SlideShare a Scribd company logo

Collective Dominance

1 of 58
Download to read offline
Collective-Dominance
An analysis of S. 4 as it exists and S. 4 as proposed by the amendment in
Competition (Amendment) Bill, 2012
(Dissertation prepared under the Internship programme of the CCI)
Submitted By: Under the guidance of:
SHASHANK AGARWAL Dr. K. D. SINGH
LC-1, Faculty of Law, Deputy Director (Law),
University of Delhi Competition Commission of India
Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012
- 1 -
DISCLAIMER
This project report/dissertation has been prepared by the author as an
intern under the Internship Programme of the Competition Commission of
India for academic purposes only. The views expressed in the report are
personal to the intern and do not necessarily reflect the view of the
Commission or any of its staff or personnel and do not bind the
Commission in any manner.
This report is the intellectual property of the Competition Commission of
India and the same or any part thereof may not be used in any manner
whatsoever, without express permission of the Competition Commission
of India in writing.
Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012
- 2 -
ACKNOWLEDGEMENTS
On the completion of this paper, I would like to place on record my
sincere gratitude towards all those people who have been instrumental in
its making.
I express my sincere gratitude towards Dr. K. D. Singh, Deputy Director
(Law), Competition Commission of India, for his guidance and excellent
insights which gave direction and focus to this paper. I thank him for
lending his precious time in making this project an authentic piece of
work.
I also put on record my gratitude towards the library staff, which has
provided me help and access to all the resourceful material for my
research.
I am indebted towards Competition Commission of India, for providing
me an opportunity to have a learning experience. During the internship, I
got the great opportunity to work with officials of the Commission
working in different divisions, which enhanced my knowledge about the
working and functions of the Competition Commission of India.
Shashank Agarwal
shashank.agwl@yahoo.in
Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012
- 3 -
Table of Contents
Contents Page No.
1. Summary 5
2. Basis 8
3. TFEU and EUMR and Our Purpose 10
4. Issues, Methodology and the Limitations 11
5 Economic Theory and Competition Law & Policy 13-23
5.1 “Competition”- Defined 13
5.2 Competition Law and Policy 14
5.3 Need of Economic Theory 15
5.4 Perfect Market 16
5.5 Monopoly 18
5.6 Oligopoly 19
5.7 Theory of Oligopolist’s Interdependence 19
5.8 Theory of Prisoner’s Dilemma 20
5.9 Tacit Coordination and Prisoner’s Dilemma 22
5.10 Aim of the Competition Law & Policy 23
6. Understanding Collective Dominance 24-32
6.1 What is Collective “Dominance”? 24
6.2 How is Collective Dominance supposed to be interpreted? 26
6.3
How does the concept of Collective Dominance correlate to Tacit
Coordination?
30
7. Significance in India 33-43
7.1 Amendment proposed to amend Section 4 33
7.2
Why need it when we have provisions to control “Concerted Practices”,
“Cartelization”, and “Tacit Coordination” along with the regulation of
Mergers?
33
Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012
- 4 -
7.3 Analyzing Section 3 34
7.4 Analyzing Sections 5 & 6 36
7.5 Analyzing Section 4 38
7.6 Comparing Sections 3, 4 and 5 39
7.7 Understanding post-amendment Section 4 w.r.t. Vertical Arrangements 41
8. Conclusion 44-45
9. Position in other Competition Law regimes 46-53
9.1 United States of America 46
9.2 Canada 47
9.3 UK 48
9.4 China 49
9.5 Mexico 50
9.6 Japan 51
9.7 South Africa 52
9.8 Conclusion 53
List of Abbreviations 54
Bibliography 55-57
I Statutes, Treaties and Legislations 55
II Reports and Articles 55
III Books 55
IV Case Laws 56
V Websites 56
Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012
- 5 -
1. Summary
1.1 The questions this dissertation aims to answer are:
(1) What is Collective Dominance?
(2) How is collective dominance supposed to be interpreted?
(3) How does the concept of collective dominance correlate to tacit coordination?
(4) What is the relevance and the need of the proposed amendment and the issue of
“Collective Dominance” in India?
(5) How is it dealt with in the other countries?
1.2 Collective dominance can be described as a position of two or more independent entities
that together hold a position of joint dominance where they act or present themselves as one unit.
The market on which it is most likely for firms to achieve such position is on oligopolistic
markets.1
1.3 Economic theories have had a great impact on the development of collective dominance.
Economic theories provide tools to use when assessing whether firms on a market are likely to
coordinate their behavior and give rise to collective dominance. A comparison of the economic
characteristics of an oligopolistic market respective a perfect market and a monopoly provide
insight into the conditions for collective dominance to occur.2
1.4 The Competition Laws of India, the Competition Act, 2002, is largely modeled on the EU
Law and influenced by similar regulation in the US.3
Canada was the first country to enact a
competition law in 1889 followed by the United States of America in 1890. The number of
countries with Competition laws increased phenomenally in the past 25 years from 32 in 1980 to
105 in 20068. Many more countries are in the process of enacting competition laws and the
numbers are slated to increase further in the coming few years. Many countries have modernized
their competition regimes in the recent past and India belongs to the family of such nations.4
1
Karolina Rydman, Collective Dominance- how is it interpreted and how does it correlate with tacit coordination,
Stockholm University (can be found at: http://fr.slideshare.net/karolinarydman/collective-dominance-karolina-
rydman-13171127) , Page 3
2
Ibid
3
Suzanne Rab, Indian Competition Law- An International Perspective, 2012, at page 1
4
Report of the Working Group on Competition Policy, Planning Commission, Government of India, 2007,
paragraph 2.3.1

Recommended

Competition advocacy presentation
Competition advocacy presentationCompetition advocacy presentation
Competition advocacy presentationAfreenkhan153
 
M & A: Comparison of US & Indian Laws
M & A: Comparison of US & Indian LawsM & A: Comparison of US & Indian Laws
M & A: Comparison of US & Indian Lawsnicemanin
 
Company competition act, 2002.
Company competition act, 2002.Company competition act, 2002.
Company competition act, 2002.Mukesh Sah
 
Competition Commission of India
Competition Commission of IndiaCompetition Commission of India
Competition Commission of IndiaMalvika Bansal
 
What is Merger by Aakash Tiwari
What is Merger by Aakash TiwariWhat is Merger by Aakash Tiwari
What is Merger by Aakash TiwariAAKASH TIWARI
 
Regulating the unregulated: Exempted Combinations
Regulating the unregulated: Exempted CombinationsRegulating the unregulated: Exempted Combinations
Regulating the unregulated: Exempted CombinationsKK SHARMA LAW OFFICES
 
Competition Commission of India
Competition Commission of IndiaCompetition Commission of India
Competition Commission of Indiaharleenjabbal13
 

More Related Content

What's hot

Competition Commission of India
Competition Commission of IndiaCompetition Commission of India
Competition Commission of IndiaKannan karthik
 
Important provisions of competition act, 2002
Important provisions of competition act, 2002Important provisions of competition act, 2002
Important provisions of competition act, 2002Shubham Madaan
 
Competition Act 2002- April 2016,
Competition Act 2002- April 2016,Competition Act 2002- April 2016,
Competition Act 2002- April 2016,Pooja Chetri
 
competition act 2002
competition act 2002competition act 2002
competition act 2002Manish Tiwari
 
2003 corporate governance and control
2003 corporate governance and control2003 corporate governance and control
2003 corporate governance and controlkakaninet
 
Competition commission of india
Competition commission of indiaCompetition commission of india
Competition commission of indiaYasha Singh
 
Constitutional aspect of comp. law
Constitutional aspect of comp. lawConstitutional aspect of comp. law
Constitutional aspect of comp. lawAchalaggarwal3
 
Competition act 2002
Competition act 2002Competition act 2002
Competition act 2002ramandeepjrf
 
Competition Act - Business Law
Competition Act - Business LawCompetition Act - Business Law
Competition Act - Business LawShahzad Khan
 
Importance of Being a Member of CCI : Order in Jypee Case --K K Sharma
Importance of Being a Member of CCI : Order in Jypee Case  --K K Sharma Importance of Being a Member of CCI : Order in Jypee Case  --K K Sharma
Importance of Being a Member of CCI : Order in Jypee Case --K K Sharma KK SHARMA LAW OFFICES
 
NOTIFIABILITY OF MERGER CONTROL IN COMPETITION ACT
NOTIFIABILITY OF MERGER CONTROL IN COMPETITION ACTNOTIFIABILITY OF MERGER CONTROL IN COMPETITION ACT
NOTIFIABILITY OF MERGER CONTROL IN COMPETITION ACTjitendra sharda
 
Consortium & Determination of "International"​ Character of Arbitration in India
Consortium & Determination of "International"​ Character of Arbitration in IndiaConsortium & Determination of "International"​ Character of Arbitration in India
Consortium & Determination of "International"​ Character of Arbitration in IndiaBadrinath Srinivasan
 

What's hot (20)

Competition Commission of India
Competition Commission of IndiaCompetition Commission of India
Competition Commission of India
 
Competition act 2002
Competition act 2002Competition act 2002
Competition act 2002
 
Important provisions of competition act, 2002
Important provisions of competition act, 2002Important provisions of competition act, 2002
Important provisions of competition act, 2002
 
Competition act
Competition actCompetition act
Competition act
 
COMPETITION ACT, 2002
COMPETITION ACT, 2002 COMPETITION ACT, 2002
COMPETITION ACT, 2002
 
Competition Act 2002- April 2016,
Competition Act 2002- April 2016,Competition Act 2002- April 2016,
Competition Act 2002- April 2016,
 
Clr nov 2015 jaypee
Clr nov 2015 jaypeeClr nov 2015 jaypee
Clr nov 2015 jaypee
 
competition act 2002
competition act 2002competition act 2002
competition act 2002
 
