An extract from The Dominance and Monopolies Review - 7th edition

Market definition and market power

Market definition and market power remain the starting point of every competition law assessment for determining dominance and the abuse of dominance by an enterprise.

i Relevant market

The Act defines 'relevant product market' as a market comprising all those products or services that are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use. The notion of 'relevant geographic market' is defined in the Act as a market comprising an area in which the conditions of competition for the supply of goods or provision of services or the demand for goods or services are distinctly homogeneous and can be distinguished from the conditions prevailing in the neighbouring areas. The notion 'relevant market' is defined by the Act as a market that may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both markets. In Section 19, the Act also identifies factors that the Commission must take into account in defining the relevant market.

In Google, the Commission defined two relevant product markets: the market for online general web search services and the market for online search advertising services. The Commission noted that online general web search services constitutes a distinct relevant product market, which is not substitutable for the direct search option, which requires the users to type the URL of a website in the internet browser. This is because users may not be aware of URLs of all websites that offer the information they are searching for. Search engines, therefore, become the first port of call for a user looking for information online. Accordingly, general web search services cannot be equated with direct search services.

In Google, the Commission also noted that online search advertising services constitute a distinct market. First, online and offline advertising services are not comparable because:

  1. online advertising is not substitutable with advertising in newspapers, radio or television for advertisers seeking to target user groups having limited internet access;
  2. advertising rates are much lower for online advertising; and
  3. online advertising allows the users to accurately monitor the effectiveness of the advertisement in terms of actual views.

Second, search and non-search advertising are different because:

  1. search advertising is used for demand fulfilment and non-search advertising is used for creating brand awareness; and
  2. search and non-search advertising have different pricing mechanisms (search advertising is priced based on cost-per-click and non-search advertising is priced based on cost-per-thousand impressions).

With respect to the relevant geographic market, the Commission concluded that the relevant geographic market for online general web search services and online search advertising services are national; that is, the national territory of India.

In SALPG, the Commission found that SALPG was the sole player offering LPG terminalling services at Visakhapatnam Port, and these services offered by SALPG in Visakhapatnam were not available to consumers operating in adjacent ports, such as Haldia and Ennore. The Commission, therefore, defined the relevant market as the 'market for upstream terminalling services at Visakhapatnam Port'.

The market definitions adopted by the Commission in cases relating to the real estate sector continue to remain unpredictable, muddled and inconsistent. In contrast with the earlier DLF cases, where the Commission first characterised residential apartments priced at 2 billion rupees (approximately) as high-end apartments and then defined the relevant product market as high-end apartments, the Commission adopted an objective and price-neutral approach for defining the relevant market in the latest case involving DLF. In the most recent DLF case, where the residential apartments under scrutiny were priced in the range of 4 to 6 million rupees, the Commission defined the relevant market as the market for the 'provision of services for development/sale of residential apartments in Gurgaon' without any reference to the cost price of an apartment. However, in GDA, the Commission appears to have reverted to its earlier reasoning and once again has identified the relevant market by reference to the pricing of apartments, and defined the relevant market as low-cost residential flats under affordable housing schemes for economically weaker sections.

In AICF, the Commission identified two relevant markets; that is, the market for the organisation of professional chess tournaments and events, and the market for services of chess players, to assess whether AICF imposed unfair conditions to limit or restrict chess players from actively participating in chess tournaments not authorised by AICF. In this case, the Commission relied on its findings in the Dhanraj Pillay case, to note that the product market needs to be analysed from the perspective of the ultimate viewers of sport events (i.e., the end consumers), who influence the popularity of the sport, which, in turn, determines the value proposition of the commercials associated with different sports. In addition, a sports federation requires the services of players, officials, etc. for staging an event that necessarily implies that the sports federations are consumers of the services offered by the players, officials and others. The Commission also noted that AICF hires the services of chess players for organising chess events, which makes it a consumer of chess player services, and AICF cannot substitute the services provided by chess players with any other service. Similarly, from an intended-use perspective, chess, in particular, may not be regarded as substitutable with other forms of general entertainment or sports.

