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In brief: abuse of dominance in India

Abuse of dominance

How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?

Section 4(2) of the (Indian) Competition Act 2002 (the Act) provides that there shall be an abuse of a dominant position if an enterprise or a group:

• directly or indirectly imposes unfair or discriminatory conditions or prices in the purchase or sale of goods or services;
• restricts or limits production of goods or services in the market;
• restricts or limits technical or scientific development relating to goods or services to the prejudice of consumers;
• indulges in practices resulting in a denial of market access;
• makes the conclusion of contracts subject to acceptance by other parties of supplementary obligations, which, by their nature or according to commercial usage, have no connection with the subject of such contracts; or
• uses its dominance in one market to enter into or protect its position in other relevant markets (ie, leveraging).

In the absence of dominance, there can be no abuse; therefore, as a first step, dominance of an enterprise in a relevant market needs to be established.

In  Uber India Systems Private Limited v CCI  (2019), the Supreme Court held that the losses made by Uber per trip were prima facie indicative of abuse (through predatory pricing) as well as of dominance itself.

As to the requirement to show anticompetitive effects, in some older cases, the Competition Commission of India (the CCI) considered and applied an object-based approach while finding abuse (for example, the  National Stock Exchange  case).

In more recent cases, however, the CCI and COMPAT/NCLAT have deployed an effects-based approach while evaluating abusive conduct. The following cases are illustrative.

In the  Schott Glass appeal (2014), the COMPAT found that unlawful price discrimination required  showing of both ‘(1) dissimilar treatment to equivalent transactions; and (2) harm to competition or likely harm to competition in the sense that the buyers suffer a competitive disadvantage against each other leading to competitive injury in the downstream market’. The COMPAT found the CCI had wrongly ignored the second limb and that the evidence showed there was ‘no effect on the downstream market and ultimate consumer did not suffer’ as a result of the alleged conduct. The matter is under appeal before the Supreme Court. Recently, in Tata Power Delhi Distribution Limited v Competition Commission of India  (2018), the CCI observed that the seminal issue in an abuse of dominance case is harm to consumers; however, given that the electricity tariffs were fixed by a regulator (Central Electricity Regulatory Commission), the issue of harm to consumer did not arise. The case was appealed to the NCLAT; the parties negotiated a settlement during the pendency of the appeal, and the NCLAT accordingly disposed of the case.

In  XYZ v REC Power Distribution Company Ltd  (2016), the CCI noted that establishing a denial of access meant proving ‘anticompetitive effect/distortion in the market in which denial has taken place’.

In  Dhanraj Pillay & Ors v Hockey India  (2013), the CCI balanced anticompetitive effects against Hockey India’s justifications. The CCI held that the Act was not violated where allegedly abusive contractual restrictions were not disproportionate to a sporting organisation’s legitimate regulatory goals.

In  ESYS Information Technologies Pvt Ltd v Intel Corporation & Ors  (2014) ( Intel case), the CCI dismissed section 4 claims based on Intel’s distribution agreements in part because ‘the distributors of intel products are not precluded from dealing in the products of its competitors and in fact they were found dealing in the competing products’ and therefore ‘there is no question of foreclosure of market for the competitors of Intel’.

In summary, the more recent CCI and COMPAT/NCLAT jurisprudence reflects a move away from a rigid form-based analysis. Instead, the CCI is increasingly requiring proof of anticompetitive effects in its enforcement action.

Does the concept of abuse cover both exploitative and exclusionary practices?

Although not expressly stated as such, section 4 is drafted widely enough to cover both exploitative and exclusionary practices. The CCI, in  HT Media Ltd v Super Cassettes Ltd  (2014) ( HT Media  case), observed that pricing abuses may be ‘exclusionary’ (ie, pricing strategies adopted by dominant firms to foreclose competitors) or ‘exploitative’ (ie, which cover instances where a dominant firm is accused of exploiting its customers by setting excessive prices). In this case, the CCI held the minimum commitment charges (MCC) imposed by Super Cassettes Industries Limited to be both exploitative and exclusionary.

Exploitative abuses, such as excessive pricing and unfair terms of contract, have been considered in various cases by the CCI. In  Shri Shamsher Kataria v Honda Siel Cars India Ltd & Ors  (2014) ( Auto Parts  case), the CCI considered the passenger vehicle market and the after markets comprising spare parts, diagnostic tools and provision of after-sales repair and maintenance services. It found that 14 car companies had abused their dominant positions in their respective after markets by requiring customers to purchase spare parts and diagnostic tools solely from the respective car manufacturer or its authorised dealers. The CCI held that this amounted to a denial of market access to competitors, applying the essential facilities doctrine. The CCI also found that the car manufacturers had engaged in excessive pricing of their spare parts. This finding has been confirmed by the COMPAT (2016). On appeal by three of the car manufacturers, the Supreme Court has stayed operation of the COMPAT’s judgment.

In the  Coal India  case (2014), the CCI found that Coal India, which had a state-sanctioned monopoly on coal supplies, had imposed unfair terms and conditions in its contracts relating to supply of coal to customers. On appeal, this was upheld by the COMPAT (2016) and is currently under appeal in the Supreme Court. Separately, following the setting aside and remand of another finding of abuse of dominant position against Coal India, the CCI re-examined the agreements entered into by Coal India and again found a contravention. However, largely on the basis of remedial measures taken by Coal India, the CCI reduced its earlier penalty from US$273 million to US$91 million. This case is also under appeal in the Supreme Court.

In  Google  (2018), the CCI held that the pre-determined and prominent display of Google’s own products in the search results was an unfair/discriminatory condition in the provision of services. The case is currently under appeal in the NCLAT.

What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?

The CCI is not required to demonstrate the link between abusive conduct and dominant position. It appears that any particular conduct could amount to an abuse if committed by a dominant enterprise.

It is also not necessary for the dominance to exist in the same market where the effects of the anticompetitive conduct are felt. Section 4(2)(e) of the Act provides that there shall be an abuse of a dominant position if the dominant enterprise uses its dominant position in one relevant market to enter or protect another relevant market.

What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?

The only explicit defence that is listed in the Act is the ‘meeting competition’ defence for discriminatory prices or conditions. This defence enables enterprises in dominant positions to respond to moves made by their competitors. For example, in  Dhruv Suri v Mundra Port & Special Economic Zone Ltd  (2010), the CCI allowed the discounts charged by a port operator, noting that they were designed to meet the competition from other port operators in the relevant market.

The Act does not provide for an objective justification defence; however, the CCI has considered justifications in limited circumstances. In the  Schott Glass  case (2012), the CCI held that Schott Glass was within its rights to cease supplies to a customer to protect its trademarks and that its refusal to supply to such customer was objectively justified. In the Schott Glass appeal (2014), the Competition Appellate Tribunal (the COMPAT) also observed that the grant of more favourable target discounts to a customer who provides more business may not be anticompetitive, provided no harm is caused to competition in the market. However, where conditions for granting such discounts were dissimilar for equivalent transactions, then it would cause anticompetitive effects in the market. Though target discounts, coupled with fidelity rebates (discounts offered as a counterpart of a commitment from the purchaser to place all or most of its orders with the seller) can be a persuasive horizontal exclusionary device aimed at foreclosing competition, in this case they were justified as Schott Glass offered the discount to an entity that was purchasing a larger quantity of the product and, thus, did not qualify as an equivalent transaction. Further, the discount policies and agreements were aimed at ensuring better quality in the face of competitive pressures from Chinese counterparts. The rationale for granting such favourable terms was based on efficiency and economies of scale.

In Faridabad Industries Association (FIA) v M/s Adani Gas Limited (AGL) (2014) ( Adani Gas case), the CCI held that a restriction imposed by a dominant enterprise may not be abusive if the dominant enterprise is imposing the restriction because it is subject to the same restriction by a third party.

In Auto Parts (2016), the COMPAT refused to accept that the car manufacturers’ limited distribution of their spare parts was justified to prevent counterfeiting and their installation by unskilled independent repairers. The COMPAT held that, although this was a legitimate concern, consumers would be better served if inexpensive spare parts were made readily available on the open market, reducing the potential demand for counterfeits. The COMPAT required the government to intervene and develop quality standards for repairers. On appeal, the Supreme Court has stayed the COMPAT’s judgment.

In Anand Parkash Agarwal v Dakshin Haryana Bijli Vitran Nigam and Ors (2017), the COMPAT held that while discriminatory pricing is not permissible under section 4(2) of the Act, if there are any objective justifications or a ‘redeeming virtue’ for different prices being charged from different consumers, it may not amount to discriminatory pricing. The CCI held that the variation in pricing was authorised by virtue of section 62(4) of the Electricity Act, based on the objective criteria of consumption.

Specific forms of abuse

Rebate schemes

The (Indian) Competition Act 2002 (the Act) does not specifically cover discounts and rebate schemes. However, rebate schemes may be looked at from the perspective of unfair or discriminatory prices and conditions, or other exclusionary practices (eg, that limit or control production of goods and supply of services or are practices that result in the denial of market access), and, therefore, may be covered under the Act.

In the  Intel  case (2014), the Competition Commission of India (the CCI) found that Intel’s incentive and target schemes did not foreclose competitors, and that this was reflected in the distribution of competing microprocessors by Intel’s distributors and OEMs. The complainant’s allegation that distributors were restricted from dealing in competing products was found to be unsubstantiated. Further, the CCI observed that Intel’s incentive schemes were targeted at increasing sales of low-demand products and offered non-predatory discounts to meet competition, all of which were found to constitute reasonable business practices.

Tying and bundling

Unilateral tying and leveraging are considered abusive under section 4(2)(d) and section 4(2)(e) of the Act.

In  Sonam Sharma v Apple  (2013), the CCI set out the conditions for prohibited tie-in arrangements under section 3(4) of the Act (which deals with anticompetitive vertical agreements, but has some bearing on tying under section 4):

• the presence of two separate products or services capable of being tied. The purchase of a commodity must be conditioned upon the purchase of another commodity;
• the seller must have sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product; and
• the tying arrangement must affect a ‘not insubstantial’ amount of commerce: a tie-in arrangement is only considered to be abusive if a ‘substantial’ portion of the market is affected.

 The Competition Appellate Tribunal (the COMPAT) in the Schott Glass appeal (2014) held that, for an abusive tie-in arrangement under section 4(2)(d) of the Act to be made out, the tied product and tying product must be entirely different and have no connection to each other in their application. The CCI in  Khemsons Agencies v Mondelez India Foods Private Limited  (2018) held that, given that the coolers to store chocolates were provided free of cost on a voluntary basis, there was no tying of coolers with the sale of chocolates.

Exclusive dealing

Exclusive dealing, non-compete provisions and single branding restrictions could constitute abuses of dominant position, as they would all be characterised as practices that result in the denial of market access as covered by section 4(2)(c) or limiting production or technical development as covered by section 4(2)(b). The CCI is increasingly analysing the foreclosure effect of such conduct as a requirement under section 4 of the Act.

Predatory pricing

Explanation (b) to section 4 of the Act sets out a two-step test for assessing whether a dominant enterprise’s conduct is predatory. First, the price must be below cost (as determined on the basis of CCI regulations) and second, the dominant enterprise must have the intention to reduce competition or eliminate competitors.

The CCI has published regulations on determining the cost of production, which state that the default cost benchmark is average variable cost (as a proxy for marginal cost). However, the CCI and the Director General (DG) may consider other cost measures such as avoidable cost, long-run average incremental cost and market value, depending on the nature of the industry, market and technology used, with reasons provided in writing.

In the  National Stock Exchange  case (2011), the CCI found zero pricing by the National Stock Exchange (NSE) in the currency derivatives segment of stock exchange services to be unfairly low pricing. In appeal, the COMPAT determined that the zero pricing by NSE was predatory. However, neither the CCI nor the COMPAT provided any guidance on the relevant cost benchmark to be applied in predatory pricing cases. The NSE has filed an appeal against the COMPAT’s decision before the Supreme Court.

In two subsequent cases involving predatory bidding,  M/s Transparent Energy Systems Pvt Ltd v TECPRO Systems Ltd  (2013) and  HLS Asia Limited, New Delhi v Schlumberger Asia Services Ltd, Gurgaon & Ors  (2013), the CCI held that predatory pricing had to be assessed on the basis of an appropriate cost benchmark (ie, average variable cost), as a reduction of prices in itself was actually the essence of competition. The CCI also observed that the abuse of predatory pricing had to be assessed on the basis of actual prices and not projected prices.

In July 2017, the CCI dismissed allegations that Ola Cabs (Ola) had engaged in predatory pricing by giving discounts to passengers and incentives to drivers on a scale such that it was operating at a loss in Bengaluru. The CCI held that Ola did not hold a dominant position in the relevant market as Ola and Uber posed competitive constraints on each other. The CCI also decided not to interfere with a new and evolving market, noting that any interference at this nascent stage would disturb market dynamics and risk prescribing a sub-optimal solution. The appeal is being heard by the NCLAT.

Price or margin squeezes

Price squeezes, although not specifically referred to in the Act, would be covered where they amount to unfair or discriminatory pricing terms under section 4(2)(a)(ii) of the Act and denial of market access under section 4(2)(c) of the Act.

In 2020, the CCI passed its only infringement order of the year in the case of In Re: XYZ v Association of Man Made Fibre Industry of India (2020) ( GIL case) finding Grasim Industries (GIL) to have abused its dominant position in the market for ‘supply of viscose staple fibre (VSF) to spinners in India.’ While not a margin squeeze assessment, the CCI held that GIL had abused its dominant position by engaging in a discriminatory pricing strategy by charging higher prices to its downstream and domestic customers compared to its international customers. The matter is now under appeal before the NCLAT.

