TaxTMI 
TaxTMI 
2017 (7) TMI 1343
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....Ltd. (the 'Informants') had filed information, separately, under Section 19(1) (a) of the Competition Act, 2002 (the 'Act') against ANI Technologies (the 'Opposite Party'/'OP') alleging inter alia contravention of the provisions of Section 4 of the Act. Since the allegations were similar in both the cases, the Commission decided to club the matters for the purposes of investigation and final disposal. Facts, in brief 2. The Informant in Case No. 06 of 2015 is a company engaged in the business of providing radio taxi services, under the brand name 'Fast Track', in the southern part of India. 3. The Informant in Case No. 74 of 2015 is a group holding company engaged in radio taxi business through its wholly owned subsidiaries namely Meru Cab Company Pvt. Ltd., (MCCPL) and V-Link Automotive Services Pvt. Ltd. (VASPL or V-Link). Both these subsidiaries of the Informant are engaged in the business of providing radio taxi services under the brand names 'Meru', 'Meru Genie' and 'Meru Flexi' in many major cities across India. 4. OP (common in both the cases) is a company engaged in the business of providing radio taxi services, under the brand name 'OLA'. The main allegation of....
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....e emergence of radio taxi market in India and the distinctive features which radio taxis have with respect to the traditional taxis. Before the DG, OP contended that it is a technology company which connects potential customers and the drivers through technology platform. It referred itself as an 'aggregator' of taxis and claimed that it is not in the business of radio taxis, like other players such as Fast Track, Mega Cabs, Easy Cabs and Meru which have obtained license from the respective transport authorities as radio taxi operators. The DG analyzed various business models prevailing in the radio taxi service industry, i.e. asset-owned model, aggregator model and hybrid model. The DG observed that while the radio taxis are owned by the radio taxi service providers under the asset-owned model; in the aggregator's model, the operator does not own the radio cabs but only acts as an aggregator (platform) that connects the drivers with the prospective consumers. OP operates under the aggregators' model and one of its competitors, working on the same business model, in the relevant market, is Uber. The DG also observed that there are certain players who operate as a mix of both these ....
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....15 or not. The DG has based its analysis taking into account the market shares of OP in comparison to the other radio taxi operators on the basis of number of trips (both monthly and annually). The DG also obtained information regarding the total fleet size and active fleet size for different players in the relevant market for assessment of dominance. However, these parameters were not found to be appropriate indicators for assessment of market shares because there are chances of one radio taxi getting registered on multiple platforms, giving rise to the problem of multiple counting. 12. The DG, as such, considered it appropriate to measure the market shares of all the players on the basis of number of trips/rides during the relevant time period. On the basis of annual data (2012-13 to 2015-16), it was observed that in terms of number of point to point trips, the market shares of Meru, Mega Cabs, Easy Cabs and Karnataka State Tourism Development Corporation (KSTDC) declined from 2012-13 to 2015-16. The DG further observed that OP, which entered in the market in early 2011, had a market share of only 5-6% in the year 2012-13 which increased to 61-62% in the year 2015-16 (till Sep....
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.... vs European Commission, United Brands Case and Hoffman-La Roche Case) to establish that though market share is important, it is only one of the indicators from which the existence of a dominant position may be inferred. There can be factors other than market shares which play a vital role in assessing dominance of an enterprise. 17. Accordingly, the DG took into account various factors enumerated under Section 19(4) of the Act to assess the relative strength of OP. With regard to the financial resources, the DG viewed OP ahead of its rivals, being able to attract additional funding of Rs. 2,059.01/- crore by the end of 30th September 2015, in addition to the investment of Rs. 3445.50/- crore by the end of 2014-15, raising its total resources to Rs. 5504.81/- crore. Other competitors like Meru and Mega Cabs were found to be lagging much behind OP in this respect. It was further noted that Uber has been able to raise its funding from Rs. 2.39/- crore as at to Rs. 161.78/- crore by the end of 2014-15. Interestingly, DG found that Uber Inc., which is the parent company for Uber had a total capital investment of about 15 to 20 times of OP's financial resources. 18. The DG, thus, ....
