Wednesday, 3 February 2016
Meru V Uber: Taxis collide at the CCI
The subject matter of the case is related to the Competition Act, 2002 (hereinafter ‘The Act’). It was established to prevent activities that have an adverse effect on competition in India. This case is filed under Section 19 of The Act which is in contravention of Section 3 and 4 of the Act and deals with the dominant position of an enterprise.
As per the facts of the case the Informant is a company engaged in radio taxi business in India through its fully owned subsidiaries Meru Cab Company Pvt. Ltd., (MCCPL) and V-Link Automotive Services Pvt. Ltd. (hereinafter “V-Link”). The Informant claims to have started offering radio taxi service in Kolkata through its subsidiary V-Link in September 2014 with brand name “Meru Flexi”.
Respondent No. 1 is a company incorporated under the Companies Act, 1956. Respondent is engaged in the provision of radio taxi services under the brand name “Uber”. Respondents entered into the Indian market sometime in the year 2013 and it started its operations in Kolkata in August 2014. The radio taxi services in Kolkata are being offered by Respondent Group through two different categories/ brands, “Uber X” (sedan cars) and “Uber Go” (low range hatch back cars). Respondent no. 1 and 2 are in contract with each other where Respondent No. 1 promotes its business.
Contention of Informant:
The Informant contended that the Respondent no. 1 is merely a face of Respondent no. 2 & 3 in India. They alleged that the Respondent armed with global funding, has adopted anti-competitive business model and unleashed a series of abusive practice that are prohibited within The Act to strengthen its position of dominance in different markets and to eliminate otherwise equally efficient competitors from the market. As per them the average market price of taxis before the introduction of Respondent was 20-22 per km. Respondent introduced themselves at the price of 15 per km. Thereafter informant came in Kolkata with market prize of 20 per km but was forced to reduce themselves at 15 per km and offering incentive to their drivers so as to match with the Respondent group. It is further alleged by the Informant that seeing the growth of them Respondent further reduced the price to unreasonable low rate of 9 per km due to which their market started coming down. The Informant has asserted that Respondent Group holds a dominant position in the relevant product market in Kolkata by virtue of their market share and other factors laid down under section 19(4) of The Act.
Contention of Respondent:
The Respondent group denied the contentions made by the Informant and alleged that in November 2014, OLA launched operations in Kolkata under the brand of “OLA Sedan”. Subsequently, OLA launched its low cost “OLA Mini” services in Kolkata in March 2015. Informant has submitted that its business began to suffer only after February 2015, i.e. March 2015. Therefore, the Informant’s fall in business cannot be attributed to it and in fact seems to be attributable more to the entry of OLA Mini. Further Respondent claimed that its business model is based on efficiencies, with a view to lower costs and pass such benefits to the consumers. Kolkata has already witnessed a drastic increase in the availability of radio taxis and a significant reduction in price. This is precisely consumer welfare that competition law seeks to promote.
Issue for Consideration:
Whether the Respondent can said to have a dominant position in Kolkata under Section 4 of the Competition Act?
The Commission held that, as far as the relevant product market is concerned, the decisive factor for ascertaining the contours of relevant product market is substitutability of the product/service as perceived by the consumer. The basic characteristics, intended end-use, price etc. of different alternatives are some of the factors that help in determining whether the two products are substitutable or not. In this regard, however, it is notable that commuters in Kolkata rely on the yellow taxis for their day to day travelling/transportation requirements owing to their ease in booking, predictability in terms of availability, low pricing etc. Therefore, the Kolkata is a peculiar market in itself. The active presence of yellow taxis and the continuous reliance of commuters on such taxis indicate that yellow taxis provides a viable alternative, in effect posing a significant competitive constraint on the radio taxi operators. Therefore, the relevant product market in the present case would be the market for ‘services offered by radio taxis and yellow taxis’.
Lastly, with regard to the relevant geographic market the Commission also held that, owing to region specific demand by the end consumer and difference in regulatory architecture, each city/ State would constitute a different market in itself. The operations of taxis are restricted to the city/ State limits and they generally do not have the permit to go beyond the boundaries of a city/ State. Moreover, customers desirous of taking a taxi for travel in a city/ State would have to rely upon existing taxi operators in the city/ State. The alternative to opt such services from a company beyond the geographical limit of the city/state would not be feasible for the consumers but also for the company considering the distance, cost factor, etc. Moreover, since transport is a state subject under the Indian constitution, the taxi services market is largely regulated by State transport authorities making the conditions of competition homogenous only within a particular city/ State. Keeping into consideration the foregoing, and having regard to the distinctive conditions of competition in Kolkata, the relevant geographic market in the present case would be “Kolkata”.
Hence, it appears that there exists stiff competition between Uber and OLA with regard to the services they offer in the radio taxi industry in Kolkata. Therefore, even if the relevant market definition proposed by the Informant is accepted, the Respondent Group does not seem to hold a dominant position owing to an even larger share held by one of its competitors.