Ola Hasn't Abused Dominant Position In Market, Rules NCLAT

Ola hasn't abused its dominant position, involved in predatory pricing or entered into anti-competitive agreements with its drivers, the appellate company law tribunal ruled.

The tribunal's decision came earlier this month in an appeal plea filed by two other taxi aggregators challenging a decision of the Competition Commission of India, which ruled that Ola doesn't abuse its dominant position.

The case goes back to when two radio taxi service providers, Fast Track Call Cab Pvt. and Meru Travel Solutions Pvt., informed the CCI that Ola Cabs—a radio taxi services operated by ANI Technologies Pvt.—has abused its dominant position by involving in predatory pricing and by entering into anti-competitive agreements with its drivers, violating the Competition Act, 2002.

Predatory pricing is the illegal act of setting prices low in an attempt to eliminate competition.

CCI came to a preliminary finding that the allegation of dominant position abuse is true, after which it proceeded to direct the director general under the Competition Act to probe into the matter.

Based on the director general's investigation report, CCI concluded that Ola does not abuse its dominant position. The commission held that Ola is not in violation of sections 3 and 4 of the act which deal with anti-competitive agreements and abuse of dominant position.

Aggrieved, the informants before the CCI, moved the appellate tribunal by way of an appeal.

They argued that Ola Cabs entered the Bengaluru market in 2011. Three years later, the company started giving discounted rates to customers and incentives to drivers to monopolise the radio taxi market in Bengaluru, it was alleged.

Apart from violating the provisions of the Competition Act, Ola's policies put the appellants in financial trouble.

Ola, in response, argued that the appellants are trying to mislead the tribunal by focusing on allegations of abusive pricing strategy by Ola.

Since the commission has not found Ola to be in a dominant position, there is no need to examine its pricing strategy, the tribunal was told.

When the matter reached the NCLAT, it looked into three main aspects:

• Is Ola abusing its dominant position in the relevant market?

• Whether the company is resorting to predatory pricing?

• Does it engage in anti-competitive agreements with its drivers?

Abuse of dominant position

NCLAT noted that in the relevant market, Ola is facing stiff competition from companies such as Meru, Fast Track and Uber India Systems Pvt.

The presence of Uber around the same time has forced Ola to change its market strategy, including its pricing to deal with competition.

So, it cannot be said that Ola enjoyed a dominant position in the radio taxi market in Bengaluru, and was trying to push out its competitors by abusing its dominant position, viewed the tribunal.

Another point that the tribunal looked into was: Is Ola able to operate independent of competitive forces? Or, affect its competitors or consumers or the relevant market in its favor?

The tribunal replied in the negative.

Predatory pricing

The director general's report noted that Ola started providing small discounts to customers from September 2012, but it started offering incentives to drivers only in April 2014.

But, this cannot be labelled as predatory pricing, said the tribunal. Ola's pricing strategy was in response to market conditions, the tribunal said.

The tribunal also accepted Ola's argument that the low cost pricing should be treated as a variable cost—which was the expenditure that Ola undertook to establish its brand in the market and increase its market share.

"Therefore, we are of the opinion that the below cost pricing by Ola wasn't predatory pricing with a view to dislodging any competitor from the market but towards establishing itself as an effective and reliable brand in the market and also opening up a latent market to its advantage through awareness generation about its brand and network/platform through promotional initiatives like discounts and incentives and attracting new customers and gaining riders' confidence."

Anti-Competitive Agreements With Drivers

The allegation against the taxi company was that it forms anti-competitive agreements with its drivers.

Drivers don't move out of Ola as there are penalising terms in the agreements if they don't conform to taxi company's standards, the appellants claimed.

Countering this, Ola told the tribunal that there are certain standards that the drivers are expected to follow because they represent the brand's name and, customers associate the brand with high quality. It also added that drivers are not forced to work for Ola, full time. They are free to log-in or log-out whenever they please.

Basis the director general's report, the NCLAT found that Ola provided a number of incentives to its drivers such as:

• Medical insurance for drivers and their families.

• Life and accidental death insurance cover for drivers.

• Health and fitness check camps once every year.

• Personal and home loans.

• Partnership with NGOs to provide education assistance for their children.

So, the tribunal said, that the agreements between Ola and the drivers are largely, welfare measures for drivers. These incentives provided to drivers are dynamic and not constant in time, the tribunal pointed out.

With these observations, the tribunal said drivers' agreements aren't anti-competitive.