Context:

To promote fair competition, the Competition Commission of India (CCI) has introduced a new framework to decide whether a company’s pricing is predatory. This step follows the CCI’s role under the Competition Act, 2002, which aims to stop unfair business practices, protect consumers, and ensure a level playing field for businesses.

About Predatory Pricing:

Predatory pricing is when a powerful company sells products or services at very low prices—lower than the cost to make them—so that smaller rivals are pushed out of the market. Once competition is reduced, the dominant firm can raise prices later to gain profits.

• The main problem with regulating such behaviour has been the lack of a clear legal definition of what “cost” really means.
•  Under Section 4 of the Competition Act, selling below cost to hurt competition is seen as misuse of market power. But without a clear idea of how to measure cost, it’s been difficult to take strong action.
•  To solve this, the CCI began work in February 2025 to define cost properly. It released a draft for public feedback and has now issued the final notification after considering the suggestions.

Key Provisions of the New Notification:

• Average Variable Cost (AVC) as the Benchmark:
  The cost of a product or service will now be based on its average variable cost. This is calculated by dividing the total variable cost by the total output for a specific period.
• Total Variable Cost includes all the costs that change with production, like raw materials and labour. It does not include fixed costs like rent or overheads.
• Case-by-Case Evaluation:
  The CCI decided not to use different definitions of cost for each sector. Instead, it will judge each case on its own facts using a general approach that applies to all industries.
• Applicability to Digital Markets:
  The CCI recognised that digital businesses often have very different cost patterns. This new framework can adjust to these differences and ensure fairness when checking if companies in the digital space are using unfair pricing tactics.

Implications for Indian Businesses:

• Legal Clarity: Companies now have a better idea of how their pricing will be judged by regulators.
• Regulatory Predictability: Using AVC as a standard makes it easier to apply the law fairly and consistently.
• Digital Sector Accountability: Tech companies and startups with unique cost structures will now be assessed more transparently.
• Prevention of Abuse: This rule helps the CCI act against large companies that try to push out smaller rivals through unfair pricing.

Conclusion:

The CCI’s new rules for calculating cost are a major step toward fair and transparent markets. By clearly defining cost and allowing flexibility, the Cost Regulations 2025 give the Commission more power to stop predatory pricing. In a fast-changing digital economy, this framework helps ensure that rules keep up with the times—supporting healthy competition while stopping market abuse.