Abuse of Dominance

Abuse of dominance refers to a situation where a dominant enterprise or group in a market misuses its market power to restrict competition, exploit consumers, or eliminate rivals. While being dominant in a market is not illegal, abusing that dominance to distort fair competition is prohibited under competition laws globally, including in India.
The concept is crucial in competition policy and market regulation, as it ensures that powerful firms do not engage in unfair practices that harm consumers, smaller competitors, or the overall economy.

Definition

Under Section 4 of the Competition Act, 2002 (India),

“No enterprise or group shall abuse its dominant position.”

Here, dominant position means:

“A position of strength enjoyed by an enterprise in the relevant market which enables it to operate independently of competitive forces or affect its competitors or consumers or the relevant market in its favour.”

Thus, abuse of dominance occurs when a company uses its market power to act unfairly or anti-competitively, rather than based on merit or efficiency.

Objectives of Regulating Abuse of Dominance

• To ensure fair competition in the market.
• To prevent exploitation of consumers and unjustified price practices.
• To protect smaller competitors from exclusionary tactics.
• To promote economic efficiency and innovation.
• To maintain market integrity and equality of opportunity.

Determining Dominance

Before identifying abuse, it must be established that a firm holds a dominant position in the relevant market.

1. Relevant Market

The Competition Commission of India (CCI) defines the relevant market based on:

• Relevant Product Market: All products/services considered interchangeable by consumers (e.g., smartphones vs. feature phones).
• Relevant Geographic Market: The area where market conditions for competition are homogenous (e.g., Indian smartphone market).

2. Factors to Assess Dominance (Section 19(4) of the Act)

The CCI considers the following:

• Market share of the enterprise.
• Size and resources of the enterprise.
• Economic power and vertical integration.
• Dependence of consumers on the enterprise.
• Entry barriers (legal, financial, technological).
• Countervailing buyer power.
• Contribution to economic development.

Forms of Abuse of Dominance

Abuse of dominance can take various exploitative and exclusionary forms:

1. Exploitative Practices (Against Consumers):

These involve unfair treatment or exploitation of consumers.

• Unfair or discriminatory pricing (including predatory or excessive pricing).
• Imposition of unfair trading conditions, such as forced purchases or restrictions on resale.
• Limiting production or technical development to the detriment of consumers.

2. Exclusionary Practices (Against Competitors):

These are intended to eliminate or marginalise competitors.

• Predatory pricing: Selling products below cost to drive competitors out of the market, and then raising prices.
• Refusal to deal: Denying access to essential facilities or markets to competitors.
• Tying and bundling: Forcing customers to buy one product as a condition for purchasing another.
• Exclusive supply or distribution agreements: Preventing suppliers or distributors from dealing with competitors.
• Denial of market access: Blocking entry or expansion of other players through unfair tactics.

Key Provisions under the Competition Act, 2002

Section 4(2) of the Act specifies practices that constitute abuse of dominance:
(a) Directly or indirectly imposing unfair or discriminatory:

• Conditions in purchase or sale of goods or services.
• Prices in purchase or sale of goods or services (including predatory pricing).

(b) Limiting or restricting:

• Production of goods or services.
• Technical or scientific development to the prejudice of consumers.

(c) Denial of market access.
(d) Making conclusion of contracts subject to supplementary obligations unrelated to the contract.
(e) Using dominance in one market to enter or protect another market (leveraging).

Examples of Abuse of Dominance

1. Google (India):
   • The CCI fined Google ₹1,337 crore (2022) for abusing its dominant position in the Android mobile operating system market by imposing restrictive conditions on device manufacturers.
2. DLF Ltd. (Real Estate):
   • The CCI imposed a penalty of ₹630 crore (2011) on DLF for unfair terms in apartment buyer agreements, exploiting its dominance in the Gurgaon residential market.
3. Coal India Ltd.:
   • Penalised for imposing unfair conditions in fuel supply agreements with power producers.
4. Intel and Microsoft (Global):
   • Faced penalties in the U.S. and EU for leveraging their market power in computer processors and software markets.

Distinction Between Dominance and Abuse

Procedure for Investigation

1. Filing of Information/Complaint:
   • Any person, consumer association, or government can file a complaint before the CCI.
2. Preliminary Inquiry:
   • The CCI examines whether there is a prima facie case.
3. Director General (DG) Investigation:
   • If a case is found, DG conducts a detailed investigation into market dominance and possible abuse.
4. Hearing and Order:
   • After examining evidence, the CCI may impose penalties, issue cease-and-desist orders, or recommend policy changes.
5. Appeal:
   • Orders can be appealed before the National Company Law Appellate Tribunal (NCLAT) and further before the Supreme Court of India.

Penalties and Remedies

Under Section 27 of the Competition Act, the CCI may:

• Direct the enterprise to cease and desist from abusive conduct.
• Impose a penalty up to 10% of the average turnover for the preceding three years.
• Modify agreements or impose structural remedies.
• Declare contracts or arrangements as void.

Importance of Regulating Abuse of Dominance

1. Protects Consumer Interests: Prevents exploitative pricing and unfair practices.
2. Promotes Fair Competition: Ensures level playing field for all enterprises.
3. Encourages Innovation: Discourages monopolistic behaviour and inefficiency.
4. Supports Economic Growth: Creates a transparent and efficient market system.
5. Maintains Market Stability: Prevents concentration of economic power.

Global Perspective

Different countries have similar provisions:

Challenges in Enforcement

• Difficulty in defining “relevant market” in digital and globalised sectors.
• Complexity in proving intent and effect of abusive conduct.
• Need for continuous monitoring in technology-driven industries.
• Balancing innovation incentives with competition regulation.