Model Answer
0 min readIntroduction
The Competition Act, 2002, was enacted to provide for the establishment of a Competition Commission of India (CCI) and to prevent practices having an adverse effect on competition in the markets in India. A key aspect of this legislation is the prohibition of ‘abuse of dominance’ and ‘abusive conduct’ by enterprises holding a dominant position. These provisions aim to ensure a level playing field and protect consumer interests. The recent increase in CCI’s scrutiny of digital markets, particularly concerning tech giants, underscores the importance of understanding these concepts.
Defining ‘Abuse of Dominance’
‘Abuse of dominance’ under Section 4 of the Competition Act, 2002, refers to the actions of an enterprise that has a ‘dominant position’ in the relevant market. A ‘dominant position’ is defined in Section 4 as 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. The Act doesn’t prohibit dominance *per se*, but rather the *abuse* of that dominance.
Forms of Abuse of Dominance
The Act lists several practices that constitute abuse of dominance. These include:
- Direct or indirect fixing of prices: This involves manipulating prices to extract higher profits.
- Limiting or controlling production, supply, markets, or technical development: Restricting output to artificially inflate prices.
- Undertaking practices resulting in denial of market access: Preventing competitors from entering or competing in the market.
- Engaging in discriminatory practices: Offering different terms and conditions to different buyers without justifiable reasons.
- Leveraging one’s dominant position in one relevant market to enter into or protect another relevant market: Using dominance in one area to gain an unfair advantage in another.
Example: The CCI investigated Google for abusing its dominant position in the Android mobile operating system market by imposing unfair conditions on smartphone manufacturers and app developers.
Defining ‘Abusive Conduct’
While often used interchangeably with ‘abuse of dominance’, ‘abusive conduct’ is a broader concept. It encompasses not only the actions of dominant enterprises but also anti-competitive agreements and combinations (mergers and acquisitions) that have an appreciable adverse effect on competition (AAEC) as defined under Section 3 of the Act. It focuses on the *conduct* itself being anti-competitive, regardless of the enterprise’s market position.
Forms of Abusive Conduct
Abusive conduct under Section 3 includes:
- Cartels: Agreements between competitors to fix prices, limit production, or divide markets.
- Bid-rigging: Collusive practices in tenders to manipulate the bidding process.
- Horizontal Agreements: Agreements between firms operating at the same level of the supply chain that restrict competition.
- Vertical Agreements: Agreements between firms at different levels of the supply chain (e.g., manufacturer and distributor) that restrict competition.
- Combinations (Mergers & Acquisitions): Mergers or acquisitions that lead to significant market concentration and AAEC.
Example: The CCI penalized several cement manufacturers for forming a cartel to fix prices and restrict supply.
Comparing Abuse of Dominance and Abusive Conduct
| Feature | Abuse of Dominance (Section 4) | Abusive Conduct (Section 3) |
|---|---|---|
| Market Position | Requires a dominant position | Doesn’t necessarily require dominance |
| Focus | Exploitation of a dominant position | Anti-competitive agreements and combinations |
| Nature of Conduct | Unilateral actions by a dominant enterprise | Concerted actions (agreements) or combinations |
| Prohibition | Prohibits abuse *by* a dominant firm | Prohibits agreements/combinations *having* AAEC |
Penalties and Remedies
The CCI has the power to impose significant penalties for violations of the Competition Act. These include:
- Monetary penalties: Up to 10% of the average turnover of the enterprise for the preceding three financial years.
- Cease and desist orders: Directing the enterprise to stop the anti-competitive practice.
- Modification of agreements: Requiring parties to modify agreements to remove anti-competitive provisions.
- Divestiture: Ordering the enterprise to sell off assets or businesses to restore competition.
The Act also provides for appeals to the National Company Law Appellate Tribunal (NCLAT) and subsequently to the Supreme Court.
Conclusion
In conclusion, both ‘abuse of dominance’ and ‘abusive conduct’ are critical concepts under the Competition Act, 2002, aimed at fostering competition and protecting consumer welfare. While abuse of dominance focuses on the exploitation of a dominant position, abusive conduct encompasses a broader range of anti-competitive practices. Effective enforcement of these provisions by the CCI is essential for ensuring a fair and competitive market environment in India, particularly in rapidly evolving sectors like digital economy.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.