Competition act,2002
Competition act,2002Competition act,2002
Competition act,2002
 
2003 corporate governance and control
2003 corporate governance and control2003 corporate governance and control
2003 corporate governance and control
 
Competition commission of india
Competition commission of indiaCompetition commission of india
Competition commission of india
 
Constitutional aspect of comp. law
Constitutional aspect of comp. lawConstitutional aspect of comp. law
Constitutional aspect of comp. law
 
COMPTITION ACT,2002
COMPTITION  ACT,2002COMPTITION  ACT,2002
COMPTITION ACT,2002
 
Competition act 2002
Competition act 2002Competition act 2002
Competition act 2002
 
Competition Act - Business Law
Competition Act - Business LawCompetition Act - Business Law
Competition Act - Business Law
 
Importance of Being a Member of CCI : Order in Jypee Case --K K Sharma
Importance of Being a Member of CCI : Order in Jypee Case  --K K Sharma Importance of Being a Member of CCI : Order in Jypee Case  --K K Sharma
Importance of Being a Member of CCI : Order in Jypee Case --K K Sharma
 
NOTIFIABILITY OF MERGER CONTROL IN COMPETITION ACT
NOTIFIABILITY OF MERGER CONTROL IN COMPETITION ACTNOTIFIABILITY OF MERGER CONTROL IN COMPETITION ACT
NOTIFIABILITY OF MERGER CONTROL IN COMPETITION ACT
 
Regulation of combinations seminar on competition policy and law goa_2008
Regulation of combinations seminar on competition policy and law goa_2008Regulation of combinations seminar on competition policy and law goa_2008
Regulation of combinations seminar on competition policy and law goa_2008
 
Competition act 2002
Competition act 2002Competition act 2002
Competition act 2002
 
Consortium & Determination of "International"​ Character of Arbitration in India
Consortium & Determination of "International"​ Character of Arbitration in IndiaConsortium & Determination of "International"​ Character of Arbitration in India
Consortium & Determination of "International"​ Character of Arbitration in India
 

Similar to Collective Dominance

Calibrating the Pulse of Competition Law in India
Calibrating the Pulse of Competition Law in IndiaCalibrating the Pulse of Competition Law in India
Calibrating the Pulse of Competition Law in Indiaelithomas202
 
ICN, Indian & BRICS Perspective
ICN, Indian & BRICS Perspective ICN, Indian & BRICS Perspective
ICN, Indian & BRICS Perspective Rahul Kumar
 
competetion and fema act.ppt
competetion and fema act.pptcompetetion and fema act.ppt
competetion and fema act.pptPrince520504
 
Competition act Aditi Chikurdekar
Competition act  Aditi Chikurdekar Competition act  Aditi Chikurdekar
Competition act Aditi Chikurdekar Aditi Sahai
 
11.emergence and applicability of competition act, 2002www.iiste.org call for...
11.emergence and applicability of competition act, 2002www.iiste.org call for...11.emergence and applicability of competition act, 2002www.iiste.org call for...
11.emergence and applicability of competition act, 2002www.iiste.org call for...Alexander Decker
 
Emergence and applicability of competition act, 2002 in india’s new competiti...
Emergence and applicability of competition act, 2002 in india’s new competiti...Emergence and applicability of competition act, 2002 in india’s new competiti...
Emergence and applicability of competition act, 2002 in india’s new competiti...Alexander Decker
 
PPP concession agreement scenario india and globe final report- Sukriti chawl...
PPP concession agreement scenario india and globe final report- Sukriti chawl...PPP concession agreement scenario india and globe final report- Sukriti chawl...
PPP concession agreement scenario india and globe final report- Sukriti chawl...sukriti47
 
Dominant Position :Competition Law(Competition Act,2002)
Dominant Position :Competition Law(Competition Act,2002)Dominant Position :Competition Law(Competition Act,2002)
Dominant Position :Competition Law(Competition Act,2002)Bibhu Manik
 
The Competition Act, India
The Competition Act, IndiaThe Competition Act, India
The Competition Act, IndiaNeha Kumar
 
EVOLUTION-OF-COMPETITION-LAW-IN-INDIA.pdf
EVOLUTION-OF-COMPETITION-LAW-IN-INDIA.pdfEVOLUTION-OF-COMPETITION-LAW-IN-INDIA.pdf
EVOLUTION-OF-COMPETITION-LAW-IN-INDIA.pdfPrem Prakash
 
Research on Commercial Vehicles
Research on Commercial VehiclesResearch on Commercial Vehicles
Research on Commercial VehiclesGaurav Gupta
 
Technical Directive Coordinators
Technical Directive CoordinatorsTechnical Directive Coordinators
Technical Directive CoordinatorsLela Retzlaff
 
Eco pres
Eco presEco pres
Eco pressindhu7
 
Presentation at Conference on Principles of Progressive Competition Law
Presentation at Conference on Principles of Progressive Competition Law Presentation at Conference on Principles of Progressive Competition Law
Presentation at Conference on Principles of Progressive Competition Law USAID-ACT-PROJECT
 

Similar to Collective Dominance (20)

Calibrating the Pulse of Competition Law in India
Calibrating the Pulse of Competition Law in IndiaCalibrating the Pulse of Competition Law in India
Calibrating the Pulse of Competition Law in India
 
PPPs Report
PPPs ReportPPPs Report
PPPs Report
 
ICN, Indian & BRICS Perspective
ICN, Indian & BRICS Perspective ICN, Indian & BRICS Perspective
ICN, Indian & BRICS Perspective
 
competetion and fema act.ppt
competetion and fema act.pptcompetetion and fema act.ppt
competetion and fema act.ppt
 
Competition Act, 2002
Competition Act, 2002Competition Act, 2002
Competition Act, 2002
 
Competition act Aditi Chikurdekar
Competition act  Aditi Chikurdekar Competition act  Aditi Chikurdekar
Competition act Aditi Chikurdekar
 
11.emergence and applicability of competition act, 2002www.iiste.org call for...
11.emergence and applicability of competition act, 2002www.iiste.org call for...11.emergence and applicability of competition act, 2002www.iiste.org call for...
11.emergence and applicability of competition act, 2002www.iiste.org call for...
 
Emergence and applicability of competition act, 2002 in india’s new competiti...
Emergence and applicability of competition act, 2002 in india’s new competiti...Emergence and applicability of competition act, 2002 in india’s new competiti...
Emergence and applicability of competition act, 2002 in india’s new competiti...
 
Syllabus Company Law KLS Lecture 1
Syllabus Company Law  KLS Lecture 1Syllabus Company Law  KLS Lecture 1
Syllabus Company Law KLS Lecture 1
 
PPP concession agreement scenario india and globe final report- Sukriti chawl...
PPP concession agreement scenario india and globe final report- Sukriti chawl...PPP concession agreement scenario india and globe final report- Sukriti chawl...
PPP concession agreement scenario india and globe final report- Sukriti chawl...
 
Public interest considerations in merger control - Aranka Nagy - OECD Competi...
Public interest considerations in merger control - Aranka Nagy - OECD Competi...Public interest considerations in merger control - Aranka Nagy - OECD Competi...
Public interest considerations in merger control - Aranka Nagy - OECD Competi...
 
Dominant Position :Competition Law(Competition Act,2002)
Dominant Position :Competition Law(Competition Act,2002)Dominant Position :Competition Law(Competition Act,2002)
Dominant Position :Competition Law(Competition Act,2002)
 
The Competition Act, India
The Competition Act, IndiaThe Competition Act, India
The Competition Act, India
 
EVOLUTION-OF-COMPETITION-LAW-IN-INDIA.pdf
EVOLUTION-OF-COMPETITION-LAW-IN-INDIA.pdfEVOLUTION-OF-COMPETITION-LAW-IN-INDIA.pdf
EVOLUTION-OF-COMPETITION-LAW-IN-INDIA.pdf
 
Research Paper_Week3
Research Paper_Week3Research Paper_Week3
Research Paper_Week3
 
Research on Commercial Vehicles
Research on Commercial VehiclesResearch on Commercial Vehicles
Research on Commercial Vehicles
 
Technical Directive Coordinators
Technical Directive CoordinatorsTechnical Directive Coordinators
Technical Directive Coordinators
 
Eco pres
Eco presEco pres
Eco pres
 
Presentation at Conference on Principles of Progressive Competition Law
Presentation at Conference on Principles of Progressive Competition Law Presentation at Conference on Principles of Progressive Competition Law
Presentation at Conference on Principles of Progressive Competition Law
 
Some Thoughts for CCI – Part I
Some Thoughts for CCI – Part ISome Thoughts for CCI – Part I
Some Thoughts for CCI – Part I
 

