A few months ago, computer chip giant Intel was slapped with a record fine of $1.45 billion by the European Commission (EC) in an anti-trust investigation. The verdict followed an eight-year enquiry into Intel's business practice of giving its distributors and computer manufacturers certain rebates and discounts, which was deemed as anti-competition.
The decision has not only dented Intel's bottom line, but its effect is likely to be felt in India too, where the Competition Commission has recently been empowered to probe allegations of anti-competition practices against the dominant firms. Will the commission adopt a similar tough line on rebates and discounts offered by large companies to their distributors, or are we likely to see a more lenient stand?
To most Indian businesses that are used to being regulated by the antiquated Monopolies and Restrictive Trade Practices (MRTP) Act, the answer may seem fairly obvious. To the extent that such discounts are not "restrictive trade practices and genuinely benefit the ultimate consumer, there is no reason why those should not be offered. For consumers, too, discounted prices can only make for better bargains.
Producers, too, benefit from greater sales. However, modern competition law comes in where large manufacturers with a dominant market share may misuse such discounts to corner the market for their product and to eliminate competition, ultimately harming the consumer. This constitutes an "abuse of dominant position and is the reason why Intel's discounts came under fire: the EC found that Intel was using its discount and rebate schemes to eliminate competition from smaller chip manufacturers such as AMD by ensuring that all major computer manufacturers and retailers carried only "Intel inside !
Does this mean that with the enforcement of the Competition Act, Indian industry can expect greater scrutiny from the Competition Commission of the way it uses its discount and rebate schemes? Well yes, industry can expect a shift in regulatory focus from the command and control days of the MRTP to a modern-day competition law that mirrors principles found in similar laws across the globe.
This means that Indian companies which dominate certain market segments may need to re-look at the ways in which their discount schemes are designed to ensure that they do not have an adverse effect on competitive conditions in the market. There is a fine line between using discounts to promote sales and misusing such schemes to keep out competitors. The EC itself clarified that its decision in the Intel case should not be read as limiting a firm's right to offer discounts; instead the case is about the conditions associated with Intel's rebates and payments and not the rebates and payments themselves.
Ultimately, the Competition Commission of India will investigate the facts in each case and decide whether the discount offered by a dominant enterprise is an "unfair or discriminatory price condition by balancing the pro- and anti-competition effects of such a scheme. Consumers will also benefit from this in the long run, since a more competitive marketplace is also one with more choices and better products.
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