How Maruti got a ₹200-crore competition penalty

What is the Maruti Suzuki discount case?

It involves a discount control policy that allegedly restricted its dealers from giving discounts without its permission, over certain pre-restricted level. CCI found that this amounted to ‘resale price maintenance’ which is banned under the Competition Act. The law prohibits agreements between enterprises at different stages of the production chain regarding aspects such as supply, storage or price that causes appreciable adverse effect on competition. That includes  carmakers  and  dealers  too. CCI’s case is that curbing discounts affects the final price to consumers as well as intra-company and inter-company competition.

Why did CCI find it anti-competitive?

According to the CCI order, resale price maintenance can prevent effective competition both at the intra-brand level as well as at the inter-brand level. When a producer imposes a minimum resale price maintenance obligation on dealers, they are prevented from lowering the sale prices beyond the imposed limit. This prevents them from competing effectively on price. Stifling intra-brand competition among dealers of the same firm results in higher prices. When a firm with significant market share imposes minimum selling price on dealers, it can decrease the pricing pressure on competing firms and thus affect inter-brand competition.

What does the carmaker say about the order?

Maruti has denied the charges and told the regulator that no discount control policy was placed in effect by it and that dealers were free to offer any discounts. A Maruti spokesperson said the firm is examining the order and would take appropriate actions under the law. Maruti has always worked in the best interests of consumers and will continue to do so in the future.

How important is market share?

“The scope of CCI’s probe is confined to the extent to which a discount offered by a firm lessens or eliminates competition. Given that Maruti owns more than 50% of the market, any reductions imposed by it will undoubtedly affect market competitiveness," said Sonam Chandwani, managing partner, KS Legal & Associates. The firm informed CCI that the probe has erroneously concluded that because it has 51% market share, it has market power. CCI can levy a fine up to 10% of the average turn-over of past 3 years in such a case.

What are the key areas CCI regulates?

CCI seeks to check behaviour among enterprises that are anticompetitive in nature, including cartelization, predatory pricing, bid-rigging, and the abuse of dominance. In certain industries where there are fewer players and cross-holdings among them, chances of anti-competitive practices are high. The cement industry has in the past faced probes by CCI. The changing nature of the economy, especially the rise of digital economy, has brought new areas for it to keep a close watch. CCI also clears M&As.