THE OLA-UBER SAGA CONTINUES

– Jigyasa Patyal[1] and Kumar Shubham[2]

In the chain of information provided by Meru (‘the Informant’) over the radio taxi giant Ola and Uber (‘the OPs’), the Competition Commission of India (‘CCI’) passed its judgement[3] in the matter where Meru brought both the giants in contention over their alleged anti- competitive practices in radio taxi services in the four metropolitan cities of Hyderabad, Mumbai, Kolkata and Chennai.

This is only the continuation of a saga of cases filed against the two companies.[4] In the previous cases the CCI had found no merit in the allegations of abuse of dominance. However, the primary reason for closure of most of the earlier cases filed before the CCI in the radio taxi industry was the competitive constraints posed by Ola and Uber on each other. In the present matter, even though this competitive constraint no longer a relevant factor, the CCI found no weight in the allegations of the Informants. It held that the OPs were not dominant in the relevant market and neither had they undertaken any anti-competitive agreements.

The aim of this article to give a brief of the issues involved in the case and the CCI’s findings and observations on these issues.

I.     Background of the Case

The Informant filed information in four different circumstances against the OPs. The core of the allegations raised in all four informations was similar, but only demarcated by different geographical markets namely Hyderabad, Mumbai, Kolkata and Chennai. They alleged similar contraventions in all the four cases. The informants alleged that the OPs:-

  1. Have entered into a vertical anti-competitive arrangement with the driver partners by offering them the Minimum Business Guarantee Scheme
  2. Are individually as well as collectively dominant in the in the 4 geographical markets and are abusing that dominant position in pursuing anti- competitive practices.
  3. Are part of the same group within the meaning of Section 5 of the Competition Act, 2002 (‘the Act’), and hence subject to section 4 of the Act.

Informants relied on market study reports on the market share of the radio taxi operators in the respective cities in the span of three years to show the market strength of the OPs.

II.     Incentives as Exclusivity Restrictions

Another primary contention of the Informants was the violation of section 3(1) and 3(4) of the Act. The allegation was of the OPs having entered into anti-competitive agreements with their drivers imposing exclusivity restrictions. Here, the Informants argued that the lucrative incentive model of the OPs operated as an ‘agreement’ and essentially locked-in the drivers into one network.

The CCI responded by stating that the interpretation of the word ‘agreement’,[5] as put forth by the informant, was a narrow reading. It stipulated that the existence of an agreement between parties is a pre-requisite for attracting the provisions of Section 3.

Further, the drivers that engage with OPs have a choice to avail the incentive offers of the OPs and both drivers and riders can easily switch between apps. This results in a situation where there are no supply constraints in the market for drivers so as to cause a lock-in and thereby operate as a barrier to entry. Therefore, in the CCI’s opinion the incentives offered by the OPs could not be held to be anti-competitive under the purview of section 3 of the Act.

III.     Delineating the Relevant Market

With respect to the delineation of the relevant market, the Informants had defined it as ‘radio taxi services’. However, the OPs put forth an unreasonable broad market delineation of ‘all modes of public transportation’, as well as private transport. Uber further submitted that the market should also include the ‘market for driving services for three and four wheelers’.

Noting that the facts and circumstances being similar to those made in certain earlier cases,[6] the relevant product market should be that of ‘radio taxi services’.[7] The primary factor for this was the convenience factor which differentiates radio taxi services from other modes of transport. Here the CCI also observed that the commuters who use radio cabs, especially executives, professionals, tourist etc. would not switch to auto-rickshaws or buses under normal circumstances. This results in low substitutability of radio taxi services, hence, differentiating it with other modes of transport.

Radio taxi is a highly localised service as it is not feasible to offer such services beyond a city’s limit. Thus, the relevant geographic market was defined as being confined to the respective cities of Hyderabad, Mumbai, Kolkata and Chennai.

IV.     Individual Dominance

The informants contended that owing to OP’s market share, network strength, existence of entry barriers on the account of huge capital requirement etc., Uber and Ola are individually dominant alternatively in the four described geographical markets.

Answering to the allegation, the CCI said that even if it relied on the data provided by the informants regarding the market share, the fact that the OPs in the respective relevant market hold majority market share won’t be a conclusive evidence of dominance. Therefore, the CCI said that a prima facie case of dominance of the OPs is not made out on this submission.

V.     The Fallacy of Collective Dominance

The informants argued that the definition of dominant position in the Act is very wide and it also covers situation when such a position is being held by two enterprises, able to affect market competition to their advantage. They also pleaded that Section 4 of the Act only uses the phrase “no enterprise shall abuse it dominant position” and if the General Clauses Act is applied for the interpretation of the same (singular terms in an Act would include it plural as well), then “an enterprise” can also be understood to mean more than an enterprise.

To provide with an analogy, the Informants cited the Canadian judgment on the two entities, Visa and MasterCard where both were held to be having the requisite market power in the same relevant market simultaneously.[8]

The OPs on the other hand, argued that the concept of collective dominance is not recognised in the Act and hence, the allegation doesn’t stand in such case at all.

The CCI agreed with the pleadings of the OPs and said that Section 4 of the Competition Act only contemplates dominant position by one enterprise. Citing their earlier decision in a radio taxi matter, the CCI said that the understanding taken by the Informants from Section 27(b) of the Act, which is a penal provision and uses the phrase “persons or enterprises which are parties to such agreements”, is only in context to the parties who have entered into an anti-competitive agreement. It does not contemplate a situation where multiple participants are having dominant position in a relevant market.

