Brief Summary (To read the full post click here)
Competition concerns in every market are really defined by the type of market structure and number of players. Every market has potential threats to free and fair competition. Where there is a single firm, there could be exploitation or abuse of Dominant position. And where there are few firms or an Oligopoly, the tendency would be to cartelize by collusively distorting competition by anti-competitive practices. Perfect competition is ideal but unrealistic. Some of the major Complaints filed before CCI throw light on the kind of competitive threats that Dominance & Cartelization pose and the anti-competitive elements involved.
We have discussed below dominant behavior complained of against monopolization issues relating to The Big Daddy of search engines (Google) and the biggest Social Networking site (Facebook). CCI investigation would be based on the impact in the Indian market that is considered to have an adverse effect on competition.
Abuse of Dominant Power
The consumer advocacy group Consumer Unity and Trust Society (CUTS) complained that Google was imposing unfair and discriminatory conditions due to their dominant presence in the market of Search engines. Specific Allegations are made like –
Abuse of Dominance by:
Creating a search bias which drives its customers to view only such ancillary services as owned and operated by Google and manipulating searches by tweaking with the algorithmic as well as paid search results by penalizing certain Web sites and advertisers. This denied access to the content of other search engines / ancillary sites and services operated by it. Matrimonial site Bharatmatrimony.com filed a complaint against Google accusing the online giant of abusing its dominance in the search-engine market by engaging in unlawful practices relating to its AdWords platform. Google was selling keywords relating to its websites to rival sites such as Shaadi.com, and Jeevansaathi.com. AdWords is Google’s online advertising channel that sells keywords to advertisers and creates online ads on its search screen.
The search engine has been facing actions from international regulators on similar counts by authorities including Argentina, South Korea, and the United States Federal Trade Commission – In 2011, NHN Corp and Daum Communications, two of South Korea’s major portal operators had accused Google of hurting fair market competition by compelling phone makers to preload only its search engine into their devices when offering its Android operating system. The European Commission Competition Commissioner, Mr. Joaquim Almunia says that the four areas of significant concerns are: ‘preferential treatment’ in the hierarchical presentation of results; doubts in respect of intellectual property rights; restrictions written into advertising contracts, and the ‘portability’ of advertising across different internet platforms.
CUTS has written to the Competition Commission of India (CCI) regarding Facebook Inc. and its newly introduced payment system ‘Facebook Credits’, which could be spent across various games or applications on the popular website. Facebook can potentially engage in anti-competitive and unfair business practices in the market for virtual goods purchased in social games through its Facebook Credit terms in India and therefore its activities in this regard need to be investigated by the CCI. CCI is yet to take a view.
Who is said to be dominant? And why?
Dominance does not mean having the biggest market share alone. Although, the larger the market share the greater would be the market power that a firm can yield, dominance is assessed by competition authorities by analyzing particular market parameters that affect free markets or entry of new players. They collect evidence from market data to analyze the same within those parameters. Accordingly, a framework of economic factors affecting that market is drawn to see whether a firm can be considered as dominant in a “relevant product / geographical market”.
Firms that are not dominant are not likely to harm market players/consumers by their conduct. So, what all factors decide a firm’s dominant presence? And if a firm is not dominant, the same conduct that may constitute an abuse when performed by a dominant firm can be considered pro-competitive? From the broad range of factors that can determine whether a firm’s market power substantially affects Competition, a greater focus on behavioral aspects in defining dominance has the advantage of including more appropriate parameters. Conversely, a definition of dominance that focuses on market share, not taking into account factors like an easy entry or intense rivalry lacks flexible approach. Depending on the competitiveness of players, one factor can be for instance new and rapid technological development bringing a new game changer. No doubt, it’s a fact that firms may not be able to exercise sustainable market power despite a high market share.
Thus, a variety of sources should be used in the process of considering demand-side substitution. These sources include:
CONSUMER TASTE – Evidence on characteristics and usage of the products (e.g., consumer surveys, market research, and trade publications).
SIZE OF THE MARKET – Internal documents (e.g., market studies or strategy documents) of the firm or its competitors.
SUBSTITUTES – Patterns in price changes of the products, in particular, price changes and switching patterns before the alleged anticompetitive conduct started.
Depending on whether the seller of the product is able to price differently among a segment of consumers, it may be possible to exercise substantial market power with respect to one or more specific customer segments – in terms of keeping prices high or offering rebates, tying in a freebie or any such business behavior.
Firm behavior provides the cost at which producers can produce and bring various quantities of the product or service to the market;
While market structure/no. of players provides the basis for determining how individual firms behave. The market dynamics and competition aspects change with the number of players competing – degrees of competition would be different in cases of – a monopoly, duopoly, and oligopoly for perfect competition – and how this translates into market supply and market prices.
Source: ABUSE OF DOMINANT POWER