Abuse of Dominant Position
- July 23, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Abuse of Dominant Position
Subject: Economy
Section: Regulation
- The Competition Commission of India has since its inception dealt with as many as 846 cases (till June 2022) as regards abuse of dominant position.
- Of these 846 cases, one was initiated suo motu by the Commission, 794 were admitted on receipt of complaints by the consumers or their associations or trade associations and 8 cases were referred by the Central or State government
- Of these 846 cases, one was initiated suo motu by the Commission, 794 were admitted on receipt of complaints by the consumers or their associations or trade associations and 8 cases were referred by the Central or State governments
- As per the Competition law, enacted in 2002, dominance is not bad per se, but its abuse is prohibited.
- A firm is said to be in a dominant position if it enjoys a position of strength in the relevant market in India, which enables it to operate independently of the competitive forces prevailing in the relevant market, or affects its competitors or consumers or the relevant market in its favour. Verma said that a firm may achieve a dominant position in the market legitimately through innovation, entrepreneurial efforts, etc.
- But abuse of its dominant position is stated to occur when an enterprise (or a group of enterprises) uses its leading position in the relevant market in an exclusionary or exploitative manner.
- The exploitative manner could include excessive or discriminatory pricing, excessive sale/purchase conditions etc, and exclusionary manner of abusing dominant position could be denial of the market access, refusal to deal etc.
CCI can direct an investigation by the Director General and upon receipt of such DG report can either:
- direct dominant entity to discontinue abuse of dominant position
- impose penalty of up to 10 per cent of the average of the turnover for the last three preceding financial years
- direct modification of the agreements with abusive clauses
- order division of dominant enterprises to ensure that such enterprises do not abuse their dominant position. Dominant position Verma also highlighted that the concept of ‘dominant position’ is not just limited to India but is an international phenomenon. There are anti-trust laws in two globally prominent markets —the US and the EU. A basic distinction in enforcement approach in the EU and the US is that in the US, there is a criminal enforcement of anti-trust laws, while in the EU, it is administrative
Section 4 of Competition Act 2002 (1) No enterprise shall abuse its dominant position. (2) There shall be an abuse of dominant position under sub-section (1), if an enterprise,— (a) directly or indirectly, imposes unfair or discriminatory— (i) condition in purchase or sale of goods or services; or (ii) price in purchase or sale (including predatory price) of goods or service; or Explanation.—For the purposes of this clause, the unfair or discriminatory condition in purchase or sale of goods or services referred to in sub-clause (i) and unfair or discriminatory price in purchase or sale of goods (including predatory price) or service referred to in sub-clause (ii) shall not include such discriminatory conditions or prices which may be adopted to meet the competition; or (b) limits or restricts— (i) production of goods or provision of services or market therefor; or (ii) technical or scientific development relating to goods or services to the prejudice of consumers; or (c) indulges in practice or practices resulting in denial of market access; or (d) makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts; or (e) uses its dominant position in one relevant market to enter into, or protect, another relevant market. Explanation .—For the purposes of this section, the expression— (a) “dominant position” means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to— (i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market in its favour; (b) “predatory price” means 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. |
Misuse of monopolistic powers by the big companies and gain large profit share by eliminating competition due to
- Network effect: Due to strong network effects, it is not possible to ban or curtail these services.
- Brand Loyalty: The major players have harnessed technologies that permit synchronicity between devices and people in a manner that is often superficially described as “brand loyalty.”
- Tying or Bundling Certain Products: Big tech firms have pre-loaded certain software with the OS. Due to this, many times, there was no option available to users to use other alternatives.
Concerns?
- Unfair Competition: Innovations and technological advancements have meant that unlikely giants have emerged in an extremely short span of time. To retain their pole position, these firms may resort to anti-competitive behavior. For example:
- Entry barriers
- Favouring few sellers on their platforms
- High advertising revenue and not paying newspapers for their contents
- Exclusive arrangements and cartelization.
- Privacy Concerns: Big tech firms’ market power is built at individuals’ expense through the unscrupulous collection and processing of user data and forcing certain products on consumers.
- Slow Regulation: Due to rapid innovation and advancement by the Big Tech firms, the regulators are only able to react, not be in readiness.
Monopoly
A monopoly is a market structure that consists of a single seller who has exclusive control over a commodity or service.
The word mono means single or one and the prefix pole in finds its roots in Greek, meaning “to sell”. Hence, the word monopoly literally translates to single seller.
Characteristics
- Single seller – A single seller has total control over the production, and selling of a specific offering. This also means that the seller has no competition and holds the entire market share of the offering that it deals in.
- No close substitutes – The monopolist produces a product or service that has no similar or close substitute.
- Barriers to entry – In a monopoly market structure, new firms cannot enter the industry due to barriers like government regulations, contracts, insurmountable costs of production, etc.
- Price maker – A monopolist has the power to charge any price for its product of service.
Types
- Private Monopoly – A private monopoly is one that is owned by an individual or a group of individuals. These monopolies mainly aim for profits.
- Public Monopoly – A public monopoly is one that is owned by the government. These monopolies are set up for the welfare of the masses. An example of a public monopoly would be the U. S. Postal Service.
- Pure/ Absolute Monopoly – The monopolist controls the entire market supply for its product without facing any form of competition. This is possible because there is absolutely no close or remote substitute available in the market.
- Imperfect Monopoly – The monopolist controls the entire market supply for its product as there is no close substitute, but there is a remote substitute for the product available in the market.
- Simple Monopoly – A simple monopoly is one in which a single seller sells its product or service for a single price. There is no price discrimination in a simple monopoly.
- Discriminating Monopoly – A discriminating monopoly is one where a single seller does not sell his product or service for a single price. Price discrimination is witnessed wherein prices may vary from region to region, or people coming from different economic backgrounds may be charged a different price, etc.
- Legal Monopoly – A legal monopolist enjoys government approved rights like trademark, patent, copyright, etc.
- Natural Monopoly – A natural monopolist enjoys or benefits from natural factors like locational advantages, locational reputation, natural talents and skill sets of the producers, etc.
- Technological Monopoly – When a firm holds a technologically superior position that other firms cannot compete with, the firm is said to be a technological monopoly.
- Joint Monopoly – When two or more firms join hands in order to form a monopoly, it is referred to as a joint or a shared monopoly.
Zero toleration from volatile or bumpy
The RBI has zero tolerance for volatile and bumpy currency movements and the central bank is engaging with the forex market to ensure that the rupee finds its level in line with its fundamentals,
The Governor observed that recognising the genuine shortfall of supply of forex in the market relative to demand for imports and debt servicing requirements, and portfolio outflows, the RBI has been supplying US dollars to the market to ensure adequate forex liquidity