WHAT IS COMPETITION?

Competition means a conflict or contention for superiority, and in the commercial world, this means a striving
for the custom and business of people in the Ps: competition has described as “a process of rivalry between
firms … seeking to win customers' business over time”.In other words, competition means "a situation in a
market, in which firms or sellers independently strive for the buyers' assistance to achieve particular business
objectives,, for example, profits, market shares, and market growth."

SECTION 3:ANTI COMPETITIVE AGREEMENTS

Section 3 of the Act prohibits and also declares the agreements between two or more
enterprise or person or association of persons, which have an appreciable adverse impact on
the competition as void.
The scope of Section 3 of Competition Act is to undertake a general prohibition on Anti-
Competitive Agreements, without any purpose for specified agreements. Section 3(1) prescribes the adverse
effect on competition in India. Section 3(2) declared such agreements are void. Section 3(3) deals with cartels
and Section 3(4) dealing with the vertical agreements. Section 3(5) deals with the exception and save the rights
of owners of property rights.

APPRECIABLE ADVERSE EFFECT ON COMPETITION

WITHIN INDIA: - SECTION 3(1)
The basic requirement for Section 3(1) is that an agreement between enterprises identifying with the supply of
goods or services ought to cause or likely to cause an appreciable adverse effect on competition within India.
The section, further categorizes agreements into two categories, namely –

HORIZONTAL AGREEMENTS-SECTION3(3)
These kinds of agreements are known as horizontal agreements because the parties to the agreement are at the
same level of production in the same market. According to Section 3(3) certain agreements between enterprises,
decisions by associations of enterprise including cartels engaged in identical or similar trade of goods or
provision of services are presumed to have an appreciable effect on the competition, which –

a) directly or indirectly determines purchase or sale prices;

b) limits or controls production, supply, markets, technical development, investment or provision of services;

c) shares the market or source of production or provision of services by way of allocation of geographical area
of market, or type of goods or services, or number of customers in the market or any other similar way;

d) directly or indirectly results in bid rigging or collusive bidding,

These kinds of agreements are per se illegal and it is not necessary to show that the agreement in the issue is
anti-competitive or not. A typical example of anti competitive horizontal agreement would be agreement
between two manufacturers of coal that they will not compete on price with each other.
 CARTELS
In general term cartels considered to be a group of persons or an association of market performers that agree to
maintain the market prices at a high level and delimitate the competition. There are certain arrangements or
practices which may affect the harmful impact on competition and due to lack of awareness, are conclusively
presumed to be unreasonable and illegal. In the case of FICCI Multiplex Association of India v. United
Producers/Distributors Forum,21 the CCI held that the Producers/Distributors with their collective market
power endeavored to guarantee that multiplex owners did not get the matter of film exhibition till they
consented to the proposal of enhanced revenue share. Therefore, the CCI held that the cartel-like conduct of the
producers was in violation of S. 3(3) of the Act causing AAEC in India. In the case of Builders Association of
India v. Cement Manufacturers Association and Other,22 there was a landmark decision by CCI has forced a
penalty of over Rs 6,000 Crores on 11 leading cement producers in the wake of discovering them liable of
forming cartels to control "costs, production and supply" of cement in the market. According to the CCI order, it
found that cement manufacturers were infringing the provision of the Competition Act. The CCI circulated the
order after"investigation by the Director General of information recorded by the Builders Association of India.

TYPES OF HORIZONTAL AGREEMENT RESTRICTED

UNDER SECTION 3(3)
 Price Fixing: Section 3(3)(a)

 Agreement Limiting or Controlling Production, Supply, etc.: Section 3(3)(b)

 Allocation of Area or Market: Section 3(3)(c)

 Bid Rigging: sub-section (3)(d)

PRICE FIXING
Price-fixing is agreeing with a competitor what price customers will be charged. It can also include agreements
not to sell something below a minimum price or agreeing not to undercut a competitor. Price-fixing leads to
inflated prices and customers being overcharged.

WHO IS COVERED BY PRICE FIXING

REGULATIONS?
Competition law applies to online markets as well as traditional sellers. It also applies equally to small
businesses as well as large ones.

