BackgroundAntitrust regulators, including the Competition Commission of India (‘CCI’), typically reserve the ‘special responsibility’ of not distorting competition only for dominant enterprises. Enterprises that do not enjoy market power have little ability to behave independently of market forces and consequently, any exploitative or exclusionary conduct by them is expected to be corrected by market forces. Dominance is tested in a ‘relevant market’, which is in essence the boundary within which a firm competes with other products and firms. This is what makes relevant market delineations perhaps the most crucial determinants that decide the outcome of most behavioral enquiries and merger clearances before CCI. In fact, a predictable relevant market regime directly translates into a greater degree of legal certainty and consequently, a more streamlined competition compliance by the industry.There often exists a special kind of relevant market – usually termed as an ‘aftermarket’ – for  narrow goods or services that are complementary to a product or service, such as unique replacement parts of certain kinds of equipment, post warranty services or consumables specific to some primary product. Although the Competition Act, 2002 (‘Act’) does not provide any guidance on aftermarkets, CCI has analysed aftermarket concerns in many decisions so far – basing its analysis primarily on the United States Supreme Court’s decision in Eastman Kodak Company v. Image Technical Services Inc (‘Kodak’).[1]The most significant decision of CCI on aftermarkets was in Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors[2] (‘Autoparts Decision’), where CCI had found fourteen car manufacturers to be dominant in the aftermarket for their own genuine spare parts and after-sale services, and thereby subjected these narrow ‘aftermarkets’ to Section 4 jurisdiction of the Act. Equally, CCI also rightly rejected existance of aftermarkets in other sectors, such as market for bank loans[3], RO water purifiers[4] etc., after carefuly examining these sectors through settled economic principles. CCI has also rightly refused to interfere with products sold within a retail outlet, finding that ‘...relevant geographical market cannot be confined to the closed market inside the premises of multiplexes.’.[5]CCI’s extensive powers to impose significant penalties and remedies having far-reaching commercial implications make it imperative that it carries out a careful analysis of the existence of aftermarkets. ‘False-positive’ decisions, especially in situations where the competition takes place at the broader level of primary products, could unncessarily regulate narrow complementary markets which may not have been intended to be within the purview of Section 4. In light of this background, we have analysed CCI’s consistency in applying the necessary economic analysis for finding aftermarkets in the healthcare and automobiles sector.The Necessary Economic AnalysisCCI’s aftermarket analyses in most cases have relied on a 1991 decision of the U.S. Supreme Court in Kodak, in which, the U.S. Supreme Court found the customers of Kodak’s photocopying machines to be locked-in with the enterprise once they purchased the machine. In Kodak, on account of high switching cost, the customers could be subject to unlawful tying and monopolization in the aftermarket consisting of Kodak’s own after sales market. While Kodak assumes importance in any aftermarket analysis, an unquestioning reliance on it for defining narrow aftermarkets is in fact detached from the subsequent antitrust decisions in the U.S. itself. Since Kodak, the U.S. Courts have themselves defined aftermarkets primarily when there’s clear evidence of a manufacturer changing its policies after locking in their customers. [6]Once CCI defines an aftermarket, it uses it as a framework to review exploitative practices such as fairness of prices and contract conditions, parity of conduct with similarly placed customers and exclusionary practices such as denial of market access etc. That said, the most critical aspect in such an analyis is that the market for a primary product (such as a coffee machine) and that of complementary product (such as coffee capsules) is always economically distinct. Their closeness is largely a factual and economic assessment that’s essential to any aftermarket analysis. For example, will every flat buyer who purchases a flat from a developer be locked in with that developer (as the minority view in a decision involving DLF Limited had suggested[7])? Will every purchaser of an air purifier or a mobile phone be locked in with the enterprise selling these products?The answer to these questions lies in an economic assessment of whether a small but significant increase in price of the complementary