Refusals to deal and denied access to essential facilities

A refusal to deal has been defined in the context of a vertical arrangement under section 3(4)(d) of the Act as ‘any agreement which restricts, or is likely to restrict, by any method, the persons or classes of persons to whom goods are sold or from whom goods are bought’. In the Auto Parts case (2014), a fine of 25.44 billion rupees was imposed on 14 car manufacturers for restricting the sale of car spare parts in the open market. This conduct was held to be both an abuse of dominance, as being a denial of market access under section 4(2)(c) of the Act, and a refusal to deal, on account of imposing restrictions through agreements, under section 3(4)(d) of the Act. On appeal (2016), the COMPAT upheld the substantive findings of the CCI but reduced the overall level of penalty. The COMPAT’s judgment was stayed by the Supreme Court on appeal.

Access to essential facilities would be covered under practices resulting in a denial of market access under section 4(2)(c) and possibly section 4(2)(b), which prohibits limitations or restrictions on the production of goods or provision of services or technical or scientific development relating to goods or services to the prejudice of consumers.

In  Arshiya Rail Infrastructure Ltd v Ministry of Railways  (2013), the complainants had alleged that railway infrastructure was an essential facility and that the Ministry of Railways’ refusal to provide access to this rail infrastructure amounted to an abuse of dominance. The CCI found that the essential facility doctrine could be invoked upon an appraisal of the technical feasibility to provide access, the possibility of replicating the facility in a reasonable period of time, the distinct possibility of lack of effective competition if such access was denied and the possibility of providing access on reasonable terms. Only if these legal conditions were satisfied could a refusal to deal constitute an abuse under section 4. In this case, in relation to access to railway infrastructure, the CCI found that there were no technical, legal or even economic reasons why container train operators could not create their own terminals or similar facilities. The CCI, therefore, dismissed the complainants’ allegations of abuse.

Further, in the  BCCI  case (2013), the CCI provided interesting insights into the interpretation of the essential facilities doctrine in India. The CCI found that BCCI had misused its role as the regulator of cricket in India to restrict economic competition in sporting events. The CCI appeared to suggest that a restriction of access by a dominant enterprise to necessary infrastructure (which might be considered as an essential facility) to the detriment of competitors could amount to refusal to deal. This case was remanded by the COMPAT to the CCI for reconsideration on certain procedural grounds. Consequently, the CCI passed its order (2017) in the matter after re-examining the issues before it and found a contravention by the BCCI.

In  Air Works India (Engineering) Private Limited v GMR Hyderabad International Airport (GMR) and Another  (2019), the CCI declared the Rajiv Gandhi International Airport (RGIA) to be an essential facility, and found a prima facie violation of section 4 of the Act by GMR, directing an investigation by the DG. The CCI held that as:

• GMR controlled access to the RGIA;
• the RGIA was not a facility that could be duplicated by a competitor;
• GMR had denied access by a competitor to the RGIA;
• there was no alternative means of entering the relevant market (of line maintenance services at the RGIA) at a reasonable cost without having access to the RGIA; and
• there was spare capacity in the RGIA for providing line maintenance services, the RGIA was an essential facility.

The CCI’s order directing the DG to investigate was subsequently stayed by the Telangana High Court.

In  Fastway  (2018), the Supreme Court held that an illegal termination of an agreement amounted to a denial of market access. However, on the facts of the case, it decided not to levy any penalty.

Predatory product design or a failure to disclose new technology

Although reasonable conditions for the protection of intellectual property rights (IPRs) are not restricted by the Act with respect to anticompetitive agreements, there is no such explicit mention of IPRs in the abuse of dominant position provisions of the Act. An unreasonable unilateral refusal to license an IPR or discriminatory price between two enterprises can constitute an abuse of dominant position if these actions result in the imposition of an unfair condition or price, denial of market access, limiting production, technical or scientific development or price discrimination, or a combination of any of these.

In the  Auto Parts  case (2014), the CCI held that an unreasonable denial of market access by a dominant company could not be defended on the basis of holding IP rights and would be considered abusive under section 4.

In the  HT Media  case (2014), the minimum commitment charges (MCC) imposed by SCIL were considered exploitative and an abuse of SCIL’s intellectual property rights by the CCI because private FM radio stations had to pay the MCC irrespective of their actual play-out, which could be lower than the MCC. The matter is on appeal to the NCLAT.

The CCI is currently investigating the potential abuse of a dominant position by Ericsson, on the basis that as the holder of a standard essential patent, it was bound by the commitments to license on fair, reasonable and non-discriminatory terms it had entered into while participating in the standard-setting process. Failure to abide by those commitments could amount to an abuse of dominance, as has been found in other jurisdictions.

Price discrimination

Section 4(2)(a)(i) of the Act prohibits non-price discrimination and section 4(2)(a)(ii) prohibits price discrimination.

The COMPAT, in the  Schott Glass  appeal (2014), found that the abuse of price discrimination involved the satisfaction of two ingredients: (1) dissimilar treatment of equivalent transactions; and (2) harm/likely harm to competition by which buyers suffered disadvantage against each other. The COMPAT provided further guidance on conduct that might be considered as discriminatory by noting that ‘[t]he price and conditions could be said to be discriminatory if, and only if, they were different for the same quantities of the same product’. The COMPAT’s approach to discriminatory conduct has been followed by the CCI in the  Intel  case, where the CCI observed that:

[i]t appears to be a common business practice to give better discount to the bulk purchase and unless it impedes the ability of the reseller to compete any competition may not probably arise . . . the alleged pricing policy of Intel does not amount to secondary line price discrimination and has not resulted in foreclosure of any of its downstream customers.

Further, in  Singhania & Partners LLP v Microsoft Corporation (I) Pvt Ltd & Ors  (2011), the CCI (and, on appeal, the COMPAT in 2012) found that the prices imposed by Microsoft for different types of licences (OEM licences, volume licences and retail licences) granted to different categories of customers did not amount to price discrimination as the different licences giving customers different rights of use were, in fact, different products. Similarly, in  Travel Agents Federation of India v Lufthansa Airlines  (2010), where the prices of Lufthansa tickets on its official website were different from the fares made available to appointed travel agents, the CCI found that the sale of airline tickets through travel agents and through Lufthansa’s official website constituted two distinct markets and mediums and, consequently, the different fares did not amount to price discrimination.

In opening its investigation against Ericsson (2015), the CCI prima facie found that the licences charged by Ericsson were, as well as being a breach of its commitments to license on fair, reasonable and non-discriminatory terms, also discriminatory. The royalty rate being charged by Ericsson had no link to the functionality of the patented product; rather it was based on the final price of the manufactured product in which the patent was being used. Accordingly, the charging of two different licence fees per phone for use of the same technology was held to be discriminatory by the CCI and an investigation was ordered into Ericsson’s conduct.

In the GIL case (2020), the CCI also imposed a penalty on GIL for indulging in discriminatory pricing by offering lower prices to manufacturers who were exporting their products and higher prices to those selling VSF in India.

Exploitative prices or terms of supply

Exploitative abuses, such as excessive pricing and unfair terms of contract, have been considered in various cases by the CCI. In the  Auto Parts  case (2014), the CCI found that 14 car companies had abused their dominant positions by requiring customers to purchase spare parts and diagnostic tools solely from the respective car manufacturer or their authorised dealers. The COMPAT, while deciding the appeal, agreed with the CCI’s analysis that the margins from spares business substantially exceed the margins from the business of selling cars and held that the car companies were charging an unfair price in the spare-parts market. On appeal, the Supreme Court has stayed the COMPAT’s judgment.

On the contrary, the COMPAT’s decision in the  Orissa Steel Federation  case (2016) follows the approach of the EU courts to excessive pricing: it is not enough for the CCI to argue that a price is excessive, but it must also show unfairness. Besides the costs, the CCI should also consider the difference between what the dominant firm and other firms can charge, what different customers pay, whether customers can still be profitable, and whether there is a shortage of supply (in which case high prices may be an efficient method of allocating the product).

In the  HT Media  case, which is now under appeal before the NCLAT, the CCI considered the minimum commitment charges imposed by SCIL as exploitative.

In  Meet Shah v Ministry of Railways and Another (2020), the CCI held the Indian Railway Catering and Tourism Corporation’s (IRCTC) practice of rounding up the base fare of e-tickets sold through the IRCTC website to the next highest multiple INR 5 tranche does not amount to imposing unfair conditions because it was established that rounding up was intended to help bridge the cost/income deficit, that there was no discrimination between passengers and it also reflected the long standing policy of Ministry of Railways.

In  Indian Chemical Council v General Insurance Corporation (GIC) of India (2019), the CCI, while rejecting an allegation of excessive pricing against GIC, held that a pure pricing decision would cause no competition concern, unless it showed an abuse of dominant position. The pricing decision that was upheld pertained to a GIC circular amending the method of calculating reinsurance premiums for the fire insurance segment with general insurance companies, leading to substantially increased premiums. Since the circular neither prevented general insurance companies from offering premiums at lower rates to a primary insurer, nor precluded them from opting for an alternate reinsurer other than GIC, the pricing decision was not found to be abusive.

Abuse of administrative or government process

Section 4 of the Act may cover abuses in the nature of sham litigation that result in denial of market access and limiting production, technical or scientific development.

In the case of  Bulls Machines v JCB India Ltd (JCB) (2014), Bulls Machines filed a complaint before the CCI alleging abuse of judicial process by JCB to exclude competitors. The complaint was filed owing to proceedings initiated by JCB before the High Court of Delhi alleging infringement of the design registrations and copyright of JCB by Bulls Machines in developing the backhoe loader ‘Bull Smart’; JCB obtained an ex parte injunction against Bulls Machines on the basis of alleged design infringements. The interim order was later suspended by the High Court of Delhi. The CCI found there was a prima facie case that JCB had abused its dominant position in the manufacture and sale of backhoe loaders in India by initiating these proceedings and directed the DG to proceed with the investigation.

Mergers and acquisitions as exclusionary practices

Although structural abuses are not specifically dealt with under the abuse of dominance provisions in the Act, the merger control provisions of the Act require mandatory pre-notification of combinations that cross certain financial thresholds contained in section 5 of the Act. Combinations that cause or are likely to cause appreciable adverse effect on competition (AAEC) in India are void.

Mergers and acquisitions that do not meet these financial thresholds may be assessed under section 3 of the Act for entering into anticompetitive agreements or under section 4 of the Act for an abuse of dominance; however, no transaction has been reviewed under these provisions to date. Section 4(2)(c) of the Act may be wide enough to capture any form of denial of market access, including through mergers and acquisitions, if they are exclusionary.

Other abuses

Section 4(2) appears to set out an exhaustive list. However, the provisions dealing with abuse of dominance under the Act are fairly broad and the abuses listed under section 4(2) of the Act could, in fact, cover almost all types of abuse.

Law stated date

Give the date on which the information above is accurate.

2 February 2021.

Filed under

• Competition & Antitrust
• Shardul Amarchand Mangaldas & Co
• Anti-competitive practices
• Dominance (economics)

Organisations

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• Competition and Markets Authority (UK)

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Predatory Pricing — Not only abuse but also proof of dominance 

Dhruv Rajain, Principal Associate, Shubhankar Jain, Associate and Aakriti Thakur, Associate, Cyril Amarchand Mangaldas 

Cite as: (2020) PL (Comp. L) February 79

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Introduction

The Supreme Court of India (Supreme Court) in a landmark judgment has after a wait of almost four years allowed the Director General (DG) to investigate into the alleged dominance of Uber India Systems Pvt. Ltd. (Uber) and abuse thereof in the radio taxi services market in the Delhi-NCR area [1] . The Uber Order [2] emanates from an information filed by Meru Travel Solutions Private Limited (Meru), that was dismissed by the Competition Commission of India (CCI) stating that Uber is not prima facie dominant in the relevant market and thus, closing the case under Section 26(2) of the Competition Act, 2002 (CCI order).  

The CCI order was then challenged by Meru before the Competition Appellate Tribunal (Compat) [3] which reversed the findings of the CCI regarding the prima facie dominance of Uber and expanded the relevant geographical market from Delhi to Delhi-NCR. The Compat primarily differed from the CCI on the issue of reliance on a market research report by New Age TechSci Research Private Limited (TechSci). Whereas the CCI did not consider the TechSci report due to contrary findings in a 6Wresearch report, the Compat noted that the CCI in an earlier case has relied upon a TechSci report and that the two reports showing contrary results is a good reason to order an investigation into the matter. Consequently, the Compat judgment ordering the DG to investigate the matter was challenged and upheld by the Supreme Court in appeal.

The Uber Order [4] supplements the growing competition law jurisprudence in India and highlights “predatory pricing” as a factor for both establishing dominance and abuse of dominance. The primary reasons for the Supreme Court to interfere in the matter was that the information filed before the CCI was presented has been shown to them which prima facie depicts that Uber has been engaging in predatory pricing by offering huge discounts to consumers and high incentives to driver-partners resulting in an average loss of INR 204 to Uber on each trip. The Supreme Court based on this information alone stated that it would be very tough to say that there is no prima facie case under Section 26(1) of the Competition Act, 2002.  