Collective Dominance

  • 1. Collective-Dominance An analysis of S. 4 as it exists and S. 4 as proposed by the amendment in Competition (Amendment) Bill, 2012 (Dissertation prepared under the Internship programme of the CCI) Submitted By: Under the guidance of: SHASHANK AGARWAL Dr. K. D. SINGH LC-1, Faculty of Law, Deputy Director (Law), University of Delhi Competition Commission of India
  • 2. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 1 - DISCLAIMER This project report/dissertation has been prepared by the author as an intern under the Internship Programme of the Competition Commission of India for academic purposes only. The views expressed in the report are personal to the intern and do not necessarily reflect the view of the Commission or any of its staff or personnel and do not bind the Commission in any manner. This report is the intellectual property of the Competition Commission of India and the same or any part thereof may not be used in any manner whatsoever, without express permission of the Competition Commission of India in writing.
  • 3. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 2 - ACKNOWLEDGEMENTS On the completion of this paper, I would like to place on record my sincere gratitude towards all those people who have been instrumental in its making. I express my sincere gratitude towards Dr. K. D. Singh, Deputy Director (Law), Competition Commission of India, for his guidance and excellent insights which gave direction and focus to this paper. I thank him for lending his precious time in making this project an authentic piece of work. I also put on record my gratitude towards the library staff, which has provided me help and access to all the resourceful material for my research. I am indebted towards Competition Commission of India, for providing me an opportunity to have a learning experience. During the internship, I got the great opportunity to work with officials of the Commission working in different divisions, which enhanced my knowledge about the working and functions of the Competition Commission of India. Shashank Agarwal shashank.agwl@yahoo.in
  • 4. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 3 - Table of Contents Contents Page No. 1. Summary 5 2. Basis 8 3. TFEU and EUMR and Our Purpose 10 4. Issues, Methodology and the Limitations 11 5 Economic Theory and Competition Law & Policy 13-23 5.1 “Competition”- Defined 13 5.2 Competition Law and Policy 14 5.3 Need of Economic Theory 15 5.4 Perfect Market 16 5.5 Monopoly 18 5.6 Oligopoly 19 5.7 Theory of Oligopolist’s Interdependence 19 5.8 Theory of Prisoner’s Dilemma 20 5.9 Tacit Coordination and Prisoner’s Dilemma 22 5.10 Aim of the Competition Law & Policy 23 6. Understanding Collective Dominance 24-32 6.1 What is Collective “Dominance”? 24 6.2 How is Collective Dominance supposed to be interpreted? 26 6.3 How does the concept of Collective Dominance correlate to Tacit Coordination? 30 7. Significance in India 33-43 7.1 Amendment proposed to amend Section 4 33 7.2 Why need it when we have provisions to control “Concerted Practices”, “Cartelization”, and “Tacit Coordination” along with the regulation of Mergers? 33
  • 5. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 4 - 7.3 Analyzing Section 3 34 7.4 Analyzing Sections 5 & 6 36 7.5 Analyzing Section 4 38 7.6 Comparing Sections 3, 4 and 5 39 7.7 Understanding post-amendment Section 4 w.r.t. Vertical Arrangements 41 8. Conclusion 44-45 9. Position in other Competition Law regimes 46-53 9.1 United States of America 46 9.2 Canada 47 9.3 UK 48 9.4 China 49 9.5 Mexico 50 9.6 Japan 51 9.7 South Africa 52 9.8 Conclusion 53 List of Abbreviations 54 Bibliography 55-57 I Statutes, Treaties and Legislations 55 II Reports and Articles 55 III Books 55 IV Case Laws 56 V Websites 56
  • 6. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 5 - 1. Summary 1.1 The questions this dissertation aims to answer are: (1) What is Collective Dominance? (2) How is collective dominance supposed to be interpreted? (3) How does the concept of collective dominance correlate to tacit coordination? (4) What is the relevance and the need of the proposed amendment and the issue of “Collective Dominance” in India? (5) How is it dealt with in the other countries? 1.2 Collective dominance can be described as a position of two or more independent entities that together hold a position of joint dominance where they act or present themselves as one unit. The market on which it is most likely for firms to achieve such position is on oligopolistic markets.1 1.3 Economic theories have had a great impact on the development of collective dominance. Economic theories provide tools to use when assessing whether firms on a market are likely to coordinate their behavior and give rise to collective dominance. A comparison of the economic characteristics of an oligopolistic market respective a perfect market and a monopoly provide insight into the conditions for collective dominance to occur.2 1.4 The Competition Laws of India, the Competition Act, 2002, is largely modeled on the EU Law and influenced by similar regulation in the US.3 Canada was the first country to enact a competition law in 1889 followed by the United States of America in 1890. The number of countries with Competition laws increased phenomenally in the past 25 years from 32 in 1980 to 105 in 20068. Many more countries are in the process of enacting competition laws and the numbers are slated to increase further in the coming few years. Many countries have modernized their competition regimes in the recent past and India belongs to the family of such nations.4 1 Karolina Rydman, Collective Dominance- how is it interpreted and how does it correlate with tacit coordination, Stockholm University (can be found at: http://fr.slideshare.net/karolinarydman/collective-dominance-karolina- rydman-13171127) , Page 3 2 Ibid 3 Suzanne Rab, Indian Competition Law- An International Perspective, 2012, at page 1 4 Report of the Working Group on Competition Policy, Planning Commission, Government of India, 2007, paragraph 2.3.1
  • 7. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 6 - 1.5 Broadly, most competition laws seek to increase economic efficiency, enhance consumer welfare, ensure fair trading, and prevent abuse of market power.5 1.6 The three areas of enforcement that are provided for in most competition laws are– (i) Anti-competitive agreements (ii) Abuse of dominance, and (iii) Mergers which have potential for anti-competitive effect.6 1.7 Besides the aforementioned areas one more area has been discovered and analyzed by the EU regime, the concept of “Collective Dominance”. However, this concept has been developed through the case laws only.7 The concept was developed by defining the Article 102 (previously Article 82) of the TFEU8 . 1.8 In many of the Countries’ Competition Laws this concept is still missing. But, India, after adopting the proposed amendment, can succeed to explicitly define and include this concept. 1.9 Presently, the Competition Act, 2002 has covered very well all the areas as mentioned above in the following way: (i) Section 3 - Anti-competitive Agreements (ii) Section 4 - Abuse of Dominant Position (iii) Section 5 & 6 - Combinations and their regulation (Merger Regulations, as commonly known in the worldwide) 1.10 The Section 4 presently provides for the prohibition on “Abuse of Dominant Position” by an enterprise or a group. Here “group” refers to two or more enterprises which are related to one another in terms of controlling power or controlling stake, thus making them, in a way, one big enterprise. 1.11 To this section the addition of the words “either jointly or singly” after the words “enterprise or group” is proposed.9 The section 4 would then read as follows: 5 Report of the Working Group on Competition Policy, Supra n. 4, paragraph 2.3.2 6 Ibid, paragraph 2.3.3 7 Karolina Rydman, Supra n.1, page 19, paragraph 4.3.1 8 Treaty of Functioning of the European Union (“TFEU”) 9 Section 4 of The Competition (Amendment) Bill, 2012 (downloaded from: http://www.prsindia.org/uploads/media/Competition%20%28A%29%20Bill,%202012/The%20Competition%20%2 8A%29%20Bill,%202012.pdf)
  • 8. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 7 - “No enterprise or group, either jointly or singly, shall abuse its dominant position.” 1.12 With the addition of these words it is sought to prevent the mischief which had hitherto went unnoticed. This checks in for bringing in keeping a check against “Collective Dominance” which may be exercised by the major players of the industry in collusion with each other irrespective of whether they have any kind of stake in any other of those enterprises.
  • 9. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 8 - 2. Basis 2.1 The concept of “Collective Dominance” in the EU regime has evolved through case laws and is generally studied in relation to the Merger Control Regulations and the concept of “Tacit Coordination” (or “informal understanding” or “implied agreement” as can be found in the Indian Competition Act, 2002). 2.2 Tacit coordination is a way for the entities, holding a collective dominant position, to coordinate their behavior. They can also coordinate their behavior explicitly but they tend to avoid this since it is easier to detect and will, when detected, be punished through Article 101 TFEU. There is no provision in the EU legislation that prohibits tacit coordination. It is, however, possible to prohibit mergers that likely will lead to collective dominance and tacit coordination. Therefore, it is of significant importance to investigate whether the merger will lead to such position and behavior.10 2.3 The European Union has its Merger Control provisions in the EUMR11 which prevent changes in the market structure in the nature of merger or acquisition of two or more firms that significantly impedes competition in the internal market. Such changes, which arise through merging firms, could cause an increase in the market price of the products or services on the relevant market.12 2.4 It is not only a creation or strengthening of dominance of the merging firms that might significantly impede effective competition but a prospective merger of firms not already holding dominant positions can also create or strengthen a collective dominant position in the relevant market since it can increase the likelihood of coordination of behavior of the firms on the relevant market.13 2.5 When the market structure enables firms to coordinate they might do this through an agreement, concerted practice or tacit coordination. The similarities and differences among these behaviors are not crystal clear. They seem to overlap.14 10 Karolina Rydman, supra n. 1, page 1 11 Council Regulation (EC) No 139/2004 of 20th January 2004 on the control of concentrations between undertakings (the EC Merger Regulations) 12 Karolina Rydman, supra n.1, page 4, paragraph 2.1; 13 Ibid 14 Ibid
  • 10. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 9 - 2.6 Article 101 of the TFEU (previously, Article 81) prohibits the agreements or concerted actions or practices which can, either by object or effect, prevent, restrict or distort the competition. However, tacit coordination is not prohibited explicitly as has been done in the Indian Competition Act. 2.7 The Indian Competition Act in this regard has made things explicit by defining the Merger Regulations in the same Act under Sections 5 and 6, and, by defining the term “Agreement” in Section 2(b) so as to include implied agreements or “Tacit coordination” as well for the purposes of section 3 which prohibits “Anti-competitive agreements”. The Act also defines explicitly what would cause the “Abuse of dominant position” and by whom in section 4. 2.7 However, Article 102 TFEU prohibits “…abuse by one or more undertakings of a dominant position”. This language raises the questions of when conduct by two or more entities constitutes prohibited abusive conduct under Article 102 and how this interdiction relates to Article 101, which is directed to collusive joint anti-competitive conduct. The Commission has generally treated anti-competitive joint conduct by parties, including cartel activity, as a matter to be addressed under Article 101. However, on occasions it has applied the notion of the collective dominant position to be addressed by Article 102.15 2.8 And, therefore, dealing with the EU competition laws in this regard would be of great help for our purposes, since, Indian competition law too has such provisions which might give conflicting situations. Besides, since, nowhere else has this concept been used or defined, this dissertation will be taking into consideration the concept of collective dominance as studied under the EU regime. 15 Mark R. Joelson, An International Antitrust Primer, Kluwer Law International, 3rd Edition, Page 396-397