product (i.e., the coffee capsules) will make the customer to switch a different primary product (i.e., coffee machine) or dissuade the customer from buying the coffee machine that’s only compatible with the more expensive capsules in the first place. In most of its decisions, CCI[8] has made it clear that for aftermarket analysis, it will take into account the quantum of the initial investment made by the purchaser, the ability of the customer to know how much they will spend on complementary items throughout the lifetime of the product (i.e., ‘whole life costing’ analysis) and the proportion of price of the complementary product to the primary product. To avoid arbitrary outcomes, it’s pertinent to examine these factors in detail before adopting any aftermarket definition. That’s because in most cases, anti-competitive conduct in a complementary market will deter potential buyers from purchasing the primary product from the exploiting manufacturer, or switch to another one with ease. Such practices will also be auto-corrected by potential reputational effects that the enterprise may face in the primary market. Indeed, customers today make purchasing decisions after evaluating extensive information available to them from various sources such as mobile applications, search engines, consumer forums, reviewing websites and so on. Adequate transparency in prices ensures that competition takes place at the combined level – and in such instances – the relevant market consists of a unified systems market comprising both, the primary and the complementary products.CCI’s Aftermarket Analysis in the Healthcare Sector & the Need for Deeper Economic Assessment at the Initiation StageLast month, CCI decided to investigate all hospitals in Delhi, particularly to see if the prices of syringes and other consumables sold to patients within the hospital premises are unfair (‘Hospital Investigation Decision’)[9]. In its preliminary analysis, CCI seems to suggest that regardless of a hospital’s market power in the healthcare market, its in-patients could be ‘locked-in’ within the hospital premises, giving the hospital an ability to behave independently of competitive forces. With this assumption, CCI seemed to suggest that all products made available to admitted patients on an urgent basis that do not involve any high degree of quality issue must be priced ‘fairly’. This preliminary decision raises some important questions that could potentially have far-reaching consequences on how the Act is applied to aftermarkets.Although CCI’s finding in the Hospital Investigation Decision are preliminary in nature, sector-wide orders of CCI like these merit an assessment of threshold questions such as an existence of aftermarkets at the initiation stage in some detail. The Hospital Investigation Decision could have possibly taken a different direction if CCI had instead examined whether patients once admitted into a hospital are really ‘locked in’ in the traditional sense. For instance, the decision ought to have examined factors such as: (i) the extent of information of cost of consumables etc., available to patients at the time of their admission; (ii) number of patients that opt to get admitted on basis of pre-packaged cost structures; (iii) level of simultaneity in customers’ decision making; (iv) proportion that consumables form part of the total cost of treatments etc. These factors would determine if patients are really precluded from making an informed choice at the admission level; and if there are enough information barriers differentiating the primary market from the secondary one. Lack of robust analysis in preliminary findings, and a broad mandate to the Director General (‘DG’) to premise its investigation on existance of aftermarkets also dilutes the DG’s role in carrying out this assessment independently, which may be persuaded to act on the broad market parameters laid down by CCI in its iniation order.CCI’s Aftermarket Analysis in the Automobile Sector & CCI’s Extensive Application of the Autoparts DecisionAnother recent decision of CCI on this subject is one in which CCI has suggested presence of an aftermarket, without analyzing it as such. Last year, CCI imposed a huge penalty on Hyundai India (‘HMIL’)[10] for implementing a ‘Discount Control Mechanism’ on its dealers – which allowed HMIL to prescribe the maximum permissible discount that its distributors could offer to the customers. CCI found this restriction to stifle intra-brand competition and result in higher prices for the consumers.By way of background, Section 3(4) of the Act prohibits ‘resale price maintanence’, i.e., fixation of a minimum price that a distributor could offer to its customers if such a restriction causes an adverse effect on competition (‘AAEC’) in