On
Facts
On
By way of an order dated
DG Report Findings
First, the DG delineated the markets for investigation as the markets for the (i) sale of passenger cars in
The DG concluded that such RPM violated Section 3(4)(e) of the Act as it caused an appreciable adverse effect on competition (AAEC) in the delineated markets. It lowered inter-brand competition (brands competing with MSIL) and intra-brand competition (competition among the various dealers); and led to products not being offered to consumers at best prices.
Analysis by the CCI
First, the CCI rejected MSIL's objections regarding absence of a formal agreement in place for implementation of the DCP. It remarked that the scope of "agreement" defined under Section 2(b) of the Act is wide enough to include even a mutual understanding or action in concert.
Second, it rejected MSIL's contentions that even if the DCP existed in certain regions, it was an inter se measure by the dealers to police themselves and MSIL was merely a third party. Based on the email evidence adduced in the DG's report, it was clear to CCI that MSIL regularly conducted meetings on its DCP, imposed a mandatory prior approval mechanism for provision of additional discounts, threatened to stop supplies, and imposed sanctions.
After concluding the presence of a RPM mechanism, CCI carried out an AAEC analysis under Section 19(3) of the Act to conclude that MSIL's DCP prevents effective competition both at the intra-brand as well as at the inter-brand levels. That is, by fixing the maximum discount that can be offered, the DCP is setting the minimum prices at which the sale can be made by the dealer and thus, restricting MSIL dealers to compete effectively on price. This leads to other brands who track MSIL's prices to factor it in their pricing strategy, thereby softening the competitive environment. The CCI observed that when a significant player such as MSIL imposes minimum selling price restrictions on its dealers, RPM can decrease the pricing pressure on competing manufacturers. The trickle- down effect of such a model-results in the end-customers being denied benefits accruing from effective competition who are made to pay higher prices.
Lastly, the argument put forth by MSIL that RPM is necessary to eliminate the problem of free riding was also rejected by the CCI. It contended that eliminating price competition between dealers may not necessarily incentivise the dealers to pass on the benefit of extra margins to consumers by way of providing better services. Thus, the harm caused by RPM does not outweigh the benefits that it may have in the market.
With this, the CCI concluded that MSIL violated Sections 3(4)(e) read with 3(1) of the Act and caused an AAEC. Therefore, the CCI ordered MSIL to cease and desist from indulging in such RPM and directed it to deposit a penalty of INR
Comments
This case has brought back the spotlight on the automobile sector as this was not the first time CCI has penalised an automobile manufacturer for engaging in RPM through monitoring discounts.
In 2017,
Perhaps as a learning from the HMIL case, the CCI has thoroughly deliberated upon the evidence provided and arguments advanced, and, used cogent reasoning to find a contravention. It deep-dived into examining the pro and anticompetitive effects of the DCP to demonstrate how the adverse effects on the market outweigh any free-riding concerns or perceived benefits accruing from distribution efficiencies.
Despite finding MSIL guilty of violating the Act, the CCI has adopted a considerate and lenient approach while imposing the penalty in view of the impact of the pandemic on the automobile sector.
Footnotes
1. In Re: Alleged anti-competitive conduct by
2. In Re: Alleged anti-competitive conduct by
3. In Re:
4.
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