Law Audience's Blog

Authored By: Jyoti Kumari (LL.B), Law Centre 2, Faculty of Law, Delhi University, India, Research Writer at Law Audience®,

Edited By: Mr. Varun Kumar, Advocate, Himachal, Punjab & Haryana and Founder at Law Audience

Introduction: 

The competition act, 2002 was made to promote and maintain healthy competition in the market, protect the interests of consumers, and ensure freedom of trade for all market participants in India. One of the main aims of the act is to stop practices that harm competition. Among these practices, abuse of dominant position is very important. The act does not consider dominance itself as illegal. A company may become dominant because of efficiency, innovation, or good business skills, and this is allowed. However, when a dominant company misuses its market power in an unfair way or prevents other companies from competing, it harms both competition and consumers. To control such misuse, section 4 of the competition Act 2002 deals specifically with abuse of dominant position.

MEANING OF DOMINANT POSITION:

Sec 4 explanation (a) of the competition act 2002 defines the concept of dominant position.

According to the act dominant position means a situation where an enterprise has strong power in the relevant market in India. Because of this power, the enterprise can work without being affected by competition in the market, or it can influence competitors, consumers, or market conditions in its own favor. A dominant position exists when an enterprise has such strong market power that it does not have to worry much about competition or consumer choice. It can decide prices, conditions or business strategies without being affected by market pressure. Dominance does not depend only on high market share but depends on several factors such as economic strength, control over resources, and entry barriers for new competitors.

MEANING OF ABUSE OF DOMINANT POSITION:

Sec 4(1) of the competition Act, 2002:

1. Section 4(1) of the competition act 2002 provides that no enterprise or group shall abuse its dominant position in the relevant market.
2. Abuse of dominant position refers to the misuse or improper exercise of market power by an enterprise that enjoys a dominant position
3. Dominance by itself is not prohibited under the act however the use of such dominance in an unfair or anti-competitive manner amounts to abuse.
4. An enterprise is said to abuse its dominant position when it acts independently of competitive forces and uses its market power to:

• Exploit consumers, or
• Restrict or eliminate competition, or
• Deny market access to competitors

5. The purpose of section 4(1) is to prevent conduct that harms competition and consumer welfare, while allowing enterprises to achieve dominance through legitimate means such as efficiency and innovation.

 

FACTORS FOR DETERMINING DOMINANT POSITION:

SEC 19(4) of the competition act 2002 says that-

 When determining whether an enterprise enjoys a dominant position in the relevant market, the competition commission of India considers the following factors:

1. Market share of enterprise – the extent of control exercised by the enterprise in the relevant market.
2. Size and resources of the enterprise – the financial strength, assets, and overall capacity of the enterprise.
3. Size and importance of competitors – the relative strength and market presence of competing enterprises.
4. Economic power of competitors – the relative strength and market presence of competing enterprises.
5. Entry barriers- the existence of barriers such as high capital requirement, technological constraints, or legal and regulatory restrictions that limit new entrants.
6. Market structure and size – the nature, composition, and overall size of relevant market.
7. Dependence of consumers on the enterprise – the degree to which consumers rely on the enterprise for goods or services.
8. Countervailing buying power- the ability of buyers to exert pressure on the enterprise to restrain its market power.
9. Vertical integration of the enterprise- control exercised by the enterprise over different stages of production or distribution.

 It is provided under the act that no single factor is decisive in determining dominance. The competition commission of India assesses dominance on the basis cumulative and holistic consideration of all relevant factors.

RELEVANT MARKET:

Dominance is always assessed with respect to a particular market.

Relevant geographic market:

It includes the area in which conditions of competition are similar and can be distinguished from neighbouring areas.

Relevant product market:

It includes products or services that are regarded as interchangeable or substitutable by consumers due to their characteristics, price, and intended use.

The competition commission of India (CCI) first determines the relevant market and then examines whether the enterprise enjoys a dominant position in the market.

