Abusing Dominance – Software Services

Abuse of Dominance

Abuse Of Dominant Power In Software Services Sector


Competition concerns in every market are really defined by the type of market structure and number of players. Every market has potential threats to free and fair competition. Where there is a single firm, there could be exploitation or abuse of Dominant position. And where there are few firms or an Oligopoly, the tendency would be to cartelize by collusively distorting competition by anti-competitive practices. Perfect competition is ideal but unrealistic. Some of the major Complaints _led before CCI throw light on the kind of competitive threats that Dominance & Cartelization pose and the anti-competitive elements involved.

This month, we have discussed dominant behavior complained of against monopolization issues relating to The Big Daddy of search engines ( Google ) and the biggest Social Networking site ( Facebook ). CCI investigation would be based on the impact in the Indian market that is considered to have an adverse effect on competition.

Abuse of Dominant Power

Complaints filed in SOFTWARE SERVICES SECTOR

GOOGLE 

Google Icon

The consumer advocacy group Consumer Unity and Trust Society (CUTS) complained that Google was imposing unfair and discriminatory conditions due to their dominant presence in the market of Search engines. Specific allegations[1] made are –

Abuse of Dominance by:

Creating a search bias which drives its customers to view only such ancillary services as owned and operated by Google and manipulating searches by tweaking with the algorithmic as well as paid search results by penalizing certain Web sites and advertisers. This denied access to content of other search engines / ancillary sites and services operated by it.

Matrimonial site Bharatmatrimony.com — led a complaint against Google accusing the online giant of abusing its dominance in the search-engine market by engaging in unlawful practices relating to its Adwords platform. Google was selling keywords relating to its websites to rival sites such as Shaadi.com, and Jeevansaathi.com. Adwords is Google’s online advertising channel that sells keywords to advertisers and creates online ads on its search screen[2].

The search engine has been facing actions from international regulators on similar counts by authorities including Argentina, South Korea and United State’s Federal Trade Commission – In 2011, NHN Corp and Daum Communications, two of South Korea’s major portal operators had accused Google for hurting fair market competition by compelling phone makers to pre-load only its search engine into their devices when offering its Android operating system. The European Commission Competition Commissioner, Mr Joaquim Almunia says that the four areas of significant concerns, are: ‘preferential treatment’ in the hierarchical presentation of results; doubts in respect of intellectual property rights; restrictions written into advertising contracts, and the ‘portability’ of advertising across different internet platforms[3].

FACEBOOK

CUTS has written to the Competition Commission of India (CCI) regarding Facebook Inc and its newly introduced payment system ‘Facebook Credits’, which could be spent across various games or applications on the popular website. Facebook can potentially engage in anti-competitive and unfair business practices in the market for virtual goods purchased in social games through its Facebook Credit terms in India and therefore its activities in this regard need to be investigated by the CCI [4]CCI is yet to take a view.

Who is said to be dominant? And why?

Dominance does not mean having the biggest market share alone !

Although, the larger the market share the greater would be the market power that a firm can yield, dominance is assessed by competition authorities by analyzing particular market parameters that affect free markets or entry of new players. They collect evidence from market data to analyse the same within those parameters. Accordingly, a framework of economic factors affecting that market is drawn to see whether a firm can be considered as dominant in “relevant product / geographical market” .

Firms that are not dominant are not likely to harm market players / consumers by their conduct.

So, what all factors decide a firm’s dominant presence? And If a firm is not dominant, the same conduct that may constitute an abuse when performed by a dominant firm can be considered pro-competitive?.

From the broad range of factors that can determine whether a firm’s market power substantially affects competition, a greater focus on behavioral aspects in defining dominance has the advantage of including more appropriate parameters. Conversely, a definition of dominance that focuses on market share, not taking into account factors like easy entry or intense rivalry lacks flexible approach. Depending on competitiveness of players, one factor can be for instance new and rapid technological development bringing a new game changer. No doubt, it’s a fact that firms may not be able to exercise sustainable market power despite a high market share.

Thus, a variety of sources should be used in the process of considering demand- side substitution. These sources include:

CONSUMER TASTE – Evidence on characteristics and usage of the products (e.g., consumer surveys, market research, and trade publications).

SIZE OF THE MARKET – Internal documents (e.g., market studies or strategy documents) of the firm or its competitors.

SUBSTITUTES – Patterns in price changes of the products, in particular price changes and switching patterns before the alleged anticompetitive conduct started.

Depending on whether the seller of the product is able to price differently among a segment of consumers, it may be possible to exercise substantial market power with respect to one or more specific customer segments – in terms of keeping prices high or offering rebates, tying in a freebie or any such business behavior[5].

Firm behavior provides the cost at which producers can produce and bring various quantities of the product or service to the market;

While market structure / no. of players provides the basis of determining how individual firms behave. The market dynamics and competition aspects change with the number of players competing – degrees of competition would be different in cases of – a monopoly, duopoly, oligopoly or perfect competition – and how this translates into market supply and market prices.

Thus, in the next issue we will discuss how Market definition plays a crucial role in identifying and defining the boundaries of competition between firms and serves to establish the frame work within which competition policy is applied – to identify those actual competitors of the undertakings involved that are capable of constraining those undertakings behavior and of preventing them from behaving independently of effective competitive pressure.


Contributors:

  • Shreyas Bhushan, a IV year law student at the National University of Advanced Legal Studies, Cochin (NUALS)
  • Swarnmala Singh, Final year law student at Amity Law School, Noida.

Disclaimer:
The information & opinions in this private circulation is not legal advice and should not be treated as such. The information is taken from public domain and is purely for private and non-commercial purposes. We do not assume responsibility of published information that is incorrect, inaccurate and/or incomplete and /or misleading. This disclaimer will be governed by and construed in accordance with laws of India, and any disputes relating to this disclaimer will be subject to the exclusive jurisdiction of the courts of the Republic of India. If you do not accept the Terms and Conditions of the Disclaimer or do not wish to receive this circulation, please revert to us. We claim no rights and ownership of Logos and Trade Marks used in this doc and they are not used for promotion and are only placed for reference.

[1]http://www.thehindubusinessline.com/markets/stock-markets/cci-launches-fresh-probe-on-google/article3621071.ece

[2] http://articles.economictimes.indiatimes.com/2012-08-14/news/33182709_1_adwords-bharatmatrimony-google

[3] Article in Financial, April 17, 2013

[4] http://www.indianexpress.com/news/cuts-wants-cci-to-investigate-against-facebook/826189/

[5] http://www.internationalcompetitionnetwork.org/uploads/library/doc752.pdf


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