Ahead Of The Ex Post Facto: Analysing the Need for an Ex-ante Model Governing Unfair Pricing in India’s Digital Markets

I. Introduction:

Recently, in Competition Commission of India (“CCI”) v. Schott Glass, the Supreme Court held that merely providing volume-based discounts does not amount to discriminatory pricing under Section 4(2)(a) of the Competition Act, 2002 (“the Act”), unless it leads to differential treatment of two segments of customers. While the case offers valuable insights into the issue of unfair pricing, it does not address the unique manner in which unfair pricing persists in digital markets. In recent times, India’s e-commerce sector has faced increased scrutiny from the CCI due to concerns about deep-discounting and discriminatory pricing. Such issues are not regional but are spread across the globe. To address this issue, countries worldwide are working towards implementing ex-ante regulations to prevent unfair pricing in the digital arena. For better clarity, under the ex-post facto model, a remedy can be availed only once the harm has materialised, whereas the ex-ante mechanism provides for the prevention of harm by imposing certain added obligations on enterprises. While the draft Digital Competition Bill (“DCB”) imposes certain ex-ante obligations on digital enterprises, it does not address the issue of unfair pricing. Amidst such a context, this article analyses the feasibility of implementing ex-ante regulations to govern unfair pricing in India’s digital markets.

II. Exploring Unfair Pricing in a Complex and Dynamic Digital Markets:

In contemporary times, price discrimination and deep discounting have become a troubling issue, potentially disrupting competition in the digital market. Recently, allegations have been levelled against the fast-delivery companies, including Zepto, Swiggy, and Zomato, for engaging in predatory pricing by offering deep discounts on a wide range of commodities. Furthermore, in the present times, CCI is also investigating allegations over Google’s anti-competitive conduct, including unfair pricing and tying in the ad-tech market.

Alongside this, discounts have also registered a steep rise for products such as shoes, apparel, and household products, with companies offering discounts as high as 50-70%. Amidst such a context, concerns have arisen over the validity of this discounting strategy and whether it promotes anti-competitiveness in the market. Recently, companies such as Ola, Uber, etc. have also faced allegations of charging differential prices based on the mobile devices of their customers. This is based on algorithmic pricing, which involves analysing consumer data obtained from sources such as website history, purchasing history, location, device type, etc.

Such instances demonstrate the unique ways in which unfair pricing is prevalent in India’s e-commerce sector. While differing in specific facts, these instances point to the prevalence of deep-discounting, non-transparent, and discriminatory pricing methods utilised by big market players. This also becomes crucial considering the ever-widening digital markets and the rise of AI-driven pricing tools.

III. Exigency of Domain-Specific Ex-ante Model Addressing Unfair Pricing:

The instant judgment, while bringing certainty to the interpretation of unfair pricing, also supplements the implementation of the CCI (Determination of Cost of Production) Regulations, 2025 (“instant regulations”). The instant regulations aim to curb predatory pricing by companies through a case-by-case assessment of costs across sectors. Amidst such a context, domain-specific ex-ante regulations governing the aspect of unfair pricing in digital markets are necessary because,

Firstly, the DCB, despite providing for the designation of entities as Systemically Significant Digital Enterprise (“SSDE”) and implementation of ex-ante obligations, leaves the aspect of unfair pricing unaddressed. Hence, only the ex-post regime under the Competition Act is left to provide a remedy for unfair pricing. However, the fast pace and complexity of digital markets, coupled with rising instances of price-based discrimination and deep-discounting in the digital arena, undermine the ability of ex-post facto mechanisms to provide an efficient remedy. This is because, in the case of time-sensitive pricing or flash sales, especially during the festive season, severe harm can be done to consumers, and small competitors may already be driven out by the time the ex-post enforcement mechanism responds. Furthermore, the significant backlog of cases both before CCI and NCLAT also demonstrates the ineffectiveness of the ex-post facto regime, particularly for fast-paced digital markets.

Secondly, in a digitalised world, unfair and discriminatory pricing involves unique aspects such as personalised pricing, platform pricing bias, opaque pricing, etc. Here, personalised pricing refers to a strategy that tailors prices to individual customers based on their personal data, whereas platform pricing bias involves the use of pricing strategies by digital platforms, which leads to unfair, differentiated, and manipulated prices for different users. Similarly, opaque pricing is equally harmful, as this method hides pertinent information about goods during the sale process. Recently, the Central Government directed the Central Consumer Protection Authority to investigate the claims of personalised pricing practices by cab aggregators, where iPhone users were charged higher than Android users. Furthermore, AI is also creating challenges for fair competition, as noted in Samir Agrawal v. CCI, regarding allegations of algorithmic collusion by ride platforms such as Ola and Uber. Hence, such a unique nature of unfair pricing in the digital arena necessitates the adoption of a domain-specific ex-ante model. Under the proposed approach, digital enterprises must be required to adopt a range of preventive measures, including the mandatory disclosure of key parameters used in algorithmic pricing, ensuring data transparency, maintaining price parity and prohibiting algorithmic collusion.

Thirdly, while personalised pricing practices raise competitive concerns in the market, they also push consumer privacy and confidentiality into an uncertain territory. As algorithmic pricing works on data extracted from consumers’ personal details, it jeopardises consumers’ consent and data privacy. While the Digital Personal Data Protection Act, 2023, provides for broader protection of data consent and privacy, it does not govern the aspect of fairness in algorithmic decision-making. Further, the DCB does not provide any provisions for safeguarding consumer data, especially in instances of algorithmic pricing. This necessitates the enactment of specific ex-ante regulations to protect transparency, data consent, and confidentiality.

