Equipping CCI for the digital era

It is natural human tendency to acquire the best things for the lowest price possible. Recently, I went to an electronics store and found a customer enquiring about the prices of the gadgets. The customer insisted to the salesperson that he offer a “competitive price” for the gadgets on par with the online prices. What does “competitive price” mean?

Whenever there is a single seller in the market for a particular product or service, that seller has the monopoly power to set the price for that product or service. The single seller has no competitor, has no motivation to improve the quality, and keeps the prices high. If there are more sellers, there is competition among the sellers to capture the market through price and quality. The sellers compete by offering better quality products for a lower price. The seller who maintains good quality and price survives. A seller who is unable to compete will be forced to exit the market.

If there is healthy competition among the sellers, the consumers are benefited and the sellers who have a competitive spirit survive. If the competition is unhealthy, it has adverse effect on the sector in the long run. One example is the Indian telecom sector, in which all the operators started offering data services for low prices and now the sector is in a bad situation. The spirit of competition is vital to a market economy.

Promoting Competition

Realising the importance of competition, Parliament passed the Competition Act, 2002, for promoting competition in the market. Through the Act, a regulatory body – the Competition Commission of India (CCI) -- was formed and became fully functional from the year 2009. The CCI is now a decade old and has travelled a road that had more thorns than roses.

During this journey, the CCI has imposed heavy penalties on erring business enterprises. The notable ones are the penalties imposed on real estate giant DLF, cement manufacturers, and the Board of Control for Cricket in India (BCCI).

The CCI has often faced many administrative and legal hurdles to enforce its orders and in some cases even struggled to initiate an investigation.

In January this year, the CCI had looked into the complaint against online retailers Amazon India and Flipkart. The complaint was made by the Delhi Vyapar Mahasangh (DVM) and had raised three allegations: First, Flipkart and Amazon had given deep discounts to customers and preferred listing to “preferred sellers”. Secondly, these preferred sellers were controlled by Flipkart or Amazon through their own joint ventures. Finally, these practices excluded the members of DVM from competing in a fair manner against the “preferred sellers” and hence there was a violation of the provisions of the Competition Act. The CCI passed an order stating that there was a prima facie case to initiate investigation against Flipkart and Amazon.

Just when the CCI was in the process of initiating an investigation, Amazon approached the High Court of Karnataka alleging lack of jurisdiction in CCI and obtained a stay. Flipkart, too, followed suit and got a stay against the investigation. The CCI has been, for a long time, seeking more powers and changes in the existing Competition Law of India. At this juncture, the proposed amendments to the Competition Act, 2002 gains significance.

Amendments

On February 20, the Ministry of Corporate Affairs (MCA) came out with a Bill proposing changes to the existing Competition Act, 2002. The Bill is in draft stage and is yet to be passed by Parliament. Among other things, the Bill seeks these two changes —modification in regulatory structure of the CCI and public comments on regulations.

As of now, the CCI carries out multiple functions and is overburdened. The Bill creates a governing body, which has powers to make regulations, create competition awareness and manage the affairs of the CCI. The Bill confines the CCI to carrying on the adjudicatory functions only, thereby saving it from other burdens. The Bill also makes it mandatory to seek public comments on the new regulations. This step ensures better public participation and transparency in the policymaking process.

Shortcomings

Though the amendment Bill addresses many concerns of the CCI, it has still failed to address some serious concerns. In many cases, the investigation process of CCI has been halted on the basis of lack of jurisdiction. This lacuna has not been addressed by the amendment Bill. The Indian economy is going through a time of turmoil and many sectors are collapsing. In such a situation, it is important for the CCI to take a proactive approach in matters relating to digital markets and specific sectors when there is an imminent threat to competition.

(The writer is Faculty (Law) at the Administrative Training Institute, Mysuru)