The fact that customers in the automobile industry do not engage in whole life costing (taking into account the entire cost of the product including future cost of after sales services) while buying the primary product and that “reputation effects” do not deter the car manufacturers from setting supra competitive prices in the aftermarket further justified the narrow definition adopted by the CCI.
© 2015 Talking Competition. All rights reserved.Disclaimer-The thoughts and opinions mentioned in the present article are those of the Talking Competition Team. The present opinion should not be construed as legal advice. For more information, please contact Anand Sree at [firstname.lastname@example.org] or Danish Khan [email@example.com]. The present article is protected by Copyright Law(s).
[22 Apr 2015] [Anand Sree & Danish Khan]
We continue with the analysis of CCI orders for its outlook on the relevant market in various industry sectors. We look at the relevant market definitions in the motor vehicles sector.
Regarding, the relevant geographic market, the market was deemed to be the territory of India following earlier decisional practice.
NOTE: THIS SERIES SHALL BE UPDATED AS AND WHEN NOTABLE ORDERS ARE PASSED BY THE CCI. KEEP VISITING THIS SPACE TO STAY UPDATED
Broadly speaking, the CCI observed in the above discussed order that a narrow aftermarket definition is possible where:
Normally the CCI adopts a unified “systems market” definition, as the consumers demand the primary and secondary products as a “system” and the competition for the sale of a particular product exists at the point of sale of the primary product to the consumer/customer.
However, the CCI in this case held that where the supplier is able to control the aftersales/secondary market, it may be necessary to define both the primary market and secondary markets separately. The CCI noted that the after sales services provided by each car manufacturer had limited supply-side substitutability primarily due to the technical differences between the various primary products(cars) resulting in the consumers being “locked-in” i.e constrained to avail of the after sales services offered by the manufacturer of the primary product. The CCI further noted that in the event of a price rise in the aftermarket, it is not possible for the consumer to switch to another primary product due to the high switching costs incurred in purchasing the primary product.
In Exclusive Motors Pvt. Ltd v. Automobili Lamborghini S.P.A, the CCI made a distinction between different types of cars in the auto industry. The CCI categorized the car market as consisting of passenger, luxury and super sports car markets. The distinction was applied by the CCI in a subsequent decision, wherein the product market was defined as the "market for luxury cars”.
With regards to geographic market, the CCI initially adopted a broad market definition, holding the geographic market for supply of motor vehicles in India in its prima-facie decision. The reasons for holding the territory of India as the relevant geographic market were not given by the CCI. However, in our opinion, the CCI defined the market on the basis of homogenous conditions for supply of vehicles throughout the country from the perspective of the manufacturer.
Later, the geographic markets were determined to be the focal area (area where the respective dealerships were operating) and surrounding areas, for instance, market for dealerships in region of Surat or around Ludhiana. Such definition is based on the demand-side substitutability from the perspective of consumers (buyers) who arenormally constrained to purchase motor-vehicles from areas within or surrounding their respective cities.
In this case, even though information was sought from car manufacturers with respect to the primary products, a final decision on the primary market was left open since the CCI adopted a narrower aftermarket definition.
The secondary market (aftermarket), was further divided by into:
AFTERMARKETS IN AUTOMOBILE SECTOR
In perhaps the most notable decision in the motor vehicles sector, the CCI imposed a penalty of approximately INR 2,500 Crore on 14 car manufacturers including Maruti, Tata Motors, General Motors and others. In a case filed by an individual, Shri Shamsher Kataria, the CCI found the 14 car manufacturers abusing their respective dominant positions by refusing to provide access to their respective car spare parts and diagnostic tools to consumers and independent service providers. (You can read our critical analysis of the case here.)
However, the conspicuous aspect of this decision is the definition of the relevant market. The CCI in this particular case considered two markets:
In the initial decisions in both the categories, in spite of the clear differences in the conditions of competition for sale of motor vehicles to consumers and for taking motor vehicle dealerships, the market was defined identically by the CCI.
In one of its earliest decisions in the motor vehicle sector, relating to an alleged abuse of dominant position through incorporation of unilateral clauses in the dealership agreement, the CCI defined the relevant product market as the market for manufacturing/marketing of two-wheelers in the capacity of 100 cc to 150 cc, even though the allegations pertained to motor vehicle dealerships. The need to differentiate motor vehicle dealership as a separate relevant market was not felt.
VOLUME III: RELEVANT MARKETS IN AUTOMOBILE SECTOR
The motor vehicles sector is an interesting case study on plotting the evolution of the concept of relevant market in competition law in India. Almost every car and motor-bike manufacturer in India- from Tata Motors, to Maruti and Skoda- has seen cases being filed against it in the Competition Commission of India (CCI). Most recently, the CCI penalised 14 car manufacturers in excess of INR 2500 Crores for abusing their respective dominant position(s) in the aftermarkets of their own cars (discussed here by the Talking Competition team).
The sector has witnessed mainly two categories of Information(s):1- Allegations of exploitative conduct by the dealers against the motor vehicle manufacturers. 2- Allegations of exploitative conduct by consumers against motor vehicle manufacturers.
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However, in its subsequent decisions on allegations of anti-competitive conduct by dealerships against the automobile manufacturers, the relevant market has been defined separately by the CCI, perhaps recognising the fact that conditions for competition for taking dealerships are different from the conditions for competition existing for the purchase of motor vehicles by consumers.
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In simplest terms, “aftermarkets” are defined in cases where the consumer of a durable primary product gets tied to complementary goods and services such as maintenance, upgrades, replacement parts, etc. For instance, a buyer of a Maruti Suzuki Alto car will be locked to the spare parts of Maruti Sukuzi Alto.