25: Competitive Behaviour

The term “competitive” refers to the willingness and eagerness to compete.

From a business perspective, the competition is all about actions taken by organisations and brands to rank better than their competitors in the market. At the same time, maintaining a healthy competitive behaviour helps the businesses to promote fairness, protect customers, ensure economic efficiency, maintain legal & regulatory compliance, protect trust and reputation in the market.

It is crucial for a company to create plans in order to manage and reduce market rivalry while taking into account all social and legal factors that influence monopolistic and anti-competitive practices. Businesses and the government engage in anti-competitive behaviour when they take steps to limit or eliminate competition in a market, such as :

• Manipulation or price fixing
• Bargaining power
• Collusion
• Patent misuse
• Intellectual property

These are viewed as a specific form of anti-competitive practices that affects the market which has an impact on consumers, businesses and economy as a whole.

Example: Market Sharing Cartel is an agreement between two or more competitors to split a market or markets among themselves by agreeing not to compete for one another’s target customers and market. Coca Cola and PepsiCo have also signed cartel contracts to prevent new competitors from entering their market^[1].

When it comes to competitive behaviour among real estate companies, this sector is widely recognised for claims of anti-trust violations. They are recommended to focus on price integrity and transparency, rather than maintaining artificially high prices through cartel activity. Many nations have laws and legal policies to prevent such behaviour. Managing such anti-competitive behaviour practices can help the organisation to prevent regulatory risks.

In India, business competition is governed by the Competition Act, 2002^[2]. The act aims to prevent unhealthy competition and punish businesses that engage in anti-competitive behaviours in the market. The act mainly focuses on:

1. Prohibition of anti-competitive agreements
2. Prohibition of market dominance
3. Regulation of acquisition and mergers of firms

The importance of maintaining a healthy competitive behaviour :

• Healthy competitive approach provides businesses the ability to prevent market competition. Rather than competing in a competitive environment it's easier and cost effective for firms and producers to set prices together, which can help to prevent the establishment of competitive prices.

• Businesses can promote fairness and healthy competition by preventing anti-competitive behaviour in order to ensure that all participants have an equal chance to win based on their merits.

• Securing and protecting intellectual property is essential for an organisation. It gives the right to stop others from manufacturing, selling, copying and importing inventions without the consent of the firm.

• Managing good competitive behaviour and complying with competition law will reduce regulatory risk.

Industry best practices

There have been cases where businesses have participated in anti-competitive practices, affecting customers and competition, despite the fact that the majority of businesses attempt to compete transparently and ethically.
Here are some of businesses practices to ensure healthy competitive behaviour:

Compliance with competitive law:

Companies should ensure that all applicable laws and regulations in their jurisdictions are strictly followed. It must prohibit all forms of anti-competitive conduct such as price fixing & bid-rigging, boycotting any customers or suppliers, limiting productions etc.
Let’s take an example of how Apple, the Tech-Giant uses anti-competitive practices to extort developers. Apple iOS controls 25% of the global smartphone market^[3]. That is around 50% of the market share of the smartphone market in the US^[4]. The apps can be only installed through the App Store. This gives the company enormous power to make a significant impact on how software is developed and used globally. Antitrust investigations are focusing on Apple's excessive 30% tax on developers, which is arguably the most unfavourable enactment of this power. These investigations have taken place in both the United States and the European Union.

Competitive intelligence gathering:

Companies can gather and analyse information regarding the competitor’s product, pricing strategies and other market aspects such as quality, availability of supply, ability to pay and affordability.
Let’s take an example of the pharmaceutical industry, anti-competitive practices in this sector includes- price fixing, abuse of dominance, collusive agreements, and tied selling. The main result of anti-competitive behaviour in the health sector is that services and medicines become more expensive. In order to deal with this there are multiple legal and policy options such as competitive law, patent law and drug price control which can be utilised effectively. It is important for the company to make sure that everything comes under legal boundaries and does not include any illegal behaviour.

Case Study: Reliance Jio

Reliance Jio Infocomm Ltd (RJIL), a subsidiary of Reliance industries Limited, is a telecommunications industry. The company launched its mobile telephony and data services which disrupted the Indian telecom market. The business intended to attract customers by providing high-speed mobile internet at competitive pricing. In India, less than 15% people had access to 4G connectivity as of 2015^[5]. By 2017, Jio intended to provide 4G access to 90% of the Indian population^[6].

By end of September 2016 Jio had successfully achieved 16 million subscribers^[7], as Jio planned to make its destructive pricing strategy an attractive feature. This led to a tariff war, as other competitors in the industry were forced to slash their own tariffs, in order to maintain their market share. Jio’s offer was being considered as an anti-competitive and unfair practice by other telecom companies. Competitors like Airtel and Idea filed a complaint to the TRAI. Reliance responded to the allegations by stating that the promotional offers are only valid till December 2013. Increasing its subscriber base gave the competitors pricing pressure.

Airtel has presented a case against Reliance before CCI for anti competitive practices by Jio Reliance.

Challenges faced by competitors:

• Huge investment to obtain dominant position in the market
• Providing free services of data, video, call and applications which has caused impact on existing competition
• Extension of introductory offer of Jio as it faced challenge in retaining existing customers as they were attracted by cost-effective plan and improved network coverage

Steps taken by Reliance to address the anti- competitive accusations:

Cooperated with regulatory authorities: Jio has engaged in discussions with TRAI and the CCI by providing necessary information and compiled with the legal requirements

Resolving interconnection disputes: In order to provide smooth connectivity, Jio has taken initiatives to increase interconnection capacity and address congestion issues for users as well as users of other networks

Tariff modification: Jio modified its tariff plans and pricing strategy, also made changes to its offerings to comply with legal standards by ensuring fair competition in market

Therefore, it cannot be argued that Jio has a dominant position in the market given its subscriber base, size, economic power and resources. As a result, its offers are just a nature of promotion.

According to CCI - free service provision cannot be deemed as anti competitive unless it is supported by a dominant firm with an competitive goal of excluding competitors.