Market Studies May Trigger Enforcement Action, Says Competition Commission of India Chairman
In 2018-19, the markets regime of U.K.’s Competition and Markets Authority resulted in direct consumer benefits of around £820 million. Through market studies and market investigation tools, U.K.’s anti-trust regulator shines light on sectors where competition may be distorted. The remedies can range from directing businesses to divest or restructure to prohibiting types of conduct or regulating prices.
The U.S.’ market studies regime allows the Federal Trade Commission to look at mergers that have been completed.
For instance, in its 2020 market study on e-commerce, the regulator identified several issues that have a bearing on competition - lack of platform neutrality, unfair platform-to-business contract terms, deep discounts, etc. As as an outcome, the regulator chose the advocacy route and recommended self-regulation by e-commerce marketplaces.
But a year later, it started a probe against online retailers Amazon India and Flipkart alleging abuse of dominant position through deep discounting, preferential listing and exclusive tie-ups. Competition lawyers have speculated if this investigation is a direct outcome of CCI’s market study or merely prompted by the complaint lobby of small businesses - as stated in the order.
The regulator’s study of the telecom market, released last month, is a useful summary of well-known facts—development of the sector, tariff changes with the entry of Reliance Jio Infocomm Ltd., financial distress, partnerships between telcos and over-the-top firms, among others. There is one short but interesting observation in it: privacy can be scrutinised from the lens of competition law.
Privacy can take the form of non-price competition. In the era of data aggregation, competition analysis must also focus on the extent to which a consumer can “freely consent” to action by a dominant player. Abuse of dominance can take the form of lowering the privacy protection and therefore fall within the ambit of antitrust as low privacy standard implies lack of consumer welfare. - CCI’s Telecom Market Study
After e-commerce and telecom, two more market studies are underway—one on private equity investments and another on the pharmaceutical sector.
BloombergQuint spoke with CCI Chairman Ashok Kumar Gupta to better understand the objective of these market studies and what to expect in the ones that are ongoing.
Here are the edited excerpts:
What’s the purpose of CCI’s market studies? And, how does the regulator pick the sectors that merit deep-dives?
Our intention behind conducting market studies is to gather information about structural infirmities, consumer behaviour, market practices, stakeholder perspectives, regulatory architecture governing the sector and their implications on competition in or for the market. Such studies offer us an opportunity to assess competition beyond the individual behaviour of firms and enhance our knowledge about the sector or an issue, which is novel or fast moving.
Most of the recent market studies have been prompted by rapidly changing competition landscapes owing to technological advancements and digitisation of markets.
For instance, the e-commerce study and the telecom study. Some studies have been launched in sectors that have observable demand side issues, such as lack of effective consumer choice, the pharmaceutical sector being a case in point. Then, if several cases come for the Commission’s review from one industry sector, that may also be a reason for taking a wider and closer look at the sector. Going forward, studies may also be undertaken in sectors, which are of critical importance in view of the macroeconomic imperatives facing the Indian economy.
Does the regulator expect any behavioural changes in players who operate in the markets where CCI has conducted these studies and made certain observations?
We do not want to unnecessarily intervene. With market studies, our main aim is to engage with the stakeholders without any regulatory pressure and highlight to them potential areas of concerns. So, that the market players do their own competition assessment and undertake necessary behavioural changes.
In a relatively young regime like ours, enforcement cannot be the only route to market correction. Targeted advocacy, through various instruments—market studies being one, will have to be effectively employed.
In short, we do expect that with our consistent advocacy efforts aided by market studies will result in behavioural changes by market participants.
What latitude can the regulator give itself in these studies? For instance, in the study about common ownership in private equity investments, can the CCI make observations, draw conclusions which are contradictory to the precedents set by it? If not, given that the regulator has already had the opportunity to understand the landscape through various deals, what does the study hope to achieve? Is the outcome broadly going to be a reiteration of CCI’s approach?
With regard to every market study that the commission conducts or plans to conduct, there is no a priori hypothesis of harm to competition. We do not have any pre-determined assumptions about the outcomes of the study. For us, every market study is a fact finding exercise and is independent of any case proceedings that may be pending before the commission.
As the markets are dynamic, competition authorities have the flexibility in devising their regulatory response without being straitjacketed by precedents if facts and circumstances on the ground change. The commission has taken up to study a trend, which is in motion across many sectors and may require developing frameworks for articulating a theory of harm.
In India, the paucity of data and lack of India based studies creates challenges for the commission to properly evaluate the effect of common ownership on competition in India. To estimate the true impact, it’s imperative to understand the nature and extent of common ownership in India.
With the market study, we hope to gauge the trends and patterns of common ownership in India, institutional investor’s underlying incentives and motivations behind such investments and the type of rights they get that can translate into their ability to influence the decision of a firm that may consequently impact competition.
In the telecom sector study, the CCI has noted that anti-trust law framework is broad enough to address the exploitative and exclusionary behaviour arising out of privacy standards, of entities commanding market power. Could you elaborate on this?
The anti-trust law framework is broad enough to address the exploitative and exclusionary behaviour arising out of privacy standards, of entities commanding market power. Privacy can take the form of non-price competition. Lowering of privacy protection by dominant enterprises could be construed to be an abuse of dominant position and therefore fall within the ambit of antitrust as low privacy standard may result in reduction in consumer welfare.
Lower quality may be seen as an exploitative conduct as well as exclusionary conduct. Data privacy concerns that can result in creating “data-polies”, can be subjected to anti-trust scrutiny both under merger control or abuse of dominance provisions.
Specifically, behavioural remedies are now being widely put to use especially in the digital sector and may include provision of access to data.
Can these market studies potentially lead to suo moto investigations by the regulator?
Not necessarily but we can take a cue from the market study and that may trigger enforcement action, if we suspect anti-competitive behaviour. We may also take the advocacy route if it’s perceived the markets aren’t functioning well for consumers as well as producers, leading to recommendations for governments, sector regulators, businesses, and business associations.
Based on observations in the market studies, does the regulator also suggest specific policy changes to government/government entities—for instance, changes to public procurement tenders? Has there been any outcome of these suggestions?
CCI also uses these studies for advocacy purposes and does share the findings with the government. CCI also suggests policy changes to the government/government entities wherever possible.
However, one-to-one effect of suggestions on policy changes are not possible to arrive at as the relationship between the two may not be definitive. In public procurement, our enforcement experience has given us sufficient material for our advocacy efforts. We have several public procurement advocacy initiatives and hope for a change in tender design for allowing competition for the market.
What has prompted the regulator to look at the pharma sector closely?
As we are all aware that out of pocket expenditure is a major component of the total health expenditure in India. Expenditure on pharmaceuticals is quite a substantial component of this OOPE constituting, according to one estimate, almost 40%.
With greater financial burden of pharmaceutical expenditures falling on households, access to affordable medicines is of paramount importance. While affordability has received policy focus—in the form of pricing control on selected drugs—our years of enforcement has shown us certain industry practices in the pharmaceutical sector do not allow markets to work effectively and healthy competition to drive the market outcomes in the form of low prices and reliable quality.
To this end, the study intends to focus on the distribution segment of the pharmaceutical market in India with a view to understand i) discounts/margin policies at wholesale and retail levels of the distribution system, ii) the role of trade associations vis-à-vis various aspects of the distribution business, iii) regulatory rationalisation of trade margins and its impact on price and competition and iv) the impact of e-commerce on price and competition.
Besides, the study also aims to investigate the extent of proliferation of branded generic drugs in India with its implications for competition and to assess potential hurdles, if any, in entry of bio-equivalent/bio-similar drugs in India.