Context:
Recently, Competition Commission of India (CCI) introduced the draft CCI (Determination of Cost of Production) Regulations, 2025, to align with the 2023 amendments under the Competition (Amendment) Act.
- The proposed regulation aims to update the methodology for determining production costs in predatory pricing cases and defines the cost benchmark for assessing and regulating predatory pricing under Section 4 of the Competition Act, 2002.
- The new benchmarks are designed to align with contemporary economic theories, legal jurisprudence, and global competition standards, replacing the CCI (Determination of Cost of Production) Regulations, 2009.
- Section 4(2)(a)(ii) of the Competition Act, 2002 explicitly prohibits predatory pricing when used to establish unfair market dominance.
- The regulation seeks to enable third-party cost assessments, uphold confidentiality, and modernize competition laws to suit a globalized economy while preventing unjust market concentration.
- The CCI consultation paper indicates that the average variable cost will generally be used as a proxy for marginal cost in predatory pricing assessments.
Effects of Predatory Pricing
- To drive out competitors, a company sets prices below manufacturing costs.
- Once competitors are eliminated, the company raises prices to normal or higher levels.
- Consumers are initially disadvantaged with higher prices and fewer alternatives.
- However, this opens the door for new rivals or existing competitors to re-enter the market with competitive prices.
- Over time, consumers may regain more choices.
- If the company’s monopoly becomes too strong, it may prevent new companies from entering, creating a permanent monopoly.
Competition Commission of India
- The Competition Act, 2002, amended by the Competition (Amendment) Act, 2007, aligns with modern competition laws.
- It prohibits anti-competitive agreements, and abuse of dominant positions, and regulates mergers and acquisitions that harm competition in India.
- The Competition Commission of India (CCI) was established by the Central Government on October 14, 2003.
- The CCI consists of a chairperson and 2 to 6 other Members appointed by the government.
- The CCI’s duties include eliminating practices harmful to competition, promoting competition, protecting consumer interests, and ensuring market freedom.
- The CCI also provides opinions on competition issues, conducts advocacy, raises public awareness, and offers training on competition matters.