CCI Jurisprudence on Predatory Pricing So Far

Thus far, the CCI has stated that predatory pricing is exclusionary and can be indulged in only by enterprises(s) which are dominant in a relevant market [5] . To this extent, the major elements in the determination of predatory behaviour include :  

( a ) Establishment of the dominant position of the enterprise in the relevant market,

( b ) Pricing below cost for the relevant product in the relevant market by the dominant enterprise,

( c ) Intention to reduce competition or eliminate competitors, which is, traditionally known as the predatory intent test.   [6]

The timeline and the evolution of CCIs jurisprudence in respect of predatory pricing has been discussed below:  

In MCX Stock Exchange Ltd. v . National Stock Exchange of India Ltd. (2011) [7] , the CCI held that predatory pricing is a subset of unfair price and as the unfair price has not been defined anywhere, the unfairness has to be determined on the basis of the facts of the case. The unfairness has to be examined in relation to the customer or the competitor. The CCI stated that there is no justifiable reason for the National Stock Exchange of India (NSE) to continue offering its services free of charge for such a long duration and stated that the conduct of zero pricing, in this case, is beyond promotional or penetrative pricing.  

The CCI in its orders has laid down the factors to be taken into consideration while assessing the allegations of predatory pricing, specifically with regard to whether there is reduction or elimination of competition.

  In Transparent Energy Systems (P) Ltd. v. TECPRO Systems Ltd . (2013) [8] , the CCI provided that the following findings are relevant for the identification of predation :

( a ) The prices of the goods or services of the enterprise are at a very low level;

( b ) the objective is to drive out competitors from the market, who due to the low pricing would be unable to compete at that price;

( c ) there is significant planning to recover the losses if any, after the market rises again; or

( d ) the competitors have already been forced out.  

In Fast Track Call Cab (P) Ltd. v . ANI Technologies (P) Ltd. (2017) [10] , similar allegations as in the Uber Order [11] were raised before the CCI i.e. pertaining to predatory pricing. The CCI, concurring with the DG’s investigation, found that ANI Technologies Pvt. Ltd. (Ola) did not exercise dominant position in the market. The informants put forth the allegation that the conduct of predatory pricing, was an evidence of dominance in itself. In this regard, the CCI noted that 97 . … New entrants commonly engage in such practices to gain a toehold in the market and holding them dominant based on simple observation of conduct may have the undesirable result of chilling competition [12] . and accordingly, closed the case against Ola.  

The importance of establishing “dominance” of an enterprise before proceeding with an investigation has been clearly emphasised by the CCI in its jurisprudence. However, the Supreme Court has taken a slightly divergent view in the Uber Order [13] . It has stipulated that predatory pricing itself could tantamount to proof of dominance as it affects the competitors of a relevant enterprise in its favour as per Explanation ( a ) of Section 4 of the Competition Act, 2002. In this regard, the Supreme Court in the Uber Order [14] cited that 6 . … if … a loss is made for the trips, Explanation ( a )( ii ) would prima facie be attracted inasmuch as this would certainly affect the appellant’s competitors in the appellant’s favour or the relevant market in its favour .  

The CCI in its orders has not considered predatory pricing as a factor for ascertaining dominance of an enterprise rather dominance has been taken as an after-effect of dominance. For e.g., in the NSE case [15] , the CCI considered, inter alia, the ability of NSE to sustain zero pricing in the relevant market for long enough to outlive competition as a factor to ascertain the position of strength of NSE, however, did not state that engaging in predatory pricing can itself amount to proof of dominance.  

Takeaways  

The CCI has not held predatory pricing to be abusive under all circumstances. It has been held to be a legitimate strategy for a new entrant to capture market share and attracting customers to a new product or service. However, the same practice becomes abusive when it is continued indefinitely with the intent of driving out existing competitors and subsequently recouping losses incurred while carrying out the predatory pricing.

The Uber Order [16] has taken a circular approach to dominance. This approach was discussed in the Ola case [17] where it was argued that predatory pricing is evidence of dominance in itself. However, the CCI’s position in the Ola case [18] does not get compromised by the Uber Order [19] and this is because the CCI explained that the market for radio taxis was at a nascent stage and the low prices are not because of cost efficiency but because of the funding it has received from private equity funds.  

Thus, the Ola case [20] is not rendered wholly inconsistent with the approach of the Supreme Court. It will be interesting to watch whether the CCI going forward considers predatory pricing as proof of both dominance and abuse of such dominance.

Dhruv Rajain, Principle Associate, can be contacted at [email protected].

Shubhankar Jain, Associate can be contacted at [email protected], Aakriti Thakur, Associate can be contacted at [email protected] and with the Competition Law Practice at Cyril Amarchand Mangaldas.

[1] Uber (India) Systems (P) Ltd. v. CCI, (2019) 8 SCC 697 (Uber Order).

[2] (2019) 8 SCC 697 .

[3] Erstwhile Appellate Tribunal replaced by the National Company Law Appellate Tribunal by way of Notification in the Gazette of India dated 26-5-2017 available at < http://egazette.nic.in/WriteReadData/2017/176250.pdf >.

[4] (2019) 8 SCC 697 .

[5] Advocacy Booklet on Provisions Relating to Abuse of Dominance available at <https://www.cci.gov.in/sites/default/files/advocacy_booklet_document/AOD.pdf>.

[7] 2011 SCC OnLine CCI 52 .

[8] 2013 SCC OnLine CCI 42 .

[9] 2017 SCC OnLine CCI 25.

[10] 2017 SCC OnLine CCI 36 .

[11] (2019) 8 SCC 697 .

[12] 2017 SCC OnLine CCI 36 .

[13] (2019) 8 SCC 697 .

[14] (2019) 8 SCC 697 , 700.

[15] 2011 SCC OnLine CCI 52 .

[16] (2019) 8 SCC 697 .

[17] 2017 SCC OnLine CCI 36 .

[19] (2019) 8 SCC 697 .

[20] 2017 SCC OnLine CCI 36 .

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International Journal of Legal Science & Innovation

[issn 2581 – 9453].

The Dual Priced Reciprocity in the Contemporary Indian Marketplace; Is Consumer really the Potentate

by IJLSI | Jun 26, 2019

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Abstract: The contemporary times witness an increase in the malpractices and fraudulent activities against the consumer. Dual Pricing being one of them, refers to the practice of charging different prices from different consumers for the same product. It has been manifesting itself through en-number of instances in the economic marketplace of India, where the consumer at the behest of the seller, is left exploited. This study, takes into account the illustrations of dual pricing ,in various sectors, while noting down the relevance  of  the interest of both buyers and sellers. Also referred as price discrimination,dual-pricing is prohibited by the Section 18(2A) of The Legal Metrology Act, 2017, in India. However, the legislation is saddled with numerous limitations in regard to the scope and interpretation. The authors have thrown light on such limitations and at the same time explored the various dimensions in which judiciary plays its role to interpret it. It is further revealed that the interpretation of judiciary serves more purpose to tackle the ambivalence in the existing law. The judiciary has played a vital role, to explain the rationales in various cases and an attempt has been made to harmoniously construe the interests of both the buyers and sellers. Towards the end, it is suggested that the legislature should make uniform laws, on the lines of judiciary’s interpretation on the legitimacy of dual pricing, so as to reduce the burden over the judiciary and serve the purpose of protecting consumers. Keywords: Consumer, Dual Pricing, Price Discrimination, Legal Metrology Act, Judiciary, Legislation.

I. INTRODUCTION

Consumer, an individual buying goods or services for personal use, is an integral part of the society. He is the one who makes a purchase not for a resale or intermediate use, but instead for a consumption, which will cater to his needs, that is to say, provide him with the satisfaction he urges for, his equilibrium or probably the state he never wants to deviate from. He is the one who ultimately falls a bait to all the marketing and advertising, which anyhow influence his decision to buy the product. Obviously, he isn’t enjoying the good or services without consideration. He pays or promises to pay, an equitable consideration in form of money or thing, for the good purchased or services availed.

The English Law, too justifies calling a person, consumer if, “An individual acts for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession” [1] . Indian law, provides a very extensive definition of consumer. According to Section 2(1)(d), of Consumer Protection Act, 1986 a consumer, means any person who buys the goods or services for the purpose of consumption and not for any commercial cause. [2]

The newfangled era, is known to be the era of consumers. No country can ignore the interest of the consumers intentionally or unintentionally. A consumer is the one, who spends his money to buy the goods and services, producer provides. Hence, they play a vital role in the economic system of the country. Without them demanding the goods or services, the producer would not make provisions of supply, and hence, the state of economic equilibrium will never be achieved.

II. EVOLUTION OF CONSUMER PROTECTION LAWS: FROM ANCIENT TO MEDIEVAL TIMES

The realization to protect the consumer from the exploitation and injustice isn’t a new phenomenon. It can possibly be dated back to the code of Chanakya, Manu-Smriti, NaradaSmriti [3] and so on of the ancient times of India. The earliest incarnation of consumer protection had been recorded as the implementation of ‘Lex Julia De Anooma’, passed by roman government around 50 B.C [4] . A plea, for stressing upon the ethical trade practices was made, with a punitive action against the offenders. The goods had a price set by the king, and entire trade was subject to the process of inspection in every six months.

The medieval period, the arrival of Mughals, led to the spread of Islam. The Holy stressed on the need of consumer protection [5] . The period of sultanate, gave importance to local conditions as to determine the price of the commodity, and took a stern action against the malpractices indulged in by the sellers. AlauddinKhalji, introduced various injunctions for market control in India. [6]

The rise of British Common Law, and its subsequent acceptance in other countries, especially in their colonies, amended the approach for the consumer protection. The first ever Consumer Protection law in England was ‘Sale of Goods Act,1893.’ [7] It was the time for the emergence of popular legal maxim of ‘Caveat Emptor’.

Modern period, witnessed the emergence of modern laws, which were way more organized and compensatory in nature, to undo the injustice met out to the consumer. It was the industrial revolution, that took a toll on the illegal practices against the consumer and at the same time, the laws enforcing protection to consumer became all the way more stringent.

In “ America, Sherman Act, 1890” [8] , passed to prevent the artificial raising of prices by restriction of trade or supply, had setup a new machinery to prohibit unfair methods of competition.

A similar kind of observance could be seen in Canada, and implementation of“ Anti-Monopolistic” statutes in 1950s in Germany and Australia, [9] was followed by the implementation of “ Restrictive practices Enquires and Contracts Act 1973” [10] in England. India, too didn’t lag behind, and hence, enacted Consumer Protection Act, 1986, which was based on laws of the other countries and sought to address the socio-economic position. [11]

A. THE CONSUMER PROTECTION ACT, 1986 AND AMENDMENT,2018

A market, needs to take into consideration, consumer protection laws, which will act as a savior to the consumer, from the malpractices he is subjected to. The modern times, saw these rationales, being realized by the legislatures in India, and formulated for his protection, en-number of legislations, some to cite like, Sale of Goods Act, 1930 [12] , the Agriculture Produce (Grading and Marketing) Act, 1937 [13] , the Indian Standards Institution (Certification Marks) Act, 1952, Essential Commodities Act, 1955. [14]

These enactments were no doubt successful, in enforcing some regulatory provisions, non-observance of which attracted civil liability, however, they practically had no other remedy to offer to the aggrieved consumer, than from indulging him in costly and lengthy suits. They no matter contributed to the exploitation of the consumer, for that the compensation ordered stood always disproportionate. There was a need of a consumer specific law, which in particular could deal with the interest of the consumer, and grant him the adequate remedy. Hence,the Consumer Protection Act, 1986.

This Act provided the consumer, with a three-tier quasi-judicial redressal institution at the District, State and National Level. it successfully made a provision, for providing the consumer with six rights [15] of being informed about the quality, quantity, potency, being heard, being educated and aware, being able to seek redressal against the unfair trade practices, being able to choose.”

For the apt redressal to the aggrieved consumer, the 1986 act provides for a three-tier quasi-judicial redressal of disputes, with the:-

(i) District Consumer Disputes Redressal Commission dealing with the matters less than Rs. 20,00,000 (Amended to Rs.1 crore), [16]

(ii) State Consumer Disputes Redressal Commission having the jurisdiction of the matters between Rs. 20,00,000-Rs.1,00,00,000( Amended to Rs.1 crore to Rs.10 crore) [17] , and the

(iii) National Consumer Dispute Redressal Commission entertaining all the cases above Rs,1,00,00,000 (Amended to above Rs.10 crore) [18] .

This Act, has recently been amended, which has extended its scope to new parameters. The consumer can now file an online complaint, which can be admitted within a period of 21 days from the date on which the complaint has been filed. [19] The manufacturer can now be penalized for a false or misleading advertisement, hence increasing the penalty from Rs.10 lakh to Rs.50 lakh. [20] Its scope has been widened to include e-commercial activities too.

III. THE NEED OF CONSUMER PROTECTION LAW

Mahatma Gandhi once said, “A consumer is the most important visitor on our premises. He is not dependent on us, we are on him. He is not an interruption to our work; he is the purpose of it. We are not doing a favour to a consumer by giving him an opportunity. He is doing us a favour by giving us opportunity to serve him.” “

This clearly signifies the importance consumer has in our society, and how important is to protect the consumer, the center of the economics.

The contemporary times, witness the rise of marketing concept, where the interests of consumers are paid to importance. With rise of internet and allied information technology, the consumers are now acting as “prosumers”, where they influence the product market, by airing out their reviews on its quality and other aspects, which act as reliable suggestions for the other buyers.

Consumer, in the present times, finds himself as a part of the market, where his interests act in collusion with that of the producer, whose main motive behind the production is to reap as much amount of profit as he can, no matter even if it costs the well-being of the consumer.

The 2015 Maggie ban [21] , due to presence of lead and monosodium glutamate, beyond the permissible limits, shows the extent to which producers can reduce themselves for increasing their surplus. 2019, finds  directions being re-issued to Nestle [22] , to make the Maggie maker, change the way of advertising and packaging. The famous case of Johnson and Johnson [23] , manufacturing talc, containing carcinogenic substances, drew a huge outrage. And so was the reporting of Coca-Cola [24] , to get pesticides mixed in their drinks, so as to reduce the amount of concentrate, so as to shoot its profitability, are few of the many incidents amongst adulteration, over-charging, dual pricing, false-claims and sub-standard products, which got enlightenment dawning upon the consumers, and the government as to protect their rights.

