Market Matters: Understanding the Significance of Relevant Markets in Competition Law

INTRODUCTION 

Competition law is a body of laws and regulations designed to avoid imbalances in markets caused by anti-competitive commercial practises. 

The primary objective of competition law is to provide a healthy environment for both buyers and sellers by banning illegal activities with the aim of gaining a bigger share of the market than would've been possible through genuine competition. Anti-competitive behaviours not only make it harder for smaller enterprises to enter or develop in a market, but they also result in higher customer costs, inadequate services, and a lack of innovation. A few examples of anti-competitive practices are: Predatory pricing, meaning a monopoly  imposing an exorbitant cost for an item that the customer has no alternative other than to buy; price fixing, which entails conspiracy among would-be competitors in setting identical costs for goods; bid rigging, which refers to colluding to determine the winner of a contract in advance; and dumping occurs when a product is sold at such a low price that smaller businesses can't afford to compete and get forced out of the market.

To prevent such behaviour, the Competition Act, 2002 was enacted. It created the Competition Commission of India (CCI), the statutory national regulator whose purpose is to uphold the Act, in order to foster competition and stop acts that have major adverse effects on competition in India. The CCI investigates cases in which there is a detrimental effect on competition. Now for a competition law to be effective in preventing anti-competitive measures, it is crucial that the correct operating place or ‘market’ be identified correctly. 

Relevant market is defined in Section 2(r) of the Act to mean the market determined by the CCI with reference to the ‘relevant product market’ or the ‘relevant geographic market’ or with reference to both the markets. These two markets help determine the market that the CCI should consider when investigating anti-competitive practices.  

UNDERSTANDING RELEVANT MARKETS

Relevant market has been stipulated in multiple laws around the globe, such as the Act, UK statutes, European laws, and US antitrust laws; nevertheless, it is not feasible nor fair to restrict the scope of 'relevant market' to a few hypothetical definitions. Even courts and other forums of dispute resolution have difficulty with limiting the extent of the concept, and every debate gives rise to an original unique understanding. The definition of the relevant market under Section 2(r) of the Act is not exhaustive because the term originates from the concepts of Economics and is thus bound to be fluid based on the distinctive mix of facts for each case.

It is transparent that the responsibility of identifying the ‘relevant market’ is left to the CCI, and terms like "relevant product market" and "relevant geographic market" call for proficiency in legal concepts, economic concepts, and a scrutiny of large amounts of data/statistics before reaching a decision. In common vocabulary, a relevant market is one in which competition exists. A relevant market is further subdivided into a 'relevant product market' and a 'relevant geography market'.

Relevant Product Market: In plain terms, a relevant product market refers to two forms of interchangeability of the good or service - the first of which is 'demand side substitution,' which establishes a situation where the market player receives no benefit by a small rise in cost price as the customer has the choice of substituting the usage of such the good or service, and the second kind is 'supply side substitution,' that says a circumstance in which other market players boost the availability of such the good or service removing the effect of an increase in cost price. Section 2(t) of the Act defines the 'relevant product market' as a market that includes all products or services that consumers consider to be interchangeable or substitutable. This determination is based on factors such as the characteristics of the products or services, their prices, and their intended use.

Relevant Geographical Market: To determine a relevant geographic market, it is crucial to consider the location of buyers and sellers within the market. The geographic boundaries of the market should encompass an area where all competitive conditions for the products or services are similar. The presence of the market can be classified as local, regional, national, or international, depending on the locations of the buyers and sellers involved. By understanding the geographic scope of the market, we can gain insights into the nature and extent of competition within that specific area. Section 2(s) of the Act defines the relevant geographic market as a market that includes an area where the competitive conditions for the supply or demand of goods or services are clearly similar and distinguishable from the conditions prevailing in neighbouring areas. In other words, it refers to a specific geographic region where the market conditions for buying and selling goods or services are noticeably uniform and can be differentiated from the conditions in nearby areas. This definition helps to determine the boundaries and extent of the market based on the homogeneity of competitive factors in a particular geographic area.

Determination: The Commission is always mindful when identifying the appropriate market, because limiting the market might exclude others and competition. However, if it is overly wide in scope, the competition might be inflated. Consequently, the market's size must be cautiously identified, if not it will be undermined or overwhelmed. In the case of M/s Saint Gobain Glass India Ltd. v. M/s Gujarat Gas Company Limited, the court deliberated on a more precise and definitive test to determine the relevant market. It considered various factors for determining the relevant market, and the CCI emphasized the significance of Section 19(7) and 19(6) in assessing the relevant product market and relevant geographic market, respectively. As per section 19(6), the factors enlisted for the relevant geographic market for CCI’s consideration are:

•  Regulatory trade barriers;
• Local specification requirements;
• National procurement policies;
• Adequate distribution facilities;
• Transport costs;
• Language;
• Consumer preferences;
• Need for secure or regular supplies or rapid after-sales services.

