This Paper is written by Vijaya Laxmi, Final Year Law Student at UPES, Dehradun
Introduction
Large firms which practice exploitative pricing not only delay the entry of smaller firms into the market but also deprour consumers of the benefits associated with improved quality, lower prices, and innovation that could result from vigorous competition in the market1. Thus, unfair pricing should be controlled for market integrity, yet this control has to be done in due proportion. On the one hand, competition law should restrain anti-competitive conduct and abuse of market power; on the other, it must ensure that free enterprise and competition are not unduly hampered by excessive regulation2. Low prices are not necessarily predatory; high prices do not necessarily constitute exploitation; the problem is to determine at what point these practices become abusive3.
The Competition Act, 2002 addresses such issues more specifically within the Indian framework and lays down the structure for competition legislation in India. A major provision of the Act is Section 4, which restrains an enterprise from abusing its dominant position. Section 4(2)(a) binds the imposition of unfair or discriminatory prices to impose a general prohibition on the abuse of a dominant position by an enterprise. This gives power to CCI to investigate such conduct and ensure that market conduct complies with fair competition principles. This has led many such cases over years before CCI and Indian courts on unfair pricing to bring some interesting yet sometimes conflicting reasoning on the subject.
Even with these statutes in place, India’s regulatory approach to unfair pricing is not fully developed. Understanding and defining a “dominant position,” determining proper benchmark costs, and distinguishing legitimate competitive behaviour from anti-competitive abuse are complex tasks4. While predatory pricing has received notable attention in Indian law, the comparatively less aggressive concept of excessive pricing has been less developed and has yielded only a handful of cases that examine or penalise such conduct. Whether the recent statutes apply to and work well with most cases raises significant questions considering sectoral transformation, especially in relation to the telecom, digital service, and pharmaceutical sectors.
While India has statutory regulations still, the anti-competitive pricing management strategy remains a work in progress. The challenges of ‘dominant position’ demarcation linger as do the necessities of downloadable cost info and the determination of unfair competition and anti-competitive behaviour. The cutting-edge subject of Indian law is predatory pricing, while the opposite concept of excessive pricing is an area that is less ventured into with a couple of its cases being the focus only. The current legal situation in India has raised regarding its effectiveness and adaptability, particularly in rapidly transforming sectors like telecommunications, digital services, and pharmaceuticals.
Thus, it is both proper and necessary to perform a critical analysis of Indian jurisprudence on unfair pricing. Such analysis can reveal imperfections in the law’s justification and enforcement, benchmark any Indian approach against international norms, and recommend alterations that promote a more rational, efficient, and equitable system of competition law. In addition to providing clarity to the robustness of India’s competition law framework, understanding how India deals with unfair pricing can promote and contribute to a wider policy objective of an efficient, inclusive, and consumer-friendly market.
Theoretical Framework
The theoretical framework serves as the intellectual basis for analyzing unfair pricing within the context of competition law. Economic theories are essential in guiding legal systems to identify, assess, and regulate pricing practices that can disrupt competitive balance5. The notion of “unfairness” in the marketplace is particularly tied to concepts such as predatory pricing, excessive pricing, and price discrimination. When dominant market players exploit these strategies, they can distort market conditions, stifle competition, and negatively impact consumers, even if such practices may appear economically rational from the perspective of the company involved. Furthermore, the challenge arises as legal institutions strive to incorporate sophisticated economic analysis into their regulatory frameworks, making the practical application of these concepts through legal norms often complex.
Predatory Pricing
Dominant companies use predatory pricing as a strategic tool to purposefully set prices below cost in an effort to drive out or punish rivals. Instead of focusing on immediate financial gain, the ultimate goal is market monopolization, which will enable the company to raise prices when rivals are driven out or discouraged from entering the market. Low prices give the strategy a pro-consumer appearance at first, but this makes it fundamentally anti-competitive.
Economically, predatory pricing works only when the firm has the cash flow to sustain the short-term losses, and is also able to raise prices in the future because of sufficiently high barriers to re-entry for the competitors it excludes in the present. Economists accordingly stress the recoupment requirement — whether the company will be able to recover its losses by charging supracompetitive prices in the future. If there were no recoupment, such practice cannot be considered a rational investment and should not be deemed abusive according to antitrust analysis.
Section 4 of the Competition Act, 2002 defines predatory pricing as an abuse of dominant position under Indian competition law. In disposing of such cases, the CCI and courts have relied on legal reasoning as well as economic analysis. One such case is MCX v. NSE (2011), in which the CCI found NSE had engaged in predatory pricing in the currency derivatives segment by providing services free of considering the impact on potential competition.
