Regulator’s flawed definition of market in NSE, DLF orders may weaken case
NEW DELHI: All three independent competition experts that ET spoke to feel the competition regulator’s recent orders against the National Stock Exchange and DLF for abuse of dominant market position suffer from similar weaknesses, which may be exposed during the appeals process.
In both instances, they say, a major flaw in the Competition Commission of India’s argument is embedded in its handling of the first step of the three-step process: defining the ‘relevant market’.
Under its three-step process to judge abuse of dominant market position, the CCI first defines what the relevant market is. It then ascertains if the company is a dominant player in that relevant market and, lastly, if it abused its dominance.
“Estimation of the relevant market is key in abuse of dominance cases. Their (the CCI’s) methodology lacks rigour,” says Rahul Singh, who advises companies on competition matters, but is not associated with either of the cases.
In the DLF case, for example, he says the CCI has used all-India revenue data to estimate the company’s market share in Gurgaon, which might not be defensible in higher courts. The first stop in the appeals process is the Competition Appellate Tribunal, followed by the Supreme Court.
However, a top CCI official says market share is not the sole criterion to determine relevant market. “The CCI can use any of the 13 criteria cited in the Competition Act,” he says, not wanting to be identified.
Cited in Section 19(4) of the Competition Act, these 13 criteria range from economic power to entry barriers (see table), and are drawn from international jurisdictions, including the US and the European Union, where implementation of competition laws is stricter.
“However, most competition authorities are more concerned with the abuse of dominant position, not the position of dominance,” says Pradeep S Mehta, a consumer activist and secretary general of CUTS International. He is not associated with either of the two cases.
Last month, the CCI fined DLF, India’s largest realtor, 630 crore for abusing its dominant position in the high-end residential segment in Gurgaon. The CCI had, at its disposal, four different estimates of the relevant market and DLF’s share in it.
DLF submitted two separate market estimates prepared by Jones Lang LaSalle Meghraj, a real estate consultant, and Genesis, an economic research agency. Both used ‘active stock’ to define market size.
Active stock represents the number of unoccupied apartments, both under-construction and completed, available for sale. Jones Lang is reported to have estimated DLF’s market share in the high-end residential market in Gurgaon at 17.6% for 2007 and at 9.3% for 2009.
The complainants – buyers of The Belaire, a high-end DLF residential project in Gurgaon – submitted a report by Qubrex, a real estate consultant. Qubrex estimated market share on the basis of projects launched over 10-15 years.
The fourth estimate was by the office of the director general (DG), the CCI’s probe arm. The DG used data from the CMIE to estimate DLF’s market share in the high-end residential segment in Gurgaon.
In the absence of Gurgaon-specific sales data, the DG calculated the market share on the basis of all-India revenues of realtors operating in Gurgaon.
So, a company might be a market leader in Bangalore, with one project in Gurgaon, but the DG estimated its market share in Gurgaon by using its all-India sales figure.
The DG’s report says DLF’s market share exceeded 65% both in 2007-08 and in 2008-09. “The methodology used is questionable,” says Mehta of CUTS. “The CCI does not seem to have defined the relevant geographic market and product.”
A key criterion used in abuse of dominant position cases is whether the products or services are easily substitutable.
In DLF’s case, the question is whether a buyer spending 2.5 crore – the cost of a flat in The Belaire – on a luxury apartment in Gurgaon would be willing to buy elsewhere, say, in New Delhi. “We don’t know on what basis the CCI decided that Gurgaon is the relevant market, and not the NCR,” says Samir R Gandhi, a competition lawyer with Economic Laws Practice, a law firm. He is not involved with either of the cases.
Rahul Singh says the CCI should have undertaken an independent survey of flat buyers to ascertain the market size and consumer preferences, as is the global best practice.
Mehta adds the CCI should tap Tariff Commission – earlier called the Bureau of Industrial Costs and Prices – for information on various industries and markets. “It is normal practice to get the views of users and industry participants to determine substitutability,” says Mehta, who is part of a four-member government panel looking at ways to improve competition policy.