  • 11. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 10 - 3. TFEU and EUMR and Our Purpose 3.1 The EUMR does not explicitly mention that dominance held collectively by one or more firms fit the concept of dominance as it is interpreted in the application of Article 102 TFEU. 3.2 Article 102 TFEU provides for the “Abuse of Dominant Position” which can be seen as the EU Competition Laws counterpart of the Section 4 of the Indian Competition Act. 3.3 And, Article 2(3) EUMR is the provision which is used as assessing the situations of “Collective dominance”. This Article reads as: “A concentration which would significantly impede effective competition, in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be declared incompatible with the common market.” 3.4 In the EU regime, one cannot rely on the wording of any provision in the European Union (EU) to prevent a merger for the reason that collective dominance might occur as a result of the merger and that tacit coordination might be encouraged by such dominance. However, in a 1992 case Commission had introduced that this would be the case. The view that EUMR applies to mergers which results in collective dominance is affirmed by several judgments by the EU courts. The first time that a merger was prohibited, given that it would create a collective dominance in the market, was in 1996. 16 3.5 Since, again, Indian Competition Act has separate provisions in one Act for merger regulations of the same nature and also for checking the Abuse of dominance, the purpose of this dissertation would be to see how the proposed amendment can be put to use to check the “collective dominance” even after having and utilizing the existing separate provisions unlike the ones provided in the European regime. 16 Karolina Rydman, Supra n. 1, page 5
  • 12. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 11 - 4. Issues, Methodology and the Limitations 4.1 The main issues that would be handled in this dissertation relate to the significance of the concept of “Collective Dominance” in relation to the Indian Competition Act, 2002. 4.2 To answer the questions that follow here, the legal dogmatic approach by systemizing and interpreting legal rules, principles, judicial decisions and doctrines in relation to this concept as have been applied in the EU regime and as apply to the Indian Competition laws, i.e. the Competition Act, 2002, and as have been proposed in the amendment in the Competition Bill, 2012 and as have been applied elsewhere, has been followed. 4.3 Besides, economic literature has also been essential in finding the basic economic theories in understanding the concept of “Collective Dominance”. In fact, economic literature is always important to understand before one proceeds to analyze, discuss or understand any Competition Law and Policy issue. 4.4 The questions that need to be understood for the purpose are: (1) What is Collective Dominance? Since, the concept is new to India the definition needs to be understood according to the EU Competition Laws. Even in EU Laws this definition has been developed through case laws. Hence, we need to study and understand the development of the concept of “Collective Dominance”. (2) How is collective dominance supposed to be interpreted? To answer this, an investigation of the different parts that constitute “Collective Dominance” needs to be done. This means that the concept of “Dominant position” would first be needed to understand and how can it be applied in cases of collective positions. (3) How does the concept of collective dominance correlate to tacit coordination? This can be answered in relation to the above question no. (2). Only after understanding both the concepts separately a proper answer can be given to this question.
  • 13. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 12 - (4) What are the relevance and the need of the proposed amendment and the issue of “Collective Dominance” in India? This will be answered keeping in view the present provisions of the Indian Competition Act and the amendment proposed in the Competition Bill, 2012 and also keeping in view the economic factors that may be necessary to curb the anti- competitive practices in the country. (5) How is it dealt with in the other countries? After having understood the India Competition Laws and the EU Competition Laws and Policy it would be imperative to understand the Competition Laws and Policies of various other countries like UK, US, Canada, China, etc. This would give an insight as to how the Indian Competition laws are doing with respect to other nations. 4.5 This dissertation has tried to cover and understand the concept of “Collective Dominance” in the context of EU Law. This has been the only limitation since the concept has been developed in the European regime first and is new to the Indian domain. 4.6 The concept has not yet been applied, neither has been defined explicitly in the proposed Competition Bill, 2012, but upon a true and fair interpretation of the words together we find the concept has found its place in the Indian Competition Law regime.
  • 14. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 13 - 5. Economic Theory and Competition Law & Policy 5.1 “Competition”- Defined 5.1.1 The World Bank has given a broad definition of Competition as “a situation in a market in which firms or sellers independently strive for the buyers’ patronage in order to achieve a particular business objective for example, profits, sales or market share”.17 5.1.2 However, Competition is a word that is given many and different meanings. Stigler (1957/1965, p. 237) finds five preconditions for competition in The Wealth of Nations: 1. The rivals must act independently, not collusively. 2. The number of rivals, potential as well as present, must be sufficient to eliminate extraordinary gains. 3. The economic units must possess tolerable knowledge of the market opportunities. 4. There must be freedom (from social restraints) to act on this knowledge. 5. Sufficient time must elapse for resources to flow in the directions and quantities by their owners.18 5.1.2 Harkening back to the classic organizing framework of industrial economics, the structure-conduct-performance approach, competition has at times been conceived of in terms of:  Structure: a market is competitive if there are a large number of equally efficient active suppliers and/or if barriers to entry are low;  Conduct: a market is competitive if suppliers behave in a rivalrous way;  Performance: a market is competitive if equilibrium price is equal to marginal cost (and/or equal to average cost).19 17 Link to this definition: http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTINFORMATIONANDCOMMUNICATIONANDT ECHNOLOGIES/0,,contentMDK:21035032~menuPK:282850~pagePK:210058~piPK:210062~theSitePK:282823~i sCURL:Y,00.html#C 18 Manfred Neumann and Jürgen Weigand, The International Handbook on Competition, II Edition, 2013, page 5, 6 19 Ibid, page 45, 46
  • 15. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 14 - 5.2 Competition law and Policy 5.2.1 The Raghavan Committee Report20 had suggested that- “2.1.1. Competition policy is defined as "those Government measures that directly affect the behavior of enterprises and the structure of industry". The objective of competition policy is to promote efficiency and maximize welfare. In this context the appropriate definition of welfare is the sum of consumers' surplus and producers' surplus and also includes any taxes collected by the Government. It is well known that in the presence of competition, welfare maximization is synonymous with allocative efficiency.” 5.2.2 This principle has ultimately been established in the preamble to the Competition Act, 2002, which reads as: “An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.” 5.2.3 Thus, the policies attached behind the Indian Competition Act, 2002, can be seen as: - To prevent practices having adverse effect in competition; - To promote and sustain competition in markets; - To protect the interests of consumers; - To ensure freedom of trade carried on by other participants in markets in India. 5.2.4 As has been seen in the preamble and as are the prevailing approaches behind the competition law is that Competition laws should be created and used in the spirit of efficiency and economic welfare along with protecting the interests of consumers. 5.2.5 The Raghavan Committee Report has also observed that “the ultimate raison d’être of competition is the interest of the consumer. The consumer’s right to free and fair competition cannot be denied by any other consideration.”21 20 Report of the High Level Committee on Competition Policy and Law, Government of India, 2000 (hereinafter “Raghavan Committee Report”) 21 Ibid, paragraph 1.1.9
  • 16. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 15 - 5.3 Need of Economic Theory 5.3.1 Economic theory has a lot to say about firms’ diverse behavior in different markets. Through economic theories one can observe the behaviors and understand the reasons why the firms are acting in a certain way. In the case of predicting behavior on the market it can also be of great importance to use economic theory.22 5.3.2 The behavior of firms within the market on which they operate is a subject which has often been dealt with in economic theory. There is a sense in which imperfect competition can be seen as part of the different strategies undertaken by firms to exclude a competitor from a market.23 5.3.3 When used in the specific context of competition law, economics plays two main roles, each of which is shaped by specific institutional and procedural factors. One is normative. In it, economics supplies the content of legal norms. It provides the normative standards that are applied to conduct in order to assess whether the conduct is deemed to violate law. In doing this, it shapes the questions to be asked in competition law, supplying the concepts and categories that are used in the process of assessing the lawfulness of conduct. Concepts and categories drawn from economic science- such as, for example, ‘efficiency’- become operative standards of the legal system. The other role is that of fact interpretation. Here, the role of economics is to specify methods to be used in answering factual questions- questions about what has happened or what the consequences of particular conduct are likely to be. Given that antitrust laws are designed to prevent particular kinds of harm to the competition process, the issue is often ‘Did particular kinds of conduct “cause” particular results?’ This may involve issues such as the assessment if the market power of the enterprises involved, the characteristics of the markets in which they operate and other purely factual issues. Economics can provide abstract models and testable hypotheses for use in making these factual determinations, and it can supply methods for analyzing them.24 5.3.4 In EU regime, Economic theory has come to aid to answer the questions where, why, how and when a creation or strengthening of a collective dominance, followed by a merger, is about to occur and when it can be assumed to be followed by tacit coordination. Economic 22 Karolina Rydman, Supra n. 1, page 9, paragraph 3.1 23 Ana Rosado Cubero, Barriers to Competition: The evolution of the debate, Number 3, 2010, page 20 24 Josef Drexl, Laurence Idot & Joel Moneger, Economis Theory and Competition Law, 2009, page 25
  • 17. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 16 - theory shows that, by facilitating coordinated behavior in markets with an oligopolistic structure, mergers may also lower welfare.25 5.3.5 The economic theory is, thus, a tool for analyzing: - the behavior of firm(s) in the current markets; - impact of the merger or combination on the post-merger market(s); - the structure of the market; - ability of the firm(s) to influence the rest of the market. 5.3.6 Before moving on to the concept of “Collective Dominance” it would be imperative to understand the different types of market structures that may enable firms to hold a collective dominant position. The different kinds of markets that are generally considered are: - Perfect Market - Monopoly - Oligopolistic Market 5.3.7 For our purposes, we need to lay stress upon the Oligopolistic type of market more than the other two. Oligopoly shows trait from both the perfect market structure and a monopolistic market structure. 5.4 Perfect Market 5.4.1 In economic theory, perfect competition (sometimes called pure competition) describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product.26 5.4.2 Perfect Market (or Perfect Competition or Pure Competition) is theoretically a free market situation which is hardly a reality and more of a myth. The model of perfect competition is the first economic model that most economists learn, but perversely it bears little relations to reality.27 For such a market to exist, several conditions are required to be met: 1. The market price is considered as given by each player on the market; 25 Karolina Rydman, supra n.1, page 9-10, paragraph 3.1 26 http://en.wikipedia.org/wiki/Perfect_competition 27 Simon Bishop and Mike Walker, The Economics of EC Competition Law, Sweet & Maxwell, 3rd Edition, 2010, page 22
