December 01, 2017     

India: Ola cabs and allegations of its abuse of dominant position

 

ola-cabs.jpg

Source: www.olacabs.com

Introduction

Over the past 5-6 years, India has witnessed tremendous growth in the “taxi industry”. One can rightly say that this growth is due to the entry of online transportation companies, in the capacity of aggregators. There are two popular companies under this category. They are –

  1.  Ola, an Indian company, owned by ANI Technologies Pvt. Ltd.

  2.  Uber, a global company headquartered in San Francisco, California, United States, owned by Uber Technologies Inc.

The emergence of these two companies has shaped the taxi/cab industry with never seen before cheap fares and discounts to the customers while offering incentives to the drivers as well. Ola and Uber follow a business model known as the aggregator model, which means that the companies do not own the radio cabs but only acts as an aggregator (platform) that connects the drivers with the prospective consumers.

Due to the mode in which these companies chose to operate their business, as mentioned above, by offering lower fares, discounts to customers and incentives to the drivers, it has come to the attention of companies operating under the asset-owned model, i.e., service providers who own the radio taxis themselves, that their business has taken a deep dive since the operation of Ola and Uber, fearing an ouster from the market.

To bring matter into perspective, let us take reference of a case law in which Ola cab was allegedly accused of abusing its dominant position in the market by way of predatory pricing, for which an order was passed on July 19, 2017, under Section 26 (6) of the Competition Act, 2002 (the Act), which lays down the procedure for inquiry on complaints under section 19 which further talks about inquiry into certain agreements and dominant position of enterprises in the market.

Background of the case

In this case, Fast Track Call Cab Pvt. Ltd. and Meru Travel Solutions Pvt. Ltd. (the ‘Informants’) had filed information, separately, under Section 19(1) (a) of the Competition Act, 2002 (the ‘Act’) against ANI Technologies (the ‘Opposite Party’/‘OP’) alleging contravention of the provisions of Section 4 (2) (a) (ii) of the Act, which talks about abuse of dominant position by imposing unfair or discriminatory price. Since the allegations were similar in both the cases, the Commission decided to club the matters for the purposes of investigation and final disposal.

In the above case, the informants had made an allegation that since entering the market for services of radio taxi in Bengaluru, Ola had abused its dominant position due to its increased share in the market which accounted to more than 50% in the taxi industry. It was the argument of the informants that due to its market share and huge capital, Ola was able to shell out low fares and discounts to the customers while giving attractive incentives to the drivers as well. The informants further stated that they could not afford to apply the same business system which proved to be detrimental for their business.

Findings of the Director General

The Commission thereafter directed the Director General (DG) to take up the matter and submit an investigation report. After thorough observation and due consideration, the DG noticed that Ola’s market share was challenged by Uber rapid and fast growth in the market. It was noted by the DG that in the first six months of 2015-16, while Ola’s share in the market increased marginally by 2% to 3%, Uber’s share increased at a rate of 20% to 22%. As per a recent survey of the market share statistics by Kalagato Pte, the market share of Uber has grown by 50% in the six months to June, 2017, while Ola’s share has grown by 44.2%.[1] The DG opined that for a player to have a dominant position in the relevant market, it should be able to hold its market share for a reasonable period of time. In this case, Ola’s share started declining as Uber entered the relevant market almost three years after Ola’s entry.

Findings of the Commission

After looking into the observations and findings of the DG in detail, the Commission gave an exhaustive observation and finding of its own. The Commission does not fully disagree with the Informants that the low prices of Ola are not because of cost efficiency, but because of the funding it received from private equity funds. Hence, the Commission stated that no evidence could be established to show that such funding was not competitive and inequitable. It was in fact their penetrative pricing strategy that facilitated them to garner high market shares in short span of time.

Therefore, the Commission closed the case stating that the evidence on record did not establish the dominance of Ola in the market and its consequent abuse within the provisions of Section 4 of the Act.

Conclusion

It is abundantly clear from the above case that the Government in today’s world endorses fast growth and high competition in the business industry, not only the taxi industry. This order passed by the Competition Commission of India reaffirms that economic development is at the forefront of the Government’s agenda. The taxi market through the aggregator model in India like the ones followed by Ola and Uber is still at a very nascent stage and demands time to fully develop its pricing strategy as stated by the Commission in its order. But our country has definitely come a long way from the only available option of hailing a black and yellow cab or auto rickshaws on the streets to the luxury of booking a cab through a smartphone. However, it would be wise for the concerned authorities and Government to draw up a course of action and plan for the small and traditional players in the market in order for them to survive and continue to add to the development of the economy as a whole.

 

[1] http://www.financialexpress.com/industry/uber-india-market-share-jumped-to-50-pct-in-january-june-period-ola-at-44-pct/781376/

 

Back To Top

 
  |   |   |   |   |   |   |   |   |   |