From the point of view of consumer, the evolution of the laws, oriented towards its protection aim at bestowing him with the right to complain, complain of all the malpractices and injustices they are subjected to that to at a nominal cost. Furthermore, the law entrusts them with the power to sue the service–providers if in case the service is not rendered with due care and in accordance with law, be it medical negligence. [25]

In Sehgal School of Competition V Dalbir Singh [26] , the court furthered the ambit of consumer protection, by allowing the consumer to refund the extra educational fees so paid. So is the case with over bookings, wherein the consumer has a right to seek refund. Having a right to examine the goods on delivery and return when not in accordance with specifications, he may now become far more aware and addressed, as he may file an RTI, so as to get information, and on it its denial, may approach the court.

There is a twin benefit related to consumer protection laws, which not only protects the consumer but also the production house. Be it the long term interest of business or the increase in customer base, adherence to laws so as to protect the consumers from being trapped, has always been appreciated. In pursuance of its corporate social responsibility, the producers, also should consider it as their duty to work in a sustainable way, catering the interests of both.

IV. THE CONCEPT OF DUAL PRICING

Don’t we find students in outstation universities these days hurrying as to book their flight ticket two months prior to their next trip to home? Maybe, because the same Indigo flight 660E, which now costs Rs.2500, find swell to cost Rs.5500, if booked in the nick of time. When he arrives at the airport, the same Frooty bottle which costed Rs.25, in this college canteen, was priced at Rs. 85, for the same quantity.

And let us further his journey to Agra, where he visits TajMahal, and pays Rs.50 for his ticket, but at the same point of time is shocked, finding the same ticket to be priced at Rs.1100 for foreigners. [27] Consumers, in the contemporary times, have been subjected to numerous instances of exploitation and malpractices. Adulteration, wrong use of weights, false advertising, for misrepresentation, to quote a few. This research study, throws light on the burning issue of the hour, to which every consumer falls a prey to, that is to say, the problem of dual pricing .

Referred as price discrimination in layman’s language, it refers, to the practice of charging different prices for the same products, to different set of consumers. More aptly referred as a technique, for charging different prices, in different markets, it is a well devised scheme, via which a company is able to offset a lower price in a new market, helping to drive out competition out of the same. Being a tool, in the hand of industrialists, they craftily manipulate the prices, so as to meet the higher demands and reap higher profits [28] . Dual pricing, at times, even protects the domestic business by the virtue of subsidies and taxes, to save them from competition.

A. DUAL PRICING: ITS MANIFESTATIONS IN VARIOUS SECTORS

Dual pricing, as a malpractice is vividly included as a part of daily economic transactions. A consumer can easily fall a prey to price discrimination and get exploited. The various below-mentioned instances illustrate as to how dual pricing as a stigma, has encroached the various sectors of the economy.

One may quote numerous instances of dual pricing, which tend to happen in marketplace.

(a) Railways

To begin with Indian Railways, the national carrier of the country, all the men above 60 years and women above 58 years, pay approximately 40% and 50% concessional fare respectively, in comparison to the men and women aged below 60 and 58 years. [29] A kid below the age of 5, need not pay any fare at all. So the same Shatabdi ticket would cost Rs.1200 for a young passenger, whereas, his granny might book a return ticket in that cost, with each side costing, just Rs.600 [30] .

Indian Railways, tend to further the scope of dual pricing, by the virtue of flexi-fare system. In this, the base fare increases by 10% with every 10% of the berths being sold [31] . That is to say in every 500 seated train, with base price being Rs.500, reservation of 50 berth, would amount to fare hike by 10%, which in this case would be Rs.550, and so on.

(b) Hotel and Hospitality Industry

Also, not to forget, the hotel industry, is well known for charging an exorbitant prices from the tourists especially foreign nationals in comparison to localities. [32] And so do the site viewing charges, which are hyped for the foreigners and nominal for the nationals. The example of TajMahal discussed above, suffice to justify. This is because the government, already charges various taxes from its citizens, which also include the charges for the protection of heritage and diversity [33] . Since, foreign nationals are outside the ambit of taxes, charging a hyped price does make sense.

(c) Educational Institutions

Not just them, the educational institutions, particularly the universities too have different prices to be paid by the Indians and foreign nationals. Tuition fees, for Indian students is INR 85000 p.a. whereas it is USD 10,000 p.a. for Non- SAARC nations, students.The government offers a similar explanation, as it does while explaining the hyped prices of Taj seeing tickets. Via its numerous taxes, the government gets the revenue from the citizens to promote education and accordingly invest in educational institutions, therefore, a less consideration from the nationals, is aptly justified.

(c) Insurance Industry

Dual pricing in its most casual forms can occur, in retail business, where individual business owners can offer one group of consumers a lower price than another group. The insurance companies are often found charging lower premiums to customers who are known to bypass agents to buy policies directly from life insurance companies [34] . This too, makes sense, when viewed from the perspective that a direct sale of policy to the consumer, will obviously cost less, instead when done via policy agents to whom commission has to be paid.

Also,the insurance companies are known to optimise the price of their policies. Earlier, they used actuarial parameters as to fix the rate of their policies. This practice has undergone a change, since a greater reliance is being placed on non-actuarial parameters. Consumer’s mental and physical well-being, tendency to be price inelastic or price-elastic,to name a few. Insurance companies ascertain as to the nature of the consumer they would be dealing with, and in the event of finding the reluctance of consumer to search for a better policy price, the companies manipulatively exalt their prices, since the consumer’s demand appears to be inelastic. [35]

(d) Retail Business

The retailers often by via their online channels offer the goods at a discounted rate, as compared to offline route [36] . The retailers do that because, there might be a condition when, an online sale saves various costs of marketing and transportation, which have to be paid in an offline sale. Also, while dealing with different set of customers and durations of time, a commodity priced at X, may be sold to an affluent customer in summer, but the same price is reduced to X-20%, when no longer that affluent customer generates a demand in winter. Hence,a stock clearance sale is a perfect example to compliment this.

(e) Sugar Industry

On an interesting note, dual pricing has also extended its root in sugar industry, as the National Federation of Cooperative Sugar Factories Ltd., an apex body representing 262 sugar mills, mulls, to have separate prices for industrial and retail consumers, with a suggestion of keeping the sugar rate at 50-60 per kg for industrial consumer and 30 per kg for retailers. [37] A very essential purpose is sought to be achieved via this, as more expensive sugar and sweeteners will cost to the industries making biscuits and jams, the less sugar they will add, hence, this will be an impetus to reduce obesity. It acts as a good substitute to fat tax.

(f) Electricity

The same has been the case with electricity, the rate of which varies from industrial, commercial and industrial purposes. Electricity for the commercial purposes, is available at a cheaper rate, due to its bulk demand, as compared to that of households. However sometimes, businesses may typically be required to pay 20% VAT, which stands 5% for domestic sector. [38]

(g) Coal Industry

The government intends to formulate a price discrimination policy in the sale of coal. As to the current scenario, the off-shore coal producers depend on imported coal whereas the producers near the coastal areas, don’t even substitute a fraction of domestic coal with that of imported one. Hence, this adds to the transportation cost for the off-shore producers, since most of the imports come via sea. Introduction of dual pricing, will enable a mixed pattern of consumption of both the imported and domestic coal. Hence, a pre-determined quantity of domestic coal, shall be distributed between the two segments, at a fixed price and the balance shall be procured either at import parity price(for domestic coal) or the international prices, in the event of imports. [39]

(h) Oil Industry: With reference to diesel

The proposal of the government to ensure that all the bulk users of diesel, as in railways, defence, agricultural sector and public sector, can afford to bear the burden of market prices and hence all the subsidies in that context shall stand withdrawn [40] .

The market price proposed at the state run fuel retailers, is Rs.10 per litre higher than that charged at petrol pumps. Another rationale as to support dual pricing, has been the soaring demand of diesel, in relation to its supply by 17%-20% in the past few years. [41] , by virtue of its subsidized price.

(i) Liquefied Petroleum Gas

January, 2019 saw the government contemplating to implement dual pricing system for Liquefied Petroleum Gas. For this, the Ministry of Industry, Commerce and Supplies, has begun to have dual-colors for LPG cylinders- red cylinders for the household at subsidized rates, whereas blue cylinders for commercial users like hotels and restaurants, without subsidy. This according to the Ministry will ensure subsidies only to the needy. [42]

(j) Energy Subsidies and WTO

Not stemming within the territorial boundaries, dual pricing has gained significance in international organizations like WTO. International Energy Agency defines energy subsidies as, “any government action that concerns primarily the energy sector that lowers the cost of energy production, raises the prices received by the energy producers, or lowers the prices paid by energy consumers. [43]

Dual pricing programs take a toll in energy endowed areas, whereby the government bestowed with large oil and energy reserves, indulge in a two-tier pricing practice, wherein the domestic prices of energy are often subsidized to achieve social and economic development in the underdeveloped areas, and hence, energy inputs prices cost much lower than that of the export prices.

This, no doubt, has been held essential from the shoes of developing countries, but same has been criticized by the developed countries, on the charges of jeopardizing the international business, and trouble the environment for the worse. The same has been found in contravention of Article 3 and 5 of Subsidies and Countervailing Measures Agreement. [44]

The developed countries, hold that the low domestic prices, affect their bargaining power, since the energy outputs of developing countries are priced less, owing to their subsidized inputs, in comparison to outputs from developed countries, priced more in absentia of subsidies in international market.

From the environmental perspective , the developed nations contend, that the availability of fossil at mitigated rate, discourages the producers to switch to greener and cleaner energy sources, and also results in wastage. Last, but not the least, there is also a scope for price differentiating when, a same commodity is purchased in hilly areas and plains, on the other side. [45]

Taking into account the maximum cases of dual pricing, this research paper, now, takes into consideration, as to the legitimacy of this practice. One instance of dual pricing might sound, completely justified from the point of view of sellers, the other may violate the rights of the consumer for the worse. While on one hand, dual pricing tries to serve the long term interests of the business, since it allows the enterprise to charge different prices from the different set of customers, hence aiding in revenue generation.

Also, charging different prices to different set of customers may be at times justified. For instance, the vegetables delivered to hilly areas, will definitely be priced more than the ones sold in plain area markets, owing to the difference in transportation costs. While at the time, it may hinder the interest of the consumers for the worse. Where a same Aquafina bottle is priced higher in a mall, as compared to a street shop, perils accrue to the consumers.

Hence, when, where and how, which interests take relevance, and how does law actually harmoniously construe both, so as to justify its stand, will be brought to the brim, in the next section.

V. THE DEVELOPMENT OF LEGISLATIONS AND PRECEDENTS RELATING DUAL PRICING

“The government being the legislative organ has the duty to enforce laws to protect the interest of aggrieved consumers. The history of the laws relating to dual pricing, aiming to ensure the protection of the consumer from such malpractices and unfair treatment, could be dated back to the formation of International Organization of Legal Metrology (OILM) in 1955. Initially, this aimed to ensure a fair dealing in weights and measure.”

Hence realizing its importance, the governments around the globe formed unison, to shield, a desired level of credibility of the various measuring instruments.

“The Government of India was a signatory to the same. Directorate of Legal Metrology, being a separate wing of Department of Consumer Affairs, Food & Supplies in India, with a view to provide an extensive scheme for uniform standards of measurements enacted Standard Weights and Measurement Act, 1956 [46] , based on the metric system and internationally recognized units.”

Amended in 1976, 1977 and 1987, this Act, never specifically addressed the question of legitimacy of dual pricing, except for the fact that the only requirement of law was to display prominently at a conspicuous place of the premises in which the retail business was being carried on, the rates at which the local taxes were leviable or at the most the price of the commodities sold [47] .

This Act was finally repealed in 2009 [48] , by the Legal Metrology Act (Hereinafter referred to as the “LM Act”), which came into force on 1 st April, 2011. However, it, like its predecessors, was ambiguous as to status of legitimacy of dual pricing. Section 18(1), of Legal Metrology Act, 2009 [49] , prohibited a seller, to manufacture, pack, sell, or import any pre-packaged commodity for sale, in the absence of declarations of standard quantity or numbers upon it. Sub section 2, of LM act, 2009, mandated the mention of Maximum Retail Price, along with the net quantity or number of commodity.

The mentioning of the MRP, however, didn’t provide any clarity, as to whether, a seller had the liberty to print the hyped MRP, and subsequently raise its sale, under the scanner of ambiguous law. In Hindustan Coca-Cola Beverages V.SiddarthManchanda&Ors , [50] the guilty party took the advantage of the said law, and hence justified its acts of selling the same commodity, under different MRPs, on the pretext that, Section 18(1) of Legal Metrology Act, 2009, mandated just the mention of MRP. No where, was this mentioned that a there cannot be a dual fixation of price on the commodity. The company here, justifies its very act of selling its Diet Coke Cane, and Rs. 60/- in Wave Cinema, which was available just for Rs.30/- at Easy Day.

Holding that under LM rules of 2009, the only requirement was to have the MRP printed on every pre-packaged commodity, it was not at all prohibited to declare more than M.R.P. for the same Coca Cola Can, to be sold at different places, for different class of consumers. Hence, there was no unfair practice indulged, the suit being dismissed.