DISCUSSING PRICES WITH COMPETITORS

You must not discuss the prices you’re going to charge your customers with your competitors.
You’ll be breaking the law if you agree with another business:

 To charge the same prices to your customers

 To offer discounts or increase your prices at the same time
 To charge the same fees to intermediaries, e.g. retailers selling your products
HOW PRICE FIXING HAPPENS

Price fixing can happen several ways. Businesses can agree to set their prices high, so that consumers have no
choice but to buy at the high price. They can also agree to set mark-ups, sales, surcharges or discounts on goods
or services at the same rate. Businesses can also agree to set their maximum purchasing price so that a seller of a
product, service or commodity will be forced to sell at the set price. Price fixing can also happen in the credit
market, where companies agree to standardize credit terms to consumers. Many states have “below sales-cost
laws,” which prohibit businesses from selling goods or services below market cost, if their intent is anti-
competitive.

It is important to remember that illegal price fixing only occurs when there is an agreement between businesses
to fix prices. A business, acting on its own, may use legitimate efforts to obtain the best price they can,
including the ability to raise prices to the detriment of the general public. Further, businesses that conform to the
same prices without an express or implied agreement are not in violation of price fixing laws. However, there is
a fine line between conforming to prices at one’s own accord, and having an implied agreement to do so.

RESALE PRICE MAINTENANCE

Resale price maintenance (RPM) is where a supplier and a retailer agree that the retailer will not resell the
supplier’s products for less than a set price. This does not include recommended resale prices (RRP), as long as
the retailer can still resell at a price it wants and there are no threats or incentives.
RPM is often indirect. A supplier may impose restrictions on how far its product can be discounted, impose so-
called ‘minimum advertised price policies’ or make threats if a certain price is not maintained. Do not agree with
suppliers to fixed or minimum retail prices and do not exert pressure for distributors to adhere to a minimum
price.

VERTICAL AGREEMENTS-SECTION 3(4)

Vertical agreements are those agreements which are amongst enterprises or persons at different stages or levels
of the production chain in different markets. These agreements are not per se illegal and in order to establish that
they are anti-competitive it must proved that such agreement causes or is likely to cause an appreciable adverse
effect on competition in India.

The judicial pronouncements in US have evolved the “rule of reason” approach to ascertain whether a vertical
agreement has adverse effect of competition. The rule of reason demands a proper inquiry whether the
challenged agreement is one that promotes or the one that suppresses the competition. Agreements are
considered illegal only if they result in unreasonable restrictions on competition. The Act on the other hand as
such does not define the term appreciable effect on competition but under Section 19 (3) provides some
factors all or any of which may be considered while determining whether an agreement has an
appreciable adverse effect on competition. These factors are -

a) creation of barriers to new entrants in the market;

b) driving existing competitors out of the market;
c) foreclosure of competition by hindering entry into the market;
d) accrual of benefits to consumers;
e) improvements in production or distribution of goods or provision of services;
f) promotion of technical, scientific and economic development by means of production or distribution of goods
or provision of services.
WHETHER CONSUMERS CAN BE PARTY TO
ANTI COMPETITIVE AGREEMENTS

The Section 3(1) of the Act inter alia prohibits an agreement between an enterprise and a person causing or is
likely to cause an appreciable effect on competition within India. As the definition of person under the Act
includes an individual, it leads to possible interpretation that consumers can be a party to anti-competitive. This
proposition contradicts with the whole philosophy of competition law behind prohibiting anti competitive
agreements, but still the Act nowhere negates this proposition on the other hand seems to support it.

If this preposition is answered in affirmative, it may have multi dimensional adverse implications on contractual
relations. For instance a consumer will be able to avoid a contract if subsequently such contract is proved to be
anti competitive. This not something which the Competition Commission doesn’t the power to do, in fact the
Commission in the case of Belarie Owners Association v. DLF Ltd. & HUDA has directed DLF to modify
unfair conditions in a properly entered contract. However the rationale behind this decision was that by
imposing such unfair terms the DLF has abused its Dominance and not on the ground of such agreement being
anti-competitive.