  • 18. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 17 - 2. Buyers and sellers are too numerous and too small to have any degree of individual control over prices; 3. The prices are determined on the basis of the market forces of supply and demand. 4. All buyers and sellers seek to maximize their welfare; 5. Buyers and sellers can freely enter or leave the market. This implies that there are no costs, other than the normal costs, connected to the entrance on a market for a new firm to produce or to leave the market if the earnings do not meet expectations; 6. All buyers and sellers have access to information regarding availability, prices and quality of goods being traded; 7. All goods of a particular nature are homogeneous; hence, the products of all the firms in a market are perfectly substitutable with one another. 5.4.2 Perfect Competition delivers both productive efficiency and allocative efficiency. Productive efficiency occurs when a given set of products are being produced at the lowest possible cost and if any firm that does not produce at the lowest possible cost will lose money and exit the market. In perfect competition, economic profits for efficient firms are zero and so inefficient firms must lose money. This leads to firms being productively efficient because the pursuit of the maximum possible profits gives firms an incentive to reduce costs as far as possible.28 5.4.3 Further, the eternal competition on the perfect market demands firms to innovate new products to remain on the market. In this kind of market, the firms have very small incentives to coordinate their behavior. This is because a firm in a perfect competitive market can produce to a level that they chose without affecting the market price. Therefore, firms operating the same market have no reason to consider other firms’ perspectives or behaviors but are able to focus on the direction of their own work.29 5.4.3 A perfect market offers a variety of companies and products which provide multiple choices for the consumers. In other words, it can be described as the exploitation of resources in the most effective way of giving consumers the greatest benefit. 30 This can be called as allocative efficiency feature of the perfect competition. 5.4.4 Now, what the Competition Laws across the countries try to achieve is a “Perfect Market” situation. In Indian context too one can find in the Statement of Objects and Reasons 28 Simon Bishop and Mike Walker, supra n. 26, at page 25 29 Karolina Rydman, Supra n. 1, page 11 30 Ibid, page 11
  • 19. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 18 - and Preamble attached to the Competition Act, 2002, that the purpose is “…to prevent practices having adverse effect on competition, to ensure and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets in India…”31 5.5 Monopoly 5.5.1 A monopoly is the total opposite of a perfect market. Markets with monopoly can show different grades of monopoly, for example, there is monopolistic competition on markets when there are more firms than one which are producing its own brand or version of a differentiated product.32 5.5.2 For our purpose, it is enough to sketch the picture of the kind of monopoly called, the pure monopolistic market. In such a market there is just one sole producer of the product i.e. the monopolist is the market and can therefore totally control the output which is provided the consumers. This situation gives the firm control over price and can set a price which does not equal marginal cost but exceeds it. Thus, a monopolist can increase price by reducing the volume of his own production. Through this behavior the consumers will be suspended from the possibility to buy the goods and services that they would have liked to buy. The result of this is that consumers will spend their money on things that does not really match their needs. Since, the resources in this situation are not allocated in the most efficient way the economy can be described as subject to a loss, also known as deadweight loss. Another problem with monopoly is that the productive efficiency probably is lower than on other markets. This is because a monopolist is not forced by competition to push the costs of production to the lowest level. In other words, they do produce the right products, but they could have produced it more efficiently. Furthermore, a monopolist is transferring wealth from the consumer to himself by charging higher prices than he would do if the market was competitive.33 5.5.3 It is on these lines, various nations have various Merger Regulations which prohibit the mergers which lead to a pure monopolistic market and will destroy all competition on the market. 31 Preamble to the Competition Act, 2002 32 Karolina Rydman, supra n. 1, page 12, paragraph 3.3 33 Karolina Rydman, supra n. 1, page 12, paragraph 3.3
  • 20. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 19 - 5.5.4 Even in Indian Competition Act, Section 6 sub-section (1) provides that no person or enterprise shall enter into a combination which causes or is likely to cause an appreciable adverse effect on competition. And, sub-section (2) provides for the reporting of a proposed merger or combination to the Competition Commission of India. 5.6 Oligopoly 34 5.6.1 In an oligopolistic market, there are only a few firms competing with each other. The meaning of the expression oligopoly means “sale by few sellers”. However, it is not as simple to direct the problem of oligopoly to the number of firms operating on the market. It is rather about identifying dominance, or to be said in economic terms, market power. It is the market power of the firms that will give them the possibility to cause effects that will impede the competition, for example by raising prices. However, the firms operating on an oligopolistic market are often not more than 3-5. 5.6.2 Perfect competition and monopoly are both situated as outliers on a scale of market structures. The oligopolistic market lies in between those. There are barriers to entry to an oligopolistic market but not as high as in monopolistic markets. Sometimes firms are active in competing with each other in oligopolistic markets and the prices will be close to the level as in a perfect market. In other cases, the firms in this kind of market will choose to coordinate and the prices will be set above the competitive level to a price close to the level at a monopolistic market. 5.7 Theory of Oligopolists’ Interdependence35 5.7.1 Since the leading firms in an oligopolistic market are few they know about each other and are well aware of the impact that price setting and output have on the individual firms. In other words, the firms are interdependent as their decisions depend upon how the other firms act. According to this theory, the firms are often acting consciously through ‘parallel behavior’. This is often seen in practice as similar prices of their products and that individual price adjustments are followed by other players. The firms are acting in the same direction but without any explicit coordination. The interest of each firm is to maximize their profit. Through independent decisions, they are following the other's behavior to achieve this goal. 34 Ibid, page 12-13, paragraph 3.4 (as explained by her in her article) 35 Karolina Rydman, supra n. 1, paragraph 3.4.1 (as explained by her in her article)
  • 21. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 20 - 5.7.2 This so called ‘parallel behavior’ is easier to arise when the quantity of the leading firms on the market are less and when the products are homogeneous, the demand on the market is falling, the market holds one dominant firm, competition which is not related to price are unlikely and when the barriers to entry are high. 5.7.3 The situation of reciprocity between firms seems to be reserved to the oligopolistic market. As explained above, it is not a situation of interdependence between the actors on the perfect market since their output on the market does not affect the price i.e. they are price takers. In a monopolistic market there is also no interdependence simply because of the lack of competitors. 5.7.4 However, the theory of the oligopolistic interdependence has faced much criticism. It has been accused of ignoring the complexity of the industrial market. The theory indicates that interdependence between firms is strong when they are producing homogeneous products and charging the same price. This situation is, according to the critics, not true since the conditions on the markets are more complex which makes the conclusion of interdependence far from reality. Proponents of this theory seem to be unable to explain why interdependence is not a fact at every oligopolistic market. Another aspect of this theory that is criticized is that it does not really explain how the decisions of the firms operating on the market, for example setting constant parallel prices, can be made without cooperation. 5.8 Theory of Prisoners’ Dilemma36 5.8.1 This theory illustrates how rival firms could act to their disadvantage if they don’t get to act to in collusion. 5.8.2 Two criminals, A and B, are arrested after committing a big bank robbery. However, the evidence is not adequate to make the robbery charge stand unless one or both criminals confess. Each suspect is interrogated in isolation so that there is lack of communication between the suspects. Each has been asked to confess the crime. During the interrogation both the prisoners have been told individually as follows: (i) If both confess to each other’s crime, then each will go to jail for 10 years; 36 As explained by Dr. Deepashree in her book “Micro Economics-II” for University of Delhi, 2nd Edition, 2013 on pages 4.14 – 4.16
  • 22. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 21 - (ii) If both do not confess to each other’s crime, then both will get 2 years sentence each; (iii) If A confesses that B has done the crime and B does not confess that A has done the crime, then A gets the reduced sentence of 1 year and B gets 20 years imprisonment. 5.8.3 Thus, each suspect has two strategies open to himself, to confess or not to confess and is faced with the dilemma. The essence of the dilemma is that neither criminal knows whether his accomplice will admit or deny the charge made against him. Each criminal must make his own choice. Each prisoner faces uncertainty as to the loyalty of the other and prefers to adopt the second strategy, i.e. to confess, so that both get a 10-year sentence. By confession, each prisoner is attempting to make the ‘best’ of the ‘worst’ outcomes. But, this is a worse situation as compared to the ‘no confession’ strategy in which both could get freedom. Thus, the decision to ‘confess’ or cheat, regardless of what the other does, ‘dominates’ the decision of neither cheating nor confessing. 5.8.4 The Prisoner’s Dilemma model provides a good perspective on strategic behavior in an oligopolistic market. The interdependence of the firms in an oligopoly is similar to the problem faced by two individuals involved in a Prisoner’s Dilemma situation. 5.8.5 Considering a duopoly situation, each firm gets to decide the price to charge for its product. Each firm is ignorant of the decision of the other firm. Depending on the price charged, each will earn varying levels of profits. Relating to the Prisoner’s Dilemma situation, these firms will face the following situation: (i) If both firms charge a price of Rs. 10/-, each will earn a profit of Rs. 200/-; (ii) If both firms raise their prices to Rs. 20/-, then each firm’s profits will increase to Rs. 250/-; (iii) If firm A raises its price to Rs. 20/- and firm B holds it constant at Rs. 10, then A gets reduced profit of Rs. 100/- and B gets profit of Rs. 300/- and vice versa. 5.8.6 Thus, each firm has two strategies open to itself, to charge Rs. 10/- or Rs. 20/- per unit and is face with dilemma. The actions are mutually interdependent. 5.8.7 If firm A increases the price and firm B does not, firm A loses and vice-versa. The equilibrium strategy is a price of Rs. 10/-, but it is clear that if only they could communicate and
