Dissecting the Uber-Meru Predatory Pricing Battle

-Madhurima Gadre[1]

Introduction

For almost six months now, Uber and Meru have been at loggerheads in a predatory pricing case filed with the Competition Commission of India.  Last month, the Supreme Court ordered that status quo be maintained on a petition by Meru accusing rival Uber of predatory pricing, effectively staying a probe by the Competition Commission of India into the case.[2] This blog article analyses the proceedings before the Competition Commission (CCI), Appellate Tribunal (COMPAT) and the Supreme Court considering that the outcome of this matter will have important implications on the radio taxi services market in India.

Facts of the case:

  • The Informant (Meru) is engaged in the radio taxi service business in India. Meru started its business in the year 2007 from Mumbai and entered the Delhi-NCR market in 2008. The Opposing Parties (together referred to as Uber Group) entered the Indian radio taxi services market in 2013 and started its operations in Delhi-NCR in December 2013.
  • Meru alleged that owing to its deep pockets, Uber Group engaged in anti-competitive practices proscribed under the Competition Act, 2002 in order to wrongfully gain and strengthen its dominant position in different markets and to eliminate otherwise equally efficient competitors from the market.
  • Precisely put, Uber is offering huge discounts in addition to already reduced tariffs to customers and unreasonably high incentives to drivers to keep them attached to its network. Meru alleges that because of such discounts and incentives, Uber is losing Rs. 204 per trip which does not make any economic sense other than pointing towards Uber’s intent to eliminate competition in the market.[3]

Arguments Advanced by Meru:

  • To substantiate its contention regarding the dominant position held by Uber Group, Meru has relied upon a market research report namely “Delhi-NCR Radio Taxi Service Market Analysis” conducted by New Age TechSci Research Pvt. Ltd. in September, 2015 (TechSci report). The report states that out of total 32645 fleets, Uber has 14,500 fleets, e. 44% in Delhi NCR. Out of total active fleet 13,755, Uber has 6000 active fleet i.e. 44% and out of total 65828 trips per day, Uber has a share of 33000 trips per day i.e. 50%. With this market share, Uber is leading the radio taxi market in Delhi NCR.
  • It is alleged that under its business arrangement, Uber is giving the whole trip amount received from the passengers to the respective taxi drivers along with additional incentives in order to get them attached exclusively with the Uber network. Such loyalty inducing incentive schemes have or are likely to have an exclusionary effect in the relevant market to the detriment of other competitors.
  • As a result of Uber’s anti-competitive practices, Meru’s market share has diminished from 18% in December, 2013 (number of cars) to about 11% as on September, 2015 (number of trips) whereas that of Uber increased from nowhere to a market share of about 50% (number of trips).
  • Thus, Uber is said to have abused its dominant position and violated Sections 4(2)(b)(i) and 4(2)(c) of the Competition Act, 2002 (hereinafter Act) and that Uber has indulged in predatory pricing and violated Section 4(2)(a)(ii) of the Act. Further, Meru also alleged that Uber enters into exclusive contract with taxi owners in violation of Sections 3(1), 3(2) and 3(4) of the Act whereby the taxi drivers are restrained from getting attached on to any other competing radio taxi operators’ network. Therefore, Meru inter alia prayed that the CCI initiates an inquiry into the conduct of Uber Group under Section 26(1) of the Act.

Arguments Advanced by the Opposing Parties (Uber Group):

  • Uber argued that no case under Section 4 of the Act can be made out unless dominance is established. Apart from the data used in the TechSci report, there is no material placed before the CCI to form such prima facie
  • While discrediting the TechSci report, Uber argued that –
  • The TechSci report indicates the date of the data as 30th September, 2015 and the present Information was filed on 9th October, 2015. It is highly inconceivable that within 9-10 days since the report was published, Meru found the same in public domain and has filed the information relying on this report which was allegedly not even commissioned by it.
  • The baseline methodology of the report is open to challenge considering that Uber, which is shown to be having the highest market share on various parameters, was not even interviewed.

This indicates that either Uber was not considered to be a significant player to be interviewed or it was intentionally left out in order to reach such pre-decided results. Uber contended that it can submit the correct data in this regard on Affidavit if granted confidentiality.