Fourthly, in current times, several digital platforms have also utilised exploitative geo-fencing tactics to indulge in unfair pricing practices. Under geo-fencing, digital platforms rely on device location, GPS data, etc., to create geographic contours and characterise users based on their location. This has been utilised by e-commerce platforms to charge higher prices from consumers in semi-urban areas, due to a lack of stiff competition. Hence, specific ex-ante obligations imposing mandatory price parity obligations on the digital enterprises are highly crucial.

IV. Potential Drawbacks of an Ex-ante Framework Governing Unfair Pricing in the Digital Market:

Alongside the need for an ex-ante model, several concerns are associated with this approach, including, firstly, that an ex-ante framework imposes certain behavioural requirements on digital enterprises, which might snowball into an operational barrier if implemented rigidly. As observed by the NCLAT in Meru India Travel Solutions v. CCI, below-cost pricing can have justifications, such as establishing a reliable brand in the market or opening up a latent market, through promotional initiatives like discounts and incentives to attract new customers. Furthermore, CCI in Ashish Ahuja v. Snapdeal.com has observed that the e-commerce market thrives on special discounts and deals. In such a scenario, implementing additional obligations through an ex-ante framework may hinder businesses' ability to adjust pricing and offer discounts in response to changing market needs.

Secondly, an ex-ante framework may lack the flexibility required to adapt to the constantly evolving dynamics of certain industries, thereby inhibiting innovation. For example, the CCI report on big tech companies has recommended the imposition of ex-ante obligations to prevent deep discounting, anti-steering, exclusive tie-ups and bundling. However, these strategies are often more than marketing gimmicks; these are the primary factors propelling user adoption in various industries. While the EU’s Digital Markets Act (“DMA”)provides for the implementation of ex-ante obligations on platforms designated as “gatekeepers”, this has been criticised for overlooking innovation. Hence, there is a possibility that a rigid imposition of ex-ante obligations on digital enterprises may hinder their market operations and innovation adversely.

Thirdly, in HLS Asia Ltd. v. Schlumberger Asia Services Ltd., the CCI observed that no case of predatory pricing can be established without prima facie evidence that the stated price is below cost. However, this cost threshold varies across different markets and must be determined, taking into account the average cost and the market's nature. For instance, the cost benchmark for app-based ride-sharing, which involves surge pricing and dynamic fuel costs, will differ drastically from that of other e-commerce platforms that rely on scale efficiencies and logistics networks. Hence, the implementation of ex-ante obligation will require an extensive analysis of a complex market structure, requiring specialised infrastructure and a skilled workforce. This has also been affirmed by CCI in response to the 25th Standing Committee on Finance Report. However, CCI currently remains understaffed and is not equipped with specialised infrastructure, and there is no policy plan to build the same.

Fourthly, with increased regulatory oversight through an ex-ante framework on the price front, foreign investors and venture capitalists may be disincentivised to invest in Indian businesses. At times, startups utilise instruments such as below-cost pricing and deep discounting, which are often fueled by the investments that come in. However, if the ex-ante framework is imposed in a rigid and restrictive sense, it may hinder market growth, discouraging foreign investments in India’s digital markets.

V. Exploring the Attempts Made in Foreign Jurisdictions:

At this juncture, inspiration can be drawn from the United Kingdom’s Digital Markets, Competition and Consumers Act 2024, (“DMCCA”), which provides for the designation of an enterprise as having Strategic Market Status and imposes ex-ante obligations on them relating to fair trading, fair pricing, transparency, etc. Furthermore, it specifically prohibits drip pricing, thereby obligating businesses to be completely transparent about the total and final price of a product or service in all purchase invitations.

Additionally, the European Union’s proposed Digital Fairness Act aims to address issues related to unfair tactics, dark patterns, dynamic pricing and addictive design, etc., in digital markets. Alongside, while not explicitly providing for an ex-ante regime, the EU’s Geo-Blocking Regulation also prohibits discrimination based on user location or residence. These provisions may serve as a source of inspiration for incorporating similar provisions into India’s potential ex-ante regulation for price-based discrimination.

VI. Conclusion and Way Forward:

To summarise, emerging digital markets and expanding e-commerce pose a range of unique challenges related to unfair pricing. This requires a specific ex-ante regulatory framework in addition to the broader approach prohibiting price discrimination under Section 4(2)(a) of the Competition Act, 2002. However, the downside is the rising concerns about the overregulation through the ex-ante framework. Hence, a balanced approach must be adopted towards implementing ex-ante regulations.

Firstly, the CCI needs to be equipped with skilled human resources and specialised infrastructure to undertake a comprehensive analysis of complex digital markets, prior to implementing the ex-ante model. Secondly, to ensure that such ex-ante obligations do not hinder market growth or pose an operational hurdle for small businesses, they should only be applied to SSDEs. Thirdly, industry-wide consultations at the national and global levels, involving analysis of market dynamics and pricing differences across businesses, must precede the implementation of the ex-ante model. Fourthly, it must be ensured that provisions providing for ex-ante obligations remain specific rather than being overly broad in nature. For instance, loosely worded provisions regarding the designation of SSDEs and certain other obligations have been a significant drawback of DCB. Finally, it is also crucial to draw inspiration from foreign jurisdictions, particularly the United Kingdom’s DMCCA and the EU’s Digital Fairness Act.