Ola tries to create a win-win for riders and drivers; no dominant position, predatory pricing: NCLAT

The National Company Law Appellate Tribunal (NCLAT) on Friday held that cab aggregator Ola was not in a dominant position and did not indulge in predatory pricing in contravention of provisions of the Competition Act, 2002 [Meru Travel Solutions v. Competition Commission of India].

. The tribunal upheld an order passed by the Competition Commission of India (CCI) in 2017 dismissing allegations of predatory pricing against Ola filed by two Bengaluru-based taxi operators – Meru Travel Solutions, and Fast Track Call Cab.

. The Bench of Judicial Member Justice Jarat Kumar Jain and Technical Member Dr Alok Srivastava held the following:

Ola employed a technology in a much more effective and enabling fashion to provide services which previous radio taxi operators were not able to;

Merely the size of the fleet does not decide the dominant position of a particular radio taxi service provider;

Ola was itself facing competition from established players such as Meru and Fast Track and later from Uber while it was trying to establish its brand, and it would not be correct to infer that Ola enjoyed a dominant position and was trying push out new competitors by using abusive practices;

Ola's pricing strategy was in response to market conditions, helped by heavy infusion of foreign funding. There was no below-cost pricing by Ola for any sustained period of time which could be labelled as predatory pricing and abuse of its dominant position in the market;

Below cost pricing adopted by Ola from May-June 2014 onwards could be treated as variable cost which was the expenditure that Ola undertook to establish/consolidate its brand in the market and also increase its market share simultaneously.

. Assailing the CCI order, counsel for Meru and Fast Track Cab had made the following arguments before the NCLAT:

The Commission has been swayed by an incorrect understanding of the impact of "disruptive technology” and the business model introduced by Ola. Evidence suggests that since its entry in the market in 2011, Ola did not enjoy rapid growth and it was only after it started putting in a large amount of money as incentives and discounts that it was able to dislodge its competitors;

CCI order also attributes Ola's success to the incorrect assessment of superior technology-driven, platform based model as against asset-based model, which is not correct;

Ola entered into agreements with drivers which were anti-competitive in nature, and therefore violative of Section 3 of the Act;

The rationale of the Commission in not holding Ola to be a dominant entity in the relevant market is also based on the fact that since there are two dominant players in the market instead of just one, there is no violation of Section 4 by Ola;

Huge drivers' incentives and customer discounts led to a surge in Ola's market share upto 75-76%, compelling its competitors like Meru, Mega Cabs, Easy Cabs etc. to also increase their discounts and incentives, leading them to incur heavy losses and getting ultimately marginalized due to their limited financial resources.

Ola is not a technology company because it controls all aspects of the taxi services. Uber has also not been held as a technology platform by multiple authorities and therefore, the same would apply to Ola, and hence, the growth of Ola is not due to its technological edge but because of its predatory, below-cost pricing.

Ola had market share of more than 60% for two years, which is sufficient indication of its dominant position till January 2015, while the presence of Uber in the same market was only from February, 2015 onwards. Moreover, it managed to log over 73% in number of trips from 13.6 lakhs trips in February 2015, to 23.18 lakhs trips in September 2015 despite competition from Uber in this period.

. On the contrary, counsel for Ola contended:

Since the Commission has not found Ola to be in dominant position in the market, there is no need to examine any abuse due to pricing strategy of Ola;

Ola does not hold a dominant position in the relevant market, because the market is evolving and growing rapidly, and competitors like Uber have entered into market in the relevant period. Therefore, the entry barriers are not insurmountable. Both Ola and Uber cannot be considered dominant under the Act;

No evidence was led to show that access to funding was inequitable and the market for financing is not competitive. In fact, the mere fact that some business models are found to be attractive by investors does not imply that the market for financing is inequitable;

The platform-based model of Ola competed with the labour-intensive system of matching taxi drivers with riders through telephones and call centres/websites;

Ola's growth of market share in a short span of time is due to its promotional pricing strategy, which helped it to develop a network to provide sufficient positive externalities to the drivers and riders, who were part of the network;

Pertinently, the market share of Meru was itself in the range of 59-60% in 2012-13 and 50-51% in 2013-14;

Drivers were not exclusively tied to one entity/platform but were free to be on both the Uber and Ola platforms or any other such entity. Thus, drivers were not bound by any agreement of Ola which could be labelled as anti-competitive under Section 3 of the Act.

. On the allegation of predatory pricing, the NCLAT held,

"Therefore, we are of the opinion that the below cost pricing by Ola was not predatory pricing with a view to dislodging any competitor from the market but towards establishing itself as an effective and reliable brand in the market and also opening up a latent market to its advantage through awareness generation about its brand and network/platform through promotional initiatives like discounts and incentives and attracting new customers and gaining riders' confidence."

. With regard to the agreements the cab aggregator had with drivers, the Tribunal noted that the same contained welfare measures for drivers, helping them source credit for buying vehicles.

Ola stands as guarantee for the loans taken by drivers, who are not bound to remain loyal to Ola because of financial lock-in. The incentives provided to drivers are dynamic and not constant in time, and drivers have the option to shift to other competitors depending on their requirement and convenience.

For these reasons, it was held that the agreements between Ola and its drivers were not anti-competitive.

. Summing up, the NCLAT held,

"Ola tries to create a win-win for the riders and drivers, and of course to its enterprise. We do not think this cycle of demand generation and its satisfaction through sufficient supply of drivers through discounts and incentives should be viewed as predatory pricing employed to oust competitors from the market."

. Meru and Fast Track Cab were represented by advocates Sonal Jain, Udayan Jain, Abir Roy, Ishkaran Singh, Kajal Sharma, Riya Dhingra, Vivek Pandey, Raj Surana and Ishaan Chakrabarti.

. Senior Advocate Rajshekhar Rao , assisted by advocates Raghav Kacker and Sonal Sarda, appeared for Ola. Rao was briefed by a team from Trilegal headed by Partner & National Head – Competition Law Nisha Kaur Uberoi , Partner Gautam Chawla, Senior Associate Sakshi Agarwal, and Associates Ishan Arora, Samriddha Gooptu, Madhav Kapoor and Rishi Kauntia.

. Advocates Purnima Singh, Neha Bhardwaj, Shivani Malik and Astha Baderiya represented the CCI.

. [Read order]

Ola tries to create a win-win for riders and drivers; no dominant position, predatory pricing: NCLAT

Aditya AK

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