Excessive Pricing
So, when a big corporation that pretty much rules the market decides to charge way too much for a product or service—without any real reason linked to its actual value—this is what we call excessive pricing. Now, don’t confuse that with predatory pricing, which is a different beast altogether. Predatory pricing is all about trying to wipe out the competition. On the other hand, just jacking up prices without any competitive edge? That’s really exploitative. It’s not just unfair; it actually harms customers directly.
The economic logic justifying bans on excess pricing is based on allocative efficiency and consumer welfare. Monopoly or monopsony firm domains, can have incredibly high prices over the marginal cost of production, while competitive market conditions demonstrates supply determined and demand determined price points. It will also lead to deadweight loss, where the supplier receives monopoly rents at the expense of consumer surplus, but gains from potential trades are lost.
In cases involving excessive charges, the CCI in India has been sluggish to take decisive action. This is because it is difficult to establish a “fair” pricing standard that courts can use and they are unwilling to interfere with the market-determined pricing process. Naturally, when life-saving medications are overpriced in delicate areas, especially in the pharmaceutical industry, there is growing pressure to step in. Some contend that price control measures like the Drug Price Control Order should handle this, but others believe that competition law can fill the gap left by market failure.
Price Discrimination
When a business charges different clients for the same good or service at different prices based on distinctions unrelated to cost, this is known as price discrimination. Now and again a super competitive plan sounds like a genuine winner, but big companies tend toward using price cutting strategies as a way to break other companies and squeeze consumers. Sometimes the lower prices make it harder for competitors to really clash and compete fairly. This strategy favors and backs the dominant player while shutting out other players. Three levels of price discrimination are distinguished by economists. Seizing all consumer surplus and forcing each consumer to pay as much as they want is considered first-degree discrimination. Third-degree discrimination entails different prices for various consumer segments (e.g., student or senior discounts), while second-degree discrimination entails price variations based on quantity or product type.eg, student or elderly discounts.
While price discrimination is not anti-competitive by itself, it can be employed in some cases to eliminate competitors or reduce rivalry. For instance, discounts offered to large buyers or loyalty rebates which reduce demand for the products of other competing suppliers. Businesses can employ algorithmic pricing in the digital economy which require new enforcement handles. In the Indian Competition Law, Clause 4(2)(a)(ii) forbids discriminatory pricing that entails undue harm to the consumer or trading partner. The CCI examines whether such pricing constitutes the abuse of market dominance or, in other words, stifles competition, or makes the competition to an essential resource more difficult.
Still, CCI most often deals with competition problems using an efficiency defense. Some differences in pricing are not unjustified, such as differences in costs, shifts in market demand, or clever advertising. The difficulty lies in determining the balance between strategic discrimination that enhances competition and exclusionary pricing meant to destroy rivals.
Legal Standards vs. Economic Reasoning in Unfair Pricing Cases
One persistent problem with the use of unfair pricing is the discrepancy between legal requirements and economic sense. Clearly, standard laws generally deal with evaluations that use rules like deciding if a company has too much power and if it has used this power unfairly. Evaluations also look at what extra competition this power lessens. But strangely enough, while thinking about economics often pays attention to context and draws on incentives, flows of market forces, and longer term dynamics.
This gap becomes problematic in practice. For example, legal mechanisms frequently insist on a binary determination—is the conduct abusive or not?—whereas economics can only offer probabilistic projections of damage. Economic models are based on assumptions and expectations that are hard to precisely measure, even if courts demand unambiguous proof.
This tension is demonstrated by the way the CCI and the appeals authorities in India conceptualize pricing conduct. Even if economic theories and concepts are part of Indian competition regulations, there still can be big problems because they just don’t turn into consistent action sometimes. There are no clear rules or guidelines followed every time. People also don’t have enough skills to follow the rules well and hard to get the data from relevant places. Overall it’s not well executed sometimes. Furthermore, Indian case law is still developing, and many of the rulings are based on particular facts rather than a coherent set of principles.
To close this gap, there is an increasing need to more thoroughly incorporate economic facts into legal reasoning without sacrificing legal certainty. When judges and oversight folks doubt creative new ways of doing things, they should proceed very carefully, preferring to go with the crowd approach first unless there is clear evidence that someone is being left out or being overpoweringly used. In order to create a strong and reliable framework for unfair pricing in India, this balance must be struck.
Legal Framework in India
Unfair pricing is a heavily regulated area in India by the Competition Act, 2002. Both laws were designed to secure trade freedom, to promote and preserve market competition, and to protect consumers. Specifically, the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) was repealed to tackle the contemporary competition concerns that emerged in a liberalised economy.
Analysis of the 2002 Competition Act The Competition Act of 2002 is the law dealing with anti-competative activities in India. As with any other form of legislation, Act attempts to achieve key objectives such as to prevent and take measures against anti-competition practices (AAEC), foster, sustain competition, protect the interest of the consumers and to ensure freedom of trade. These are the three major parts or pillars of the Act:
- Section 3: Anti- competitive agreement eg. Cartels and vertical restraints, are banned.