LEGAL METROLGY ACT, 2017 ( AMENDMENT) AND LIMITATIONS

In order to fix such vagueness, in the law of utmost importance for the protection of the consumers, the Ministry of Corporate Affairs, in 2017, proposed an amendment to Legal Metrology Act, 2009, and added sub-sections 2A to Section 18 [51] , which strictly prohibited, the manufacturers or packer or importer to declare different prices on identical pre-packaged commodity, which is in consonance with clause (c) of sub section (1) of section 2, wherein, a complaint can be filed by the consumer , if the trader charges for the goods, a price, which is in excess of the one fixed by the law, or displayed on the goods.This law via the virtue of Section 36(1) of The LM Act, 2017.imposes a fine Rs.25000, and Rs.50000, for the second offence, and above Rs.50,000 in the even of subsequent offence, in the event of a sale of pre-packaged commodity being sold, without conforming to the declarations on the package provided in the Act.

The bird eye read, may appeal much to the consumer, since a law, to enforce his protection is now especially mandated. However, the said provision is in direct conflict with Section 4A, Explanation (2) of The Central Excise Duty Act, 1944, [52] which clearly holds it fair for the producer, to declare different retail prices on different packages for the sale of any excisable goods in packaged form in different areas.

In order to solve this ambiguity, this paper, places reliance on Solidaire India Ltd v. Fairgrowth Financial Services [53] , wherein the court specifically held that, for all those acts which begin with a non-obstante clause i.e. to say, for all those acts which begin with “Notwithstanding anything inconsistent therwith” are special acts. And whenever there arise a situation, that both these acts are in conflict with each other, the later will be prevailing. Hence, both the Central Excise Act, 1944 and Legal Metrology Act, 2017, begin with a non-obstante clause, which gives them a overriding effect in the first place, and hence makes them special acts. In the event of conflict between them, with no doubt, the later act, i.e. the Legal Metrology Act, 2017, will prevail. Hence, dual pricing, as per this interpretation stands prohibited.

THE LEGAL METROLOGY ACT, 2017: LIMITATIONS

The LM Act, 2017, is the sole legislation so far to deal with the question of dual-pricing. However, it is discouraging to realize that the same has been saddled with limitations in regard to its scope and interpretation.

The two limitations in the law are as follows:-

• A narrow scope, since it includes only ‘pre-packaged commodities’ and not
• Ambiguity as to what constitutes an interpretation to “ Unless otherwise specificallyprovided under any law .”

The narrowed down scope

The Act, explicitly prohibits dual pricing in regard to all the pre-packaged commodities. However.fails to include services in its ambit. The numerous illustrations of dual-pricing discussed above, showcase the instances in both the goods and services oriented industry. In the prevalence of such an ambiguous law, the charging of Rs.85 and Rs.20 for an Aquafina bottle is held to be prohibited, but the insurance company selling its policies at different rates, can easily escape liability, in absentia of law considering services.

Ambiguity as to Interpretation

The next limitation inherited in the Act, deals with the interpretation of law.The section 18(2A) is read along with the proviso “Unless otherwise specifically provided under any law.” This clearly provides a very good ground, for the sellers, to get two different prices for a single commodity under the banner of “In accordance with law”.

Role played by judiciary

We, now take into consideration the precedents, whereby the Supreme Courts and High Courts have upheld dual pricing, since they found the same to in harmony with law. In the landmark case of Pallavi Refractories v. Singhreni Colleries [54] , the classifications of core/linked sector industries and non-core/unlinked sector industries and the consequent supply of coal to the former at a price less then the notifies one, and to the latter at an additional 20%  over the notified price, didn’t act violative of Article 14 of the constitution, and that dual pricing was held to be valid.

The ground given by the court is that was that, since the core sector of the economy, constitute the bulk consumers of the respondents, charging lesser price was justified. Also, these bulk users, constitute the strategic industries producing consumer goods, and hence, in the event of any increase in their input price, would ultimately transfer the burden to the consumer, in the form of increased price, a lesser price was held to be in accordance with law, in comparison to the non-core sector, which purchase a relatively lesser quantity and also, any increase in their input price wouldn’t pass the burden to the consumer. Hence, dual-pricing was held to be in accordance with law, on the grounds of serving larger public interest .

In another pioneering judgment in Travel Agents Association of India v. Lufthansa German Airlines &Ors [55] , the association, contested the selling of air-tickets by the said airlines, via its online website, to the customer at a much low price. They complained that, the airlines, used to sell tickets to them, at a much higher price, which jeopardized their business for the worse, since customers preferred buying directly from the airline’s website. It was also complained, that the said airlines, in order to avoid the payment of 5% commission to the agents for the sale of tickets by them, adopted the latter route.

The court completely upheld the dual pricing of the tickets, via the different channels, owing to the fact, that online sale doesn’t impose any additional charges of advertising and marketing, whereas the sale of tickets via the agents, costed company some additional costs, like payment of commission, advertising and marketing, the burden of which, ultimately fell on the shoulders of the consumer. Also, the company was free to decide, as to what channel of sale, it wanted to opt for.

Similarly, the decision of the railways to charge different prices from big and small manufacturers, was held to be rational and in accordance with law, since the former, were the bulk users of the railways services, charging a rebated price, was held to be in national interest. [56]

It is to be understood at this point of time that, judiciary never intervenes in the legislative functions unless necessitated. Fixation of price being a purely legislative function, the court doesn’t regard the same as its forte, and holds it outside the ambit of functions of Court. [57]   Also, the court normally stands firm on its approach of non-intervention in the decisions of the government in financial matters. Obviously, the court lacks the expertise to substitute the opinion of an expert related to a particular policy. The only ground on which court interferes is when such a policy decision is found to contrary to public interest or violative of the constitution.

VI. CONUNDRUM: THE LEGITIMACY OF DUAL PRICING IN INDIA

Despite the very prohibition on dual pricing by Legal Metrology Act, 2017, there is still a lot more to do about this. The limitations can result in numerous interpretations to be drawn. Not going so far, the Supreme Court of India, has upheld dual pricing in hotels and restaurants. The apex court, has given a green signal to all such enterprises to continue the practice of charging above MRP for bottled mineral water. Despite the various pleas made by legislature in regard to banning the price discrimination and a similar stand taken by the Kerala High Court, the Supreme Court stands unaltered in its decision.

The very selling of Diet Coca Cola, at Rs.60/- and Rs.30/-, in malls and Easy Day, respectively, was upheld by the court on a very distinct ground, of no unfair trade practice being reported. [58] The selling of Frooti for Rs.85, while the same being purchases by Vijay Goel, outside the outlet for Rs.20/-, meant no illegality for the court.

The rationale which court have was that, in the first place, a consumer enters the premises of hotels and restaurants, obviously not to buy a water bottle. The main motive is to enjoy the ambience, the environment of the said enterprise. Also, even if the consumer ends up buying a water bottle, it is not merely a sale of good, instead it is a combined sale of good and sale of service, which basically remains outside the scope of Legal Metrology Act, 2017.

Legal Metrology Act and its predecessor Standards of Weights and measure Act, 1976, deals with the trade and commerce of goods sold by weight or number. It becomes very much evident that services are anyhow not included into this. Therefore, even if these hotels, overcharge in terms of MRP, they are held not to be liable, since, they are responsible to provide a number of services to the consumer, along with the sale of goods. These services can be the centrally fitted air-conditioners, deluxe couches, hospitable staff, lush green surroundings, fancy crockery and so on and so forth.

These enterprises also assert their justifications of passing the burden of their high rentals to the ultimate consumer, in exchange of the services he is provided with along the sale of goods. Moreover, when it comes to the question of fraud and misrepresentation, the hotels are very firm on their stand that they by no means indulge in such practices, since there is nothing hidden. The MRP being printed, no vital information is concealed form the consumer. In the event of such dual pricing, it is open to consumer, whether to buy the Diet Cola from the street hawker, or the hotelier. Even if he ends up purchasing from the mall or the restaurant, he can’t complain of being cheated since, he bought it on his own will.

However, the court is known for taking a different stand when it comes to the practice of price discrimination in airports and cinema halls. In much contradiction to what it held in the previous cases, the court bluntly rejects any such dual pricing, in over-charging the water bottles or any other commodity beyond their MRP. In the case of Big Cinemas V. Manoj Kumar [59] , the National Consumer Disputes Redressal Commission, righteously affirmed the imposition of a sum of Rs.5,00,000/ on the petitioners because, for illegally benefiting themselves by charging two different MRPs from the consumer. All sorts of vehement arguments advanced by the petitioner to justify the two MRPs of Rs.16/- for ordinary shops and Rs.30/- for Cinema Halls, failed. A similar ruling was observed by the court in Vijay Goel v. Inox Cinema , again dwelling over the subject matter of two MRPs for Aquafina.

The court has very specifically rejected the price discrimination in charging the goods like packaged drinking water in airports as well. Substantiating the said statement, D.K. Chopra v. Snack Bar, [60] provides with the authority, stating that a stall of snack bar in the airport premises, is not at all justified to sell the water bottle at a hyped price beyond its MRP, for which it is available with a roadside vendor.

The plea of high rentals in the airport made by the Snack Bar, don’t find any logic, as  like hotels and restaurants they don’t serve the consumer with additional services, hence nowhere can it, logically construe to pass the burden to the ultimate consumer, who is left with no choice at the airport, than to buy the over-charged bottles.

Hence, all these precepts, Acts and Precedents when brought together, lead to a whole lot of conundrum as to what litmus test those the enacted law and case law provide to interpret the legality and illegality of dual pricing. What can be best extracted by such extensive study is that, wherever there is an imposition of unreasonable burden on the consumer, the court takes a firm stand to prohibit dual pricing in the best interest of the consumer.

Upholding dual pricing in hotels and malls, completely makes sense, when the sale of goods is viewed to happen along with some additional sale of services in the form of hospitality, comfort and ambience. The consumer probably has all the doors open, and shun the purchase of high priced goods in such places, and simply walk outside to purchase it from an ordinary retailer. However, when it comes to airport and cinema malls, no justifications, by any of the guilty party has been provided, as to why dual pricing should be upheld, taking into consideration that consumer’s helplessness as to go out and purchase, is held to be exploited. And hence, he is left with practically no other option in such enterprises than to purchase the good, at an over-charged MRP.

VII. CONCLUSION

Analyzing the position, with respect the entire descriptive study the authors has made, it stands highlighted  thata major chunk of interpretation as to the legitimacy of dual pricing  has been made by the the judiciary. The Supreme Court via its innumerable judgment has been successful enough to bring forward as to when and how, are the interests of the sellers and buyers, be harmoniously construed, as that none suffers and feel exploited.

Obviously, it would be unfair for seller, when asked to supply vegetables at same rate in both the hilly and plain areas. Similarly, the consumer also cannot be left at the behest of the seller, charging Rs.85/- for a bottle sold inside the cinema, and Rs.20/- for the same commodity sold outside. The LM Act, 2017, no doubt, provided the provision of prohibiting dual pricing, however, the same has been enforced in the light of various exit gates. Be it conformity with law or the larger national interest, delivery of services or a comfy environment, sufficient grounds for upholding dual pricing have been evolved by the court by a series of judgments.

It appears, as if the judiciary is extraneously burdened with interpretation of law regarding dual pricing. The rationale and dicta it provides, serves more purpose than the explanations of legislature acts. Sadly, despite dual pricing, extending its roots deep, in every market transaction, the legislature uptil now, has been not able to frame a law, which efficiently tackles all the exceptions and explanations to dual pricing. It will all the way save a whole lot of time for the courts, to explain as to the why and why-nots of holding and discarding price discrimination.

The suggestions stand as follows:-

• Hence, what makes relevance, at this point of time is that, the legislature should realize its duties and hence, draft a new law or to make amend the existing, as to address the ambiguities of the prevailing legislation.
• The judiciary has already, by its numerous judgments provided rationales behind different evens of dual-pricing, hence, making it easy for the legislature.
• This when implemented would result in the reduced burden over the judiciary, and will suffice the purpose of protecting the interests of the consumer from the fraudulent and malicious activities of the producers.
• A rule book as to what constitutes dual pricing, should be made, thus providing a straitjacket solution to this issue.
• The consumer should be awarded appropriate compensations, in the event of his exploitation. While at the same time, efforts must be made to support the objectives of producer, if the same doesn’t happen at the cost of buyers.

Hence, all this when implemented, will pave a way for enhanced consumer protection, who constitutes the most important part of our economic system.

