• The Competition Commission of India (CCI) has released draft regulations with an aim to modernise the framework for assessing predatory pricing under the Competition Act, 2002. 

• The Competition Act, 2002 aims to prevent practices having an adverse effect on competition, to promote and sustain competition in the markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India. 

• Since the enactment of the 2002 Act and the introduction of the Cost Regulations, 2009, competition law in India as well as globally, has undergone significant development. 

• The Competition (Amendment) Act, 2023 (Amendment Act) incorporated various amendments in the 2002 Act which created a need for amendment/repeal/overhauling of the various regulations framed by the Commission as well as for introduction of certain new ones. 

• The CCI proposes to review the Cost Regulations, 2009 wherein certain changes are being proposed to keep the regulations in sync with the evolution of competition law jurisprudence. 

• The review of these regulations aims to align them with modern economic theories, judicial interpretations, and international competition law practices.

• The proposed regulation seeks to update the methodology for determining production costs in predatory pricing cases, defining cost benchmark for assessing and regulating predatory pricing under Section 4 of the Competition Act, 2002. 

What is predatory pricing?

• Predatory pricing is the sale of goods or provision of services at a price below the cost, as determined by regulations, with the intent to reduce competition or eliminate competitors.

• Imposition of unfair or discriminatory prices (including predatory pricing) by a dominant enterprise or group is prohibited under provisions of Section 4 of the Competition Act, 2002.

• Dominant position means a position of strength, enjoyed by an enterprise, in the relevant market, which enables it to operate independently of competitive forces prevailing in the relevant market, or affect its competitors or consumers or the relevant market in its favour.

• Generally, low prices benefit consumers. Consumers are harmed only if below-cost pricing allows a dominant competitor to knock its rivals out of the market and then raise prices to above-market levels for a substantial time.

• Predatory pricing has been around for centuries. At the height of the Gilded Age, Standard Oil in the US famously used anti-competitive pricing practices to secure its monopoly position in petroleum. 

• One of those tactics included cutting prices aggressively below its own costs in a local market when rivals entered that market, ultimately driving out those rivals to maintain its dominance. Once the rivals had exited the market and Standard Oil was no longer forced to compete, it would raise the prices back up with businesses and communities left paying the inflated costs.

• One common pattern is where a startup or founder will find itself in battle with a giant that can afford to sustain significant losses in one product stream using revenue from investors or other lines of business to stay afloat and driving out those smaller rivals that need all of their revenue streams to survive. This can be particularly salient in digital markets, where firms are incentivised to prioritise growth over profits in the short term to chase scale and cement dominance.

• However, experts highlight that predatory pricing is irrational, because after a firm priced below its cost to drive out competitors, new entrants would emerge to police any price hikes by the incumbent. Even if the firm succeeded in driving rivals out of the market through bleeding losses, the strategy would only be profitable if the firm could sustain those higher prices and nothing would stop the competitors from returning and eating into those profits once the predator firm raised prices again.

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