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8. 4.3 F earures of predatory pricing 8.4.3.1 What is it that distinguishes predatory pricing from vigorous competition? Predatory pricing poses a dilemma that has perplexed and intrigued the antitrust community for many years. On the one hand, history and economic theory teach that predatory pricing can be an instrument of abuse, but on the other side, price reductions are the hallmark of competition, and the tangible benefit that consumers most desire from the economic system. The dilemma has been intensified by recent legal and economic developments. The reason is that predatory price cuts are particularly hard to distinguish from vigorous competition. If prices are low enough, they can undermine competition under some circumstances, However, low prices may be a consequence of legitimate competitive behaviour. Furthermore, the semblance between vigorous competition and predation may indeed be a prima--facia enticement to inefficient firms to obtain protection from antitrust agencies from the competition that they are incapable of meeting or indisposed to meet in the market.

8.4.3.3 It is also useful at this stage to have a look at the position' in two major jurisdictions, US and EU to understand the underlying principals invo1ved:- .

a) United States (US): In United States, beginning. with the 1986 Matsushita decision (Matsushita Electric Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 1986) , the Supreme Court has required plaintiffs in "predatory pricing cases to meet stringent conditions to prevail on their claims. The Brooke decision (Brooke Group Ltd. v. Brown & Williamson Tobacco Corp, 509 US.) 209 (1993) established a new framework for predatory pricing analysis. First, a price could not be predatory unless it was below some measure of cost or even "some measure of incremental cost". Second, and most strikingly, predatory pricing required proof of recoupment-----a dangerous probability, or under the Robinson--Patman Act a reasonable prospect, that the" predator can later raise price sufficient to recoup its investment in below cost pricing. As a result, in the United States, predatory pricing cases have become "rarely tried and even more rarely successful,". The Supreme Court's point of view appears to have been motivated by a concern with the chilling (discouraging) effects on price competition that "false positives" in predatory pricing cases would have, combined with a strong scepticism, from both a theoretical and practical point of view, about whether predatory pricing is a rational business strategy. Evidence of below-cost pricing is not alone sufficient to permit an inference of probable recoupment and injury to competition. It must be noted that for the investment in predatory pricing to be rational, the predator must have a reasonable expectation of recovering in the form of later monopoly profits, more than the losses suffered. Thus, recoupment is the ultimate object of an unlawful predatory pricing scheme. It is the means by which a predator profits fiom predation. Without it, predatory pricing produces lower aggregate 'prices in the market, and consumer welfare is enhanced. The recoupment requirement sharply differentiates predatory pricing from other predatory or exclusionary conduct, where the inference of injury to competition is drawn from the exclusionary conduct and market structure.

8.6.2.4 The allegation of unfair / predatory pricing by NSE is at the core of this entire case. In this context, it is important to understand that distinguishing -between predatory pricing and genuine competitive pricing in a network industry is at times a difficult and complex task, because of the superficial similarities in the visible manifestation in terms of pricing behaviour. In both cases, the initial price is low (may even be zero at times) and increases over a period of time. At first glance, therefore, it is easy to mistakenly take the low / zero price in a network industry for predatory pricing. However, the two are fundamentally and structurally different, with different underlying characteristics. In predation, the business strategy is to deliberately incur losses by setting low prices initially to kill competition, and then (once competition is killed) set unj ustifiably high (super-competitive) prices to not only off--set these losses, but to make huge profits to the detriment of the consumers. In a network industry, the initial value of the consumers is low on account of little / low market share of the service-provider, and consumers would not be willing to pay a price determined on cost considerations. A sound business strategy, therefore, first focuses on creating liquidity even at low / zero prices, so that the product has appreciable value for the consumers, and once enough liquidity is achieved corresponding price is charged, thereby leading to off--setting of any earlier losses and making of reasonable profits. In considering allegations of predatory pricing in network markets, therefore, we must fully inquire into the underlying characteristics of the market and undertake requisite (even if complex)'analysis to clearly distinguish predatory pricing from vigorous competition.

In ' 9.9.5 As regards cross subsidization of CD segment through profits of other segments , cross subsidization is not abuse in itself as admitted by MCX-SX. In fact, it is the cross--subsidization of an anticompetitive and predatory pricing strategy only in competitive segments, which amounts to abuse. Cross subsidisation itself has no connection to leveraging by dominance in one relevant market, as it is basically a fiscal or financial transfer from any source.

9.9.6 This brings us to the core issue in this case, namely whether the zero price set by NSE can be said to be predatory. This issue has been examined at length earlier in this order. We had reached the clear conclusion that the zero price set by NSE does not directly or indirectly impose unfair / predatory price. The question of "leveraging dominance in other segments through predatory pricing does not, therefore, arise and, inter alia, the question of cross subsidization of predatory conduct also does not arise in the instant case. All the factors leading to the conclusion that zero pricing by NSE is not predatory have already been discussed at length, as also the fact that during the period in which NSE is alleged to have been guilty of anti--competitive predatory pricing it has come down from being the only service provider in the market to being in the second position (from 100% market share in beginning October, 2008_to 33.17% in October, 2010 by which time two other competitors had entered the market.