The Competition Commission of India (CCI) has introduced robust new regulations aimed at establishing clearer guidelines for production costs. This move is particularly significant for the e-commerce and quick commerce sectors, where unfair pricing strategies and excessive discounts have raised concerns. By reforming the outdated Cost Regulations of 2009, the CCI is taking a proactive stance against predatory pricing practices that have become increasingly prevalent in the digital marketplace.

New Regulations to Combat Unfair Pricing

The recently implemented rules are designed to address loopholes found in previous legislation, leading to a notable decrease in disputes related to production cost determination. Competition law experts have pointed out that these changes will pose challenges for e-commerce platforms attempting to offer steep discounts. As one expert noted, “The mechanisms that allowed for deep discounting are being restricted by the new guidelines, making it tougher for companies to engage in such practices.”

Key Changes in Cost Assessment

One of the most significant alterations is the prohibition of using "market value" as a benchmark for production costs. Stakeholders had previously advocated for this method, arguing it could account for discrepancies in pricing due to factors like cross-subsidization and high fixed costs. However, the CCI maintains that "market value" reflects external variables such as consumer demand and does not accurately represent cost.

• Total Cost Definition: The CCI has refined the definition of “total cost” to include depreciation while excluding financing overheads, ensuring a more consistent measure for production expenses.
• Clarity and Interpretation: As Modhulika Bose, a partner at Chandhiok and Mahajan Advocates and Solicitors, explained, “The revisions enhance clarity and ease of interpretation for stakeholders involved.”

Ongoing Investigations into Pricing Practices

Currently, the CCI is investigating allegations from the All India Consumer Products Distributors Federation (AICPDF) against several quick commerce platforms, including Zepto, Blinkit, BigBasket, and Swiggy, for engaging in deep discounting and monopolistic behaviors.

Some industry players have expressed that assessments of predatory pricing should encompass factors beyond mere cost analysis, emphasizing the potential for recouping losses. However, the CCI countered this argument, stating that recoupment is not a requisite for proving predatory pricing under the existing Competition Act.

Importance of Cost Estimation

Vinod Dhall, a former chairperson of the CCI, highlighted the importance of the commission’s role in estimating production costs, stating, “These new regulations are vital in determining whether a company is operating under predatory pricing.”

In February, the CCI sought public feedback on the draft regulations, which led to adjustments based on input from 14 stakeholders, ensuring that the final rules reflect a comprehensive approach to regulating pricing in the evolving digital economy.

By implementing these stringent measures, the CCI aims to foster a fair marketplace that benefits consumers and promotes healthy competition among companies.