VIII. BIBLIOGRAPHY

• Sonika Shekhar, The History of Consumer Protection , 25 L.T.J. 185, 189-191(2018).
• Pallattino M, A History of Earliest Italy , 1 Routege Rev. 157, 181-182 (2014).
• AntonellaCorradi, International Law and Consumer Protection: The history of consumer protection, 2 Hauser Global L.J. 555, 576-577 (2015)
• OECD reviews of regulatory reforms: Competition policy in Australia , OECD iLibrary (May 5,2019, 10.04A[1] The Fair Trading Act 1973
• P.K.Korde, A Study of India’s Favorite Instant Noodles- A Case Study of Maggie A Product of Nestle India Pvt Ltd,  5 I.J.E.S.M.R 77, 79-80(2017)
• Lisa Garrison, Special Report: Johnson and Johnson knew for decades that asbestos lurked in its Baby Powder, Thomson Reuters ( 17, 2018, 2:00 PM),https://www.reuters.com/investigates/special-report/johnsonandjohnson-cancer/
• Monalisa & SuneeraTandon, Supreme court declines to ban Coca-Cola beverages , The Washington Post (Oct. 03,2013 5:23PM ),https://www.washingtonpost.com/politics/supreme-court-says-coca-cola-can-be-sued-over-juice-drink-label/2014/06/12/20e42536-f240-11e3-914c-1fbd0614e2d4_story.html?utm_term=.1b3819b835d[1] Timing and Ticket Price to Visit the TajMahal in Agra , India, The TajMahal ( Mar. 30,2019, 7:56 PM) https://www.tajmahal.gov.in/ticketing.html
• Michal Apollo, Dual Pricing- two points of view(citizen and non-citizen) Case of entrance fees in tourist facilities in Nepal , 4 3 rd Geo. Sym.-GEOMED , 63,65-66 ( 2013)
• Cho Yeung Chan, The Impact of Gender-neutral Pricing on the Life Insurance Industry , Cass Business School City University Jour. Lon., 56, 56-57 (2014).
• How the EU VAT exemptions impact the Banking Sector: Study to assess whether banks enjoy a tax advantage as a result of the EU VAT exemption system, THE PWC (Apr. 21, 2019, 5:36PM), https://www.pwc.com/gx/en/financial-services/pdf/2011-10-18_vat_study_final_report.pdf
• Dual Pricing for supply of Coal: Can this be the Answer to Future Coal Shortages? , The Bing ( 14, 2019, 6:21PM), https://www.bing.com/search?q=Dual%20Pricing%20for%20supply%20of%20Coal%3A%E2%80%99%20Can%20this%20be%20the%20Answer%20to%20Future%20Coal%20Shortages%3F%E2%80%99&qs=n&form=QBRE&sp=-1&pq=&sc=6-0&sk=&cvid=31AE4FCAD57D4C8FA217B8241A4737AE
• Devansh Sharma, Why you end up paying almost double for petrol and diesel , The E.T,  11, 2018, at 7

[1] The Consumer Right Act, 2015, § 2(3) (UK)

[2] The Consumer Protection Act,1986, No. 68 of Parliament, 1986, §2(1)(d) (India)

[3] SonikaShekhar, The History of Consumer Protection , 25 L.T.J. 185, 189-191(2018).

[4] Pallattino M, A History of Earliest Italy , 1 Routege Rev. 157, 181-182 (2014).

[7] Antonella Corradi, International Law and Consumer Protection: The history of consumer protection, 2 Hauser Global L.J. 555, 576-577 (2015)

[8] The Sherman Act,  U.S.C. § 13(a) (1890)

[9] OECD reviews of regulatory reforms: Competition policy in Australia , OECD iLibrary (May 5,2019, 10.04AM), https://www.oecd-ilibrary.org/governance/oecd-reviews-of-regulatory-reform_19900481.

[10] The Fair Trading Act 1973

[11] The Consumer Protection Act,1986, No. 68, Acts of Parliament, 1986, § 2(1)(d)(India)

[12] The Sales of Goods Act,1930, No.3 of Acts of Parliament, 1930 (India)

[13] The Agricultural Produce (Grading and Marketing) Act,1937, No. 1. Acts of Parliament, 1937 (India)

[14] The Essential Commodities Act,1955, No. 10, Acts of Parliament, 1955 (India)

[15] The Consumer Protection Act,1986, No.68, Acts of Parliament ,1986, §2(1)(d) (India)

[16] The Consumer Protection (Amendment) Act, 2018, No. 68, Acts of Parliament, 1986,  §34 (1) (India)

[17] The Consumer Protection (Amendment) Act, 2018, No. 68, Acts of Parliament, 1986,  § 47(1)

[18] The Consumer Protection (Amendment)  Act, 2018, No. 68, Acts of Parliament, 1986,  § 58(1)

[20] The Consumer Protection Act, 2018, No. 68, Acts of Parliament, 1986, §. 89

[21] Dr.P.K.Korde, A Study of India’s Favorite Instant Noodles- A Case Study of Maggie A Product of Nestle India Pvt Ltd,  5 I.J.E.S.M.R77, 79-80(2017)

[23] Lisa Garrison, Special Report: Johnson and Johnson knew for decades that asbestos lurked in its Baby Powder, Thomson Reuters (Dec. 17, 2018, 2:00 PM),https://www.reuters.com/investigates/special-report/johnsonandjohnson-cancer/

[24] Monalisa,&SuneeraTandon, Supreme court declines to ban Coca-Cola beverages , The Washington Post (Oct. 03,2013 5:23PM ),https://www.washingtonpost.com/politics/supreme-court-says-coca-cola-can-be-sued-over-juice-drink-label/2014/06/12/20e42536-f240-11e3-914c-1fbd0614e2d4_story.html?utm_term=.1b3819b835dc

[25] Arvind Shah (Dr) v.KamlabenRamsinghKushwaha ,(2008) CPJ 121 (India)

[26] Sehgal School of Competition v. Dalbir Singh, ( 2005)  CPJ 33 (India)

[27] Timing and Ticket Price to Visit the TajMahal in Agra , India, The TajMahal ( Mar. 30,2019, 7:56 PM) https://www.tajmahal.gov.in/ticketing.html

[28] Mario Kienzler& Christian Kowalkowski,  Pricing strategy: A review of 22 years of marketing research 5 Jour. of Bus. Res.,21,23-26 (2015)

[29] RakeshDubbudu , Railways now change the rules for availing the Senior Citizen Concession & Quota , The Factly ( Apr.30, 2019, 8:23PM) https://factly.in/senior-citizen-concession-in-indian-railways-rules/

[31] Press Information Bureau ,Government of Indian Ministry of Railways, (Oct. 05,2018, 6:21 PM), http://pib.nic.in/newsite/PrintRelease.aspx?relid=149606

[33] Michal Apollo, Dual Pricing- two points of view(citizen and non-citizen) Case of entrance fees in tourist facilities in Nepal , 4 3 rd Int. Geo. Sym.-GEOMED , 63,65-66 ( 2013)

[34] Cho Yeung Chan, The Impact of Gender-neutral Pricing on the Life Insurance Industry , Cass Business School City University Jour. Lon., 56, 56-57(2014).

[35] Desheng Dash Wu  & Anthony Ross, Price Optimization, channel and uncertainty , 56 I. J.P. R., 121,121-124 (2018)

[36] Jen-Ming Chen, Channel Pricing and pricing in a dual-channel with competition , 11(4)  I. J.E.B.M.., 36,36-37(2013)

[37] Government of India, Report on Indian Sugar Industry, ‘Dual Pricing for sugar suggested’  (Ministry of Consumer affairs,  2017)

[38] ‘ How the EU VAT exemptions impact the Banking Sector: Study to assess whether banks enjoy a tax advantage as a result of the EU VAT exemption system, THE PWC (Apr. 21, 2019, 5:36PM), https://www.pwc.com/gx/en/financial-services/pdf/2011-10-18_vat_study_final_report.pdf

[39] Dual Pricing for supply of Coal: Can this be the Answer to Future Coal Shortages? , The Bing (Apr. 14, 2019, 6:21PM), https://www.bing.com/search?q=Dual%20Pricing%20for%20supply%20of%20Coal%3A%E2%80%99%20Can%20this%20be%20the%20Answer%20to%20Future%20Coal%20Shortages%3F%E2%80%99&qs=n&form=QBRE&sp=-1&pq=&sc=6-0&sk=&cvid=31AE4FCAD57D4C8FA217B8241A4737AE

[40] Union Of India v Government Of Tamil Nadu,( 1983) 1. S.C.C 130 (India)

[41] Devansh Sharma, Why you end up paying almost double for petrol and diesel , The E.T,  Sept.11, 2018, at 7

[42] LPG Price in India , The Good Returns, ( Mar. 30, 2019, 8:23PM) ,https://www.goodreturns.in/lpg-price.html

[43] Rajesh H Acharya&AnverSadath, Implications of energy subsidy reform in India ,   Energy Policy, 89,89-91 (2017)

[44] World Trade Organization, Agreement on Subsidies and Countervailing Measures( Article 1-9) ,  The WTO( Mar.05, 2019, 5:21 PM), https://www.wto.org/english/docs_e/legal_e/24-scm.pdf

[45] Desheng Dash Wu & Anthony Ross, Price Optimization, channel and uncertainty , 56 I. J. P.R., 56,56-58(2018)

[46] The Standards Of Weights and Measures Act, 1956, No. 89, Acts of Parliament, 1992  (India)

[49] The Legal Metrology Act , 2009, No. 1, Acts of Parliament,  2010 , § 18(1):No person shall manufacture, pack, sell, import, distribute, deliver, offer, expose or possess for sale any pre-packaged commodity unless such package is in such standard quantities or number and bears thereon such declarations and particulars in such manner as may be prescribed.

[50] ( 2017) 268 S.C.D.R.C. (Del)

[51] Amendments in Legal Metrology (Packaged Commodities) Rules 2011, The PWC ( Mar. 02, 2019, 6:51 PM),https://www.pwc.in/assets/pdfs/newstax/2017/pwc_news_alert_30_june_2017_amendments_in_legal_metrology_rules_2011.pdf

[52] The Central Excise Act, 1944, No. 1, Acts of Parliament, 1944),  § 4(a) (India)

[53] (1994) 4 S.C.C. 246

[54]   (2005) 2 S.C.C. 227

[56] Union Of India and Ors v. Hindustan Development Corpn.,  (1993)  S.C.R. (3) 128 (India)

[57] Union Of India &Anr v Cynamide India Ltd. &Anr.,  (1987)  S.C.R. (2) 841(India)

[59] ( 2016)  N.C.D.R.C. 123 (India)

[60]   (2015) N.C.D.R.C. 108 (India)

Cite as: Aarushi Kapoor and Prasann Malviya , The Dual Priced Reciprocity in the Contemporary Indian Marketplace Is Consumer really the Potentate, 1 Int’l J. of Legal Sci. and Inno. 2 (2019)

LEGAL INSIGHT

• Nov 3, 2021
• 11 min read

Protection of Consumers against Price Discrimination

Table of Contents

INTRODUCTION .. 3

Background .. 4

Consumer Protection Act, 2019 . 5

REVIEW OF LITERATURE .. 6

Journal Articles . 6

OBJECTIVE .. 8

RESEARCH METHODOLOGY .. 8

ANALYSIS . 8

Examines the behavior of the shopkeeper towards different sections of consumers . 9

Difference between full and limited warranty .. 9

Know different acts for protecting consumers from price discrimination .. 9

Factors of price discrimination .. 10

Consumer Protection Act, 2019 . 10

CONCLUSION .. 10

INTRODUCTION

Price discrimination refers to charging different prices from different customers for the same good or service to capture consumer surplus and maximize revenue. And if different prices are set for different buyers for a good reason, such as an effort by the seller to meet the competitor’s price and when there is no intent to harm competitors then it is not illegal price discrimination.

There are three degrees of Price Discrimination:

· First Degree: To this degree, it is assumed that the seller of the good know that at what maximum price every customer is ready to purchase the good. With the help of this theory, the sellers maximize their profit without deadweight loss. E.g. – If a seller sells a bag for ₹1000/- to a poor person and sells the same bag for ₹1500/- to a rich person, as he knows that the rich person can also buy that bag at the latter amount and the poor one can’t afford at the latter price.

· Second Degree : In this, the seller charges different prices from customers for the quantities they purchased, like quantity discounts on bulk purchases. E.g. - If a person buys 1 pair of trousers for ₹1000/- but another man buys the pack of the same 5 trousers for ₹4000.

· Third Degree : In this, the seller sells the same good or service at different prices to different buyers group. This degree of price discrimination is most common. E.g. – If a movie theatre or amusement park charges different prices for tickets from customers based on age i.e. children, adults, and seniors.

· Sometimes there is also a fourth degree of price discrimination and in this degree the prices to consumers are similar but the producer faces different costs. It is also called reverse price discrimination.

There are two other types of price discrimination as well i.e. direct price discrimination and indirect price discrimination. The former one is based upon the identity of the buyers and the latter one involves several offers and achieves price discrimination through buyer choices.

For a seller or producer to perform this price strategy, some conditions should be satisfied like:

· Imperfect Competition – There should be monopoly power of the seller for exercising price discrimination. As if the seller is working in a market with the perfect competition then this pricing strategy will not work as then he would be a price taker, not a price maker.

· Prevention of resale – This means that the buyers who purchased a product or service at a lower rate should not be able to resale it to other buyers who would have otherwise paid a higher price for the same product or service.

· The elasticity of demand – There should be less elasticity of demand because if the buyers all show a similar elasticity of demand, this price strategy will not work.

Apart from offline price discrimination, online price discrimination is also in trend as the online retailers or shops offers each website to customers at different price. It is also known as personalized pricing. Online shops can identify customers through cookies, search results, IP address etc., and can know which customer is price-sensitive and which is price-insensitive so that they can charge different prices from both. For example delivery charges, travelling tickets etc. can be different for different customers. As in 2000, it was seen that Amazon offered different buyers different prices, when a regular customer deleted his laptop’s cookies, he saw that the price of a DVD player dropped. Hence, it appeared that the buyers who previously ordered from Amazon were shown a higher price for a product as compared to the new buyers. Also, there is another example of 2012 which concerns office supplies sold by Staple.com. It was also seen that Staples charged different prices from different people in different areas based on their IP address, as it charged high prices from the people who lives in high-income areas.

Now the consumers under this Act are also able to file complaints online along with the fact that they won’t require a lawyer to present their cases.

Consumers also get benefits of 2 types of warranties (i.e., full warranty and limited warranty) on some products. A full warranty (FW) is a warranty in which the product is replaced or repaired during the specified warranty period and on the other hand limited warranty and (LW) is a warranty in which is limited to just the specified parts, certain types of defects, or other conditions. Additionally, FW does not often cover normal wear and tear but LW may cover. These warranties are further defined under analysis.

