Commerce Minister Piyush criticizes E-commerce giants for predatory pricing practices

Loopholes in the law

Coming to ‘predatory pricing’… Well, that’s a real problem! And it is as old as the hills. And the government has done nothing about it.

For years, small retailers have been complaining ecommerce operatives like Amazon and Walmart-acquired Flipkart have been pricing goods below cost of production as a strategy to kill competition. While they incur a loss in the short term, once competitors have shut shop, the big retailers acquire a monopoly, and fix prices to the detriment of millions of consumers.

Free competition is the life blood of a market economy. Section 4 of the Competition Act, 2002 forbids ‘unfair or discriminatory’ pricing, by the abuse of a ‘dominant position’. To ensure fair competition and to weed out monopolies and trusts, the Act has set up a regulator – the Competition Commission of India (CCI) mandated to act against monopolies.

However, there is a serious anomaly in the Competition Act. A commercial entity can be hauled up for ‘predatory pricing’ only if it has the advantage of “dominant position in the relevant market”. Players like Amazon, and app-based taxi services like Ola and Uber began being hauled up when they offered huge discounts.

But, the Competition Commission took the stand that mere strong financials of a company or the offer of deep discounts do not prove unfair competition. Most of these are new entrants, and they do not have a proven ‘dominant position’ in the market they operate in. Adjudication against these companies, therefore, failed on account of the restrictive interpretation of Section 4 of the Competition Act.

More recently, in the Vaibhav Mishra v. Sppin India case, also known as the ‘Shopee case’, the Competition Commission rejected the claim that the online marketplace ‘Shopee’ engaged in predatory pricing, ruling that the company doesn’t possess dominance in the online marketplace, and so can’t be penalized.