  • 23. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 22 - reach an effective agreement to charge Rs. 15/-, they would earn higher profits. This type of situation is known as “Prisoner’s Dilemma”. 5.8.8 A good deal of experiments have been done on the testing on Prisoner’s Dilemma hypothesis in oligopoly theory by L. B. Lave37 , J. L. Murphy38 , Fouraker and J. W. Friedman39 . The evidences forthcoming from the above empirical studies conclude that: (i) Joint profitability can be materially improved through collusion or cooperation; and (ii) The attitude of firms towards collusion would be colored by past experience of price wars and the degree of uncertainty which they face. 5.9 Tacit Coordination and Prisoner’s Dilemma 5.9.1 Tacit Coordination, or Tacit collusion, literally means “understood or implied coordination or action in agreement”. And, in economics means that firms behave in a parallel way without corresponding with each other. 5.9.2 As can be seen from the Prisoner’s Dilemma model, firms in an oligopolistic market have strong incentives to concert their behavior. This could be either through agreements, or concerted practices, cartelization, or by tacit coordination. 5.9.3 There are conditions for tacit coordination to arise and be sustainable which can be explained through these two following statements.40 1. The firms must have an incentive to avoid competing with each other A basic incentive for the firms to coordinate their behavior is that the firms will be better off in the case of not competing with each other than in a normal competitive situation. The likelihood for tacit coordination increases when the firms have common interests and when their strategic goals are unified enough. 37 L. B. Lave, An Empirical approach to the prisoner’s dilemma game”, Quarterly Journal of Economics, August 1962 38 J. L. Murphy, Quarterly Journal of Economics, May 1966 39 J. W. Friedman, An experimental study of co-operative duopoly, Econometrica, July-Oct, 1967 40 Karolina Rydman, Supra n. 1, pages 32, 33
  • 24. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 23 - 2. Tacit coordination must be possible to achieve The possibility of tacit coordination consists of several factors. One factor is that the cost must be relatively low which means that the market should be fairly stable. The likelihood of tacit coordination also decreases when consumers are price sensitive, and when there are low barriers to market entry. For tacit coordination to sustain it is also of great importance that deviations are easy for other participating parties to detect and punish. If not so, tacit coordination will be impossible to uphold. If a firm, participating in a tacit coordination will lower its prices, the other firm will when detecting this, also lower their price and a price war will emerge. Therefore, there will be no profits for the deviating firm. The only outcome of this deviation is that the margins of the firms fall and that their market shares are the same as before the deviation. This reasoning follows from the theory of prisoners’ dilemma discussed above. The result in practice is that the firms can sell their products at higher prices than at competitive prices. Thus, they maximize their joint profit at the cost of the consumers. 5.10 Aim of the Competition Laws and Policy 5.10.1 Having understood the economic concepts of perfect market, monopolistic market, oligopolistic market and the interdependence of firms in these markets especially by way of coordination, either express coordination or tacit coordination, one can easily make out what situation is the best situation for running a favorable economy. It becomes important for any person, or nation for the matter, in order to run an economy in favor of its people and their welfare that it avoids the situations of monopoly or coordinated oligopoly. 5.10.2 And, this is the reason why most of the competition law regimes have also concentrated upon avoiding or regulating the coordinated oligopoly by way of “concerted actions”, “cartelization”, or “Collective dominance” along with monopolistic situations.
  • 25. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 24 - 6. Understanding Collective Dominance 6.1 What is Collective “Dominance”? 6.1.1 The basis of this dissertation and the most important question that has been discussed in this dissertation is that of “Collective Dominance”. But, before that it would be imperative to understand the two words, ‘collective’ and ‘dominance’, separately. 6.1.2 The term ‘Dominant Position’ was first defined by the European Court of Justice in the United Brands case41 as: “a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained in the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of consumers”. 6.1.3 A firm which is considered to entitle dominance has a high degree of market power. In EU regime, the main factor when a merger significantly impedes effective competition is when it creates or strengthens a dominant position.42 6.1.3 The Raghavan Committee Report, which was the basis of the formation of the Indian Competition Act, 2002, had recommended in paragraph no. 4.4.5 while dealing with “Dominance”: “The Committee recommends that "Dominance" and "Dominant Undertaking" may be appropriately defined in the Competition Law in terms of "the position of strength enjoyed by an undertaking which enables it to operate independently of competitive pressure in the relevant market and also to appreciably affect the relevant market, competitors and consumers by its actions”. The definition should also be in terms of “substantial impact on the market including creating barriers to new entrants". This definition may perhaps appear to be somewhat ambiguous and to be capable of different interpretations by different judicial authorities. But then, this ambiguity has a justification 41 Case 27/76, United Brands Company and United Brands Continentaal BV v. Commission of the European Communities, paragraph 65 42 Karolina Rydman, Supra n. 1, page 15
  • 26. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 25 - having regard to the fact that even a firm with a low market share of just 20% with the remaining 80% diffusedly held by a large number of competitors may be in a position to abuse its dominance, while a firm with say 60% market share with the remaining 40% held by a competitor may not be in a position to abuse its dominance because of the key rivalry in the market. Specifying a threshold or an arithmetical figure for defining dominance may either allow real offenders to escape (like in the first example above) or result in unnecessary litigation (like in the second example above). Hence, in a dynamic changing economic environment, a static arithmetical figure to define “dominance” will be an aberration. With this suggested broad definition, the Authorities/Tribunals concerned would have the freedom to fix errant undertakings and encourage competitive market practices even if there is a large player around. Abuse of dominance is key for the Competition Policy/Law.” 6.1.4 In paragraph 4.4.8, the Raghavan Committee Report also suggested that, “To be considered dominant, a firm must be in a position of such economic strength that it can behave, to an appreciable extent, independently of its competitors and customers. Therefore, to assess dominance it is important to consider the constraints that an enterprise faces on its ability to act independently. The current market share is a necessary but insufficient pre-requisite for dominance. In spite of having a large market share a firm may be constrained by the threat of competition from potential entrants and by the purchasing power of its own customers. Entry barriers could result from absolute advantages such as patents (legal) and access to certain inputs. These could also result from strategic first-mover advantages. High sunk cost could make markets incontestable. Exclusionary practices could increase the strategic advantages of the first mover. Lastly, factors other than existing or potential competition need to be considered. For example, strong purchasing power – if customers are powerful relative to the enterprise – can also constrain the behaviour of the firm.” 6.1.5 On these lines, while “dominance” (“dominant position”) has been defined explicitly in Explanation (a) attached to Section 4 of the Competition Act, 2002, the term “collective” shall have to be understood in a more literal sense. 6.1.6 “Dominant Position” means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to- (i) Operate independently of competitive forces prevailing in the relevant market; or
  • 27. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 26 - (ii) Affect its competitors or consumers or the relevant market in its favor.43 6.1.7 So far, and at present, the concept of dominance provided for under Section 4 of the Competition Act, 2002, embraces concept of single dominance, i.e. the situation of dominance abused only by an enterprise or a group, i.e. single enterprise or a group of inter-related entities (or group of entities under one control or management). Section 4 (1) presently reads as follows: “No enterprise of group shall abuse its dominant position.” 6.1.8 And, explanation (c) attached to the section 4 has defined the term “group” to have the same meaning as assigned to it in clause (b) of the Explanation to section 5 which is more in the nature of controlling power or controlling stake in an enterprise. The definition of “Group” can be read as under: “Explanation- (b) "group" means two or more enterprises which, directly or indirectly, are in a position to — (i) exercise twenty-six per cent or more of the voting rights in the other enterprise; or (ii) appoint more than fifty per cent of the members of the board of directors in the other enterprise; or (iii) control the management or affairs of the other enterprise; 6.1.9 “Collective” literally, as given in Oxford Dictionary, means “adj. 1. Formed by or constituting a collection; 2. Taken as a whole; 3. Common”. Therefore, Collective dominance can be described as a position of two or more ‘independent entities’ that together hold a position of joint dominance where they act or present themselves as one unit. 6.2 How is Collective Dominance supposed to be interpreted? 6.2.1 The concept of collective dominance, since new to the Indian Competition law and policy, can be studied in reference to the developments in the EU Competition law and policy regime in this regard. 43 Explanation (a) attached to Section 4 of the Competition Act, 2002
  • 28. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 27 - 6.2.2 In EU regime also, the concept has developed through case laws and mainly by defining “Collective Dominance” under Article 102 TFEU (previously Article 82, and, before that Article 86). However, “Collective Dominance” is interpreted in the same way in merger cases. 44 6.2.3 The Article 102 TFEU states that: “Article 102 (ex Article 82 TEC) Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.” 6.2.4 The previous Article 82 (and, Article 86 before that) was first aptly interpreted by the Court in the leading Italian Flat Glass45 case in paragraphs 357 and 358 as: “357. The Court notes that the very words of the first paragraph of Article 8646 provide that "one or more undertakings" may abuse a dominant position. It has consistently been held, as indeed all the parties acknowledge, that the concept of agreement or concerted practice between undertakings does not cover agreements or concerted practices among undertakings belonging to the same group if the undertakings form an economic unit. It follows that when Article 85 refers to agreements or concerted practices between "undertakings", it is referring to relations between two or more economic entities which are capable of competing with one another. 358. The Court considers that there is no legal or economic reason to suppose that the term "undertaking" in Article 86 has a different meaning from the one given to it in the context of Article 85. There is nothing, in principle, to prevent two or more independent economic entities from being, on a specific market, united by such economic links that, by virtue of that fact, together they hold a dominant position vis-à-vis the other operators on the same market. This could be the case, for example, where two or more independent undertakings jointly have, through agreements or licences, a technological lead affording them the power to behave to an appreciable extent independently of their competitors, their customers and ultimately of their consumers.” 44 Karolina Rydman, Supra n. 1, page 19 45 Joined cases T-68/89, T-77/89 and T-78/89, Società Italiana Vetro SpA, Fabbrica Pisana SpA and PPG Vernante Pennitalia SpA v Commission of the European Communities (hereinafter “Italian Flat Glass case”) 46 Now, Article 102 TFEU