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....of 75-76% in January 2015, OP's share started to decline and came down to 58-59% by September 2015. Further, with the steady increase in Uber's market share from 6- 7% in January 2015 to 36-37% in September 2015, it could not be said whether OP would be in a position to hold on to its market share for a sustainable period for assessment of dominance in the relevant market. 23. Based on the foregoing analysis, the DG concluded that OP is not in a dominant position in the relevant market to act, to an appreciable extent, independently of its competitors and customers. 24. The main allegation of abuse in the present case was below-cost pricing strategy by OP. The DG noted that in the absence of dominance of an entity, the question of abuse would not arise. However, the DG analyzed the pricing strategy of OP vis-à-vis its competitors and rather found Uber to be a more aggressive player, in terms of below-cost pricing, in the relevant market than the OP. Thus, DG opined that both OP and Uber have adopted 'below-cost pricing strategy'. However, since the scheme of the Act only attracts the provisions of Section 4 when an incumbent is found to be dominant, the DG stated that ....
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.... in India. 30. The Informants have relied upon various factors enumerated under Section 19(4) of the Act to show that OP is dominant. In this regard, it is submitted that market share of more than 50% of an entity creates a presumption of dominance. The market share of OP is more than the aggregate of all the competitors put together for the years 2014-15 and 2015-16. Further, the market share of OP on the basis of active fleet was 60-61% in 2015-16 as against the market shares of Meru (4-5%), Mega Cabs (1-2%), Uber (33-34%). With regard to the absolute number of OP's trips, it is stated that the number of trips by OP has increased from 46,571 in September, 2013 to 2,318,175 in September, 2015. HHI index has also been relied upon to argue that in the present case, the concentration of OP itself is over 3600 and that of the market is over 4700. This, as per the Informants, shows that OP is dominant in a highly concentrated market. 31. The Informant has contested the findings of the DG with regard to the fact that since the market share of OP has been declining from February, 2015 to September, 2015, OP is not dominant. As per the Informant, the dip in the market share does not....
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....dequate funds. This is also stated to be a barrier for expansion for the existing players. However, the DG has wrongly concluded that there is no entry barrier in the radio taxi market as Uber was able to expand in the said market, when OP was already existing and had a high market share. The Informants have also mentioned that the first mover advantage is not limited to having a large presence in the market, but also relates to the fact that most of the credible investors, who have invested in OP, are not likely to invest in other companies. 35. Another argument put forth by the Informants is that the exclusionary conduct of OP itself demonstrates the economic strength enjoyed by it. The Informant has relied upon the European Commission's case of United Brands v. Commission, to infer that the conduct of an alleged dominant firm could be taken into account in deciding whether it is dominant or not. The Commission's order in the MCX Stock Exchange Ltd v. NSE and other has also been relied upon in this regard, wherein it was noted that levying zero transaction fee by NSE and incurring huge losses in the process demonstrated that NSE was in a dominant position. Thereafter, zero pri....
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.... to increase prices beyond competitive levels, but also their ability to keep them suppressed over a longer period of time, thereby adversely affecting its competitors in a market. Therefore, OP which has built the network for itself and forced other competitors to follow its model shows that it has market power. 40. According to the Informants, the DG has erroneously held OP to be not dominant merely because of the existence of Uber in the relevant market. It is argued that existence of another entity in the relevant market, indulging in a similar conduct, does not preclude a finding on OP's dominance. In the alternative, the Informants have averred that it is not necessary that only one entity can be dominant in a particular relevant market. There is a possibility of two entities exercising dominance at the same time. In this regard, the Informants have claimed that the analysis of the DG is pointing towards presence of more than one dominant player in the relevant market. The DG has, in its report, admitted the growth of both OP and Uber and also, that their growth is not the result of any technological innovation or efficiency but the result of a practice to charge substanti....
