When Is Discounting ‘Predatory'?

Author:Mr Avimukt Dar and Sonu Varghese

The Department of Industrial Policy and Promotion ("DIPP") recently released Press Note No. 3 (2016 series) dated March 29, 2016 ("Press Note") which brought fresh regulatory focus on foreign direct investment ("FDI") into e- commerce entities. The changes brought about by the Press Note have been incorporated into regulation (E-commerce activities) of the consolidated FDI policy ("FDI Policy"), which was made effective from June 7, 2016.

One of the key changes brought in by the Press Note and the FDI Policy is the broad injunction restraining e-commerce marketplace entities from "directly or indirectly" influencing the sale price of goods or services and requiring them to maintain a "level playing field".

This condition is hailed as a welcome move by traditional offline retail groups in India which have been reeling under the popularity of online marketplaces and the sales discounts offered by such entities. Interestingly, though there have been allegations raised that online marketplaces exercise predatory pricing mechanisms in offering the discounts, the Competition Commission of India ("CCI") has not yet taken a stand or passed any orders adverse to the e-commerce industry. It, therefore, appears that the offline traders refocused their energies on public interest litigation which ultimately led to a change in the FDI Policy in their favour.

The premise of this article is to briefly discuss the competition law concepts borrowed by the Press Note, rather than to discuss the Press Note or FDI in e-commerce in depth, as that has been done at length by other authors.

Concept of predatory pricing and price fixing

Under the Indian competition law

The Competition Act, 2002 ("Act") defines 'predatory price'1 as the sale of goods or provision of services, at a price which is below the cost of production of the goods or services, with a view to reduce competition or eliminate competitors. Predatory pricing is regarded as an abuse of dominant position by an enterprise or a group, but does not include any condition or price which may be adopted to meet competition. Therefore, to establish predatory pricing, it has to be ascertained if the particular entity has a dominant position in the relevant market and what is its intent. An enterprise shall be considered to be in a dominant position when it enjoys a position of strength in the relevant market, to operate independently of competitive forces prevailing in the relevant market or to...

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