The issue as to whether consumers can be party to anti competitive agreements was raised before Competition
Commission in the case of Yashoda Hospital and Research Centre Ltd. v. India Bulls Financial Services Ltd.
(IFSL). The Commission held that for application of Section 3 there must be two or more enterprises and there
must be an agreement between them. While adjudging the same issue the Gujarat High Court in case of Jai
Balaji Industries Ltd. & Ans. v. Union of India has observed that the Consumers have no role to play in anti-
competitive agreements. Thus, after these judicial pronouncements it is well established that a consumer can’t
be party to any anti competitive agreement as prohibited under Section 3 of the Act.

SECTION 4-ABUSE OF DOMINANT POSITION

Section 4 prevents any enterprise or group from abusing its dominant position. The Act also provides
circumstances under which there is abuse of dominant position.section4(2) prevents following acts resulting in
abuse of dominant position:

1. Impose unfair or discriminatory condition or price in sale and purchase of goods or services;

2. Limit or restrict;

3. Production of goods or services

4. Technical or scientific development relating to goods or services to the prejudice of consumers;

Indulges in practice resulting in denial of market access;

1. Make conclusion of contracts subject to acceptance by other parties;

2. Use its dominant position in one market to enter into other relevant market;
DEFINITION OF DOMINANT POSITION
According to the Act, dominant position means a position of strength, enjoyed by an enterprise in the relevant
market in India which enables it to:

1. Operate independently of competitive forces in relevant market

2. Affect competitors, consumers or relevant market in its favour

Predatory price means sale of goods or services at a price which is below the cost as may be with the view to
reduce competition or eliminate competitors.

The term abuse of dominant position refers to anticompetitive business practices in which a dominant firm may
engage in order to maintain or increase its position in the market.

JUDICIAL DICTA ON ABUSE OF DOMINANT

POSITION
What does dominant position imply?

In the case of, Shri Neeraj Malhotra, Advocates v. North Delhi Power Ltd., the CCI observed that s.4 does not
prohibit an enterprise from holding a dominant position in a market, it does place a special responsibility
on such enterprises, in requiring them not to abuse their dominant position. The CCI further held that
Section 4 does not contain an exhaustive list of activities that would amount to contravention of its provisions.
The actions, practices and conduct of an enterprise in a dominant position have to be examined in view of the
facts and circumstances of each case to determine whether or not the same constitutes an abuse of dominance in
terms of s.4 of the act.

In substance, `dominant position’ means the position of strength enjoyed by an enterprise that enables it to
act independently of competitive forces prevailing in the relevant market. Such an enterprise will be in a
position to disregard market forces and unilaterally impose trading conditions, fix prices, etc. The abuse may
result in the restriction of competition, or the elimination of effective competition.
HOW TO EXAMINE DOMINANT POSITION OF AN
ENTERPRISE?
In a recent case Fast Track Call Cab Pvt. Ltd. and Meru Travel Solutions Pvt. Ltd v. ANI
Technologies Pvt. Ltd., the CCI while determining whether the OP (OLA) held a dominant position
in relevant market or not remarked that abuse of dominant position under Section 4 would be attracted
only when the entity under scrutiny holds a dominant position in the relevant market. CCI also
elaborated on the concept of dominant position and stated dominant position as a position of
economic strength enjoyed by the enterprise in the relevant market, which enables it to operate
independently of competitive forces prevailing in the relevant market or affect its competitor or
consumer or the relevant market in its favour. Such ability of the enterprise to behave
independently of competitive forces needs to be assessed in light of all relevant circumstances and
the factors enlisted under Section 19(4) of the Act. The CCI in the case while determining
dominance of OLA took the following factors into consideration:

 Market shares of OLA;

 Its competitors in relevant markrt;
 Annual and monthly number of trips in the relevant market during the period of investigation;

PROCEDURE FOR INQUIRY UNDER

SECTION 19-SECTION 26
The procedure of inquiry by the Competition Commission of India is enumerated under Section 19 of the
Competition Act i.e. inquiry in cases of certain agreements alleged to be in contravention of the Act or
information alleging abuse of dominant position by an enterprise is conducted by the Commission in the below
manner: