Introduction:
To understand the concept of abuse of dominance, we first need to under what dominance means. Dominance is a position one holds that is of greater strength as compared to others and can cause influence in the market. A dominant position allows an individual to
- Operate without being significantly influenced by competition in the market.
- Have an impact on its competitors, consumers, or the overall market in a way that favors the company
Having a dominant position does not harm anyone. However, the abuse of such a position can harm. When an individual with dominance in the relevant market uses this power unfairly, it creates abuse of dominance. It makes it hard for other individuals to compete fairly, harms consumers, and isn’t good for competition. The law does not prohibit being in a dominant position, but rather it does say that abusing the dominance is prohibited. So, instead of just focusing on an individual’s size, we should pay more attention to stopping the abuse of dominance. We need to use competition laws to discourage and punish actions by powerful companies that prevent, limit, or distort fair competition.
Determination of Abuse of Dominant Position
There are three steps which determine whether an individual/ company is abusing its dominance.
1.Determination of the Relevant Market:
According to Section 2(t) of the Competition Act, a relevant product market is defined as a market that includes all products and services that consumers view as interchangeable or substitutable. This perception can be based on various factors, such as the characteristics of these products or services, how they are produced or supplied, and how easy it is for suppliers to switch their production. In order to determine this product market, several factors are considered:
- Price of Commodities: The prices of similar goods or services are examined to understand their competitive relationship.
- Physical Characteristics or End Use of Goods: Products with similar physical attributes or used for the same purpose are grouped together.
- Existence of Specialized Producers: The presence of specialized producers who focus on specific types of goods or services is taken into account.
- Consumer Preferences: Consumer preferences and their willingness to substitute one product or service for another are considered.
- Exclusion of In-House Producers: Whether goods or services produced in-house by a company are included or excluded from the market definition.
In simpler terms, the relevant product market is determined by looking at how consumers perceive and use products or services, their characteristics, and how easy it is for suppliers to switch their production. This helps in understanding which products or services can be considered as substitutes or alternatives in a particular market.
2.Determine the Dominance in the Relevant Market:
The Competition Commission of India (CCI), the regulatory body responsible for ensuring fair competition in the country, must take the following factors into consideration when determining whether an enterprise holds a dominant position in are market share, size, and resources of the enterprise, size, and importance of competitors, economic power of enterprises, vertical integration and sales/service network, consumer dependence, monopoly or dominant position, entry barriers and relative advantage impacting competition and any other factors that the CCI deems relevant for the inquiry. In essence, the CCI must thoroughly evaluate these factors to determine whether an enterprise holds a dominant position and whether this dominance has any adverse effects on competition in the market.
3.Determine abuse in the dominant position:
To determine if the enterprise is abusing its dominant position, we first need to know the type of Abuse. There is an abuse of dominant position by any enterprise or group in the following scenarios:
- The act of unfairly or discriminatorily imposing conditions or prices on the buying or selling of goods or services, either directly or indirectly.
- Constraining the manufacturing of goods, delivery of services, market access, or any advancements in technology or science related to these goods or services, to the detriment of consumers. indulging in such practices that result in denial of market access in any manner
- Concluding contracts that are contingent on other parties accepting additional obligations that, either due to their nature or customary business practices, are unrelated to the main purpose of the contract.
- Leveraging a dominant position in one relevant market to gain access to or safeguard, other relevant markets.
Remedies for Abuse of Dominance
Section 27 of the Competition Act of 2002, empowers the Commission to issue cease and desist orders and impose penalties, up to 10% of average turnover, on enterprises involved in abusive practices or violations of Section 4. Section 27 of the Act talks about the order of how the Competition Commission of India can pass any order. The Competition Commission can
- Direct an enterprise with a dominant position involved in the abuse of such a dominant position to discontinue such abuse.
- Impose a penalty not exceeding ten percent of the average turnover for the last three preceding financial years, upon each of such persons or enterprises which are parties to such abuse.
- Direct the enterprises concerned to abide by such other orders as the Commission may pass and comply with the directions, including payment of cost, if any.
In addition to the aforesaid orders, the Competition Commission has the power to order a division of enterprise enjoying a dominant position to ensure that it does not abuse its dominant position under Section 28 of the Competition Act.
Conclusion
Understanding the concept of abuse of dominance is essential for maintaining fair and competitive markets. Dominance itself is not inherently harmful but can become problematic when it is misused. The focus of competition laws is rightly on preventing the abuse of such positions of strength. The enforcement of competition laws and the vigilance of regulatory bodies play a crucial role in promoting healthy competition, safeguarding consumer interests, and fostering innovation and economic growth. By focusing on preventing and rectifying abuse rather than suppressing dominance, these laws aim to strike a balance that benefits both businesses and society as a whole. Further, section 4 of the Act is a substantive provision and prohibits the abuse of a dominant position, but the burden of proof lies on the Commission to prove the existence of such dominance and abuse it.
It can be concluded that competition should be endured as long as it is healthy and as long as it benefits society at large to grow.
This article is written and submitted by Advocate Surya Kumar and you can reach out to the author at surya@bnblegal.com.
