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Of cycle rickshaws and competition law

Of cycle rickshaws and competition law
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First Published: Fri, Oct 14 2011. 12 43 AM IST

By Reuters
By Reuters
Updated: Fri, Oct 14 2011. 12 43 AM IST
There has been a sudden spurt in “abuse of dominant position” cases at the Competition Commission of India (CCI) in recent months. The lynchpin of the cases involving National Stock Exchange (NSE), DLF and Sun Direct TV has been the definition of “relevant market” under competition law.
Defining a relevant market is the first step in analysing abuse of dominance. Interestingly, in the above three cases, CCI’s definition of relevant market has been marked by contradictions.
By Reuters
While in the NSE case, CCI defined the relevant market to be “stock exchange services in respect of CD segment in India”, in the matter of DLF, it was “market for services of developer/builder in respect of high-end residential accommodation in Gurgaon”. Finally, in Sun Direct TV case, the relevant market was “the market for DTH services in the whole of India as against TV channel distribution market”.
Globally, the gold standard for analysing relevant market is an economic test, namely SSNIP test i.e. “small but significant non-transitory increase in prices”. It is a hypothetical monopolist test based upon the degree to which customers would switch to substitutes where there is an increase in prices. In using SSNIP, competition authorities typically begin with narrowest view of product-market and find out whether a hypothetical monopolist will be able to profitably increase prices. If not, or if small but significant increase in price would result in customers switching, the narrow market will not be considered a relevant market on its own. The substitutable product is then added to the market definition and the test applied again until an outcome is reached whereby small but significant increase in price could profitably be sustained without customers switching.
Interestingly, in NSE, CCI found SSNIP to be “technical”, “arcane” and “esoteric” and applicable only in merger cases. However, in a sudden U-turn in DLF, CCI found that SSNIP is “often applied in abuse of dominance cases” and concluded, without any economic analysis, that SSNIP will lead to the same relevant market as delineated otherwise by CCI. Curiously, reference to SSNIP is conspicuously absent from relevant market analysis in Sun Direct TV’s case.
Is CCI inconsistent about SSNIP because it finds the test to be technical, arcane and esoteric? If the Competition Commissioners step out of their ivory towers, they will find that SSNIP pans out every day on Delhi roads. Anyone who has taken cycle rickshaw or autorickshaw for short distances (typically to a Metro station) in Delhi knows this. Cycle rickshaws usually price themselves slightly cheaper than autorickshaws as they understand that customers will immediately switch to a faster mode of transport if they try raising the prices. Cycle rickshaws also seem to be aware that radio cab/taxi is not a real option in Delhi as their high prices and non-availability for short distances make them non-substitutable. This acute business understanding of cycle rickshaw operators is exacerbated during temporary adversity such as heavy rain or bright sun that commuters face. During such adversities, the cycle rickshaw operator intelligently increases the prices but carefully keeps it a tad below the autorickshaw’s increased prices as commuters will start switching to autorickshaws at comparable prices. SSNIP will suggest that the relevant product market will involve usage of cycle rickshaw and autorickshaw services for commute for short distance travel. Radio cabs will not be a part of this relevant product market. Similarly, the relevant geographic market cannot be the National Capital Region, where there are no metro services (reducing the need for short travel) or where shared autorickshaw services may be available.
In spite of the statutory mandate in half-a-dozen sections related to relevant market, CCI adopts a random, pick-and-choose policy in applying SSNIP in specific cases. Such inconsistent approach enhances the transaction cost of compliance for enterprises and increases uncertainty and unpredictability about the jurisprudence of the competition regime.
Of course, the application of SSNIP in a given situation is intricate. It requires rigorous economic analysis and independent market survey; if CCI intends to be taken seriously by the stakeholders, it should not shy away from either. The market realities appreciated by cycle rickshaw and autorickshaw operators should not remain technical, esoteric or arcane for CCI.
Rahul Singh is an expert on competition law and teaches at the National Law School of India University, Bangalore.
Comments are welcome at otherviews@livemint.com
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First Published: Fri, Oct 14 2011. 12 43 AM IST
More Topics: Rahul Singh | Cycle Rickshaws | CCI | NSE | Market |