Predatory pricing in platform competition: Economic theory and Indian cases

Abstract

Predatory pricing, or pricing below costs in order to drive out one or more rival firms, has a long and convoluted history in both economic theory and antitrust/competition jurisprudence. This already contentious issue has become even more complicated in the context of the new business models, largely based on information and communications technologies (ICT), that come under the rubric of ‘two-sided platforms’. In this chapter, the author first provides a non-technical introduction to the economics of predatory pricing, showing why scholars and competition agencies in the United States and European Union became increasingly sceptical of the feasibility of such a business strategy. The author shows how India’s old Monopolies and Restrictive Trade Practices (MRTP) Act of 1969 remained oblivious of these developments, and how despite several improvements, the poor drafting of the relevant sections of the 2002 Competition Act creates some unnecessary complications. Further, the author provides a non-technical introduction to the economics of platforms, with several examples that are familiar in the Indian context. Implications are derived for the antitrust treatment of predatory pricing. Finally, he discusses how the Competition Commission of India (CCI) has dealt with some of these issues, in recent cases which have involved allegations of predatory pricing against the app-based taxi aggregators Ola and Uber, whose rivalry exemplifies platform competition.