Predatory Pricing

Context

The Competition Commission of India (CCI) has introduced the Competition Commission of India (Determination of Cost of Production) Regulations, 2025, aiming to modernize the assessment of predatory pricing, especially pertinent in the evolving digital economy.

What is Predatory Pricing?

Predatory pricing involves a dominant company setting prices below its production costs to eliminate competitors and establish market dominance.
Under Section 4(2)(a)(ii) of the Competition Act, 2002, this practice is deemed abusive when it aims to reduce competition or eliminate competitors.

Key Features of the 2025 Regulations

Primary Benchmark – Average Variable Cost (AVC): AVC is adopted as the standard measure for assessing predatory pricing, serving as a proxy for marginal cost. This approach aligns with international best practices and provides a consistent basis for evaluation.
Flexibility with Alternative Cost Measures: Recognizing the diversity of industries, the CCI may consider other cost concepts such as:
- Average Total Cost (ATC)
- Average Avoidable Cost (AAC)
- Long Run Average Incremental Cost (LRAIC)
- These alternatives allow for a nuanced assessment tailored to specific market dynamics.
Sector-Agnostic Framework: The regulations are designed to be applicable across various sectors, including digital markets like e-commerce and quick commerce. This ensures adaptability to different industry structures and practices.
Expert Involvement: To enhance accuracy, the CCI or the Director General may engage experts in cost determination. Parties under investigation can also request expert analysis, bearing the associated costs.
Clarification of Cost Definitions: The regulations provide detailed definitions, such as LRAIC encompassing all variable and fixed costs, including sunk costs, directly or indirectly attributable to a product or service. In multi-product firms, it includes a proportionate share of common costs.

Fact Box:

Competition Commission of India (CCI)

The Competition Commission of India (CCI) is a statutory body of the Government of India responsible for enforcing the Competition Act, of 2002, it was duly constituted in March 2009.
The Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) was repealed and replaced by the Competition Act, 2002, on the recommendations of the Raghavan committee.
Composition: The Commission consists of one Chairperson and six Members who shall be appointed by the Central Government.

The Competition Act, of 2002:

The Competition Act, 2002, regulates competition in the Indian market and prohibits anti-competitive practices such as cartels, abuse of dominant market position, and mergers and acquisitions that may have an adverse effect on competition.
The Act has been amended by the Competition (Amendment) Act, 2007.
The Competition Commission of India (CCI) is responsible for implementing and enforcing the Act.
Judicial bodies:
The Competition Appellate Tribunal is a statutory body created in accordance with the Competition Act, 2002 to hear and regulate on appeals against any rules made, decisions made, or orders made by the Competition Commission of India.
The government replaced the Competition Appellate Tribunal with the National Company Law Appellate Tribunal (NCLAT) in 2017.