India. CCI’s own decisions clarify that in order for a resale price maintenance to cause an AAEC, the enterprise imposing that restriction must have some market power in a market. Naturally, this market power has to be assessed in relation to a market in which the enterprise competes with substitutible products (which in this case, should have been other car dealerships of all car manufacturers). In Hyundai, however, CCI sought to satisfy this requirement by defining the ‘upstream market’ as the market for all passenger cars, but the ‘downstream market’ as market for dealership and distribution of only Hyundai cars in India. This market definition that only comprised of Hyundai’s dealerships was premised on the assumption that a consumer would  visit  a  ‘Hyundai  dealer  to  test  drive and purchase only a Hyundai car – as new Hyundai cars can only be purchased at a Hyundai showroom’).CCI’s Order in Hyundai does not explain how a customer’s visit to a desired showroom cannot be a factor for adopting a market definition. Potential customers are not ‘locked in’ within a car showroom. They incur no initial investment and face no exit barriers. The dealership would naturally face competition from competing car dealerships as well. CCI’s reliance on its Autoparts Decision to support this market definition also appears to be misplaced. The aftermarket definition of genuine spare parts and after-sale services was primarily based on the level of initial investment made by car owners while purchasing a car, their inability to switch to competing spare part providers etc. [11] As explained above, these factors are not applicable to a new car in a showroom.Notably, the National Company Appellate Tribunal (‘NCLAT’)[12] has very recently set aside Hyundai for defining the relevant market incorrectly. While this is a welcome decision, the NCLAT does not explain the real errors in CCI’s market defintiion in Hyundai, or suggest the appropriate market in which this decision ought to have been analysed.ConclusionAn inconsistent application of the economic tools necessary for finding aftermarkets could lead to opening up of copy-cat complaints, where for example, a dealership network of any one car manufacturer may be said to be dominant within itself. This has the potential of over-regulating sectors where competition may be thriving, something that the Act may not have originally contemplated. While CCI has, in the past, issued cogent and well-reasoned decisions wherein it refused to define aftermarkets within retail outlets, after-sale services of water purifiers etc., clear guidelines from CCI exlaining its enforcement priorities in aftermarkets will assist the industry to strenghthen its competition compliance. As existence of aftermarkets largely depends on sectoral and product-related factors, CCI may also look to international guidance to see how other regulators examine these questions in similar markets.[1] Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992) [2] Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors., Case No. 3 of 2011 [3] Shri Pravahan Mohanty v. HDFC Bank Limited and Card Services Division of the HDFC Bank, Case No. 17 of 2010 [4] Shri Amitabh v. M/s KENT RO Systems, Case No. 100 of 2014 [5] Consumers Guidance Society Informant v. Hindustan Coca Cola Beverages Pvt. Ltd., Case No. UTPE 99/2009 [6] Competition Issues in Aftermarkets - Note from the United States (https://www.ftc.gov/system/files/attachments/us-submissions-oecd-other-international-competition-fora/aftermarkets.pdf) [7] Belaire Owner’s Association v. DLF Limited Haryana Urban Development Authority Department of Town and Country Planning, State of Haryana (View of R. Prasad), Case No. 19 of 2010 [8] Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Others, Case No. 3 of 2011 [9] Vivek Sharma v. Becton Dickinson India(P) Ltd. and Ors., Case No. 77 of 2015 By way of disclosure, AZB & Partners is representing one of the opposite parties in this case. [10] Fix Enterprise Solution India Pvt. Ltd. v. Hyundai Motor India Limited, Case No. 36 & 82 of 2014 [11] Although CCI did not analyse actual customer behavior or preferences, submission of car manufacturers and empirical evidence convinced CCI that automobile customer aren’t able to carry out a sophisticated whole life costing analysis while purchasing a car on account of factors such as frequency of breakdown, degrees of equipment use, future fluctuations of price of spare parts, development of advances features. It also found that reputational concerns in the primary automobile market weren’t sufficient enough to dissuade the OEMs from charging supra-competitive prices in the aftermarket. [12] Hyundai Motors India Ltd. v. Competition Commission of India and Ors., Competition Appeal No. 6 of 2017