Definition
The As-Efficient Competitor (AEC) test is an analytical tool used to determine whether the pricing conduct of a dominant enterprise is capable of producing exclusionary effects. It poses a counterfactual question i.e. could a hypothetical rival that is as efficient as the dominant firm, bearing the same costs, compete profitably at the price charged by the dominant firm? If the answer is no, the pricing may be capable of foreclosing an equally efficient rival and thus of restricting competition on the merits.1
In India, the AEC test has no free-standing statutory basis. It operates primarily within Section 4(2)(a)(ii) of the Competition Act, 2002, which covers unfair or discriminatory prices, including predatory pricing, as an abuse of dominance. Explanation (b) to Section 4 defines predatory price as the sale of goods or provision of services at a price below the cost of production, as determined by regulations, with a view to reducing competition or eliminating competitors.2 The relevant cost is now determined under the CCI (Determination of Cost of Production) Regulations, 2025. Regulation 3 generally treats Average Variable Cost (AVC) as a proxy for marginal cost, while permitting the Commission, for reasons recorded in writing and having regard to the industry, market, and technology, to apply Average Total Cost (ATC), Average Avoidable Cost (AAC), or Long-run Average Incremental Cost (LRAIC).3
Commentary
The economic logic of the test is directed toward protecting the competitive process, not individual competitors. By benchmarking the conduct against a firm as efficient as the incumbent, the test distinguishes exclusion based on the incumbent's pricing strategy from competition based on genuine efficiency. Its underlying theory of harm is exclusionary. The concern is that a dominant firm may sacrifice short-term profits to foreclose equally efficient rivals, with the prospect of recouping those losses once competitive constraints have been weakened.
The test operates in two principal settings. In predatory pricing, the comparison is between price and the dominant firm's own costs. Under the AKZO4 and Post Danmark5 framework, pricing below AVC is generally regarded as abusive because each additional sale increases the firm's losses. Pricing between AVC and ATC requires a further assessment of the firm's exclusionary intent and surrounding circumstances, while pricing at or above ATC will generally not support a predatory-pricing finding.6 In margin squeeze, a vertically integrated firm sets its wholesale and retail prices so that the resulting spread is insufficient for an equally efficient downstream rival to compete profitably. This is the classic Deutsche Telekom7 and TeliaSonera8 setting, where the question is whether the incumbent's own downstream operation could compete profitably if it had to pay the wholesale price charged to its rivals.9
In the EU, the AEC test entered enforcement practice through the Commission's 2009 Guidance on Article 102 and was subsequently recognised, though not made mandatory, in Post Danmark II10. In Intel (2017), the Court further held that where a dominant undertaking submits evidence capable of supporting an AEC analysis, the Commission must examine that evidence. The test therefore operates not only as an enforcement tool but also as a means through which a dominant firm can contest an allegation of exclusion.11 The US reaches similar ground through the Brooke Group requirement of below-cost pricing plus a probability of recoupment.12
The CCI has repeatedly examined below-cost pricing but has yet to sustain a final finding of predation. In MCX-SX v. NSE, it treated NSE's zero-price policy in the currency-derivatives segment as abusive without relying on a mechanical cost test. In the Fast Track Call Cab and Meru v. Uber matters, the CCI also grappled with deep discounting supported by investor capital rather than operating efficiency. These cases illustrate the difficulty of assessing exclusionary pricing where a firm's ability to sustain losses is not readily captured by conventional cost benchmarks.13 The 2025 Cost Regulations, by permitting the use of ATC and a broader LRAIC framework, bring Indian practice closer to a more rigorous as-efficient-competitor analysis.
The difficulty lies in the test's treatment of efficiency. A new entrant may be unable to replicate an incumbent's scale, accumulated learning, brand advantages, or other benefits of incumbency, even where it is equally efficient in the underlying production process. The AEC test may therefore fail to capture exclusion of viable competitors whose disadvantage arises from non-replicable incumbency advantages rather than inferior efficiency.14 In network and two-sided markets, particularly where products are offered at zero price, the benchmark becomes less informative. The Google Shopping15 and Android16 decisions illustrate the difficulty of applying a cost-based framework where exclusion may arise from control over access, ranking, or other non-price mechanisms. A further concern is the test's potential bias toward false negatives. Its reliance on accounting measures of cost can make the result sensitive to how costs are defined and allocated, while strategies that raise rivals' costs without reducing the incumbent's own price may fall outside its reach.17
European Commission, Guidance on the Commission’s Enforcement Priorities in Applying Article 82 of the EC Treaty [2009] OJ C45/7, paras 23–27.↩︎
Competition Act 2002, s 4(2)(a)(ii) and Explanation (b).↩︎
Competition Commission of India (Determination of Cost of Production) Regulations 2025, reg 3 (notified 6 May 2025, replacing the 2009 Regulations).↩︎
Case C-62/86 AKZO Chemie BV v Commission [1991] ECR I-3359.↩︎
Case C-209/10 Post Danmark A/S v Konkurrencerådet EU:C:2012:172.↩︎
Case C-62/86 AKZO Chemie BV v Commission [1991] ECR I-3359; Case C-209/10 Post Danmark A/S v Konkurrencerådet (Post Danmark I) EU:C:2012:172.↩︎
Case C-280/08 P Deutsche Telekom AG v Commission [2010] ECR I-9555↩︎
Case C-52/09 Konkurrensverket v TeliaSonera Sverige AB [2011] ECR I-527↩︎
Case C-280/08 P Deutsche Telekom AG v Commission [2010] ECR I-9555; Case C-52/09 Konkurrensverket v TeliaSonera Sverige AB [2011] ECR I-527.↩︎
Case C-23/14 Post Danmark A/S v Konkurrencerådet EU:C:2015:651↩︎
Case C-413/14 P Intel Corp v Commission EU:C:2017:632.↩︎
Brooke Group Ltd v Brown & Williamson Tobacco Corp 509 US 209 (1993); Pacific Bell Telephone Co v linkLine Communications Inc 555 US 438 (2009).↩︎
MCX Stock Exchange Ltd v National Stock Exchange of India Ltd, Case No 13/2009 (CCI); Fast Track Call Cab Pvt Ltd v ANI Technologies Pvt Ltd, Case No 6/2015 (CCI); Meru Travel Solutions Pvt Ltd v Uber India Systems Pvt Ltd, Case No 96/2015 (CCI).↩︎
A Bavasso and G Long, ‘The Fallacy of the Equally Efficient Competitor’ (2018) 4(2) Competition Law & Policy Debate; P Ibáñez Colomo, ‘The As Efficient Competitor Test and the Limits of Legal Formalism’ (LSE Law, Society and Economy Working Papers, 2016).↩︎
Case C-48/22 P Google LLC and Alphabet Inc v Commission EU:C:2024:726↩︎
Case T-604/18 Google LLC and Alphabet Inc v Commission EU:T:2022:541↩︎
S C Salop and R C Romaine, ‘Preserving Monopoly: Economic Analysis, Legal Standards, and the As-Efficient Competitor Test’ (2019) 26 Geo Mason L Rev 3; H Zenger, ‘The As Efficient Competitor Test and Empirical Evidence on its Accuracy’ (2017) 13(2) J Comp L & Econ.↩︎