- Section 4: Banning companies from exploiting their monopolistice position
- Section 5 and 6: Regulation of combinations that could lead to AAEC, including mergers, acquisitions, and amalgamations.
Provisions Related to Unfair Pricing: Section 4
The significance of section 4 of the Competition Act is twofold; first for its reference to dominant firms and secondly, for its enforcement of the principle of non-discrimination as a form of abusive practice measure of infrastructure industries. In particular, Section 4(2)(a)(ii) states that a corporation is abusing its dominant position when, in the course of offering a product or service, it charges unfair or unreasonable prices that are discriminatory concerning sales to customers and to other businesses within the supply chain.
In this regard, socially damaging price discrimination practices tend to deepen market economy concepts such as predatory pricing. This means that the price offered to customers is intentionally offered to them at no fee. In support on this assertion, there are two requirements to prove a case of abuse that need to be present; ‘sale below cost’ and intention required is ‘to extinguish the competitors in the industry’. A good example of this is when a larger company sells its products below cost for a short time to promote sales without a drive-to-eliminate-competitors objective to do so.
An equally important issue is price discrimination, which occurs when one firm in the dominance position charges unlike prices to equally positioned customers without reasonable justification. This can be detrimental to competition in the market because it discriminates in favor of some competitors.
Key Jurisprudence Demonstrating CCI’s Approach
The CCI’s decisions on landmark cases have very much broadened the reach of the Indian law’s prohibition on unfair pricing practices. In MCX Stock Exchange v. National Stock Exchange (2011) CCI termed the NSE’s practice of setting a price of zero for currency futures as predatory pricing. This is perhaps the most quoted case. The principal, NSE, was found to be driving out competitors by offering unfounded complimentary services. The CCI stressed that the purpose and impact in lower than AVC selling also had impact on framing determination of predation.
In Fast Track Call Cab v. ANI Technologies (Ola), Ola was accused of subsidizing rides to lower the bid systematically step on competitors. CCI concluded that Ola was not a dominant actor in the relevant market and that the pricing policy was part of a promotional phase aimed at winning over new customers. Thus, no infringement of Section 4 was found. CCI applied the same logic in In re: Uber India, ruling that there was no abuse because there was no dominance.
These examples emphasize one of the features of the Indian law: a Section 4 contravention does not arise only due to a lower price. It must also be demonstrated the firm’s control over the market and whether the price setting policy is predatory or discriminatory. This ensures that the law is not applied against pro-competitive prices which are favorable to the consumers.
Role of the Appellate Tribunal and the Supreme Court
According to Section 53B of the Act, the National Company Law Appellate Tribunal (NCLAT) is authorized to hear appeals from the Competition Commission of India (CCI). NCLAT, taking over from the Competition Appellate Tribunal (COMPAT), exercises oversight of the CCI to ensure that its decisions are not only rational but also economically sensible and appropriate. It reviews how the CCI defines relevant markets, how costs are measured and framed, and the thresholds set for determining abuse of market power. The last COMPAT ruling on the NSE appeal also prominently featured predatory pricing and emphasized that it is abusive for a dominant player to provide goods or services without cost unless there are robust justifications and competitive harm is mitigated.
The apex court in India has the power to hear additional appeals from the NCLAT in accordance with Section 53T. Here, the court has the power to construe the provisions of the Act, solve critical legal issues, and make judgments which will be a precedent for future competition law enforcement in India.
Evolving Jurisprudence and Future Challenges
India continues to concentrate on a good enforcement system for regulating unethical pricing. By the Competition Act, Section 27, the CCI is authorized to secure recovery from a large group of offenders who are involved in price discrimination or who have charged excessive or predatory rates, particularly by Section 4. The case law of that has arisen in support of the above-mentioned principles is suggestive of a judicial opinion that is conversant with the economic principles, market realities, and that can protect competition and the welfare of consumers.
However, the problems persist. The capability of the CCI to undertake sophisticated price research, improve access to market and economic data and realities, and establish more precise criteria for cost benchmarks is a must. Furthermore, as markets change through digital markets, e-commerce, and gig economies, the law should also be flexible enough to recognize the new kinds of pricing abuse without creating a roadblock to innovation and the competitive entry.
Case Laws: Analysis
MCX Stock Exchange Ltd. versus National Stock Exchange of India Ltd. in 2011 One of the significant decisions relating to predatory pricing under Indian competition law is that in MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd. The major accused of predatory pricing in this case is National Stock Exchange (NSE), which emerges as a major player in the currency derivatives market by providing free access to its trading platform and nullifying transaction fees for MCX-SX, an emerging entrant. Competition Commission of India (CCI) found NSE at having a dominant position Currency Derivatives Segment and after analyzing the concerned market, observed that zero-pricing strategy lacks objective basis.
