Laws on Predatory Pricing & it’s Impact on Small Businesses: Lawyers Advice on Corporate Laws of India | Corporate Law Firm in Delhi NCR | Corporate Lawyer in Delhi NCR | Corporate Law Attorney in India
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Small businesses are the driving forces of the economy as they provide a lot of employment opportunities to people who cannot be absorbed by large corporations. They also contribute to economy by bringing growth and innovation to the community in which the business is involved in. Hence, these businesses must be protected. The Competition Act, 2002 was passed for this purpose. Predatory pricing is a pricing strategy followed by dominant firms which sell goods and provide services at a level lower than the cost of the goods and services with intent to erase all the competition in the market. This is a prohibited practice under the Competition Act, 2002. Section 4(2) defines predatory pricing as “the sale of goods or provision of services, at a price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors.” Such a pricing strategy is a type of abuse which is done by a dominant company or firm in the market. Such abuse of dominant position is prohibited under section 4 of the Competition act which defines the word dominant position as “the position of strength enjoyed by an enterprise that enables it to act independently of competitive forces prevailing in the relevant market.”
In the case MCX Stock Exchange Ltd v. National Stock Exchange of India Ltd (2012) 6 Comp LJ 260, the Competition Commission of India (CCI) defined predatory pricing as “where a dominant undertaking incurs losses or foregoes profits in the short-term, with the aim of foreclosing its competitors.” It was further held that the fee waivers given by NSE in the currency derivatives segment were “unfair” and discriminatory and MCX has to be protected against the same. Such unfair practices force the small businesses to shut down their practices.
In another case of Bharti Airtel Ltd. v. Reliance Industries Ltd. 2017 Comp LR 723 (CCI) the Competition Commission of India (CCI) stated that the investigation of the alleged predatory conduct would take place only if Reliance Industries prime facie dominant in the market. It was further observed that when a firm provides free services it can raise competition concerns only if such services are offered by a dominant firm with an anti-competitive objective of excluding any sort of competition or competitors.
The law on predatory pricing is very well established under the Competition Act of 2002 and the acts of predatory pricing is considered illegal and unlawful in India. The Competition laws of India does not promote dominance of Corporate entities and envisages for health competition in the market both electronic and physical.
Impact of Predatory Pricing on Small Businesses:
Such a practice by the dominant firms has a very large impact on the small businesses in India. Cutting prices to a level lesser than the cost of the products is an anti-competitive measure which forces a lot of small businesses to shut down and step out of the market. Practices like:
• Unfair and discriminatory prices
• Ability of the dominant firm to recoup and its intent
All these are predatory pricing practices and all the practices result in the rival firms:
• Losing their jobs
• Facing heavy losses to the extent that they have to shut down
After erasing all the competition in the market, the dominant firm has a plan ready to recoup its prices to compensate for the losses incurred. In the case M/s. Transparent Energy Systems Pvt. Ltd. v. TECPRO Systems Ltd. 2013 Comp LR 681 (CCI) the Competition Commission of India (CCI) was observed that in predatory pricing, there is a usually a strategy to recover the losses after the competitors are forced out. Such a strategy when implemented impacts the small businesses. If the small businesses plan to start business again after this stage, it becomes a tough task as they have to start from the beginning.
The law on predatory pricing is very well established under the Competition Act of 2002 and the acts of predatory pricing is considered illegal and unlawful in India and falls under the legal preview of the Competition Commission of India (CCI).
Predatory pricing definitely has a negative impact on the small businesses in India. However, the remedy for such a practice is very hard to get considering the fact that it is a very complex aspect to determine in many cases. It is usually difficult to determine the practice of predation as a lot of different factors are involved in it. It usually finds a lot of leeway in the court of law. There is a lot of prediction and analysis involved in the aspects of the dominant firm.
Authored By: Adv. Anant Sharma & Sanjana Akasam