Sheel Singhal, Ali Abbas Abdi
The author is a student at Maharashtra National Law University, Nagpur
Introduction
The Competition (Amendment) Act, 2023 (Act) has secured unanimous approval in both parliamentary chambers devoid of any substantive deliberation or discourse. This legislative endeavor represents the Parliament's concerted effort to breathe life into the recommendations articulated by the Competition Law Review Committee (Committee) within its comprehensive 2019 report.
A salient facet of the Act is its introduction of transactional value thresholds for the mandatory reporting of combinations. Notably, any combination surpassing a transaction value of INR 2,000 crores shall necessitate formal notification to the Competition Commission of India (CCI). Formerly, such notifications were predicated exclusively on the turnover or asset metrics of the merging entities. The Committee advanced these novel thresholds with the specific aim of encompassing 'killer acquisitions' within the ambit of CCI oversight.
The term 'killer acquisitions' pertains to strategic takeovers aimed at eradicating emerging yet formidable market contenders, a phenomenon predominantly observable among major technology conglomerates. In the digital sector, startups, characterized by their commitment to amassing user bases over profit maximization, have traditionally remained exempt from notification obligations under the extant Competition Act, of 2002. These nascent firms are presented with alluring propositions by market dominators, who are both willing and financially equipped to offer exorbitant sums in order to sustain their market dominance. Such transactions have repeatedly eluded the scrutiny of the CCI.
The Committee's report references illustrative examples, including the acquisitions of Myntra by Flipkart, TaxiforSure by Ola, WhatsApp by Facebook, and Freecharge by Snapdeal, as emblematic instances of these strategic maneuvers It is worth noting that analogous transaction value thresholds have been incorporated into the regulatory frameworks of other jurisdictions, such as the United States, Canada, and Germany. Nonetheless, the implementation of such a paradigm shift within the Indian context necessitates concomitant reconsideration of the CCI's authority to address non-notifiable transactions.
Evaluating Merger Oversight: India's Regulatory Landscape in Comparison to the EU
The Act has adopted certain aspects of the Committee's recommendations by instituting deal value thresholds; however, it has refrained from broadening the CCI’s jurisdiction beyond these stipulated thresholds. The CCI is, regrettably, bereft of the capacity to probe combinations falling below its notification criteria. Consequently, this regulatory limitation has allowed the previously mentioned mergers to escape CCI scrutiny. Even when the CCI perceives a merger as having a potentially detrimental impact on competition, its authority remains constrained unless formal notification of the merger is forthcoming.
In contrast, the European Union (EU) possesses a referral system that permits the European Commission (EC) to evaluate mergers that do not meet prescribed turnover thresholds. An illustrative case is the Facebook/WhatsApp merger, which, though failing to meet the established turnover benchmarks, was subject to review by the EC. The absence of an analogous mechanism within India's statutory antitrust framework places it in a precarious position, where it cannot afford the occurrence of false negatives resulting from rigid threshold requirements.
Thresholds in Antitrust: The Delicate Balance Between Type I and Type II Errors
The imposition of any numerical threshold requirement inevitably results in a degree of both Type I and Type II errors, where some combinations erroneously trigger the notification mandate, while others that should rightfully do so escape detection. No threshold can attain perfection, encompassing exclusively those combinations of anticompetitive nature while excluding others. India confronts the critical imperative of avoiding Type II errors, given that the CCI lacks the capacity for ex-ante intervention in such transactions. Only once a combination has materialized and its anticompetitive ramifications have begun to surface in the market can the CCI take remedial measures. However, at this juncture, irreversible damage may have already been inflicted upon the market.
Enhancing Antitrust Efficacy: Innovative Approaches Beyond Thresholds
In determining the threshold requirement's value, legislators are confronted with a delicate balancing act. If they opt for a high numerical value, they effectively maximize the incidence of false negatives while simultaneously minimizing false positives, and vice versa. The discernible course of action for the CCI appears to involve establishing a threshold so low that it virtually eradicates the possibility of false negatives but, conversely, amplifies the likelihood of false positives. Maintaining a low transaction value threshold places the CCI in the position of conducting Phase 1 investigations on transactions that may not align with the legislative intent, an incongruity with the Act’s objective to streamline the timelines for both Phase 1 and Phase 2 investigations.
The Chicago school of antitrust thought contends that false positives carry a higher societal cost than false negatives, primarily due to the market's inherent self-correcting mechanism. The argument posits that a false negative, while potentially permitting certain firms to amass monopolistic profits, ultimately stimulates market entry, fostering competition and restoring equilibrium over time. Consequently, adhering to an arbitrary threshold thrusts legislators into an unenviable dichotomy where neither option is entirely satisfactory.
One conceivable recourse for the CCI could involve maintaining a high transaction value threshold while endowing the CCI with the authority to scrutinize non-notifiable mergers. This approach offers the potential to mitigate the incidence of both false positives and false negatives. Alternatively, the EU has embraced a different approach, eschewing rigid threshold values. Instead, it has introduced the Digital Markets Act (DMA) and the Digital Services Act Regulation, which employ a 'gatekeeper method' to monitor dominant market players.
Empowering the CCI: Lessons from the EU's Gatekeeper Model in Antitrust
The EU has adopted a gatekeeper-centric strategy, wherein specific 'gatekeepers' within the market are identified. Objective criteria for designating a firm as a gatekeeper are delineated in Article 3(1) of the DMA, providing a structured framework. While the DMA encompasses a broad spectrum of regulatory domains, its relevance to merger control lies in the introduction of a notification mandate aimed at these gatekeepers. As per this requirement, gatekeepers are obligated to apprise the competition authority of any acquisitions they undertake.
This approach holds promise, particularly in addressing the issue of 'killer acquisitions,' which primarily involve predatory takeover maneuvers executed by prominent technology corporations. What distinguishes this methodology is the absence of a conventional threshold, thereby obviating the need to make a binary choice between false positives and false negatives. Such a provision could be seamlessly incorporated in concert with, if not as an alternative to, the existing deal value thresholds. To this end, the criteria for categorizing a firm as a gatekeeper should be reasonably accessible, and the ultimate determination should vest with the CCI. The CCI, comprising experts in the field, is deserving of greater discretionary authority, akin to its international counterparts.
Conclusion
The introduction of deal value thresholds, while aligning with international standards observed in advanced jurisdictions, is a positive development. However, the rigid adherence to such a threshold system poses considerable risks to the efficacy of the CCI.
Unlike the EU, the CCI lacks a referral mechanism or any means to evaluate non-notifiable mergers. This limitation essentially leaves lawmakers with a singular option: establishing low thresholds that encompass all potentially anticompetitive combinations within the CCI's purview. Such an approach, although comprehensive, carries the burden of generating a multitude of false positives and exacerbates the regulatory workload borne by the CCI.
The CCI, composed of experts in the field, should not find itself unduly constrained by the thresholds prescribed by the legislature. It is imperative to confer upon the CCI greater discretionary authority, enabling it to exercise its judgment selectively, intervening when necessary and abstaining when not. The assessment of the Appreciable Adverse Effect on Competition (AAEC) is a multifaceted process, with the impact of a merger contingent upon a multitude of factors. These considerations extend beyond singular indicators such as turnover or deal value.
The CCI ought to possess the autonomy to determine which mergers warrant scrutiny, taking into account an amalgam of criteria, including barriers to market entry, existing competitors, market maturity, and other pertinent factors. It is incumbent upon the CCI to liberate itself from the arbitrary constraints on its jurisdiction imposed by the legislative body, ushering in a more effective antitrust regime in India.