CCI imposes 200 Crore penalty on Maruti Suzuki for setting Resale Price Maintenance

CCI imposes 200 Crore penalty on Maruti Suzuki for setting Resale Price Maintenance

In Suo Motu case concerning anti-competitive conduct by Maruti Suzuki India limited (MSIL), the Competition Commission of India held that MSIL not only entered into an agreement with its dealers across India for the imposition of Discount Control Policy, but also monitored the same by appointing 'Mystery Shopping Agencies', thereby committing contravention of Section 3(4)(e) read with Section 3(1) of the Competition Act, 2002. [In Re: Alleged anti-competitive conduct by Maruti Suzuki India Limited in implementing discount control policy vis-à-vis dealers]

A penalty of Rs 200 Crore was imposed upon MSIL, directing it to cease and desist from indulging in Resale Price Maintenance (RPM), as also to deposit the aforementioned amount within a period of 60 days from the order.

Ashok Kumar Gupta (Chairperson), Sangeeta Verma and Bhagwant Singh Bishnoi (Members), while finding MSIL in contravention with provisions of the Competition Act, observed,

"RPM can prevent effective competition both at the intra-brand level as well as at the inter-brand level. When a minimum RPM is imposed by the manufacturer upon the distributors, the distributors are prevented from decreasing the sale prices beyond the imposed limit. In other words, the mechanism does not allow the distributors to compete effectively on price. As such, stifling intra-brand competition results in higher prices for consumers."

Brief Facts

The present matter was taken up Suo motu by the Commission based on an anonymous e-mail dated November 17, 2017 wherein it was alleged that MSIL's sales policy was against the interest of customers as well as the provisions of the Competition Act, 2002.

It was alleged that the dealers of MSIL in the West-2 Region (State of Maharashtra excluding Mumbai and Goa) were denied to give discounts to their customers beyond that prescribed by MSIL in the announced 'consumer offer'- If a dealer was found giving extra discounts, penalty was levied by the MSIL.

This was called the 'Discount Control Policy' of MSIL.

It was further alleged that by rolling out such a mechanism, a cartel was formed by MSIL within the dealership.

MSIL's contention

MSIL submitted that there was no such agreement entered into by the company, except for the principal to principal basis – Dealership Agreement, which allowed dealers to offer lower prices. Further, its powers to levy penalties under the Dealership Agreement were restricted to defined clauses with no power, as such, to penalise for additional discounts – "There is no clause in the Dealership Agreement that allows MSIL to levy a penalty on dealers for providing discounts higher than those prescribed in the Consumer Offers to customers," contended MSIL.

Effect on Consumers

Imposition and enforcement of RPM by a player like MSIL, having a significant market share, thwarts intra-brand competition as well as leads to lowering of inter-brand competition in the passenger vehicles market, the Commission said.

"When a significant player such as MSIL imposes minimum selling price restrictions in the form of maximum discount that can be offered by the dealers, RPM can decrease the pricing pressure on competing manufacturers. This is more so in case of dealers who may be in an interlocking relationship with multiple manufacturers. When all dealers of MSIL are selling vehicles at similar prices, the prices of MSIL vehicle models can be easily comprehended by other players in the market. Being aware of the similar prices of MSIL's dealers due to prevalence of RPM in the passenger vehicle segment, the other OEMs can easily monitor MSIL's prices and also factor it in their pricing strategy, thereby softening competition. As such, it relaxes competitive pressure upon them and they can price their competing models accordingly, which due to the prevalence of RPM, may be priced higher than a competitively determined price. This phenomenon creates an obstruction for consumers to avail the benefit of competition in pricing across different brands as well," the bench added.