May 2018 survey, nearly one in three Indians had reported receiving counterfeit products via online shopping.
- One of the major allegations during the hearings was that these companies kill competition by either stealing the technology or acquiring rivals.
- Google and Facebook are currently playing a predominant role in boosting India’s startup ecosystem.
- These companies along with Apple are making large-scale investments in the emerging startups.
- Google and Facebook’s investment into Jio Platforms is one of the major initiatives taken by these companies to suppress competition in the Indian market.
- None of the Indian platforms has the reach like that of the big tech companies.
- The only company that could come somewhere close to such dominance is Reliance Jio.
- The recent investments can make this position even stronger, with little to no competition in the Indian market.
For India to become self-reliant with consideration to the need for consumer welfare and economic growth and development, it must address the issue of anti-competitive policies followed by various firms operating within the Indian market. This requires a competition regime that is on par with the current needs with necessary regulations.
Practice question for mains:
India’s competition regime must be reformed to be on par with the current needs. Comment. (250 words)