The practice of selling a product at low prices in order to drive competitors out, discipline them, weaken them for possible mergers, and/or to prevent firms from entering the market.[1] Section 4 Explanation (b) of the Competition Act, 2002 defines ‘predatory price’ as the sale of goods or provision of services at a price below cost with the subject to reduce competition or eliminate competitors.[2] It can be easily understood as a method in which the particular good is priced below the cost incurred for its production. This form of pricing is generally used by the dominant players in the market who know that the other players will not be able to compete with them once the pricing is done in such a manner. The CCI in In Re: Johnson And Johnson Ltd.[3] said that “the essence of predatory pricing is pricing below one’s cost with a view to eliminating a rival.”

In the vast world of electronic commerce the concept of ‘predatory pricing’ has taken up an intangible yet a visible form in the case of Amazon.com.[4] When there was a lot of fight to get a book from a bookshop or get one borrowed from the library, Amazon.com made the electronic copies of these books available to the public online. Instead of purchasing a physical book from a bookshop, or borrowing one from a library, users could now connect directly to Amazon and, within seconds, download an e-book from a vast selection of electronic files.[5] The most attractive part of such a sale was the reduced pricing of the books made by Amazon.com even after repeated warnings made and actions taken by the other competitors. By the year 2012, Amazon.com had successfully got itself established as the monopoly over that particular e-book. Amazon’s predatory tactics created inefficiency in the e-book market by spurring overconsumption of e-books at artificially low prices.[6]

It was Apple Inc.’s decision to introduce iPad as an e-book reader which acted as an initial threat to Amazon.com’s monopoly and its pricing policies. Apple Inc. along with many other aggrieved publishers stood against Amazon.com’s predatory pricing in order to encourage healthy pricing. Consequently, Apple Inc. and other publishers started the Agency model of pricing of the e-books. Under the agency model, “publishers would take control of retail pricing by appointing retailers as ‘agents” so, instead of reselling e-books to consumers at any price they liked—as Amazon had been doing for years—agent retailers like Apple would sell e-book titles at publisher-determined prices.[7] However, it turned out to be a huge disappointment when the U.S. Department of Justice gave their decision in favour of Amazon.com and held that the publishers along with Apple Inc. had illegally conspired against Amazon.

Prior to the Amazon case, the issue of predatory pricing was dealt with in the case of United States v. Microsoft Corp.[8] where Microsoft had priced Internet Explorer below the cost price in order to gain monopoly in the sector of internet browsers and also so as to not allow Netscape (JAVA) to stand at par in competition. While noting the original complaint did not contain the words “predation” or “predatory”, the actual case pursued by the Department of Justice turned out to be “all about predation”.[9] In this case, a Four-Part Test was performed to evaluate the predatory conduct. This test was based upon four elements namely Opportunity, Intent, Conduct and Effect in order to relate the pricing to market power, company’s strategy and competition.[10]

In Indian context, the most recent issue regarding predatory pricing is that of Flipkart’s Big Billion Sale where products were made available at unimaginable discounted prices. In connection with this issue, Mr. Khandelwal, the Secretary General of Confederation of All India Traders (CAIT) said that such practices are tantamount to predatory pricing, which contravenes the Competition Act.[11] It has also been observed that there is a need to lay down specific regulations in order to manage the e-commerce along with the retail business. these low prices of e-retailers is putting severe pressure on brick-and-mortar shops and some companies have decided to suspend supplies to Flipkart till the time they get an undertaking that prices will not be slashed to ‘unrealistic’ levels.[12]

[1] Nate Hoffelder, Loss Leaders, Predatory Pricing, and Why Amazon Isn’t the Defendant Today, available at http://the-digital-reader.com/2013/07/10/loss-leaders-predatory-pricing-and-why-amazon-isnt-the-defendant-today/#.VEEqhWeSyW0

[2] Section 4 of the Competition Act, 2002

[3] (1988) 64 Comp Cas 394

[4] United States v. Apple Inc., 889 F. Supp. 2d 623 (S.D.N.Y. 2012) (No. 12 Civ. 2826)

[5] 22(1) Jared Killeen, Throwing The E-Book at Publishers: What the Apple Case tells us about Antitrust Law, Journal of Law & Policy, 343

[6] 22(1) Jared Killeen, Throwing The E-Book at Publishers: What the Apple Case tells us about Antitrust Law, Journal of Law & Policy, 343

[7] United States v. Apple Inc., 889 F. Supp. 2d 623 (S.D.N.Y. 2012) (No. 12 Civ. 2826)

[8] United States v. Microft Corp., (D.D.C. May 18, 1998) ( No.98-1232).

[9] 9(1) Thomas W. Hazzlett, Microsofts Internet Exploration: Predatory or Competitive?, Cornell Journal of Law & Public Policy, 29 (1999)

[10] 9(1) Thomas W. Hazzlett, Microsofts Internet Exploration: Predatory or Competitive?, Cornell Journal of Law & Public Policy, 29 (1999)

[11] Traders plan legal action against ecommerce players for ‘predatory pricing’, The Economic Times (New Delhi), 10th October 2014, available at http://articles.economictimes.indiatimes.com/2014-10-10/news/54868144_1_cait-predatory-pricing-nirmala-sitharaman

[12] Pankaj Doval, Consumer goods makers log off Flipkart, The Times of India (Mumbai), available at http://epaperbeta.timesofindia.com/Article.aspx?eid=31804&articlexml=Consumer-goods-makers-log-off-Flipkart-08102014021030