Likewise, as per section 19(7), the factors enlisted for the relevant product market are:

• Physical characteristics or end-use of goods;
• Price of goods or services;
• Consumer preferences;
• Exclusion of in-house production;
• Existence of specialized producers;
• Classification of industrial products.

THE ROLE OF RELEVANT MARKETS IN COMPETITION LAW

Cartelization: A cartel or cartelization is an alliance of companies that work together to control pricing, rig bids, and share customers. There can be a group of producers, sellers, distributors, traders, or service providers who, by an agreement, restrict, control, or attempt to restrict and control the manufacturing, distribution, sale, or price cost of goods or the supply of services. The assumption is that it is always assumed by default is that cartels have a significant negative impact on competition in the relevant market. Cartel are strictly banned under Section 3(1) to be read with Section 3(3) of the act. 

Abuse of Dominant Power: Chapter II of the Act's second section provides a definition and prohibits the abuse of a dominant position. Abuse of dominant position hinders fair competition among businesses, cheats customers, and makes it more difficult for competitors to compete on merit with the dominating company. As per the legislation, a dominant position in the Indian market refers to a company that possesses the power and authority to:

• Operate independently, unaffected by the competitive pressures within the relevant market.
• Exert influence over its competitors, consumers, or the relevant market in a manner that favours its own interests.

It is crucial to make clear that the Act's concept of dominance does not rely on a specific quantitative threshold or market share percentage. This is due to the fact that a company with a large market share may continue to operate legitimately provided there is strong competition from strong rivals, whereas a firm with a small market share can abuse its position in the market if its competitors hold the remaining market share in a fragmented manner. Setting a specific limit may allow offenders to escape or result in unnecessary lawsuits. In the Indian context, dominance is decided by taking into consideration the relevant market. The Competition Commission might determine the relevant market based on the product market, the geographic market, or both.

It must be remembered that the difference between anti-competitive agreements and abuse of dominant position is that anti-competitive agreements need a minimum of two parties and can be between any company or corporation, but abuse of dominant position does not. A dominant position can be abused by just one party, but the party must be dominant in the relevant market. Dominance has typically been defined as the company's or firm's market share. Section 4 of the Competition Act, 2002 provides for prohibition of abuse of dominant position.

CHALLENGES IN DEFINING RELEVANT MARKETS

The primary step in competitive analysis is defining the relevant market. It defines the limits of the investigation and provides an outline and basis for the economic and legal examination included within it. Both company activities and customer behaviour have been dramatically changed by digitization. Determining the relevant market is an ongoing challenge for regulatory bodies around the world adapting to these changes.

Previously, the CCI saw online and offline marketplaces as merely alternate channels of distribution within the same relevant market. In recent years, it appears that the CCI has altered its approach to defining 'relevant markets,' seeing online and offline distribution as separate relevant markets. The reason for the CCI's reinterpretation might be to keep a close eye on any anti-competitive practises of companies in the Indian e-commerce sector, which has grown rapidly in recent years. Yet, by doing so, the CCI seems to have created a false dichotomy that implies that online and offline distribution strategies do not compete with one another, pitting solely online enterprises against one another. The CCI has also dismissed the idea that certain internet businesses have developed new product/service categories for themselves in previously non-existent industries, resulting in the rise of 'copycats' in the offline market. In recent years, CCI's policy towards digital market situations has been contradictory. Unique characteristics and diverse business models require case-by-case examination. The elements evaluated during the investigation into misuse of dominating position play a significant effect in the conclusion of such cases. 

The emergence of data-driven digital platforms and their unique business models poses a huge challenge to traditional market definitions used in competition rules around the world. This problem was raised in the Harshita Chawla v WhatsApp case, where it was recognised that consumer communication apps such as WhatsApp and Facebook have distinct characteristics that make them appear as substitutes for certain activities but not others. As a result, determining an app's classification within the relevant product market requires identifying its most important qualities. Furthermore, when dealing with multiple sides of platforms that provide middlemen services, a full market characterisation is required to determine their market dominance.

CONCLUSION

In conclusion, understanding and defining relevant markets play a vital role in competition law. They provide a framework for assessing market power, analysing competitive effects, and ensuring fair competition. While the determination of relevant markets can be complex, it is essential to consider factors such as product characteristics, pricing, and consumer substitutability. The rise of digital platforms has added new challenges, necessitating a closer examination of their unique features and market power. As competition regimes evolve, it is crucial to adapt market definition methodologies to effectively address emerging market dynamics. Continual research and analysis of relevant markets are essential to promote competition, protect consumers, and maintain healthy and vibrant market environments.