Watch out for collective abuse

The Financial Express, May 31, 2011

By Pradeep S Mehta

The basic parameters for healthy competition in the market requires large number of players and large number of buyers to promote the necessary rivalry. Alas, rivals also know how to defeat the purpose by colluding through an implicit or an explicit cartel or by abusing their dominance singly or jointly. Tackling the abuse of dominance needs clear guidelines, so as to capture the conduct of the whole sector that may be prevailing in the market place.

The CCI judgement of December 2, on the issue of charges towards the prepayment of home loans, resulted in an important issue being raised: the possibility of collective abuse of dominance among some banks was not explored. Collective abuse of dominance is a method when unscrupulous business operators might decide to descend on the consumers, who are not in a position to bargain for fair terms, taking advantage of the gobbledygook in the agreement.

Just like India, concerns have been raised on the ease with which collective abuse of dominance can escape the purview of competition laws across many jurisdictions. This refers to abusive conducts that firms, particularly those in oligopolistic markets, may engage in without an explicit agreement. There is a need to ensure that the competition law captures such conducts. Just like the home loan case, the individual firms would all escape punishment under abuse of dominance as individually they would not be dominant. They would also escape action for cartelisation as they may not have sat down and agreed on the joint action. Thus, collective abuse of dominance can be considered a punishable offence, somewhere between a cartel and abuse of dominance.

Although the rationale behind the prosecution of collectively abusive firms has been accepted in competition enforcement circles, there are still a lot of grey areas in the enforcement, given that there is no consensus on the type of behaviour required for finding of joint dominance. It is also not clearly defined in laws across several jurisdictions, including those that have successfully prosecuted firms for such conduct. It is the same situation in India, where the Competition Act, 2002, has not included a precise definition on collective abuse of dominance. Generally, the conduct is punished using inferences from the laws governing abuse of dominance.

For example, although Canada now has a history of more than 20 years of implementing abuse of dominance, there are no separate provisions in handling collective abuse of dominance. But, Canada’s Competition Bureau, through the ‘Abuse of Dominance Guidelines’ of 2001, has tried to provide some clarity on how it deals with the issue of joint dominance. According to the guidelines, the abuse of dominance provisions would also capture a group of firms that coordinate their actions, although something more than simply conscious parallelism has to be established before the Bureau could reach a conclusion that firms are participating in some form of joint dominance. In June 2009, the Bureau intervened by alleging collective abuse of dominance against two unaffiliated waste removal firms on Vancouver Island that collectively held a market share exceeding 80%. They jointly engaged in abuse of dominance by using similar long-term contracts and restrictive terms to lock in customers and exclude competitors.

Collective abuse of dominance at least has an explicit legal backing in the EU as Article 82 (now 102) of the EC Treaty has been used by European and national competition authorities to address collective abuse of dominance. The wording of the Article, which talks about ‘abuse by one or more undertakings of a dominant position’, allowed the interpretation that collective dominance may also be addressed. However, the application to collective abuse has proved complex, as the first case on Italian Flat Glass, which the European Commission had handled, was rejected by the Court of First Instance (CFI). The CFI ruled that collective dominance could not be established solely by the existence of economic links, but additional evidence was needed in order to positively prove that the undertakings concerned were ‘presented on the market as a single entity’. However, many subsequent cases were successfully prosecuted.

The concept of collective dominance was also adopted by a regulatory authority, the Irish telecommunications regulator, ComReg. In December 2004, the regulator concluded that although neither of the two major Irish operators, Vodafone and O2, individually held a position of dominance in the Irish mobile market, Vodafone and O2 held a collective dominant position in the market and had significant market power. As a remedy, ComReg proposed that Vodafone and O2 should open up their networks to alternative providers on non-discriminatory terms to allow operators without a mobile network of their own to enter the market.

This also brings an important lesson to CCI. In its rushed decision on the home loan case, it appears as if the possibility of collective abuse of dominance was never considered. Like other jurisdictions, the Indian competition law provisions on abuse of dominance were framed with a single firm in mind, and although section 4 of the Competition Act also prohibits acts of misconduct by an enterprise or group, the definition of ‘group’ covers firms that are related in terms of voting rights. It is, thus, important that clear guidelines be established on how collective abuse of dominance would be addressed using the same provisions on single firm conduct. Unless this is done, more firms will continue to escape the purview of the Act, with sad consequences for consumers.

Pradeep S Mehta Secretary General, CUTS International and Cornelius Dube of CUTS contributed to this article

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