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Wednesday, July 08, 2020

The power of market studies in a Covid-19 world

In today's world, where investigations are deferred, market studies could prove to be a cost effective ex-ante competition enforcement mechanism

Updated: June 5, 2020 8:29:33 pm
market studies, consumer surveys, market analytics, companies market checks, indian express opinion The meandering legalism would pose a certain question, whether market studies are a probe or a recommendatory exercise (Illustration by C R Sasikumar)

By Sanjay Pandey

Any company before entering the market, either with new products or investments, does test the water. Such feasibility checks are called market analytics, consumer surveys, or competitiveness analysis. However, exercises similar to this, when discharged by public authorities under statutory powers, are known as compulsory processes. In the context of competition law, many jurisdictions carry out “test the water” applications through market studies, surveys or market inquiries. In the competition law paradigm, market studies involve either compulsory processes or recommendatory or, in some specific cases, it may include both.

The Indian experience with respect to sector/market studies has been very engaging. The Competition Commission of India (CCI), since its inception, considered market research study as its priority. Twenty studies have been commissioned till date, out of which 14 are sector-specific, covering, in general, manufacturing, service, transport, energy, and telecommunications. The remaining studies incorporate conceptual issues in competition economics, law and policy.

The CCI’s latest study report on “e-commerce” has generated significant buzz amongst various stakeholders. In the 17th Lok Sabha, many questions pertaining to e-commerce, its impact on consumers, ethical practices, platforms, losses incurred and its sway on retailers, have been raised.“E-commerce” exemplifies the importance attached to it by the economy and the polity. The meandering legalism would pose a question as to whether market studies are a probe or a recommendatory exercise. It is kosher that statutory bodies, while performing their functions, invoke compulsory processes. However, the possibility of a study being recommendatory is not ruled out.

Amongst the BRICS countries, India has the least intrusive market study framework. Market study in India emanates from the portals of section 49 of the Competition Act, 2002, which elaborates cardinal rules for competition advocacy. As an aspect of advocacy, a market study is purely a fact-finding exercise to develop a clear understanding of a particular sector in the prevailing competitive landscape in India. Such studies may use a combination of desk research, market surveys and analytical methodologies.

A comprehensive market study report would include literature review, studies and data, survey and personal interviews of stakeholders. Expert opinions, data analysis core to the sector, and vertical integration in associated markets also form part of the report. In specific markets, price and profitability analysis, sector concentration analysis could form the basis of the report. If the report discloses competition concerns, then CCI may initiate suo motu investigation drawing upon powers under section 19 of the Act.

In South Africa, the Competition Commission of South Africa (CCSA), uses scoping studies and market inquiries among other tools to do market studies. The scoping studies provide preliminary evidence with respect to potential competition concerns in a market, industry or sector. A scoping study does not constitute an investigation as per the Competition Act, 1998. Market inquiries entail an analysis of the state of competition in a particular market rather than focusing on the conduct of individual firms.

The powers to conduct market inquiries are contained in section 43B of the Competition Act. The market inquiry provisions allow the CCSA to probe markets, even if, there are no outright evidence of anti-competitive practices. The CCSA is required to publish a notice in the government gazette for initiating a market inquiry. On the basis of information obtained during a market inquiry, the commission may also initiate a complaint which may be settled or referred to the competition tribunal without further investigation. On completion of a market inquiry, a report of the same is tabled in the national assembly.

Pursuant to section 49A of the Act, the market inquiry gives the CCSA power to issue summons and to compel persons to appear before the inquiry to provide evidence which has a bearing on the subject matter. From the legal mandate, it appears that market inquiry by the CCSA is stricter and intrusive in comparison to the Indian scenario.

In Russia, market studies are conducted in accordance with the procedure for analysing the state of competition in commodity markets approved by the order of the Federal Antimonopoly Service (FAS) Russia No. 220 of 2010. The FAS Russia (the antitrust authority of the Russian Federation) sends official letters for market studies. Providing information in such cases is mandatory, and administrative liability is imposed for failure to fulfil this obligation. The Russian statute further provides for various types and subjects of market studies. Once studies have commenced, processes are mandatory and compliance is strict.

In Brazil, the CADE (competition authority) carries out market studies as an aspect of its advocacy initiative. Market studies are conceived to analyse and promote a competitive environment in different economic sectors. The CADE uses these studies to support the evidence obtained in investigations. Analyses from these reports are used in establishing market definitions, competitive effects, efficiencies and enforcement of remedies. Such studies are largely recommendatory and non-intrusive, but in suitable cases may lead to the launch of anti-trust investigations.

In jurisdictions such as the US, UK and EU, market studies are serious affairs and involve compulsory processes. However, in other jurisdictions including India, Australia and Canada, market studies are, by and large, recommendatory, and their attempt has been to understand the competition dynamics in the given market or sector and build knowledge. Such study reports dispel information asymmetry, make consumers aware, enrich other regulators and update their technical skills.

The regime of market studies by CCI is very contemporary today. It distinguishes from enforcement functions and lays emphasis on capacity and knowledge creation at the company, consumer and regulator levels. Given today’s scenario of COVID-19 where investigations are deferred, market studies could prove to be a cost-effective ex-ante competition enforcement mechanism in India.

The writer is adviser law and head advocacy division, Competition Commission of India. Views are personal

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