The cost was lower than cost, as per the cost study (which applied AVC, ie, Average Variable Cost technique) of CCI. It also discovered an outrageous attempt to suppress competition, notably considering that NSE did not have a good financial justification for maintaining rates at zero, as around that time it was managing a fixed operational cost. The CCI emphasized that this pricing mechanism by a dominant player can have an adverse impact on future market competition, notwithstanding any temporary benefits to consumers. This decision was upheld by COMPAT (presently NCLAT) stressing that as per Section 4 of Competition Act.
ANI Technologies v. Fast Track Call Cab (Ola) A more well-known example of a predatory pricing claim in the Indian ride-hailing industry is the case of Fast Track Call Cab v. ANI Technologies (Ola). To beat competitors and dominate in the market place, Ola, according to the informant, was providing rides at a price lower than its cost and incentivising drivers. The approach taken by the CCI in this case underlines the two-step process in abuse analysis; establishing dominance, and then assessing alleged abusive respondent conduct.
Ola, at the time of filing of the complaint, did not have a market dominating position in the relevant regional market (Bengaluru), and was operating in a competitive market – characterised by a low entry barrier, the CCI said. Also, Ola’s price policy was viewed as an attempt at market penetration than a move to drive out competition. The Commission also found that there was no consumer welfare harm, and that lower prices were pro-competitive and benefitted consumers in the short run. This outcome led to the lawsuit being dropped, establishing once again that predatory pricing in the absence of dominance does not amount to illegality under Indian law.
Approach Taken by CCI and Courts: Evidentiary Standards
In order to assess allegations of unfair pricing, both the Competition Commission of India (CCI) and appellate tribunals have developed a structured approach for the presentation of evidence. A crucial step in this process involves employing factual and economic analyses to effectively delineate the marketplace and determine dominant market players. It is incumbent upon the informant to first establish a prima facie case, following which the Director General (DG) may be directed to scrutinize and gather pertinent information, including cost sheets, market data, and internal pricing documents, if the threshold for intervention has been surpassed. For predatory pricing, the CCI demands establishment of the prices being lower than cost and intent to eliminate competitors. It looks at internal communications, strategic business plans and even investor presentations to decide whether the alleged conduct was intended to block market entry or punish rival behavior. The evidentiary standard therefore is both quantitative data (the costs and the prices) and qualitative evidence (intent, strategy).
Cost-Based Analysis: This method, particularly the Average Variable Cost (AVC) test, is the most frequently used. A presumption of predation is suggested when a dominant company sets prices below AVC. The Competition Commission of India (CCI) has occasionally also considered Long-Run Marginal Cost (LRMC) or Average Total Cost (ATC), especially in sectors with heavy capital requirements.
Comparator-Based Analysis: The Commission may analyze the prices set by firms in similar circumstances for their products and services. This comparative approach helps identify whether a company’s pricing significantly diverges from industry norms, potentially indicating exclusionary intent.
Price-Cost Margin Test: This determines if the price charged is an acceptable margin over the cost. This approach aids in identifying instances of excessive pricing and if a company is abusing its position of power by taking unjust profits, particularly when there is no competition.
Conclusion
The economic justification for bans on excess pricing rests on allocative efficiency and consumer welfare. Monopoly (or monopsony) firms have prices that can be well above marginal cost of production, while competitive market conditions have prices determined by supply and demand. This may result in deadweight loss in which the firm captures monopoly profits out of consumer surplus, yet consideered gains from trade never materialize.
The Indian jurisprudence despite being aligned to international standards suffers largely from both legal and economic standards being vague. Secondly, there is also very little reliance on empirical study and economic understanding in establishing what sources of pricing are “unfair.” Unlike the US and the EU, which have matured in terms of its jurisdictions, India is, however, still developing its enforcement strategy and analytical tools, particularly in dynamic and innovative sectors such as the platform economy and e-commerce space. There is much room for future jurisprudential evolution and policy improvement. Exchange of information between sectoral regulators, better integration of the models of the economy and more transparent rules on pricing assessments could make the enforcement mechanism more effective.
- Whish, Richard and David Bailey, Competition Law, 9th ed. (Oxford University Press, 2018), pp. 210–212. ↩︎
- D.P. Mittal, Competition Law and Practice (Taxmann, 2023), p. 134. ↩︎
- United Brands Company v. Commission, Case 27/76, [1978] ECR 207, para. 250. ↩︎
- D.P. Mittal, Competition Law and Practice (Taxmann, 2023), pp. 145–148. ↩︎
- Motta, Massimo, Competition Policy: Theory and Practice (Cambridge University Press, 2004), pp. 115–120. ↩︎
