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CCI takes OLA for a Ride

, September 25, 2015, 0 Comments

cci-ola-let-us-take-ride-marketexpress-inMost scaling businesses now are disruptive technology-based solutions – Be it the taxi aggregators like OLA/Uber or Online marketplaces or retail brands / product aggregators like Flipkart, Amazon, Snapdeal. As these technology companies / market players like OLA, Amazon, Flipkart, Snapdeal raise the stakes – Will this help consumer choice or hamper rivals?

The Competition Commission of India (CCI) needs to understand the market impact of such business solutions, and in that light, consider how to enable and make these future markets work while dealing with the allegations / complaints from competitors.

New technologies or business models can profoundly affect the functioning of any existing industry. The most visible examples are internet-based “sharing services” that are disrupting the conventional taxi and hotel markets, but there are many others in other sectors such as finance, retail, electricity and automobiles.

These disruptive innovations can deliver important benefits to competition and consumers, in terms of new and better services and can stimulate innovation and price competition from established providers. However, they can also give rise to legitimate public policy concerns (e.g. Safety, privacy) and would give rise to the demand for regulating that industry.

Established providers will often lobby for existing regulations to be applied to the new providers to lessen their competitive advantage, sometimes claiming rightly or wrongly, that the heavily discounted / below cost pricing cannot be matched and is bound to drive the competitors out of the market and this advantage arises from an ‘unfair’ conduct due to market power for x, y, z reasons.

The purpose of this insight is to discuss this scenario taking OLA’s case  in view of the recent order passed by the Competition Authority – CCI.

How far should regulation go, what role should competition policy play in these debates, and how might competition authorities participate?

In an April 2015 order, the Competition commission of India (CCI) said OLA cabs holds a dominant position in the market of ‘Radio Taxi services in the city of Bengaluru’.

The CCI was dealing with several allegations raised by Fast Track Call Cabs (Informant), pertaining to restriction on taxi drivers, incentives/ loyalty rebate offers, predatory discounts to customers etc.

The Commission noted that the conduct of OLA Cabs, especially with regard to offering huge discounts to its customers and incentives to the drivers at the cost of bearing huge losses, appears to be a strategy designed to exclude other players out of the relevant market. The CCI went by the Informant’s allegation, stating that because of ‘below cost’ pricing strategy adopted by OLA, it has lost business.

However, CCI’s decision leaves much to be desired, especially on economic considerations of market impact while assessing market power or dominance considering the goal of competition policy is to enable entry of new & innovative future markets. The implication for business can be huge as the fines can be as high as 10% of Turnover, coupled with liabilities on the managers. This can take the thunder away from the company’s magical valuations.

Disruptors in the sharing economy like Airbnb and Uber, for example, do not come up with new technologies so much as their new business models that leverage the Internet and smartphones to match excess capacity with demand.

“ In ride sharing, matches need to be made in real time. Most people heading home late night need a safe ride and they care less about choosing between a nicer car or a more experienced driver.”

About the Ola story, clearly CCI has not understood their Technology based business solution as this is evident from their prima facie view & other orders – which fails to draw a co-relation of predatory strategy and costing methodology of OLA and / or assessment of harm and benefits of such technology markets.

Regulatory issues with technology platforms –

These Technology platforms have been innovated to bring efficient business models compared to the  old taxi service in the market which require regulatory approvals & licensing and yet it is not easily accessible on a transparent pricing basis. Cab booking apps get rid of all such hassles and all the customer has to do is press the app on their smartphone to get into a cab at very affordable rates. Licensing restrictions primarily serve the interests of incumbents by limiting competition. In other words, the new technology solutions are a response to market failures that existed. However, the issues that are still to be dealt with are – unregulated taxi drivers that might take advantage of tourists, operating unsafe cars and refuse to serve certain neighborhoods, or create congestion.

The businesses on Internet platforms grow extremely fast as they are characterized by at least some degree of network effects and scale economies. Technology can alter the way people use a service. Thus, it sounds logical to take a relatively lenient early-stage approach to regulating it.

Nonetheless, these “sharing services” or “peer-to-peer” markets are likely to be an exciting area for at least some time, and hopefully this paper will encourage even more interest among economists and stakeholders to share their perspectives.

Missing points in the CCI’s Order can be a basic checklist for Investigating Cases of Regulation Interfering with Disruption –

A) If dominance is established due to Market Share (based on No. of trips, fleet size & availability of cars) – Why were the statistics of ‘relevant market’ comprising of Competitor’s (like Mega cabs, Uber, Savaari, Meru cabs etc.) i.e other choices were made available to customers – not compared;

B) How does CCI arrive at the ‘below cost’ pricing – without discussing business model – US / EU allows zero costing also to introduce new products which add efficiency in the market and good for customers?

C) Technology solutions do not involve huge cost and entry barriers are low – As long as OLA not holding back others from entering the market – how is it violating the law.

However, CCI cannot determine predation in the absence of strong evidence of predatory intent.

What is the harm caused to customers? 

If OLA’s business model is more efficient and preferable? Then should CII punish them for their popularity as a preferred service, to protect inefficient competitors?

Funding is based on ‘efficient business solutions’ – available to all, based on their skill sets. Similarly, hiring based on incentives – open to all.

Any conduct has to be examined so as to demonstrate actual exclusionary foreclosure or a strong likelihood of it.

In order to assess whether the pricing practices of a dominant player were likely to eliminate a competitor contrary to provisions of Competition Law, it was necessary to adopt a test based on the costs and strategy of the dominant player.

While applying these tests, CCI will not drive away an efficient player and may even find that:

Fee waivers/ rebates/ discounts are justified in terms of market expanding efficiencies – based on objective efficiencies.

Similar Technology based business solutions like Flipkart / Snapdeal were allowed to operate by CCI and cases closed against them in earlier orders – Any basis for a contradictory view of the OLA’s case?.

It seems CCI is yet to make up its mind on how to define such markets. It is all the more important in this situation for the online portals / Technology product companies to keep their house in order – by reviewing their business transactions to assess whether their arrangements adversely harm the effective competition.

In the future, we hope CCI uses its discretion in exercising its authority while it plays its role as a watchdog to protect ‘Competition’ and does not disrupt the disruptors who bring in efficient business solutions.

The Opinion & Views expressed in this article are the author’s own and do not reflect the view of MarketExpress – India’s first Global Analysis & Sharing Platform or the organization(s) that the author represents in his personal capacity.