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....Section 26(1) of the Act, noted that OP has contravened the provisions of Sections 3 or 4 of the Act. However, the DG has failed to come to a conclusion on Section 3 of the Act. In this regard, it is submitted that the agreements entered into between OP and its drivers have caused an appreciable adverse effect on competition in India. Therefore, the DG should have carried out the investigation with respect to Section 3 of the Act. 45. Fast Track, the Informant in Case No. 6 of 2015, has stated that the information was filed on 16th February, 2015 and was based on the conduct of OP prior to and as of January, 2015. However, the DG has investigated OP's conduct till September, 2015. This is argued to be an over reach of its powers as prescribed under the Act and the General Regulations. Replies/ objections/ submissions of OP 46. OP endorsed the findings of the DG with regard to it not being dominant, though the delineation of the relevant market has been challenged by it. Further, OP has also challenged the observations and findings of the DG in relation to the nature of services provided by it and its pricing below Average Variable Cost (AVC). 47. OP submitted that it is....
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....ice is provided without the driver and the commuter being simultaneously present. Secondly, the services are clearly provided 'by electronic means', i.e., a mobile software application. Thirdly, OP's services are provided 'at the individual request of a recipient of services' to both commuters and drivers, which request the service by connecting to the portal. Finally, the services are 'service normally provided for remuneration'. While OP's services can be termed as 'ride sharing' or 'app hailing', there is a clear pecuniary element to the transaction in that the driver expects a payment for transporting the commuter. It is claimed that OP can be described as an online platform in that it connects producers (in this case, drivers) with consumers (in this case, commuters) and facilitates their interactions and exchanges. In other words, OP does not create value by performing transport services, but by enabling direct interactions between two distinct categories of users. 51. It was also urged that the main purpose of OP is not to provide a transport service but an intermediation service connecting drivers with commuters. Further, OP is not directly involved in the physical act o....
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.... Ltd v. NSE and other to profess that 'position of strength' is not some objective attribute that can be measured along a prescribed mathematical index. Rather, what has to be seen is whether a particular player in a relevant market has clear comparative advantages in terms of financial resources, technical capabilities, brand value etc. to be able to do things which would affect its competitors who, in turn, would be unable to or would find it extremely difficult to do so on a sustained basis. OP also stated that the investigation report demonstrates that Uber was comparatively stronger than OP, and was potentially capable of acquiring the market share of OP in the event of OP operating independent of the market forces. 57. OP also challenged the methodology used by the DG to arrive at a conclusion that OP has indulged in below Average Variable Cost (AVC) pricing. It was reiterated that OP, being a technology software service provider, connects two distinct user groups namely the taxi service provider and the commuter. Thus, its revenue is based on a revenue sharing model shared with the taxi service provider in terms of the amount of commission. It is stated that the revenue s....
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....ct. Moreover, while investigating under Section 4 of the Act, the DG found that the drivers are allowed to opt for another platform and they were not restricted because of their association with OP. Thus, the allegation of the Informant is not established. Just because this fact was not investigated specifically under Section 3(4) of the Act, it will not alter the fact that there was no exclusivity condition imposed upon the drivers. This point thus does not require any further deliberation. 62. The Informants have proposed the delineation of relevant product market on the same lines as done by the DG i.e. 'market for radio taxi services'. The OP, however, has argued at length that it is only a 'technology company' and cannot be termed as a radio taxi service provider. The Commission has considered the submissions made by OP but finds them to be implausible for the reasons provided hereinafter. The Commission is aware that OP acts as a platform and operates in the radio taxi service market as an aggregator. It is also well acknowledged that it does not own any of the taxis registered on its network and only acts as an intermediary. However, none of these factors supports the arg....
