Monopsony and antitrust enforcement on the buyer side

The author is Sanidhya Bajpai, a third year student at Dr. Ram Manohar Lohiya National Law University, Lucknow.

Introduction

Monopsony refers to the state where a single buyer is in the market for raw materials or labor. Monopsony, in the labor market, refers to the state where there is a single buyer of the labor in the market. It controls the remuneration and working hours of the laborers, and the laborers are left with no recourse but to accept the exploitative pay and terms. It is traditionally not believed to be an anti-competitive force as the presence of a single buyer means cheaper raw materials, which in turn would mean cheaper products and hence would be beneficial for consumers. However, this approach has seen a shift, and courts in Europe and the U.S.A. have started to recognize monopsony as anti-competitive and have started enforcing antitrust provisions on the buyers’ side to tackle it. Still, despite their efforts, the firms have been enjoying monopsony in the gig work-based economy of the U.S. There is also a discernible presence of monopsony in the Indian online food delivery market, which is enjoyed by the giants Zomato and Swiggy. The Competition Act of India (from herein “the Act”) has enough provisions to enable the Competition Commission of India (Commission from herein) to curb monopsony by enforcing antitrust provisions on the buyers’ side of the market, and this piece will be focussing on the same.

Online Food delivery giants’ Monopsony in the labor market and How it is against The Act

In the modern world, the presence of a single firm with complete buying power is not an often occurrence. However, several firms worldwide can operate as monopsonists and exert their powers over the labor force. The online food delivery giants enjoy monopsony in the delivery market as the presence of mainly two big delivery platforms in the market puts the delivery partners in a detrimental position as they are left with no option but to accept the exploitive pay and working conditions.

It is generally accepted that monopsony is not against competition as it takes place on the buyer’s side, and the reduced production cost by way of cost-cutting in remuneration to the labor force enables the firm to pass on these benefits to the consumer by way of reduced prices Though prima facie it may look like that monopsony is beneficial, the reduced wages of the laborers negatively impact their buying and saving powers and is deleterious for the economy in the long run if left running amok. The Competition Act was brought in to protect the interests of consumers and for matters connected in addition to that or incidental to it, among other things, and the detrimental position which the monopsony puts the Indian economy comes under the objectives with which the competition act was passed to tackle with.

Tackling monopsony with antitrust provisions and its enforcement on the buyer’s side

The Commission, while giving orders for investigation in National Restaurant Association of India v. Zomato India Ltd., stated that Zomato and Swiggy (platforms from herein) both operate as major intermediary platforms in the online food delivery space, underscoring their market power and ability to adversely as well as appreciably affect the level playing field. The prima facie findings of the commission suggest that these platforms hold significant market power.

In the online food delivery market, the share of both Swiggy and Zomato is >40%, giving them a dominant position in the market. These platforms have enough market power to operate independently of competitive forces prevailing in the market and affect its competitors, consumers, or the relevant market in its favor. They are in a dominant position regarding Section 4 of the Competition Act.

The exploitative low-pay strategy of these platforms can be seen to be an abuse of their dominant position under Section 4(a)(1) as they directly impose unfair conditions in the ‘purchase of services.’ Section 2(u) of the Act defines services as “service of any description which is made available to potential users and includes the provision of services in connection with the business of any industrial or commercial matters,” and the job of delivery partners would come under this definition of services.

The monopsony power of these platforms allows them to abuse the market on the buyers’ side and aids them in exploiting delivery partners by offering them low wages. However, this can be very well tackled by enforcing antitrust provisions on the buyer’s side and holding the platforms that indulge in such abuse of dominance liable.

The U.S. Courts have also accepted the enforcement of antitrust provisions on the buyer’s side as a well-sound method to curb monopsony, as can be seen by their decision in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co. While enforcing the predatory bidding provisions on the buyer’s side, the courts said that "the kinship between monopoly and monopsony suggests that similar legal standards should apply to claims of monopolization and claims of monopsonization."

It is discernible that the dominant position is abused on the buyers’ side. The commission should make platforms indulged in such practices liable so that the beleaguered labor force gets a recourse and decent-paying job.

Antitrust law is better equipped to tackle monopsony, and it would ensure pro-competitive behavior in the long run.

There are no minimum wage rules in India that would ensure a healthy wage for the delivery partners, and the proposed social security code for gig workers also does not solve their predicament. The introduction of a minimum wage law will also not solve the problem as their working hours are not fixed and hence they do not qualify as an employee, and also to unionise you need to be an employee first which makes their predicament worse. However, the antitrust provision is equipped to tackle monopsony on the buyer side, and also, it should be the preferred tool as it is well placed to resolve the anticompetitive practice of monopsony without any major amendments and the enforcement of antitrust provisions on the buyers side will ensure a procompetitive market in the long run.

The enforcement of antitrust provisions on the buyers’ side would ensure fair wages for workers and a fair price for raw materials in other relevant markets with monopsony. A buyer with monopsony power has enough impetus to purchase raw materials at lower prices or reduce the number of purchases altogether as it would unequivocally lead to a reduced cost price for them and increased profits.

The complete absence of steps to ensure fair competition on the buyers’ side paints a detrimental picture for the stakeholders involved. It gives an unfair advantage to the sole buyer against the service providers and manufacturers, which is anti-competitive and detrimental to the economy. For the competition to not be muddled by unfair advantages, competition law must be enforced on the buyer’s side to tackle monopsony.

Conclusion

The competition act was enacted with a vision to create a fair environment for competition to thrive, and to interpret it only regarding consumer welfare will be restrictive. Monopsony creates a serious problem for gig workers in the online food delivery market and other sectors. The enforcement of antitrust provisions on the buyer’s side to curb monopsony will have widespread ramifications in ensuring more pro-competitive behavior. The U.S. has already stated that monopsony is just as harmful as other anticompetitive behavior on the supply side and has even gone on to say that legal standards should be applied to monopsony and monopoly, which shows that courts have recognized that monopsony is an anti-competitive practice. The state of monopsony in India’s online food delivery market presents a peculiar situation for law enforcers and a detrimental predicament for delivery partners. However, a sound recourse for it lies in antitrust enforcement on the buyers’ side.