FORMS OF ABUSE OF DOMINANT POSITION:

Section 4(2) of the competition act lists various acts that amount to abuse of dominant position. These acts can be broadly classified into exploitative abuses and exclusionary abuses. These are explained as follows:

1. Unfair and discriminatory conditions or prices
2. A dominant enterprise is said to abuse its position if it directly or indirectly imposes unfair or discriminatory conditions in the purchase or sale of goods or services.
3. The imposition of one sided unreasonable, or oppressive contractual terms on consumers or business partners amounts to abuse of dominance.
4. A dominant enterprise also abuses its position if it charges unfair or discriminatory prices from consumers who are similarly placed, without any reasonable justification.
5. Such discriminatory pricing may result in unequal treatment of consumers or competitors, thereby distorting competition.
6. Forcing consumers to accept unfair conditions as a prerequisite for obtaining goods or services is also considered abusive conduct.
7. However, the act permits reasonable price differences if they are based on legitimate factors such as cost differences, market conditions, or commercial justifications.

 

2. 2. Predatory pricing sec4(b) 

• Predatory pricing refers to the practice of selling goods or services at a price below cost with the intention of eliminating competitors from the market.
• This form of abuse is specifically applicable only to dominant enterprises, as non-dominant enterprises, as nondominant firms are generally incapable of substaining losses for long periods.
• To establish predatory pricing, the following three essential elements must be proved.

->the enterprise holds a dominant position in the relevant market.

->the price charged is below the cost of production

->there exists an intention to reduce or eliminate competition.

• Predatory pricing is considered harmful because once competitors are driven out of the market, the dominant enterprise can increase prices, reduce output, or lower quality.
• This practice ultimately leads to consumers exploitation and adversely affects long-term competition.

3.Limiting of restricting production, supply, or technical development

Sec4(2)(b)

1.A dominant enterprise abuses its position if it limits or restricts production of goods or provision of service in the market.

2.such limitation may be done to create artificial scarcity in order to increase prices or maintain market control.

3.the provision also covers acts where a dominant enterprise restricts technical or scientific development relating to goods or services.

4. preventing innovation or delaying the introduction of improved technology adversely affects consumer welfare.
5. these actions are considered abusive because they hinder market efficiency,

4. Denial of market access

Section 4(2)(c)

1. Denial of market access occurs when a dominant enterprise prevents or restricts other enterprises from entering or competing in the market.
2. This may be done by refusing to supply essential inputs or facilities that are necessary for competitors to operate
3. Entering into exclusive agreements that block the entry of new competitors also amounts to denial of market access.
4. Control over essential facilities, such as infrastructure or platforms, and refusing access on reasonable terms constitutes abuse.
5. This form of abuse directly affects the competitive structure of the market by excluding competitors and reducing competition.

5.Leveraging dominance in one market to enter another market

Sec4(2)(e)

1. a dominant enterprise abuses its position when it uses its dominance in one relevant market to protect or enter into another market.
2. This practice is known as leveraging and involves extending market power from one market to another.
3. Leveraging enables the dominant enterprise to gain an unfair advantage in the secondary market.
4. Such conduct may result in the elimination of competition in the second market and restrict consumer choice.
5. The act prohibits this practice as it allows the enterprise to expand its dominance beyond the original market.

6.Tying and building

                     1.Trying occurs when the purchase of one product or service is made conditional                   upon the purchase of another product or service.

2. Bundling refers to the sale of multiple products or services together as a single package.

                     3.When a dominant enterprise engages in trying or bundling, it may force consumers to buy unwanted products, thereby restricting freedom of choice.

               4.such practices engages in tying or bundling, it may force consumers  to buy unwanted products, thereby restricting freedom of choice.

                     5.Therefore, trying and bundling by a dominant enterprise are considered abusive                                     practices as they distort competition and harm consumer

 The practices enumerated under section 4(2) of the competition act  2002 clearly indicate the legislature’s intent to prevent dominant enterprises from misusing their market power. these provisions ensure that dominance is not exercised in an unfair, exclusionary, or exploitative manner, thereby promoting fair competition and protecting consumer welfare.

Dominance and abuse: difference

Dominance itself is not illegal. It is the result of efficiency or better performance. Abuse of dominance is illegal because it harms competition and consumer welfare.

 Conclusion

Abuse of dominance position under the competition act 2002 plays a crucial role in maintaining fair competition in Indian markets. The act follows a balanced approach by allowing enterprises to grow and become dominant through merit, while strictly prohibiting the misuse of such dominance.sec4 of the act ensures that dominant enterprises do not exploit consumers or eliminate competition through unfair practices. Through the effective functioning of the competition commission of India and evolving judicial interpretation, the law on abuse of dominant position fair competition, and support economic growth in India.