  • With regard to the allegations under Section 3, Uber submitted that it is not imposing any exclusivity conditions on the drivers on its network. In response to the Commission’s query regarding the rationale behind giving huge discounts and incentives, Uber stated that it intends to bring the taxi drivers and consumers to a system, to motivate them and to compensate them.

Issue-wise Analysis of the CCI:

  • In response to CCI’s query regarding differences between the TechSci report submitted by Meru vis-a-vis another report prepared by another company 6Wresearch, Meru requested that 6Wresearch report be discarded as it is based on data which is old and does not depict the actual current situation of the market. Meru reasoned that –
  • the market has undergone a significant change post March, 2015, since Uber has dropped its prices in February, 2015 to edge out OLA and all others from March onwards;
  • Uber had suspended its activities in December 2014-January 2015 due to government intervention; therefore, any survey based on the data collected during the said period will not depict the true picture.
  • CCI observed that the glaring differences in the data and results of 6Wresearch report and TechSci report cast a serious doubt on their authenticity and neutrality. The conflicting results indicate that either the data relied upon in the said reports is not accurate or the data has been selectively collected and relied upon to reach some pre-determined results. Therefore, despite Meru’s attempt to discredit the results of the 6Wresearch report, CCI was apprehensive in drawing conclusions with regard to the market share of Uber on the basis of such contradictory research reports.
  • Also, the findings in the 6Wresearch report and TechSci report relate to the market shares for the Delhi-NCR market whereas CCI delineated the relevant geographic market as only Delhi. However, notwithstanding such fact, it seems unlikely that the market shares of the various players on different parameters used in these reports would have changed substantially had these reports been prepared for the radio taxi services market in Delhi alone.
  • In view of Uber’s categorical denial to the imposition of any exclusivity conditions on the taxi drivers on its network and Informant’s failure to adduce any evidence to object such denial, the Commission did not find it necessary to deal with Section 3 of the Act. In a similar case, Meru had dropped this argument of there being any anti-competitive/exclusivity agreements between Uber and its drivers.[4]
  • With regard to the allegations pertaining to Section 4 of the Act e. abuse of dominant position by the Uber Group, CCI held as follows –
  • CCI in its previous orders[5] has considered the relevant product market in such cases to be the market for “radio taxi services” and the same line of reasoning was applied in the present matter.
  • CCI has previously considered the relevant geographic market[6] in such cases and though Meru proposed the geographic market to be Delhi-NCR, CCI opined that the regulatory architecture in Delhi is quite different from that operating in the NCR. Moreover, pursuant to the Delhi High Court’s order in the recent past directing the taxi operators to use CNG vehicles within Delhi makes it apparent that the radio taxis operating in the NCR region may not necessarily be substitutable for those operating in Delhi. This is further corroborated by the fact that the app (e. applications) designed by such aggregators (i.e. Uber, OLA etc.) also specifically distinguish between taxis available for booking within Delhi and those available for booking for commuting from Delhi to NCR. Thus, CCI concluded that the relevant geographic market in the instant case will be “Delhi”. Accordingly, the relevant market in the present case would be market for “radio taxi services in Delhi”.

Decision of the CCI:

CCI concluded that the radio taxi services market in Delhi is competitive in nature and Uber does not appear to be holding a dominant position and therefore, there is no need to go into the examination of Uber’s conduct in such relevant market. No case of contravention was made out against Uber Group under Sections 3 or 4 and the matter was thereby closed under Section 26(2) of the Act.

Appeal in COMPAT:

Considering whether there exists a prima facie case for directing an investigation by the Director General, COMPAT differed with CCI on the following issues:

  • While Meru proposed Delhi NCR as the relevant market, CCI considered Delhi as the relevant market. COMPAT differed with this determination of the CCI reasoning that-
  • Firstly, CCI referred to Delhi High Court’s order on the mandate on the use of CNG in public transport within NCT. But this mandate has been revised by the Supreme Court to cover the entire NCR of Delhi.
  • Secondly, as far as the consumer is concerned, a seamless movement between two points within the NCR is a more pragmatic way of looking at any transport regulation as customers are not affected by such territorial demarcations.
  • Thirdly, according to Motor Vehicle Act, taxis which operate under a tourist agency permit are not constrained to operate within municipal limits and taxis such as Uber and Ola use tourist taxi permits.

Therefore, on all of these counts, restricting relevant geographic market to Delhi NCT was an error. Nevertheless, COMPAT mentioned that it is not determinative on this issue but simply responding to the approach the Commission has adopted in this particular matter.

