Context: The Competition Commission of India (CCI) has notified the CCI (Determination of Cost of Production) Regulations, 2025, by repealing the previous Cost Regulations 2009. The move aims to restrict deep discounting practices and provide clarity in digital market regulation.
Relevance of the Topic: Prelims: Key facts related to Predatory Pricing and Cost Regulations 2025.
Major Highlights:
- CCI introduces stringent rules to curb predatory pricing in e-commerce, removing market value as a benchmark and revising cost definitions.
- CCI has issued new rules to define how it will calculate the cost of a product or service in order to determine if a company is engaging in predatory pricing or not.
What is Predatory Pricing?
- Under Section 4 of the Competition Act, 2002, predatory pricing is defined as the sale of goods or provision of services at a price below the cost of production, with a view to reduce competition or eliminate competitors.
- Competition law prohibits predatory pricing as an abusive conduct by a dominant enterprise.
Cost Regulations 2025
The Cost Regulations 2025 establish a sector-agnostic, cost-based framework that is flexible and adaptable to various industries, including the digital economy.
- New cost definitions: The cost of a product or service is now defined as its Average Variable Cost (AVC). Average variable cost is the total variable cost divided by total output during a particular period. Here, the total variable cost refers to the total cost (including everything that goes into the production of that good or service) minus the fixed cost and fixed overheads attributable to the product.
- No sector-specific metrics: The CCI decided to avoid using sector-specific definitions of cost, and instead has decided to view them on a case-by-case basis, enabling the commission to consider the unique features and evolving dynamics of digital markets when evaluating alleged predatory conduct.
- Market value not accepted as cost benchmark: It was suggested that CCI should consider market price instead of internal costs to judge predatory pricing, especially in industries with unusual pricing models. But as per CCI, the market price is not a true measure of cost, and it will continue using actual production costs for assessment, as this is more accurate and globally accepted.
This reform not only reinforces regulatory fairness but also promotes healthy market competition, benefiting consumers and new entrants alike.