What is “predatory price” and how is it treated under the Competition Act, 2002 (“CA”)? Broadly speaking, predatory pricing refers to a conduct where the (dominant) competitor sets a price so low that existing competitors are unable to compete and new entrants are deterred from competing. In this context, two important provisions of Section 4 of CA need to be considered. Under Section 4(2)(a)(ii) imposition of unfair or discriminatory price in purchase or sale (including predatory price) of goods and services is considered to be an abuse of dominant position (of an enterprise or a group); the Explanation to Section 4(2) defines predatory price as sale of goods or (rendering of) services at a price which is below the cost (as may be determined by the regulations) of production of goods or provision of services, with a view to reduce competition or eliminate competitors. Thus, for a dominantenterprise (or group) to be guilty of predatory pricing, both the essential conditions, as mentioned in the Explanation, must be simultaneously met.

One may argue that in providing any kind of service the service provider is bound to incur some cost; so, any kind of ‘free service’ has to be below-cost and unfair/predatory. Whilst this theory may be found true in some cases, it cannot be true for all kinds of services across all kinds of markets. The nature and characteristics of the relevant market must be taken into account before reaching any conclusion in this regard. Markets like telephone, internet etc. (examples of network industry) are fundamentally different from markets like food grains, dairy products etc (nonnetwork industry). In a network industry, the increase in the size of the network makes it more valuable for the user. One would not buy a telephone if there is no one to talk to or use e-mail if nobody else is using it; however, the same thing cannot be said about a market like dairy products. What this simply means is that in a network industry, establishment of alarge user base is essential to maximize profits. So, it may so happen (in a network industry) that as part of its business model, a firm may initially price its products or services below cost to establish a large user base, and thereby increase the demand for its product or services. Another aspect typical to most network industries is high fixed cost and low marginal cost, which can see even a new entrant expand its market with the introduction of new products, which would further decrease its cost. To say in a nutshell, without undertaking a close scrutiny of the nature and characteristics of the relevant market, it may be erroneous to conclude merely from low cost of the product or service that such pricing is necessarily predatory. Predatory pricing must be distinguished from vigorous price competition, the difficulty, however, is that the distinction is at times difficult to make. Prima facie, in both cases the effect appears to be the same; initially the prices are low (even free in some cases), which increase over a period of time. During this period of low pricing, some competitors may even exit the market but such exit may not necessarily be a consequence of ‘predatory pricing’; in other words, to prove predatory pricing it has to be established that prices were kept low (even below cost) with the intent that competition is reduced or competitor eliminated. Such intent may be proved by direct and/or indirect evidence, but it is essential to prove the predatory intent.

Here, we need to consider an important aspect vis-à-vis predatory pricing-the possibility of ‘recoupment’. In predation, the dominant enterprise, in the first stage, deliberately keeps prices very low (even below cost) for a period of time, so as to kill competition. Then (in the secondstage), having undermined the competition, such enterprise now starts increasing the prices (or reducing the value to the consumer) so as to make huge profits (to recoup the loss suffered in the first stage). The second stage is ‘recoupment’. If there is no possibility of an enterprise recouping its losses then, even if it is successful in eliminating competition such low prices would only benefit the consumers. So, the nature and characteristics of the market plays a vital role in determining if the low price is predatory or not. In United States, in order to prove predatory pricing, it is necessary to prove the possibility of ‘recoupment’ of losses by the enterprise. In the European Union, proving the possibility of recoupment is an important element, though not necessary to establish predatory pricing.

Predatory price claims must, therefore, be subject to stringent requirements of proof; it would be ironic if such standards are so low that litigations against the so-called ‘predatory price’ themselves become tools for keeping prices high.