Price discrimination is usually legal but it becomes illegal if it’s done based on race, religion, nationality, or gender, or if it is in violation of price-fixing laws. Consumers are protected from it by various acts and some organisations also help consumers to be aware of the frauds in the market and safeguard consumers from exploitation. Price discrimination has been made illegal under the Sec 4 of the Indian Competition Act 2002, which stops businesses holding a dominant position in a relevant market from mistreating that position and the act also applies to all businesses, including public entities that are engaged in economic activities. Mistreatment of power can be directly or indirectly imposing high or unfair prices on the sale of products or services. And consumers are mainly protected under Consumer Protection Act (COPRA) 2019 as it protects consumers from various types of frauds by sellers and also provides some rights to them and the researcher had defined it in detail below.

Consumer Protection Act, 2019

Consumer Protection Act, 2019 is the most helpful weapon for protecting consumers against discrimination based on price as well as other factors like quality, quantity etc. It was passed by parliament in 1986 and it came into force from 1st July 1987 and it was also amended in 1993, 2003 and 2019. It has been presented as a significant act in the history of India and it is applicable in every state of India and extends to the whole of India. It covers all the goods and services available in India and also provides for the formation of Consumer Protection Councils both in the states and at the centre. These councils’ main aim is to protect the interest of the consumers and to safeguard them from any type of illegal practice (like charging high prices, adulteration, poor quality of goods and services, hoarding etc.) by the sellers. Both official and non-official members in these councils protect the rights of consumers (like the right to safety, information, choice, redressal etc.) presented in this Act and the nature of this Act is compensating for the loss. There’s a new concept under this act of Product liability which is defined as follows-

“A manufacturer or product service provider or product seller will now be responsible to compensate for injury or damage caused by defective products or deficiency in services.”

There is also three-tier Judicial Machinery or Redressal Agencies for redressing the grievances of the consumers under the Consumer Protection Act:

· District Forum- State government sets up these district forums and these forums hear the disputes of the consumers involving the sum up to ₹20 Lac.

· State Commission - It is also set up by the state government and each state has one state commission and these commissions hear the disputes of the consumers involving the sum exceeding ₹20 lac and up to ₹1Crore.

· National Commission - It is set up by the central government and it is the only one in India and these commissions hear the disputes of the consumers involving the sum exceeding ₹1Crore.

Also, Consumers Associations, state government, central government along with the consumers can file complaints against the seller, manufacturer, service provider etc. in these forums or commissions.

REVIEW OF LITERATURE

There are various journal articles, cases from subscribed databases etc. about the topic and the researcher had gone through various sources for appropriately understanding the topic.

Journal Articles

1. “ How companies can make more money by allowing you to pay as you want” [1]

The article by Adrian R. Camilleri speaks about the first degree of price discrimination as it tells there may be reasons for companies to accept a ‘pay as you want’ pricing system and it is mainly most effective in low competition markets. There are some the companies like rock band Radiohead who sell one of its albums online by this system i.e. pay what you want and there is also New York’s Metropolitan Museum of Art which also used this system or policy for 50 years and by this, they increased their revenues. Sometimes customers can pay lees at pay-as-you-want businesses but this helps in generating several customers and could drive competitors out of the market. So, in this system, many people get more satisfied with the products and they think it to be the best quality of product and pays more than the price of the product and helps the seller to maximize his revenue and stay in business as paying more is also a signal to others that we are fair.

2. “Abuse of dominance: Pricing Practices under Competition Act” [2]

This article by Mariya Paliwala discusses the topic of abusive pricing prohibited under “The Competition Act 2002” and further talks about how are the consumers protected from such abusive pricing techniques that some traders follow underlying the punishments given for such acts.

1. “Noida Software Technology Park vs. Star India Pvt. Ltd. & Others” [3]

In 2018, this case dealt with price discrimination, wherein the petitioner Noida Software Technology Park (NSTP) was charged a hefty amount of money in name of carriage fees and Placement fees whereas they charged a nominal amount of fees from their favoured distributor. In this case, the Petitioner was a public limited company who had been issued a license to main, operate and install digital cables in India who alleged companies - Star India Private Limited (Star India), Sony Pictures Network India Private Ltd. (Sony Pictures) and Indian Broadcasting Foundation (IBF) for engaging in unfair business tactics involving Price discrimination under Section 3(3), Section 4 of The Competition Act, 2002. It was alleged that the broadcasters made disparate payments in the form of carriage fees (to carry channels) and placement fees (to place channels at prominent positions) to their favoured position. Allegedly these fees were often greater than the license fee ordinarily charged to distributors that significantly reduced cost for such favoured distributors vis-a-vis others. While broadcasters made channels available on an a-la-carte basis, the terms at which they were offered, included pricing, made the choice. . Rendering the judgment to this case the court stated the price discrimination occurred in this case.

2. “Shri Shamsher Kataria v. Honda Siel Cars India Ltd & Ors. [4]

In 2014, The CCI (Competition Committee of India) considered the traveller vehicle market and the post-retail marketplaces involving spare parts, diagnostic tools and the provision of after-sale repair and maintenance benefits in Shri Shamsher Kataria v Honda Siel Cars India Ltd and Ors (2014) (Auto Parts case). It found that 14 vehicle companies had violated their dominant position in their respective business sectors by forcing customers to purchase spare parts.

3. “M/s Sai Wardha Power Company Ltd vs. M/s Coal India Limited and its subsidiaries” [5]

In the Coal India case (2014), the CCI found that Coal India, which had no competitor in the state for coal supplies as there is their monopoly, had imposed unfair terms and conditions for the supply of coal in its contracts. The COMPAT analysed this case in 2016 and then CCI again examined the case and imposed a fine and Coal India Ltd. and subsidiaries Mahanadi Coalfields, Western Coalfields and South Eastern Coalfields were found guilty at last of unfair trade practices.

The objective of the study is to:

1. Examine the behaviour of the shopkeeper towards different sections of consumers (i.e., poor, rich, urban, rural, educated, and uneducated).

2. Differentiate between two types of warranties (Full warranty and Limited warranty)

3. Know different acts for protecting consumers from price discrimination.

4. Identify the factors of price discrimination.

5. Understand the Consumer Protection Act, 2019

RESEARCH METHODOLOGY

The study is confined to India only and the above data is collected from secondary sources or published sources like journals, research papers, and articles of some well know personalities etc.

The researcher in his research paper has many objectives which he tries to analyze:

Examines the behaviour of the shopkeeper towards different sections of consumers

Sellers exploits consumers based on different sections of consumers. As many sellers charges, high prices from rich people compare to poor because they know that rich personalities are in a position to pay the amount asked by them. Also, those sellers try to exploit consumers who are uneducated because uneducated consumers are mostly unaware of their rights while purchasing any product or service. And some seller also tries to exploit based on an area of living as if the consumer is from an urban area then they try to charge more price as compared to the price demanded from rural area people. So, like this, the sellers try to discriminate against consumers of different factors for increasing their revenue.

Difference between full and limited warranty

Full warranty: Any company/firm that promises a full warranty need to change the whole product if any faults come out in the specified warranty period but they won’t change the product under normal wear and tear of the product. It must only be active for a specific period of 60 days or 80 days etc. Some state laws mandate the company/firm to repair the products or replace them with a new one within the reach of the customer

Limited Warranty: As its name specifies limited warranty only replaces a certain part of the product purchased under certain types of defects or other conditions. It only means the product is replaced or repaired and not the labor cost wherein in full warranty it also covers in labor cost.

Know different acts for protecting consumers from price discrimination

1. Consumer Protection Act, 2019

By the above-mentioned act an authority was finalised namely the “Central Consumer Protection Authority”, it’s somewhat familiar to the “Federal Trade Commission” established in the USA. Under Section 18, the authority can practice suo motto actions to investigate or inquire about violations of consumer rights or unfair trade practices under price discrimination.

2. Competition Act, 2002

Sec 4 of the Indian Competition Act 2002 prohibits businesses holding a dominant position in a relevant market for mistreating that position and the act also applies to all businesses, including public entities that are engaged in economic activities. Specifically, it states that an unfair purchase/selling price may constitute an abuse of dominance. Section 2(1) (c) talks about when a trader charges much more than the ordinary set off for a good conducts price discrimination

This act deals with the following two finds of interdictions –

· Action against an existing firm for price discrimination

· Actions against a firm for illegally stopping another firm from entering the market

Factors of price discrimination

Price discrimination occurs when –

· Existence of monopoly: According to this, a person can carry out price discrimination if there’s a degree of monopoly going on in the market.

· Agreements within traders: If a trader is a monopolist and enters into an agreement with another trader for charging a certain value of money from a certain community it gives rise to price discrimination.

· Geographical aspect: There might be possibilities wherein a certain product is charged quite less at a place but the same product is charged heftily at another place. The prices under such cases change due to various factors like transportation etc.

The Consumer Protection Act, 2019 brings in constructional and methodological reforms to the act of 1986. Further, it minimizes the deficiencies in the previous act. Additionally, it safeguards the customers by exploitation, intensifying the need for consumer law, especially for the regulation of e-commerce sites. So, the basic aim of this Act is to protect the rights of the consumers by initiating authorities to provide expedient and effectual administration.

For a long time now the consumers have been facing the issue of price discrimination. The research paper tried to solve this issue. While dealing with this issue a lot of things were discovered that aren't known to the people a large various rules, provisions and rights that the consumers possessed weren’t much talked upon. There still exists some loopholes which need to be covered which would further help the consumers from getting exploited and bearing suffering. It's important to understand what happens behind the customers, the different ways of price discrimination, the different factors of price discrimination, its preventions, and acts that protect the consumers from so. This research paper has tried to bring in as much in-depth knowledge as possible and thus would enable the reader to know a lot Consumer Protection Act, 2019 (COPRA) along with price discrimination and also talks about another way in which consumers can be protected from the unfair practices by sellers at the time of selling goods.

[1] Adrian R. Camilleri, How companies can make more money by allowing you to “pay as you want” , The Conversation, http://theconversation.com/how-companies-can-make-more-money-by-allowing-you-to-pay-as-you-want-92594 (last visited Oct 31, 2021). [2] Mariya Paliwala, Abuse of dominance: Pricing Practices Under Competition Act , iPleaders (2019), https://blog.ipleaders.in/abuse-of-dominance-pricing-practices/ (last visited Oct 31, 2021). [3] Noida Software Technology Park vs. Star India Pvt. Ltd., 2018 SCC OnLine CCI 65. [4] Shri Shamsher Kataria v. Honda Siel Cars India Ltd & Ors., [2014] CCI 26. [5] M/s Sai Wardha Power Company Ltd vs. M/s Coal India Ltd. [2014] CCI 144.

Sanket Dull

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Posted prices versus bargaining in markets with asymmetric information, do buyers discriminate against female-owned businesses two field experiments ∗, first degree price discrimination goes to school, chapter 10 price discrimination, first degree price discrimination using big data, the economics of open air markets, journal of economic behavior & organization a dynamic model of price discrimination and inventory management at the fulton fish market, chapter eight. fairness as a constraint on profit seeking: entitlements in the market, provided that full credit, including © notice, is given to the source. how elastic are preferences for redistribution evidence from randomized survey experiments, the nature and extent of discrimination in the marketplace: evidence from the field, related papers.

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Platform competition and price discrimination

• Published: 15 July 2022
• Volume 57 , pages 1–21, ( 2022 )

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• Neaketa Chawla   ORCID: orcid.org/0000-0003-2197-5862 1 &
• Debasis Mondal 2  

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We study price discrimination strategy of an Incumbent platform that faces competition from an Entrant. We introduce heterogeneous agents on the consumer side, where buyers assign different values to the interaction benefits generated on a platform. We analyse a dominant firm equilibrium, where the incumbent platform offers two versions of its service to the consumers. The results are compared across two scenarios. The first is when sellers are allowed to multi-home and the second is when they can only join a single platform. We find that in case of multi-homing, the platform cannot charge any consumer group more than the marginal cost of the service provided to them. In the singe-homing case, the strength of indirect network effects determines the side from which platform extracts a positive surplus.

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Seller competition on two-sided platforms

Pricing of Platforms in Two-Sided Markets with Heterogeneous Agents and Limited Market Size

Platform Competition with Intra-Group Externalities

See here an article by Nanette Barnes that was published online in MIT technology Review https://www.technologyreview.com/2016/07/12/158869/how-amazon-loses-on-prime-and-still-wins/ .

See here an article by Rahul Chadha how US households are using Amazon Prime. https://www.emarketer.com/content/nearly-half-of-us-households-are-now-amazon-prime-subscribers .

For all values, where \(\pi _h-t>\pi _l\) , a subsidy of \(\theta\) is not attractive to the high type buyer.

E cannot attract the low type buyer separately as \(\pi _l-\alpha <\dfrac{\pi _h+\pi _l-t}{2}\) , because we assume that \(\pi _h-t>\pi _l\) .

See here an article (published on 04 Dec, 2019) that states that LinkedIn had 62 million members in India in 2019 with over 5 lakh active jobs and a representation of over 5.5 lakh companies. https://www.livemint.com/companies/news/linkedin-sees-20-times-growth-in-10-years-in-india-11575451367145.html .

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Neaketa Chawla

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Debasis Mondal

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1.1 Proof of Proposition 2

We will again consider the best response for E for a given \(P^I\) such that all agents hold favourable beliefs for I and \(N^I=(1,1,1)\) . Once again, E can give small cash subsidy to the sellers to attract them away from I . In addition, it will also have to set \({r_h}^E\) and \({r_l}^E\) such that buyers receive higher utility on E . The maximum profit that E can get will again be given by Eq. ( 7 ).

