Abuse of Dominance and Anti- Competitive Agreements

What is 'abuse of dominance'?

Abuse of a dominant position or 'abuse of dominance occurs when a dominant business in a market, or a group of businesses, engages in conduct that is intended to eliminate or discipline a competitor. It is also aimed at deterring a future entry by new competitors resulting in the prevention of competition or lessening the extent of the same.

It is considered an abuse of dominance under Section 4 of the Competition Act, 2002 if a business:

a) “Directly or indirectly impose unfair or discriminatory prices in the purchase

of sale of goods or services;

b) Restricts or limits the production of goods or services in the market;

c) Restricts or limits technical or scientific development relating to goods or

services to the prejudice of consumers;

d) Indulges in practices resulting in a denial of market access;

e) Concludes contracts subject to acceptance by other parties of

supplementary obligations, which, by their nature or according to commercial

usage, have no connection with the subject of such contracts; or

f) Uses its dominance in one market to enter into or protect its position in other

relevant markets (leveraging)”.

Clauses (a), (e), (f) pertain to exploitative practices whereas, clauses (b), (c) and

(d) pertain to exclusion of business from a market by restricting them to use

infrastructure.

Why is the abuse of dominance harmful?

Abuse of dominance is harmful because it distorts the market and

the hampers the exercise of free trade existing in a market that benefits only

one business that has gained a position of dominance in a market.

The small businesses, in this scenario, go under or get bought off by the major players in

the relevant market as they are not able to sustain their businesses. As for new

and upcoming businesses, they find the relevant market extremely tough to

break into which distorts the economy of the country even further.

What are anti-competitive agreements?

Anti-competitive agreements are deals, contracts, promises between business competitors in a similar industry aimed at preventing, distorting, and discouraging competition in the market.

Section 34 of the Competition Act of 2002, prohibits agreements, decisions, and practices that are anti-competitive.

Section 3(1) provides for the extent of the definition of anti-competitive agreements:

"No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India."

What are the different kinds of anti-competitive agreements:

Horizontal agreements:

These agreements are done between businesses that are on the same level of the

production chain or the market. This is usually done between larger businesses

in a market that was otherwise, in competition with each other by agreeing to

drive up the prices or share the relevant market among themselves so that both

the parties can mutually benefit from the lack of options presented by the

agreement between them. This is also called cartelization and in fact, Section

2(c} and 3(3) of the Competition Act, 2002 specifically defines and includes the

term respectively.

Types of Horizontal agreements are-

1. Price Fixing- The agreement is to indirectly or directly determine the purchase or sale prices of goods. Since the intention is to provide the lowest possible price to drive up traffic; this is considered a harmful anti-competitive practice.

2. Controlling- Agreements to control production, supply, markets, tech, investment, or provisions.

3. Sharing- Agreements formed to share the market or production among themselves.

4. Fixing the no. of customers each would have.

5. Bid rigging- Agreements to manipulate the bidding process.
   

The DLMW Cartelization Case: In terms of cartelization and bid-rigging perhaps, the best example is the Diesel Loco Modernization Works case where a tender was floated by DLMW for procuring feed valves for diesel locomotives for which three known competitors in that market provided identical bids which were of 33% higher than the price of the product the previous time.

The Director General’s and then the Competition Commission of India's (CCI) investigation showed markers of collusion between two parties to let the third party succeed and thus, end up spending 33% more for their bid.

Vertical Agreements:

These are agreements that are made between players that are in different levels

of the production chain. On the face of it, vertical agreements are not illegal.

Whether they are distorting competition or not is based on basic reasoning.

Section 3(4) of the Act defines vertical agreements as-

“Any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade-in goods or provision of services”.

The types of vertical agreements are-

1. Tie-in arrangement- The seller in a way forces the customer to buy another product while buying a different product by luring them with offers on the same.

2. Exclusive supply agreement- Purchaser is restricted from acquiring goods that are not of the seller, as in the seller, becomes the sole supplier of that product for the concerned customer area.

3. Exclusive distribution agreement- An agreement to sell or not sell a product in a certain pre-determined area.

4. Refusal to deal- These agreements include those which restrict certainly classes’ people from selling or buying products.

5. Resale price maintenance- Agreement mandating the purchaser to keep the price while re-selling the product, to a designated minimum price.

In Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors. :

In this case, the various car companies including the likes of Honda did not make their car spare parts available in the open market. The companies had clauses in their agreements with the authorized dealers that, they must source these spare parts only from the companies directly, or from their authorized vendors. The CCI found that there were several vertical agreements between the car companies and the authorized dealers of the spare parts, for example, exclusive supply, exclusive distribution, and refusal to deal.

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