Ultratech Cements: Understanding Trends in the Economics of Market Power

[Lianne Lucia D’Souza is a 4thyear B.A. LL.B. student at School of Law, Christ (Deemed to be University, Bengaluru]


Since the enforcement of merger control provisions in the Competition Act, 2002, the Competition Commission of India (“CCI”) has played an active role by assessing over 500 combinations in a short span of seven years. All transactions meeting the jurisdictional threshold prescribed under Section 5 of the Competition Act, 2002 are brought to the notice of the CCI, following which it grants or withholds its approval on whether the impugned combination causes or is likely to cause an Adverse Appreciable Effect on Competition (“AAEC”) under Section 6. In doing so the CCI acts as an ex ante regulator preventing unilateral increase in market power that significantly impedes effective competition. However, this ex ante control has not prevented enterprises from meticulously acquiring market power sufficient enough to alter industry dynamics. A case that serves as an ideal example for this assertion is the acquisition pattern of Ultratech Cements in the recent past.


The Aditya Birla group’s flagship company Ultratech Cements Limited has gradually been expanding its base through various combinations. Initially, it gauged the attention of the CCI when it proposed to acquire undertakings of Jaiprakash Associates Limited (“JAL”) and its subsidiary Jaypee Cement Corporation Limited (“JCCL”). The same was approved owing to delineated markets and fragmented levels of concentration. Following this was its clean sweep in securing an unconditional clearance to acquire 98% stake in Binani Cements in March 2018. The CCI approved the same on the basis that there existed sufficient competitive constraint in the target market followingthe combination.

In an interesting development, Ultratech Cements also received a positive nod from the fair-trade regulator for its proposal of acquiring Century Textiles and Industries through a share swap deal. This move has attracted greater scrutiny as it enables Ultratech Cements to consolidate its position as the market leader and to extend its business into the nonpareil southern and western markets while strengthening its foothold in the centre and the east. It clearly manifests the company’s strategy to expand its base in new markets, taking the pre-existing operational plants of Century Cements as a launch pad for diversification. Currently, with its footing in almost every region in the country, it has garnered sufficient market power, making it the largest cement manufacturing and sales company in the country.


A brief overview of the CCI’s orders in the above-mentioned instances exhibits a trend where entities steadily increase their market share in a market so as to weaken competition through numbers. Sequential mergers or takeovers by a single enterprise or group create a domino effect that ultimately places them in a dominant position,a position undesired in any oligopolistic economy. If one were to imagine a market which consolidates gradually through successive mergers, say from 20 firms to three firms, then it may not be possible to accurately demonstrate a substantial change in competitive dynamics at any specific point in the process of consolidation. But, cumulatively such change becomes very important as the market becomes less competitive through co-ordinated effects. The creation of a dominant buying position could thus lead to welfare losses due to a negative impact on competition.  For example, with the successive acquisition plans of Ultratech Cements Limited being approved by the CCI, this multi-million giant which celebrates its success for being ‘The engineer’s choice’ will soon be hailed for being ‘The only choice’ in the cement industry. Such an outcome will not only foreclose the opportunity of smaller players to affect their sustenance in the market but will also affect consumer welfare.

It is trite law that merger regulations are by their very nature forward-looking. However, in the context of the Competition Act, the hands of the CCI appear to be tied to an extent, as it can exercise its judgement in determining the AAEC of a combination strictly upon the parameters enshrined under Section 20(4). At this juncture, it is pertinent to note that Section 20(4) does not contemplate the ‘Dominance Test’, which is highly regarded as a determining factor under European Union merger regulations. This substantive test requires due consideration of the possible economic strength a certain combination may entail which enables it to preclude effective competition. It is this loophole in the Indian legal framework that gives way for enterprises to strengthen their market power and dilute competition in a relevant market by gaining dominance gradually and not abruptly.

It is not disputed that,in merger regulations, the CCI is not entitled to disapprove a combination on the probability that prohibitive activities under Section 3 and Section 4 of the Act may ensue. However, it must not completely disregard the possibility of a combination in question which may abuse its dominance if it is so approved. Furthermore, past instances reflect that in assessing market concentration on the basis of the Hirschman-Herfindahl Index (“HHI”), the CCI has narrowly construed only horizontal effects of a combination by delineating the relevant product and geographic market. Relatively few combinations raise the issue of vertical or conglomerate concerns in the context of market concentration. But although these issues do not emerge directly, they may arise in context of the possible behaviour of dominant firms.


As the preamble of the Competition Act states that the object of the CCI is ‘to promote and sustain competition in the market’, it is only prudent for it to undertake an overarching view in approving combinations by exploring the changing dynamics of market structure. Competition policy enforcement does not occur in vacuum. It calls for the perfect blend of law and economics and it cannot be isolated or immune from the core of economics. The present case of Ultratech Cements Limited highlights that alteration in competitive dynamics of a market cannot be solely understood on the basis of factors encompassed in a water tight compartment of the law. It requires a broad analysis of economic variants that may influence the level of concentration. The job of the anti-trust enforcer is of course to apply competition laws fairly, but it is also pertinent to note that such application must be consistent.

Lianne Lucia D’Souza

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