In Esaote, the Italian company Esaote, which operates in the provision of medical diagnostics systems (specifically MRI machines) market, the Commission noted that dedicated standing/tilting MRI machines (G-Scan MRI machines) manufactured by Esaote are distinct from conventional MRI machines, based on physical characteristics and intended use. The Commission then proceeded to define the market as the 'market for dedicated standing/tilting MRI machines in India'.

These 2018 decisions demonstrate that the Commission has continued to define markets narrowly in abuse cases, which naturally facilitates an easier finding of dominance.

ii Dominance

In assessing dominance and market power in the relevant market, the Commission is required by Section 19 of the Act to assess dominance in the context of a broad range of non-exhaustive factors, including market share, size and resources of the enterprise, size and importance of the competitors, vertical integration, entry barriers and dependence of consumers on the allegedly dominant enterprise. The role and importance of each of these factors varies depending upon the facts of each case and the alleged theory of harm, but in its decisions, the Commission will assess dominance of the allegedly dominant enterprise under each of the Section 19 factors. Generally, market share and the size and resources of the enterprise will be the most important criteria in the Commission's assessment of dominance.

In Google, despite acknowledging that, in high technology markets (often characterised by network effects), innovation is the key and the market shares of the players are typically transient, the Commission found Google to be dominant in both the relevant markets (i.e., the markets for online general web search services in India and online search advertising services in India). Google's consistently high market shares and other technical and structural advantages were relied upon by the Commission to arrive at this conclusion.

In AICF, the Commission concluded that AICF's dominance was the result of a number of factors, including its regulatory powers, control over infrastructure, control over players, and its ability to regulate and control the conduct and governance of all chess events in India.

In DLF, despite adopting a different market definition from the position taken in the earlier cases involving the same company, the Commission separately assessed DLF's dominance in the market for residential apartments in Gurgaon because of the changed market situation. The Commission noted that, due to the presence of multiple developers that accounted for 90 per cent of the total projects, DLF was no longer dominant in the relevant market. It is notable that several of these developers are new entrants, which casts doubts on the Commission's earlier assessment of barriers to entry.

In the case involving state-owned builders and developers (GDA), the Commission noted that GDA had gained absolute control over the sale and development of residential, institutional or commercial plots (as the case may be) because of the statutory framework in place and the financial backing of the concerned state government. No competitor in the market could match the size and structure of these authorities.

In SALPG, the Commission found that SALPG was the only player offering terminalling services at Visakhapatnam Port and, therefore, enjoyed a 100 per cent market share in the relevant market identified by the Commission. Due to high entry barriers arising from the need for significant financial investment and a long gestation period, and the fact that consumers could not use the terminalling services being offered at the Haldia and Ennore ports, the Commission concluded that SALPG enjoyed an undisputed position of dominance in the relevant market.

In Esaote, the Commission found that the consumers (i.e., hospitals and diagnostic clinics), are entirely dependent on Esaote's G-Scan MRI machines for diagnosis of joint-related ailments, and Esaote remains the sole manufacturer and supplier of G-Scan MRI machines in India. The Commission also found that Esaote was not constrained by any other viable substitute to G-Scan MRI machines, which allowed it to operate independently of competitive forces and, consequently, affect consumers in its favour. Based on these findings, the Commission concluded that Esaote commands a virtual monopoly in the 'market for dedicated standing/tilting MRI machines in India'.

While the Commission's decision in DLF (the latest order) is an improvement over its prior orders against the company, the inconsistency in the definition of markets and the assessment of dominance in the Indian real estate sector is likely to continue until the Supreme Court renders its judgment in the DLF case that has been pending in the Court for a long time. The Competition Commission of India's (CCI) earlier decision in DLF has, itself, arguably been the reason for DLF suffering commercially and losing its relative leading position. The DLF string of cases also highlights how delays in dealing with competition matters in the appeal process frequently result in injury to the appellant company in terms of market perception and the deposit of fines, even in cases where the appellant company may be strong on the merits of the case. The Commission's decision in Esaote demonstrates its inclination to define relevant markets narrowly to facilitate a finding of dominance.