VI.     Common Ownership – An Anti-trust Risk?

Alternatively, for assessment under section 4, the Informants also alleged dominance by virtue of the OPs being part of the same group within Section 5 of the Act. This was alleged because Ola and Uber have several common investors, viz. Tiger Global Management LLC, DidiChuxing and SoftBank.[9] Since Ola and Uber hold a combined market share of ninety percent, the position is aggravated because common ownership due to the existence of common investors holding substantial shares in the OPs and the presence of nominee directors on their respective boards.[10]

The OPs countered this contention on the ground that cross-shareholding is not unusual as investors seek to reduce risk by spreading their investment across multiple companies in the same sector. It was also contended that the test for “control” under Explanation (b)(i) to Section 5 of the Act is not met and hence, Uber and Ola are not part of the same group. It was further argued that the investment by SoftBank in Ola and Uber is not covered by the provisions of Section 3 because neither SoftBank competes with Uber or Ola, nor do they provide goods or services at different levels of production or supply chain.

The anti-trust concern that arises from such common ownership is a reduction in incentive to compete due to overlapping ownership interests, compared to a situation in which competing firms are controlled by separate sets of investors. For instance, it may incentivize unilateral price increases, which although unprofitable for a firm, would be beneficial for its investors if they also hold shares in its competitor. Essentially, it facilitates collusion.

In spite of the existence of these anti-trust risks, the CCI refused to further inquire into this contention. The rationale being that the theory of harm, i.e. the existence of such common investors results in reduction of competition, is not applicable as currently there are no precedents of such collusion and also because empirical research has not conclusively proved any competitive risk arising from common ownership. Particularly, the CCI dismissed this allegation as the Informants had not submitted any evidence whatsoever to show collusion.

The CCI very cautiously reasoned that the competition is more intense in double sided markets, such as radio taxis, due to the drive to develop a strong network. Therefore, the CCI refused to act merely because of the existence of potential harm as an investigation under the act is triggered only by prima facie establishment of a contravention of section 3 or section 4.

On the international plane, the European Commission had dealt with this issue in the Dow-DuPont merger.[11] It noted that such common ownership does tend to negatively affect benefits of innovation competition for firms subject to such ownership. However, since the market dynamics of risks arising from common ownership are at a nascent stage, the CCI judiciously balanced the need to protect healthy competition and the need to reduce anti-trust risk.

CCI cautioned that it would actively monitor whether safeguards are in place to ensure that competition is not compromised by the common investments and concluded with a warning that it would not hesitate to take action should any concerns arise from common ownership. By bringing this area under the scanner the CCI has majorly offset any instances of collusion resulting from such common ownership.

[1] 4th year student, B.A. LL.B. (Hons.), National Law University, Jodhpur (Rajasthan)

[2] 4th year student, B.A. LL.B. (Hons.), National Law University, Jodhpur (Rajasthan)

[3] CCI-Case No. 25, 26, 27 & 28 of 2017 Meru Travel Solutions Pvt. Ltd. Vs. M/s ANI Technologies Pvt. Ltd. & Others

[4] For instance see: CCI Order Settles The Prolonged Ola Controversy: An Analysis (https://competitionlawobserver.wordpress.com/2017/09/19/cci-order-settles-the-prolonged-ola-controversy-an-analysis/)

[5] Defined under Section 2(b) of the Act.

[6] CCI-Case No. 6 & 74 of 2015 Fast Track Call Cab Pvt. Ltd. vs. ANI Technologies Pvt. Ltd. and Meru Travel Solutions Pvt. Ltd. vs. ANI Technologies Pvt. Ltd. ( available at: https://www.cci.gov.in/sites/default/files/6%20%26%2074%20of%202015.pdf); CCI-Case No. 81 of 2015 Meru Travel Solutions Private Limited (MTSPL) vs. Uber India Systems Pvt. Ltd. (available at:https://www.cci.gov.in/sites/default/files/812015.pdf?download=1);

CCI-Case No. 82 of 2015 M/s Mega Cabs Pvt. Ltd. Vs. M/s ANI Technologies Pvt. Ltd. (available at:https://www.cci.gov.in/sites/default/files/26%282%29_82%20of%202015_0.pdf?download=1); CCI-Case No. 21 of 2016 Mr. Vilakshan Kumar Yadav & Others Vs M/s ANI Technologies Private Limited (available at: https://www.cci.gov.in/sites/default/files/212016.pdf?download=1)

[7] For Kolkata it was defined as ‘services offered by radio taxis and yellow taxis’.

[8] CT-2010-010 The Commissioner of Competition v. Visa Canada Corporation and MasterCard International Incorporated et al. (available at: http://www.ct-tc.gc.ca/CasesAffaires/CasesDetails-eng.asp?CaseID=333)

[9] Softbank has recently bought 12-20% stake in Uber.

[10] ‘Common ownership’ is described as a situation where large institutional shareholders such as investment funds, foreign wealth funds, pension funds, etc., hold minority stakes in a large number of companies that are active in the same industry and compete with each other.

[11] Case M.7932 Dow/DuPont (27 March 2017) (available at: http://ec.europa.eu/competition/mergers/cases/decisions/m7932_13668_3.pdf)

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