  • 29. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 28 - 6.2.5 In other words, it cannot be excluded that two or more independent firms in a specific market have economic links that give them a collective dominant position relative to other firms in the same market. The Court has then clarified the question as to how the economic links of two or more inter-connected firms are supposed to be interpreted by giving an example of agreements or licences which would give them a technological lead and constitute an independent behavior towards their competitors.47 6.2.6 In Gencor case48 , the Court had observed as follows: “276. Furthermore, there is no reason whatsoever in legal or economic terms to exclude from the notion of economic links the relationship of interdependence existing between the parties to a tight oligopoly within which, in a market with the appropriate characteristics, in particular in terms of market concentration, transparency and product homogeneity, those parties are in a position to anticipate one another's behavior and are therefore strongly encouraged to align their conduct in the market, in particular in such a way as to maximize their joint profits by restricting production with a view to increasing prices. In such a context, each trader is aware that highly competitive action on its part designed to increase its market share (for example a price cut) would provoke identical action by the others, so that it would derive no benefit from its initiative. All the traders would thus be affected by the reduction in price levels. 277. That conclusion is all the more pertinent with regard to the control of concentrations, whose objective is to prevent anti-competitive market structures from arising or being strengthened. Those structures may result from the existence of economic links in the strict sense argued by the applicant or from market structures of an oligopolistic kind where each undertaking may become aware of common interests and, in particular, cause prices to increase without having to enter into an agreement or resort to a concerted practice.” 6.2.7 In another case of Compagnie maritime case49 , it was observed by the Court as follows: 47 Karolina Rydman, Supra n. 1, pages 19, 20 48 Case T-102/96, Gencor Ltd v Commission of the European Communities (hereinafter “Gencor case”) 49 Joined Cases 395/96 P. and 396/96 P., Compagnie maritime belge transports SA (C-395/96 P), Compagnie maritime belge SA (C-395/96 P) and Dafra-Lines A/S (C-396/96 P) v Commission of the European Communities, paragraphs 35-36, 38, 41-45 (hereinafter “Compagnie Maritime case”)
  • 30. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 29 - “In terms of Article 86 of the Treaty (now Article 82 EC50 ), a dominant position may be held by several undertakings. The concept of undertaking in the chapter 1 of the Treaty devoted to the rules on competition presupposes the economic independence of the entity concerned. It follows that the expression one or more undertakings in Article 86 of the Treaty implies that a dominant position may be held by two or more economic entities legally independent of each other, provided that from an economic point of view they present themselves or act together on a particular market as a collective entity. That is how the expression collective dominant position should be understood. In order to establish the existence of a collective entity, it is necessary to examine the economic links or factors which give rise to a connection between the undertakings concerned. In particular, it must be ascertained whether economic links exist between those undertakings which enable them to act together independently of their competitors, their customers and consumers. The mere fact that two or more undertakings are linked by an agreement, a decision of associations of undertakings or a concerted practice within the meaning of Article 85(1) of the Treaty (now Article 81(1) EC51 ) does not, of itself, constitute a sufficient basis for such a finding. On the other hand, an agreement, decision or concerted practice (whether or not covered by an exemption under Article 85(3) of the Treaty) may undoubtedly, where it is implemented, result in the undertakings concerned being so linked as to their conduct on a particular market that they present themselves on that market as a collective entity vis-à-vis their competitors, their trading partners and consumers. The existence of a collective dominant position may therefore flow from the nature and terms of an agreement, from the way in which it is implemented and, consequently, from the links or factors which give rise to a connection between undertakings which result from it. Nevertheless, the existence of an agreement or of other links in law is not indispensable to a finding of a collective dominant position; such a finding may be based on other connecting factors and would depend on an economic assessment and, in particular, on an assessment of the structure of the market in question. Furthermore, a finding that two or more undertakings hold a collective dominant position must, in principle, proceed upon an economic assessment of the position on the relevant market of the undertakings concerned, prior to any examination of the question whether those undertakings have abused their position on the market.” 50 Now, Article 102 TFEU 51 Now, Article 101 TFEU
  • 31. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 30 - 6.2.8 The conclusions that can be drawn from the above paragraphs can be seen as follows: - Dominant position may be held by two or more economic entities; what is important is legal independence; however, from an economic point of view they present themselves or act together on a particular market as a collective entity. - It is necessary to examine the economic links or factors which give rise to a connection between the undertakings concerned. - Mere fact of linkage by way of an agreement or a concerted practice within the meaning of Article 101 TFEU does not constitute a sufficient basis for upholding “Collective Dominance”. However, such agreements or practices may result in the undertakings so linked that they present themselves as a collective entity. - Another factor relevant for assessing a “Collective Dominance” is the economic assessment of the “relevant market”. 6.3 How does the concept of Collective Dominance correlate to Tacit Coordination? 6.3.1 Economic theories have had a great impact on the development of collective dominance. Economic theories provide tools to use when assessing whether firms on a market are likely to coordinate their behaviour and give rise to collective dominance. A comparison of the economic characteristics of an oligopolistic market respective a perfect market and a monopoly provide insight into the conditions for collective dominance to occur. 6.3.2 The economic arguments for collective dominance to be assessed from a more economic, i.e. effects based, point of view were adhered to in the case Airtours v. Commission52 in the year 2002. Thus, the assessment of collective dominance has focused in finding tacit coordination rather than finding market characteristics that facilitate collective dominance.53 6.3.3 In Airtours case, the Court had laid down certain conditions for “Collective Dominance” to exist. One among those conditions was that “the situation of tacit coordination must be sustainable over time”. 52 Case T-342/99, Airtours plc v Commission of the European Communities (“Aitrours case”) 53 Karolina Rydman, Supra n. 1, page 3
  • 32. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 31 - 6.3.4 The Court in Airtours case, while referring to Gencor case, had observed: “A collective dominant position significantly impeding effective competition in the common market or a substantial part of it may thus arise as the result of a concentration where, in view of the actual characteristics of the relevant market and of the alteration in its structure that the transaction would entail, the latter would make each member of the dominant oligopoly, as it becomes aware of common interests, consider it possible, economically rational, and hence preferable, to adopt on a lasting basis a common policy on the market with the aim of selling at above competitive prices, without having to enter into an agreement or resort to a concerted practice within the meaning of Article 81 EC (see, to that effect, Gencor v Commission, paragraph 277) and without any actual or potential competitors, let alone customers or consumers, being able to react effectively.”54 6.3.5 In this paragraph, the Court has stated the ways in which “Collective Dominance” by way of “Tacit Coordination” may be achieved- - As a result of a concentration; - Coming together in common interests; - Adopting an economically rational and lasting policy on the market with the aim of selling at above competitive prices, without entering into an agreement or a concerted practice within the meaning of Article 81 EC (Now, 101 TFEU) 6.3.6 The Court, then, in the next paragraph in Airtours case went on to lay down three conditions necessary for finding “Collective Dominance”.55 The three conditions can be seen as follows: (i) Each member of the dominant oligopoly must have the ability to know how the other members are behaving in order to monitor whether or not they are adopting the common policy. It is not enough for each member of the dominant oligopoly to be aware that interdependent market conduct is profitable for all of them but each member must also have a means of knowing whether the other operators are adopting the same strategy and whether they are maintaining it. There must, therefore, be sufficient market transparency for all members of the dominant oligopoly to be aware, 54 Airtours case, Supra n. 52, paragraph 61 55 Ibid, paragraph 62
  • 33. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 32 - sufficiently precisely and quickly, of the way in which the other members' market conduct is evolving; (ii) The situation of tacit coordination must be sustainable over time, that is to say, there must be an incentive not to depart from the common policy on the market. As the Commission observes, it is only if all the members of the dominant oligopoly maintain the parallel conduct that all can benefit. The notion of retaliation in respect of conduct deviating from the common policy is thus inherent in this condition. In this instance, the parties concur that, for a situation of collective dominance to be viable, there must be adequate deterrents to ensure that there is a long-term incentive in not departing from the common policy, which means that each member of the dominant oligopoly must be aware that highly competitive action on its part designed to increase its market share would provoke identical action by the others, so that it would derive no benefit from its initiative; (iii) To prove the existence of a collective dominant position to the requisite legal standard, the Commission must also establish that the foreseeable reaction of current and future competitors, as well as of consumers, would not jeopardise the results expected from the common policy. 6.3.7 From these conditions, the Court has tried to define the concept of “Collective Dominance” on effects based approach applied to the concept of “Tacit Coordination” that may be involved among the firms.