  • On the issue of contradictory results of the TechSci report and 6Wresearch report, COMPAT differed with CCI on the following counts-
  • Since the two research reports in question showed contrary results, CCI decided to ignore both of them but then in a subsequent paragraph alluded to a combined reading of the two reports which is a wrong approach.
  • COMPAT noted that CCI had in an earlier case of M/s Fast Track Call Cab Private Limited v. M/s ANI Technologies Pvt. Ltd.[7] given credence to a research report prepared by TechSci. Therefore, as per COMPAT the TechSci report in the present matter cannot entirely be ignored. However, note that the TechSci report was not accepted by CCI in M/s Mega Cabs Pvt. Ltd. v. M/s ANI Technologies Pvt. Ltd.[8]
  • The data presented in the TechSci Report was simply denied by Uber but nothing in writing has been presented by Uber to assist the CCI in making an assessment about the size and share of the market. In short, Uber has not controverted the figures factually. It may be noted that Uber had in fact offered to present the correct data if granted confidentiality.

The fact that two reports being referred, which had contrary results to show, could have been reason enough for CCI to order an investigation to reach a decision on a matter which has attained significant interest in the Indian market place.

  • Drawing attention to Explanation (a) to Section 4 which explains that dominant position means a ‘position of strength’, COMPAT observed that this position of strength need not necessarily come out of market share in statistical terms.
  • Decision of the COMPAT:

It cannot be said definitively that there is an abuse inherent in the business practices adopted by Uber but the size of discounts and incentives show that there are either phenomenal efficiency improvements which are replacing existing business models or there could be an anti-competitive stance to it. Whichever is true, it warrants an investigation. It will also help in settling an issue which has agitated business discourse for quite some time. If the Director General is unable to submit report within 60 days and there exists good reasons for seeking extension of time, then he may approach CCI for grant of time to complete the investigation.

  • Conclusion:

The Supreme Court on 27th January, 2017 ordered that status quo be maintained by taxi operator Meru accusing rival Uber of predatory pricing, effectively staying a probe by the Competition Commission of India into the case.[9] After a short hearing, a bench comprising justices Dipak Misra and DY Chandrachud issued notices to Meru Travels Solutions and the CCI, seeking their views on the appeal within four weeks. The case will be heard next on 17th February, 2017.

During the hearing, Uber’s counsel Harish Salve contested the tribunal order on the ground that it could not have ordered the CCI DG to initiate a fresh probe, without a prima facie adverse finding against Uber on misuse of its dominant market position. “The argument was that we are rich and hence dominant. What kind of argument is this,” he asked. On the other hand, Meru’s lawyer, Abhishek Manu Singhvi, said a probe was necessary. At the end of the hearing, the bench directed that status quo be maintained on the probe by the CCI DG, after Salve said that any news about an investigation would make headlines world over.[10]

The outcome of this matter is eagerly awaited since it will have important implications on the radio taxi services market in India.

[1] 4th Year Student, B.B.A. LL.B. (Hons.), National Law University, Jodhpur (Rajasthan, India)

[2] SC Civil Appeal no. 641/2017 < http://courtnic.nic.in/supremecourt/casestatus_new/qrydisp.asp&gt;

[3] CCI Case no. 96/2015 <http://www.cci.gov.in/sites/default/files/26%282%29_96%20of%202015.pdf?download=1&gt;

[4] CCI Case no. 81/2015 <http://www.cci.gov.in/sites/default/files/812015.pdf?download=1&gt;

[5] CCI Case nos. 6/2015 and 74/2015

[6] CCI Case nos. 6/2015, 74/2015 and 81/2015

[7] CCI Case no. 6/2015 <http://www.cci.gov.in/sites/default/files/062015_0.pdf&gt;

[8] CCI Case no. 82/2015 <http://www.cci.gov.in/sites/default/files/26%282%29_82%20of%202015_0.pdf?download=1&gt;

[9] SC Civil Appeal no. 641/2017

[10] Economic Times, Uber pricing: Supreme Court for status quo on CCI probe (28th January, 2017)  <http://economictimes.indiatimes.com/articleshow/56808427.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst&gt;

Disclaimer: This article has been written by a member of Centre for Competition Law and Policy. The article is just an opinion of the Author and no legal consequences follow from the same

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