CCI’s New Cost Regulations to Rein in Predatory Pricing

Amid growing allegations that quick commerce platforms are engaging in predatory pricing practices impacting traditional retail and distorting market dynamics, the Competition Commission of India (CCI) has notified the CCI (Determination of Cost of Production) Regulations, 2025, repealing the 2009 Regulations.

Predatory pricing refers to the practice of selling goods or services at a price below the cost, in order to eliminate rivals or reduce competition. When imposed by a dominant enterprise, this constitutes an abuse of dominance under Section 4(2)(a)(ii) of the Competition Act, 2002.

It has been over 15 years since the earlier regulations were introduced. Given the significant evolution in competition law jurisprudence, a review was deemed necessary. The revised regulations have been finalised following public consultation, with stakeholder concerns on the February 2025 draft taken into account.

Here’s an overview of the key changes introduced:

• Total cost now covers depreciation, excludes financing overheads: The definition of ‘total cost’ under Regulation 2(1)(c)(i) has been modified to explicitly include depreciation and to exclude financing overheads, ensuring a more appropriate and consistent measurement of the cost of production.

• Definition of LRAIC modified: The updated definition in Regulation 2(1)(c)(v) now provides greater clarity by specifying that long run average incremental cost (LRAIC) includes all variable and fixed costs, including sunk costs, that are directly or indirectly attributable to the production of a specific product or service. This includes product-specific fixed costs incurred either before or during the period under investigation. Further, the treatment of multi-product enterprises has also been clarified.

• Definition of market value removed, ATC added: As proposed in the February 2025 draft, the definition of ‘market value’[1] under Regulation 2(1)(c)(vi) has been removed. In its place, the concept of ‘average total cost’ (ATC) has been introduced.

As per Regulation 3, the cost for predatory pricing assessments will generally be taken as average variable cost, as a proxy for marginal cost. However, the CCI may consider other relevant cost concepts, such as ATC, average avoidable cost, or LRAIC, depending on the nature of the industry, market, and technology used. Under the earlier framework, relevant cost concepts included LRAIC, avoidable cost, and market value.

These changes are based on the understanding that market value does not constitute a cost benchmark, as it reflects external factors like consumer willingness to pay and perceived value.

• Experts intended to ‘assist’ in cost determination: To avoid ambiguity around the term ‘determining’ in Regulation 4(2), which one of the stakeholders had interpreted as delegating the final cost determination to experts, the provision now expressly clarifies that the experts appointed by the Commission are intended solely to assist in determining the cost.

• Only parties to the proceeding can dispute the cost determined by CCI: Sub-regulations (2) and (3) of Regulation 4 have been reworded to clarify that only a party to the proceedings may dispute the cost determined by the Commission under Regulation 3.

[1] Under the now-repealed 2009 Regulations, ‘market value’ was defined as the consideration which the customer pays or agrees to pay for a product which is sold or provided or can be sold or provided.