SME’s contribute around 35-40% of the Gross Domestic Product (GDP) & is taking responsibility of employment, sustaining development & helping the country in reducing poverty. This sector in muddled & jeopardy in a larger extent & to the vigorous external business environment. In one respect, the size of SME’s make then jeopardy to anti competitive act of bigger enterprise including Abuse of Dominant position & in other respect , cooperation agreement among SME’s facilitate them to compete with large enterprises. Here comes The Competition Act which deals with the Anti-Competitive Agreement & Abuse of Dominant Position.
In today’s highly competitive business landscapes, the power dynamic between large enterprises & small & medium enterprises (SME’s) are often skewed creating an dissimilar environment for business. Large enterprises with their vast resources market dominance & bargaining power can conduct practices that unfairly snag SME’s shifting competition & hampering economic growth. One of the most common issue in this regard is the Abuse of Dominant Position, a practice that have far reaching implications for SME’s & overall health of the market.
The concept of Abuse of Dominant Position is provided in Section 4 of The Competition Act, 2002, which aims to prevent monopolistic practices which distort the free market & tends to harm the consumer welfare by their unethical practices. A dominant position refers to a situation where a firm holds a significant market shares allowing it to act independently of its competitors, customers & ultimately to its end consumers. While holding a dominant position is not constitutionally illegal, the abuse of such position is triable under competition law of India.
Large enterprises can abuse their dominant position in various ways, often employing predatory tactics that grip their market power to undermine smaller competitors. These tactics may include exclusive dealing, arrangements, tying or bundling practices, refusal to deal, & predatory pricing strategy amongst others.
Exclusive dealing arrangements, for instance, involve a dominant firm requiring its customers or suppliers to deal exclusively with it, effectively foreclosing the market for SMEs and limiting their ability to compete. Tying or bundling practices, on the other hand, involve a dominant firm conditioning the sale of one product on the purchase of another, thereby forcing customers to buy unwanted products or services.
Refusal to deal is another common tactic, where a dominant firm refuses to supply essential inputs or services to its competitors, making it difficult or impossible for SME’s to operate in the market. Predatory pricing strategies, such as pricing below cost to drive out competitors, can also be employed by dominant firms, leveraging their deep pockets and financial resources to outlast smaller rivals.
The impact of such abusive practices on SME’s cannot be understated. SME’s often operate on tight margins and limited resources, making them particularly vulnerable to the anticompetitive behaviours of larger enterprises. The consequences can be devastating, ranging from loss of market share and erosion of profits to outright market exclusion and business failure.
Recognizing the importance of this issue, competition authorities and courts around the world have taken steps to address the abuse of dominant position and protect SME’s. Several landmark cases have shaped the legal landscape and provided guidance on what constitutes anti-competitive behaviour.
In the United States the influential case of Eastman Kodak Co. v/s Image Technical Services Inc. (1992) addressed the issue of tying & monopoly leveraging. The apex court held that Kodak had unlawfully tied the sale of service & parts of its photocopier to the sale of its copier themselves, effectively excluding independent service provider from the market.
The European Union has also been proactive in reporting abuse of dominant position cases. In the case of Intel Corp. V/S European Commission (2009), the European court of justice upheld a 1.6 Billion Euro fine imposed on Intel for engaging in exclusionary practices, such as providing rebates to computer manufacturers for buying most or the entire x86 CPU’s from Intel, thereby undermining competition from rival chipmaker AMD.
In India, the Competition Commission of India (CCI) has played a pivotal role in curbing the abuse of dominant position. In the case of Bharti Airtel Ltd. v/s Reliance Industries Ltd. (2017), the CCI found Reliance guilty of abusing its dominant position in the telecom sector by imposing discriminatory and unfair conditions on its competitors, including excessive pricing and discriminatory pricing practices.
While there cases present victory in the fight against abuse of dominant position, the battle is far from over. As the market continues to evolve & new business models emerges, regulators and policy makers must remain vigilant and adapt their approach to address emerging challenges .
One potential area of focus is the digital economy, where technology giants wields immense market power & can potentially engage in abusive practices that harm SME’s operating in the online space. Practices such as self-referencing, data exploitation and leveraging network effects to entrench dominance are areas that want close scrutiny.
Furthermore, fostering a culture of compliance and ethical business practices among larger enterprises is crucial. This can be achieved through a combination of strong enforcement mechanisms, clear guidelines, and educational initiatives that promote fair competition and responsible business conducts.
In conclusion, the abuse of dominant position by larger enterprises remains a terrifying challenge for SMEs and a threat to the principles of fair competition. While progress has been made through landmark cases and regulatory interventions, the battle is ongoing. Policymakers, competition authorities, and the broader business community must work in unison to create a level playing field, where SMEs can thrive and contribute to economic growth and innovation without fear of predatory tactics from dominant market players.
~ contributed by – Devesh Modi
ICFAI LAW SCHOOL 2022-25 LL.B.