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.... (subsequently acquired by it) as its competitors. For the end consumer, who is booking a taxi ride through OP's platform, identity of the driver who owns the taxi is inconsequential. The consumer perceives OP as a service provider of radio taxi service whose service is substitutable with the services provided by other radio taxi service operators, irrespective of the business model followed by them. Thus, substitutability, in the radio taxi industry, is between the operators and not between the drivers. 65. The Commission has considered the regulatory framework along with the advisory issued by the Ministry of Road Transport and Highways, Govt. of India in October 2015 and subsequent amendments made by various state transport authorities which indicate that the aggregators are included within the scope of radio taxi schemes. Specifically, pursuant to an amendment in the Delhi's City Taxi Scheme 2015, aggregators are included in the same category as that of radio taxi service providers. All the requirements under the said scheme are equally applicable to aggregators such as OP. Although, we are dealing with a different geographic market, it can be safely inferred that app (appli....
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....as the same are stated to be backed by deep pockets rather than an efficient pricing model of OP. 70. The scheme of the Act is such that provisions of Section 4 are only attracted when the entity under scrutiny holds a dominant position in the relevant market. Thus, whether OP holds a dominant position in the relevant market for radio taxi services in Bengaluru is a key issue for determination. 71. The Act explains dominant position as a position of economic strength enjoyed by the enterprise in the relevant market, which enables it to operate independently of competitive forces prevailing in the relevant market or affect its competitor or consumer or the relevant market in its favour. Such ability of the enterprise to behave independently of competitive forces needs to be assessed in light of all relevant circumstances and the factors enlisted under Section 19(4) of the Act. A complete and correct assessment warrants comprehensive examination of the competitive conditions of the market, taking into account the inherent characteristics of the market, the market structure, nature of competition, competitive strategies adopted by the market participants and all such factors tha....
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....sts would otherwise have prevented. It is also pertinent to note that being the early adopter of the disruptive technology, OP left other competitors in the market in the position of followers. Thus, the entry of OP was a potential disruptive incursion into existing markets, thereby resulting in a shift of commuters availing transport services from other modes of transportation (not just from the existing radio taxis) to the App based radio taxis, which is evidenced by the manifold growth in the market for radio taxis that ensued. As apparent from the figures available in the investigation report, the market has seen a growth of nearly 1900% in terms of number of trips between June 2012 and September 2015. In a span of one year between September 2014 and September 2015, in terms of number of trips, the market in Bengaluru witnessed a growth of about 555%. Thus, though the operators under the platform-based model provided the same product/service (taxi services), the technology enabled them to expand the market at both ends (i.e. the consumer and driver base) immensely. It is against this backdrop that the market position of OP need to be evaluated. 75. The Informants, among othe....
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....period of investigation selected by the DG as the scope of investigation in clubbed cases has to be seen collectively. Having disposed of this objection, the Commission will now assess whether OP held a dominant position in the relevant market, by taking into account the factors enshrined under Section 19(4) of the Act. 78. As per the investigation report, in terms of annual active fleet size, where active fleet size is defined by the number of taxis which accept at least one booking from the taxi service provider in a day, OP's market share has seen approximately six-fold increase from 2012-13 to 2015-16. The monthly data on the same parameter shows largely an increasing trend in the OP's share during June 2012 till January 2015. Thereafter, OP's share of active fleet has registered a gradual decline in the relevant market. However, as observed by the DG, the active fleet size of players may not give a true picture of the market shares of each player owing to the problem of double counting, thereby necessitating the requirement of another parameter for computing market shares for assessing the comparative strength of players in the market. Resultantly, a better measure, based o....
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...., i.e. the new taxis and the new riders chiefly opted for OP instead of the incumbents. Thus, the erosion in their market shares is more attributable to the expansion of consumer base in the market than them being deprived of the demand which they were serving before. This is evident from the exponential growth (around 1900%) in the number of trips in the relevant market during June 2012 to September 2015. 82. Second, notwithstanding the rapid growth in the market share of OP, a sharp deceleration in its share is observed in 2015-16, in terms of number of trips. In terms of monthly data, a decline in the market share of OP from February 2015 is evident. This decline was matched by a commensurate increase in Uber's market share during the period. 83. The Informants have argued that OP has maintained a healthy lead over its competitors and maintained its market share in spite of the competition posed by Uber. It is also averred that decline in market share is not an indication of absence of dominance. Further, the market share of OP is more than the aggregate of its next two competitors and that the dip in the market share figures would make no difference to the analysis of dom....