  • 34. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 33 - 7. Significance in India Besides understanding the concept of “Collective Dominance”, the major purpose of this dissertation is to understand the relevance and significance of this concept in Indian perspective and to understand the need of the proposed amendment to be brought in present Section 4 by the Competition Bill, 2012. 7.1 Amendment proposed to amend Section 4 7.1.1 An amendment has been proposed to the present Section 4 of the Act. If the amendment is brought in then, upon a proper interpretation, the concept of “Collective Dominance” shall be put into force. So far only individual entities or entities coming under a group were not allowed to abuse their dominant position, but with the coming into effect of the proposed amendment, even unrelated entities would be brought in and made liable under the amended Section 4 once it is established that they have been enjoying their dominant position “either jointly or singly”. 7.1.2 The amended Section 4 has further added the words “either jointly or singly” after the words “enterprise or group” appearing in the existing Section 4.56 Thus, the Section 4 will now, thus, be read as follows: “No enterprise or group, either jointly or singly, shall abuse its dominant position.” 7.2 Why need it when we have provisions to control “Concerted Practices”, “Cartelization”, and “Tacit Coordination” along with the regulation of Mergers? 7.2.1 This was the first question that was put before when I started the discussion on this concept with one of the senior professionals in the Indian competition law regime that when we already have the provisions for controlling and even prohibiting “concerted practices”, “Cartelization”, “tacit coordination” (Section 3) and “Mergers or Combinations” (Section 5) then do we really require the proposed amendment that would bring in the concept of “Collective Dominance”. The questions were raised that when the purpose of the concept of “Collective 56 Supra n. 9
  • 35. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 34 - Dominance” is to curb the ill practices that may crop in an oligopolistic market which is already being done by the provisions of Section 3 and Section 5 and to some extent Section 4, then the existing competition law requires no further amendments. 7.2.2 However, in my further submissions it will be shown why do we need the proposed amendment and how will this concept of “Collective Dominance” be explicit in use in India by separately analyzing Sections 3, 4, 5 and 6. 7.2.3 For the starters, Section 3 deals specifically with agreements whether be it explicitly entered into or implied by the actions or by formation of any association or cartel. And, in a way are best tried to be prohibited at the initial stages. Similarly, Sections 5 and 6 deal with the control of Mergers or Combinations at their initial stages only i.e. when they are proposed to be entered into such a Combination. Section 4 deals with the “Abuse of the Dominant Position”. Section 4 is in a way applied to control the established enterprises when they begin to dominate their position. 7.3 Analyzing Section 3 7.3.1 Section 3(1) in clear terms prohibits any person or enterprise or association of persons from entering into any agreement which is causes or is likely to cause an appreciable adverse effect on competition within India. This means that the section tries to prevent firms from entering into agreements at the very stage of entering into the agreement. Not only that, certain agreements as provided in the definition of “agreement” in Section 2(b), which cannot be detected, like implied agreements, have also been tried to be prohibited. 7.3.2 Sub-Section (2) expressly provides for the illegality of any and every agreement into in contravention of sub-section (1). The only requirement is that such agreements cause an appreciable adverse effect on competition. What would constitute an “appreciable adverse effect on competition” has been provided in sub-sections (3) and (4) on the horizontal scales of an industry and on the vertical scales of an industry respectively. 7.3.3 Sub-section (3) provides for the presumption of existence of “appreciable adverse effect on competition” in cases of any agreement entered into, or practice carried on, or decisions taken
  • 36. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 35 - by, any enterprises or association of enterprises or persons, including cartels57 , engaged in identical or similar trade of goods or provision of services, which- (a) Determine prices; (b) Puts limitations or controls on production, supply, technical developments; (c) Share market or sources of production; (d) Result in bid rigging or collusive bidding. 7.3.4 However, proviso to sub-section (3) has provided exclusion to the Joint-Venture agreements if such agreement increases efficiency in production, supply, distribution, storage, acquisition, or control of goods or provision of services. 7.3.5 Sub-section (4) has similarly provided for the presumption of existence of “appreciable adverse effect on competition” in cases of agreements 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 or, or trade in goods or provision of services, including- (a) Tie-in arrangements; (b) Exclusive supply agreements; (c) Exclusive distribution agreement; (d) Refusal to deal conditions; (e) Resale price maintenance conditions 7.3.6 And, sub-section (5) excludes agreements entered into for the purposes of preservation of intellectual property rights. 7.3.7 Now, it can be seen that Section 3 has already tried to achieve much by restricting or controlling practices which generally have been correlated to the concept of “Collective Dominance” such as express collusive agreements, tacit collusions or coordination, concerted practices or cartelization, however with an exclusion of JV agreements. 7.3.8 In fact, Section 3 has provided what is absent in the Article 101 TFEU i.e. Tacit coordination. Tacit Coordination in EU regime is not considered illegal when entered into unless it is covered under Article 102 TFEU or considered when dealing with ECMR. 57 Cartel has been defined in Section 2(c) and includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services
  • 37. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 36 - 7.3.9 The question as to the necessity of bringing in the amendment, then, seems very much reasonable since it would be doing nothing more than what has already been provided but bring confusion among the practitioners. 7.4 Analyzing Sections 5 & 6 7.4.1 Section 5 provides the definition of Combinations in the nature of Mergers, Amalgamations or Acquisitions and Section 6 provides for regulation and even prohibition of such Combinations. They are the Merger Control Regulations of Indian Competition law. 7.4.2 Section 5 has defined “Combination” as the acquisition, in the nature of share purchase or of control, of one or more enterprises by one or more persons (or a group) or Merger or amalgamation of enterprises on the bases of post-merger or post-acquisition assets value or Turnover. 7.4.3 “Control” has been specifically defined under the Explanation (a) attached to Section 5 to include controlling the affairs or management by- (i) One or more enterprises, either jointly or singly, over another enterprise or group; (ii) One or more groups, either jointly or singly, over another group or enterprise. 7.4.4 And, “group” has been defined in the explanation (b) as to mean two or more enterprises which, directly or indirectly, are in a position to- (i) Exercise 26% or more of the voting rights in the other enterprise; or (ii) Appoint more than 50% of the members of the board of directors in the other enterprise; or (iii) Control the management of affairs of the other enterprise. 7.4.5 Section 6 prescribes regulations in terms of procedures to be followed when entering into or forming any “Combination”. Sub-section (1), however, prohibits altogether from entering into or forming a “Combination” if it causes or is likely to cause an appreciable adverse effect on competition within relevant market in India and, if entered, it will be void. 7.4.6 Now, in all of the Section 5 sub-section (b) is worth noting as it is different from an acquisition in the nature of shares and from a Merger or Amalgamation, all the more so because of the inclusion of the specific words, such as “control”.
  • 38. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 37 - 7.4.7 Sub-section (b) of Section 5 reads as follows: “(b) acquiring of control by a person over an enterprise when such person has already direct or indirect control over another enterprise engaged in production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service, if-” 7.4.8 Upon a proper reading one can see the following elements of this sub-section: - Acquisition of “Control”; Control has already been defined; - By a person over an enterprise; - Such person already has direct or indirect control over another enterprise; - That other enterprise is engaged in the business of similar or identical or substitutable goods or provision of services. 7.4.9 In this respect, D. P. Mittal58 has very aptly written as follows: “Para 5.9-3 Control- Person having control over another enterprise engaged in production etc. of similar or substitutable goods- A person acquiring control of an enterprise has been defined in section 5(b) of the Competition Act as the one who has already direct or indirect control over another enterprise engaged in production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical substitutable services. The definition provides structural link between the two enterprises over which the said person exercises control. In that case, the person has the ability to adopt a common policy on the market and to act independently of the competitors of the enterprises, customers and consumers. This would mean “Collective Dominance” of two or more enterprises or uncompetitive oligopolies. The two independent enterprises are united by economic links and by virtue of that fact may hold a dominant position vis-à-vis other operators in the same market.” 7.4.10 Thus, analyzing this section and with emphasis on sub-section (b) it can be seen that what has been tried to control and restrict is the “Collective Dominance” by independent enterprises which are united by economic links in the business of similar or identical or substitutable goods or provision of a similar or identical substitutable services but later form a “Combination”. 58 D. P. Mittal, Competition Law & Practice, Taxmann Publications, 3rd Edition, 2011 at Page 352-353
  • 39. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 38 - 7.5 Analyzing Section 4 7.5.1 Section 4, at present, provides that “no enterprise or group shall abuse its dominant position”. The provision prohibits the use of market controlling position to prevent the individual enterprise or a group or a collection of unrelated firm in an industry from driving out competing businesses from the market as well as from dictating prices. The concept of abuse of Dominant Position of market power refers to anti-competitive business practices in which the dominant firm(s) may engage in order to maintain or increase its/their position in the market.59 7.5.2 The provision first supposes that the enterprise(s) or the group(s) enjoy a dominant position in the market, and then prohibits that enterprise(s) or group(s) from abusing it. Thus, “Dominant Position” and “Abuse of Dominant Position” are the two requirements. And, dominance itself is not prohibited. What is prohibited is its “abuse”.60 7.5.3 The definition of “dominant position” has already been discussed. And, “abuse of dominant position” has been explained in sub-section (2) of Section 4 as follows: “There shall be an abuse of dominant position under sub-section (1), if an enterprise or a group- (a) directly or indirectly, imposes unfair or discriminatory— (i) condition in purchase or sale of goods or service; or (ii) price in purchase or sale (including predatory price) of goods or service. Explanation.— For the purposes of this clause, the unfair or discriminatory condition in purchase or sale of goods or service referred to in sub- clause (i) and unfair or discriminatory price in purchase or sale of goods (including predatory price) or service referred to in sub-clause (ii) shall not include such discriminatory condition or price which may be adopted to meet the competition; or (b) limits or restricts— (i) production of goods or provision of services or market therefor; or (ii) technical or scientific development relating to goods or services to the prejudice of consumers; or 59 D. P. Mittal, supra note 58, at Page 281 60 Ibid at Page 283
  • 40. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 39 - (c) indulges in practice or practices resulting in denial of market access in any manner; or (d) makes conclusion of 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 (e) uses its dominant position in one relevant market to enter into, or protect, other relevant market. 7.5.4 The conditions mentioned in this sub-section (2) are very much similar to the conditions present in sub-section (3) of Section 3, excepting the conditions in clauses (d) and (e) of sub- section (2) of Section 4. 7.6 Comparing Sections 3, 4 and 5 7.6.1 Having analyzed these sections we can see that Sections 3 and 5 have very well handled the issue of “Collective Dominance” as understood in terms of the conditions as have been discussed in the leading case laws of the EU regime and discussed above, i.e. - