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Discussion: (11) India – When Discounts and Loyalty Programs Turn Anticompetitive | Conventus Law

For example, if the quantum of discount offered by a dominant enterprise is so significant that the sale price goes below the average variable cost, and the discount is offered with the intention to drive competitors out of the market, the CCI could consider it as predatory and hence anti-competitive.

Likewise, when a dominant enterprise structures a discount or loyalty program in such a manner that customers would be induced to deal with it alone, the CCI could view it as anti-competitive, because its end effect is exclusion of other competitors from the market.

Apart from discount/loyalty programs that have exclusionary effect, the [Indian] Competition Act, 2002 (CA02) also seeks to prohibit “discriminatory” pricing/sale conditions, which could include discount schemes that discriminate between two similarly situated customers.

CL – Predatory pricing is covered under Section 4 of the Competition Act, 2002.  What factors or tests are used to determine whether a pricing practice is predatory? 

AZB & Partners – The assessment of whether the prices are predatory must start with an assessment of whether the enterprise offering the goods/services at relatively low prices is in a dominant position.

High market shares are often taken as proxy for dominant position, but the key is to assess whether the enterprise has the ability to act independent of its competitors or customers.

Most businesses know when they hit this sweet, but treacherous spot. The next step involves the mathematical assessment of whether the sale price is below average variable cost (or any other benchmark that the CCI may consider appropriate).

Finally, the CA02 also requires that the sale of goods/services below the average variable cost must be with the view to reduce competition or eliminate competitors.

The third factor brings in the element of intention, which is usually very difficult to prove. Poorly worded internal communications and memos may give the impression that a company has devised its discount schemes to eliminate competition.

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(11) India – When Discounts and Loyalty Programs Turn Anticompetitive | LinkedIn.

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