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....be erroneous. The market was in a state of flux throughout the period of investigation. Meru, one of the Informants, held the highest market share during June 2012 till August 2014. However, in the subsequent months its share started to decline. In 2013, Uber, entered the relevant market in the year 2013 and garnered a sizeable market share in just about two years' time. In terms of number of trips on monthly basis, its share increased from 0-1% in August 2013 to 36-37% in September 2015. Further, Uber showed a steady growth February 2015 onwards, with its share in terms of monthly number of trips having increased from 6-7 % in January 2015 to 36-37% by September 2015. Its entry as well as steady growth during the period of investigation shows that the market was evolving. While Uber's entry, as the Informant has argued, did not dislodge OP during the period of investigation, OP's declining market share post January 2015 reflects the competitive constraint posed by Uber and the fragility of leadership position in a dynamic business environment, as discussed earlier. 86. The Commission has also considered the case-laws relied upon by the Informants. However, in each of those case....
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....s may enable a large platform/network to become dominant and insulate itself from potential competition as entrants may find it difficult to challenge the large incumbent. The strength of network effects thus becomes a key factor in the determination of dominance in such market. However, the strength of network effects will vary depending upon the nature of platform market under consideration. Generally, the number of participants or consumers using a platform is positively correlated with the value they get from their use of the platform. In other words, large networks offer more value to users than small networks. Thus, platforms de-facto have to reap network effects to get a viable critical mass. In these markets, competition is often for control of the market by way of having a large and strong network. Aggressive competition in the early stages of network creation takes place, until the market settles in favour of a few enterprises. In such markets, market leadership position can be fragile or transient during the initial stage of evolution of the market. 91. A successful network/platform requires that at both sides the platform's network is wide and dense, i.e. larger the ....
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....een different networks in the relevant market limits the constraints exerted by the established networks on newer entrants. The Commission is, therefore, of the view that the network effects in the present case do not seem to affect entry or expansion by the players equipped with strategies capable of attracting drivers/riders to new/existing networks. Moreover, as of now, competition in the relevant market is still unfolding and the market certainly has not tipped in favour of OP, as claimed by the Informants. 95. While examining entry conditions, it would be pertinent to also delve into other factors relevant for entry. In the erstwhile asset/ownershipbased model, to be able to compete with the incumbent firms, an entrant needed to possess a significant number of cars in order to attract consumers. The new model, i.e. matching demand for and supply of rides via a platform, has obviated this requirement because a large number of individual drivers can be easily reached. Platform-based players hence find it easier to enter the market than traditional entrants given the reduced upfront costs of starting a business. Further, the entry of these enterprises does not necessarily have....
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....le observation of conduct may have the undesirable result of chilling competition. On the issue of interpretation of dominance based on the ability to affect consumers/competitors/relevant market, it is to be borne in mind that market power is a matter of degree. In most markets, every enterprise will have some degree of market power, by virtue of which they can affect consumers or competitors in its favour to some extent. The narrow interpretation of the concept of dominance offered by the Informant would mean that an entrant armed with a new idea, a superior product or technological solution that challenges the status quo in a market and shifts a large consumer base in its favour would have to be erroneously held dominant. To preclude possibilities of such anomalies in approach in assessing dominance, the Act lays down a holistic framework for assessing dominance and lists out the relevant factors including relative strength of competitors, entry conditions and countervailing power. Thus, the Commission is not convinced that conduct of OP, in the absence of other important factors that determine dominance, can be accepted to be indicative of dominance. 98. Besides the aforesai....
