The Issue of Exclusive Agreements: Analysing the Bookmyshow Case
[Aditi and Aayush are students at Himachal Pradesh National Law University, Shimla.]
BookMyShow is often the first application that comes to our mind whenever we are booking a movie ticket. It is operated by Big Tree Entertainment Private Limited and is an intermediary that enables the online buying of tickets for movies, plays, concerts, and sports events in India. On 16 June 2022, the Competition Commission of India (CCI) directed the Director General to investigate BookMyShow in the matter of Re: Vijay Gopal v. Big Tree Entertainment Private Limited [Case Number 46 of 2021]. In this lawsuit, BookMyShow is accused of abusing its supposed dominating position in the market and eliminating competitors on many occasions. In particular, CCI considered the Kalagato report, wherein BookMyShow’s share in online booking of movie tickets during January 2017 to March 2017, in terms of booking volume, was 78%. The same year, in January, BookMyShow acquired Hyderabad based online ticketing platform MastiTickets. In February, it acquired a majority stake in Pune based DIY events ticketing and registration platform Townscript. According to one of the charges, BookMyShow has engaged in exclusive arrangements with specific cinemas and theatres, preventing other online ticketing brokers from entering the Indian market and thereby, hindering the competition. This article mainly focuses on the topic of exclusive agreements and its intermittent conflict with India’s antitrust regime.
ARE ALL EXCLUSIVE AGREEMENTS ANTI-COMPETITIVE?
Exclusive agreements are a type of vertical agreements in which one party commits to sell all or a significant portion of its output of a service or product to a certain customer. Section 3(4) of the Competition Act 2002 (Act) explicitly specifies that exclusive supply agreements, exclusive distribution agreements, or a failure to deal agreement would be considered anti-competitive if they are likely to have a significant adverse effect on competition (AAEC) in India. However, the Act does not define the word AAEC. Instead, it relies heavily on the CCI's established precedents and reasoning. CCI must examine a non-exhaustive set of considerations outlined in Section 19(3) of the Act for deciding whether an agreement results in AAEC or not. This includes an assessment of parameters such as hurdles to entry, driving current rivals out of the market, advantages to customers, elimination of competition, improvement in distribution of goods/services, and promotion of scientific, technological, or economic progress. There is no established criteria or reasons for evaluating the AAEC caused by exclusive agreements or for deciding which element should be accorded greater weightage than the others. Accordingly, such determination takes place on a case-to-case basis. The CCI also noted that in the event of any modifications, fresh approval ought to be sought.
All exclusive agreements are not unlawful or anti-competitive per se. If the agreement reflects the potential to significantly harm the competition in India, only then is it regarded as anti-competitive behaviour. Section 3(4) is frequently interpreted in accordance with Section 4 of the Act, which prohibits enterprises from abusing their dominating position. While dominant position is primarily determined by a party's market share (if it exceeds 50%), CCI has repeatedly weighed in, among other factors, the market structure, entry hurdles, and longevity of the agreement for the purposes of evaluating an agreement under Section 3(4) of the Act.
In the case of BookMyShow, it would be difficult for the company to simply ignore the anti-competitive nature of the agreements if the restrictions in the exclusive agreement with theatres have created an entry barrier in the market. The CCI has observed that BookMyShow holds a large market share i.e., at least 90% as compared to its competitors in the market for “online intermediation services for booking movie tickets in India”. However, it is also essential to realise that BookMyShow states that their exclusive partnership with theatres benefits them, as these theatres lack the ability to set up online ticket buying systems, hence enhancing distribution. It asserts that the agreement has a greater number of pro-competitive advantages than anti-competitive disadvantages.
HOW DOES AN EXCLUSIVE AGREEMENT BECOME PRO-COMPETITIVE?
To ensure fair competition in the market, there must be a balance between the anti-competitive and pro-competitive impacts of an exclusive arrangement. A party can justify an exclusive agreement on the grounds that it seeks to resolve the free-rider problem and leads to an increase in the sales or distribution efficiency, which ultimately benefits the end-user. In a paper written by a member of the Chief Economist Team of the European Commission, the author used economic analysis to demonstrate that the pro-competitive effects of an exclusive dealing are highest when the firms are symmetric and on the other hand, are nearly non-existent when one party has greater market power than the other. For instance, if Paytm, a competitor of BookMyShow, is entirely symmetric to it; or in simpler terms, if customers prefer both Paytm and BookMyShow equally; or if theatres are indifferent in dealing exclusively with either of the two companies as long as they charge the same price, then the pro-competitive effect of the exclusive dealing will be evident. However, if BookMyShow has a greater market dominance or negotiation leverage in the same scenario, the benefits may not exist at all.
Generally, the party imposing the limitation in an exclusive agreement argues that the agreement provides efficiency advantages to end-consumers, does not destroy effective or efficient competition in the market, and that exclusivity is a necessary condition for pro-competitive market efficiency. These grounds are also included in the updated and comprehensive Recommendations on Vertical Restraints of the European Commission. Nevertheless, there is no precedent in India for relying on these recommendations in their entirety. India has not yet adopted a similar regulation.
Another criterion is the ‘no economic sense’ test, which argues that a party's behaviour should not be considered anti-competitive until and unless it is making no economic sense, i.e., not leading to monetary profit for the party and eliminating or restricting competition. If BookMyShow successfully provides economic arguments for entering into an exclusive deal in the market, then its actions may become acceptable. However, in its response to allegations, BookMyShow has claimed that it holds not more than 20% of the market share. Yet, what becomes questionable is its inability to support its claims. As per the CCI, BookMyShow has only revealed the total number of tickets sold, but not the actual value of tickets, thereby rendering the data inconsistent for the computation of market share.
The consumer welfare balancing test is another test which seeks to evaluate the merits and demerits of the action in relation to customer welfare. This test is rarely addressed since the party imposing restraints may readily identify consumer benefits resulting from the exclusive dealing; therefore, it cannot be the only determining element.
In order to explain how competition rules are to be construed, it is reasonable to argue that competition agencies and commissions must provide clear reasoning in their rulings. Even if there are several standards, as noted previously, to evaluate improper behaviour in terms of exclusive agreements, Courts often rely on established precedents and avoid deviating from them. In nations such as the United States and Ireland, in cases where no action is taken, the judgments are accompanied with an explanation for the same. Such a strategy, if adopted in India as well, can lead to the refinement of the legislation on the issue and assist CCI in making decisions that are more reasoned and evaluated, thus eliminating any ambiguity regarding the event when an exclusive agreement ceases to be pro-competitive. The analysis presented in no-action instances can assist individuals to comprehend that what may look anti-competitive at the first glance is actually a competition on the basis of merit. If considered by the CCI in its judgements, the European Commission's Guidelines on Vertical Restraints can help streamline decisions regarding Section 3(4) of the Act or decisions regarding exclusive agreements.
Therefore, it is likely that antitrust laws scrutinise exclusive agreements more frequently than other types of agreements. There is a narrow line between the anti-competitiveness and pro-competitiveness of these agreements, which is evaluated on a case-by-case basis. The party imposing the constraint tries its best to stress upon the pro-competitive efficiency and conceal the anti-competitive aspects of the agreement, but it is the responsibility of the CCI to evaluate the situation objectively in order to maintain fair competition in the market.
Since the BookMyShow lawsuit is ongoing, it would be too early to evaluate the nature of the agreement entered into by BookMyShow with cinemas and theatres. Once the report of the Director General is submitted, the matter will become clearer. The ruling in this case can serve as a significant precedent for parties seeking to engage into similar exclusive agreements in a narrow market.