CCI Rejects Complaint Against Kent Reverse Osmosis Systems.

27 May, 2015

On February 26, 2015, CCI rejected a complaint against Kent RO Systems (‘Kent’), wherein it was alleged that Kent was abusing its dominant position in the aftermarkets for spare parts and maintenance of its water purifiers.

 

CCI’s order comes in the aftermath of the order in Shamsher Kataria v. Honda Siel Cars India Ltd., ¹ (‘Auto Parts Case’), wherein CCI imposed penalties upon 14 car manufacturers for abusing their dominant position in the aftermarkets for the supply of spare parts, repair and maintenance services for their respective brands of automobiles.

 

The informant alleged that Kent (with a market share of 35 to 40% in the market for reverse osmosis (‘RO’) water purifiers), was dominant in the market for spare parts and servicing of RO systems belonging to its own brand. It was specifically alleged that access to genuine spare parts of Kent’s RO water purifiers had been limited for independent repairers and other multi-brand service providers. It was further alleged that the spare parts for Kent’s RO water purifiers were priced exorbitantly with no relation to the actual ‘economic value’ of the product. Lastly, it was alleged that Kent was trying to leverage its dominant position in the market for RO water purifiers, in order to protect its market position in the aftermarket for spare parts and servicing. In essence, the issues in the complaint were similar to that raised in the Auto Parts Case, and accordingly significant reliance was placed by the informant on the decision of CCI in the Auto Parts Case.

 

However, CCI distinguished its own decision in the Auto Parts Case on the basis of the following:

 

i. Whereas the Auto Parts Case dealt with practices, which were applicable to the industry at large, in the present case, the alleged abusive conduct related to only one player.

 

ii. Unlike the Auto Parts Case, which dealt with complex products for which consumers were unable to undertake a whole-life costing, there was sufficient information in the public domain in relation to RO water purifiers, allowing customers to ascertain whole-life costs (e.g. information on the rates of annual maintenance contracts and various other annual maintenance plans)

 

iii. In the Auto Parts Case, CCI held that the aftermarkets were not self-correcting and required intervention in relation to excessive pricing, on account of the combined effect of restrictive clauses, lack of inter-operability, high switching costs and near-monopoly status of the parties in the aftermarkets, etc. However, in the present case there was no such case made out of the market not being self-correcting.

 

iv. In the case of RO water purifiers, low switching costs were involved (to the tune of INR 10,000), as opposed to the prohibitive switching costs in the case of passenger vehicles.

 

v. There was no good case for establishing AAEC as the information available in the public domain suggested that the spare parts for RO water purifiers may be purchased online by the customers.

 

vi. While the reason for deviating from a “unified systems market” definition in the Auto Parts Case was (a) consumers not undertaking whole-life costing; and (b) hike in prices despite reputational effects being at play; the facts available did not indicate any factors necessitating a deviation from a “systems market” definition. On the basis of the above, CCI closed the matter at the prima facie stage under Section 26(2) of the Competition Act.

 

End Notes:

 

1 Case No. 03 of 2011