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.... -46.76 26.86 32.14 Jun-14 -2.11 -57.31 18.14 38.56 Jul-14 -9.43 -52.91 14.50 39.23 Aug-14 -19.47 -51.93 12.05 35.76 Sep-14 -35.32 -45.00 14.61 47.65 Oct-14 -36.25 -50.04 19.07 28.01 Nov-14 -43.40 -61.35 16.55 29.71 Dec-14 -99.75 -66.20 14.41 28.11 Jan-15 -135-91 -121.32 8.82 29.20 Feb-15 -61.03 -151.82 9.08 28.50 Mar-15 -36.94 -229.07 15.41 29.32 Apr-15 -32.92 -118.00 23.07 27.76 May-15 -23.96 -123.75 22.42 25.60 Jun-15 -24.33 -126.29 26.85 27.07 Jul-15 -16.44 -114.62 26.07 30.08 Aug-15 -9.94 -100.54 27.43 31.02 Sep-15 -26.90 -41.07 17.99 31.39 *Meru started functioning on aggregator model from February 2014 100. The aforementioned table, collated by the DG, compares the monthly indexed margin of important players in the relevant market on a common scale of index of 100 so as to assess the relative pricing behaviour of the parties. For this, OP's and Uber's monthly margins have been calculated on the index of 100. Since Meru Cabs an....
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....market is unfolding, market is growing rapidly, effective entry has taken place thereby leading to gradual decline in OP's market share, entry barriers are not insurmountable, there exist countervailing market forces that constrain the behavior of OP and the nature of competition in dynamic, innovation-driven markets, the Commission is of the considered view that OP's dominance in the relevant market remains unsubstantiated. 106. The Commission further notes that in the alternative, the Informants have argued that Uber and Ola can both be held dominant simultaneously in the relevant market. While doing so, the Informant has also relied upon international case-laws, including a Canadian case law, where two entities MasterCard/Visa were held to be dominant. To substantiate their claim, the Informants have also stressed upon the following sub-clause (b) of Section 27 of the Act: Section 27 (b): Impose such penalty, as it may deem fit which shall be not more than ten percent of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to such agreements or abuse: [....] 107. It has been ar....
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....hows that the concept of 'dominance' is meant to be ascribed to only one entity. Further, the underlined words in the above explanation indicates that the whole essence of Section 4 of the Act lies in proscribing unilateral conduct exercised by a single entity or group, independent of its competitors or consumers. In the presence of more than one dominant entity, none of those entities would be able to act independent of one another. 112. Further, Section 19(4) of the Act, which enlists factors assessment of dominance, is also of relevant in this regard. The plain reading of the factors mentioned under Section 19(4) signifies that the focal point of such assessment is the alleged dominant entity, around which the assessment revolves. If there was any scope of more than one entity being envisaged by the Act, factors like 'size and resources of competitors', 'economic power of the enterprise including commercial advantages over competitors' etc. would not have found place under Section 19(4) of the Act. 113. Furthermore, in Section 28 of the Act, which specifically deal with division of enterprises enjoying dominant position, the usage of the words unambiguously indicates that ....
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....ught some transformation that enabled booking of taxis via telephone calls or online. Soon, other players like Mega Cabs, Easy Cabs etc. entered the market. All of these were operating under the asset-owned model. 120. The emergence of platform-based model, introduced by OP in the relevant market, challenged the well-established asset-owned model in this industry. The platform-based model allowed real time tracking of prospective riders and drivers on an App to facilitate quick booking and availability of taxis at a click/touch of a button/icon. The drivers were no more constrained to run the taxis idle, after dropping a rider and the riders were also not obliged to pay for the taxi's return fare, which was a norm, at least in the unorganized sector. 121. However, popularizing taxi, as a preferred mode of transport, was not free from challenges, especially considering the common perception by consumer of it being a luxury good in most Indian cities. The platformbased model in the taxi industry, like any other two-sided market, was dependent upon the growth of taxi network for benefits to permeate to riders and drivers. However, riding in taxis operated under asset-owned model....