In this case, it is optimal for I to offer both the premium and the standard service at prices \({r_h}^I=t\) and \({r_l}^I=0\) , respectively. If for instance, I does not offer the premium service such that \(r_h=\emptyset\) , all high type buyers get a utility of \(\alpha n_s-r_l\) on I . Here, E can offer premium services at a cost of t per buyer and set \({r_h}^E\) such that

This means any price set by E for the high type buyers such that \({r_h}^E-{r_l}^E<u_{h(A)}\) would result in higher utility for high type buyers. This would lead to E making positive profits. Therefore, not offering the premium service is not a best response for I .

1.2 8.1 Intermediate cases for the extent of indirect network effects

1.3 case iii: \(\varvec{u_{h(a)}+\alpha >\pi _h}\) & \(\varvec{\alpha <\pi _l}\).

To give a complete picture, we also consider the case, where a high type buyer’s benefit from the participation of sellers is higher than the benefit sellers get from their participation. On the other hand, the low type buyer’s net benefit from the participation of sellers is lower than the value that sellers derive from them. We first discuss the scenario when sellers multi-home following which we present the results when both agents can only join a single platform.

Buyers single-home and sellers multi-home :The optimal strategy for I is laid out in the following proposition.

Proposition 8

When \({u_{h(A)}+\alpha >\pi _h}\) & \({\alpha <\pi _l}\) , there exists a dominant firm equilibrium such that \({P^I}^*=(\pi _h+\pi _l, t, \alpha -\pi _l)\) and \({N^I}^*=(1, 1, 1)\) , where I makes a profit of \(\pi _h-\alpha\) .

Suppose E gives a small cash subsidy to the sellers to guarantee their participation, it cannot attract the buyers, because it will be unable to offer them prices lower than I . On the other hand, lets us say it considers subsidising the buyers to attract sellers. First, E cannot offer an amount of subsidy to high type buyers which it can recoup on the seller side. This is because high type buyers earn a utility that is greater than the benefit sellers derive from their participation net of the costs of offering a premium service. Neither can E attract a low type buyer, because the utility they get from joining I is equal to \(\pi _l\) , the maximum amount of subsidy it can sustain on the seller side.

Both buyers and sellers single-home : The following proposition lays down the optimal strategy for I .

Proposition 9

When \(u_{h(A)}+\alpha >\pi _h\) & \(\alpha <\pi _l\) , there exists a dominant firm equilibrium, where I sets \({P^I}^*\) such that \(w=min\{-\pi _h-\pi _l,\pi _h+\pi _l-u_{h(A)}-2\alpha +t\}\) , \(r_h= u_{h(A)}+\alpha\) and \(r_l=\alpha\) . Here, I captures the whole market and earns profit equal to \(u_{h(A)}+2\alpha +min\{-\pi _h-\pi _l,\pi _h+\pi _l-u_{h(A)}-2\alpha\) }.

The strategy for I is identical to the one specified in Proposition  3 . Even though \(\pi _l>\alpha\) , I will not give a subsidy to the low type buyer, because the incentive compatibility constraint of the high type will be violated. Therefore, I sets its prices so as to extract the entire surplus of both buyers.

Here, any subsidy given by E to attract the the low type buyer will also be taken by the high type buyer, because it gives them positive utility. Therefore, to prevent defection of buyers to E , I guarantees sellers the value they derive from the buyers net of the cost of premium service irrespective of whether buyers participate or not.

1.4 Case IV: \(\varvec{u_{h(A)}+\alpha <\pi _h}\) & \(\varvec{\alpha >\pi _l}\)

Here, sellers value the participation of high type buyers more than the high type buyer value the sellers’ participation. On the other hand low type buyers derive a higher value from the sellers than the sellers get from the participation of low type buyers.

Buyers single-home and sellers multi-home : Let \(\dfrac{\pi _h+\pi _l-t}{2}-u_{h(A)}-\alpha =\phi\) . We derive the equilibrium conditions when \(\phi >0\) .

Proposition 10

When \({u_{h(A)}+\alpha <\pi _h}\) & \(\alpha >\pi _l\) , there exists a dominant firm equilibrium such that \({P^I}^*=(\pi _h+\pi _l,-\phi ,-\phi )\) , where \({N^I}^*=(1,1,1)\) and \({{\Pi }^I}^*=\pi _h +\pi _l-t-\phi\)

I subsidises the high type buyer in such a way that it is not possible for E to offer a higher subsidy. In addition, the low type buyer is offered a subsidy by I even though it generates lower benefits for sellers than what the sellers generate. This is because I cannot sustain a negative price for the high type without offering an equivalent or lower price to the low type buyer. E has two strategies to consider which are, (i) to subsidise the buyers and earn profits from the sellers or (ii) to subsidise the sellers to earn profits from the buyers.

To attract a high type buyer E has to offer it a subsidy greater than \(u_{h(A)}+\alpha +\phi\) and also offer the same amount of subsidy to the low type buyer. This is amount is greater than \(\pi _h+\pi _l\) , the amount it can recover from the sellers. In addition, if E decides to offer a subsidy to the sellers, it cannot attract the buyers with lower prices, because the amount of utility they earn on E will be lower than I . When \(\phi <0\) , the equilibrium conditions are given by the following proposition.

Proposition 11

There exists a dominant firm equilibrium such that \({P^I}^*=(\pi _h+\pi _l, t,0)\) , where \({N^I}^*=(1,1,1)\) and \({{\Pi }^I}^*=\pi _h +\pi _l\) .

The proof follows a similar line of argument as explained in the above proposition.

Both buyers and sellers single home : Proposition 6 and 7 determine the equilibrium conditions for this case. This is because given that the platform offers subsidies to a high type buyer, it will also offer the subsidy to the low type buyer to satisfy their incentive compatibility constraints.

1.5 8.2 Numerical examples

Let us assume specific values for the parameters. These examples provide a better exposition of the results. For our first example, we assume the following values to explain the results given in Proposition 1 .

Given these parameters, suppose I follows a pricing strategy such that \(P^I=(15,20, 10)\) which captures the entire surplus of the agents. Lets assume that all buyers and sellers join the platform. Hence, the utility of all the agents when I sets \(P^I\) would be

The high type buyer receives zero utility by purchasing A at \(r_h\) . On the other hand, a low type buyer consumes the basic version by paying the price \(r_l\) . She does not purchase A , because doing so gives her a negative utility.

What would be a profitable strategy for E here? It can set \(w^E\) slightly less than 0, say \(w^E=-1\) , and offer premium service A at a per buyer cost of \(t=3\) . The sellers will join E irrespective of the buyers’ decision to join, because they can multi-home. They earn a positive utility of one by joining E . E can then charge high type and low type buyers, \({r}^E_h=19\) and \({r}^E_l=9.5\) , respectively. The utility of all the agents, if they join platform E , would be

All the buyers would join E as they get a higher utility than by joining I . This would leave I with zero profits and E would make a profit of

It is easy to check that ICCs of both types of buyers will be satisfied for \(P^E=(-1,19,9.5)\) . Therefore, for a given \({P^I}\) , E needs to charge sellers a negative price, almost equal to zero, and undercut the consumer prices offered by I to enter successfully.

Given E ’s threat of entry, the optimal strategy for I is to set \({P^I}^*=(\pi _h+\pi _l,t,0)=(15,3,0)\) . Here, I is offering A at \({{r_h}^I}^*=3\) and the basic version at \({{r_l}^I}^*=0\) , which is the marginal cost of servicing a high type and a low type buyer, respectively. It subsequently charges the sellers their full surplus and sets \({w^I}^*=15\) . At \({P^I}^*\) , even if E sets \(w^E<0\) , it cannot offer more competitive prices to both types of buyers. This is because I is already charging both the buyers their marginal cost, and offering them lower prices would generate losses for E . Hence, all agents join I and earn the following level of utilities.

It is easy to see that a high type buyer will purchase A , because it gives her a higher utility. On the other hand, a low type buyer would never register for A as it would earn a utility of \(10-3=7\) which is less than 10. Thus, \({P^I}^*\) ensures that incentive compatibility constraints of both types of buyers are satisfied. The profit made by I is

The platform extracts the entire surplus of the sellers. Conversely, it offers premium service A at the marginal cost of servicing a high type buyer. Moreover, it provides its basic service for free.

We assume the same values as we did in Eq. ( 14 ) but consider that both sides single-home. This example corresponds to the results in Proposition 3 .

The optimal pricing strategy for I will be \({P^I}^*=(-12,20, 10)\) , where the incumbent platform offers premium service as well. The utility of all the agents by joining platform I is given by

To attract sellers away from the incumbent platform, the entrant has to offer a subsidy greater than 27 to the seller. This subsidy is greater than what can be recouped on the buyer side (the maximum utility that buyers derive due to the presence of sellers on the platform is 30 and subtracting t from it leaves a surplus of 27). If on the other hand, the entrant tries to attract buyers with a negative subsidy, it will be unable to induce sellers to join, because the utility that sellers will earn because of the presence of buyers on E will be equal to 15, smaller than the subsidy offered by the incumbent platform.

In this case, the platform extracts all the surplus from buyers, i.e., the side that receives higher benefits from the participation of the other side. Unlike in the multi-homing case, it is the sellers that are subsidised as they generate higher value for the buyers than what buyers generate for the sellers. The profit of the platform is equal to

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Chawla, N., Mondal, D. Platform competition and price discrimination. Ind. Econ. Rev. 57 , 1–21 (2022). https://doi.org/10.1007/s41775-022-00138-9

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Published : 15 July 2022

Issue Date : June 2022

DOI : https://doi.org/10.1007/s41775-022-00138-9

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A Case Study in Price Discrimination: Burning Man Car Washes

Priceonomics.

Discrimination is a word that has negative connotations for just about everyone — except economists. For an economist, the notion of “price discrimination” is pretty much pure awesomeness: businesses figure out exactly how much a customer is willing to pay for a product and then tailor that price to extract maximum profit from that customer. 

Price discrimination is fairly common in the real world, where companies sell very similar products for vastly different prices depending on who the customer is. While the “one price for everyone” model, instituted in US retail stores, is most widely used, price discrimination is more prevalent than one might expect: senior citizen discounts, happy hour drinks, Uber surge pricing, business class flights, matinee prices at the movie theaters, wildly different prices for soda, Groupons, coupons, variable pricing for airline tickets, and gas stations prices in remote locations are all common examples.

This week, San Francisco car washes are exhibiting an interesting case study in price discrimination: they’ve jacked up rates for cars covered in Burning Man dust.

A Case Study in Price Discrimination

In order for a business to be able to charge different customers different prices, a number of conditions need to be met . Perhaps most importantly, you need to be able to segment your customers based on their willingness to pay. For example, if a person walks into your store that looks like a tourist, you might sell them an item at twice the price because they look like a rich foreigner. Additionally, there needs to be limited competition. That is, this “tourist” doesn’t know the typical market price for the item of interest, and/or a competitive store isn’t nearby offering to sell them the item at the normal price.

In the case of Burning Man cars, it’s very easy to price discriminate because it’s very simple to tell who just attended the festival and desperately needs their car cleaned. Post-festival, every inch of the inside and outside of a festival goer’s car is typically covered with the desert silt commonly referred to as “playa dust.”

Image Source: Jacob Davies on Flickr .

Not only are Burners very easy to identify — they’re typically very eager to get their vehicles cleaned: many have rented cars and RVs and desperately need them cleaned before meeting rental deadlines and catching flights. Others just want to get the forsaken dust off their cars as quickly as possible, at any cost. And frankly, living in city like San Francisco, where does one even get a hose and water source to wash off a car on your own?

In response to this opportunity, it appears that almost every full-service car wash in San Francisco has conspired to raise its rates (all of the ones we spoke to at least). Divisadero Car Wash charges $60 for Burning Man car, versus $25-30 for a typical one; Apex car wash charges $70 for a Burner’s car versus $30 for a regular one; Tower Car Wash, near the Priceonomics office, has Burning Man car washes that cost $90 to $300 dollars versus a normal wash costing around $25-$35; At Tower, an RV washing that includes the interior ranges from $390 to $580. Just cleaning the exterior for the smallest RV costs $210. 

The Burning Man price list at Tower Car Wash

All these places are very strict about one thing: if there is any trace of Playa dust on your car, you’re paying the Burning Man price. While the above price list from Tower Car wash says at the bottom, “ These are recommendations and not a requirement; any customer may purchase any car wash or detail package, ” the service manager made it clear to us that if there was any dust on the car, you need to get the Burning Man special. 

But Is It The Same Product?

One could argue that this isn’t a case of price discrimination, but instead one of car wash owners simply charging more because it’s a lot harder to clean a car covered in desert dust. Following this logic, the car wash owners aren’t price discriminating, but rather selling a very different product. While this is up for debate, it’s unlikely that it takes two to three times more effort to clean one of these cars. Certainly, hosing down a small RV from the outside isn’t eight times more difficult than a normal full-service car wash.

Here’s a little secret. In 2012, this author went to one of the above car washes with his very dusty post-Burning Man car and convinced them he only needed a “regular” wash (in these simpler times, such cajoling was still possible). Since it was just a regular wash and not the “Burning Man” special, the service manager at the time said that he couldn’t guarantee the car would come out clean. And yet, car came out looking pristine on the inside and out after just the normal car wash. So much for the value add of the special “Burning Man” wash.

So, while it might take a little more effort to clean a Burning Man car than your average dirty car, what’s likely going on here is some enterprising car wash owners practicing a little Econ 101, the introduction to price discrimination.

This post was written by Rohin Dhar. Follow him on  Twitter . To get occasional notifications when we write blog posts,  sign up for our email list .  

Published September 4, 2014 by Priceonomics

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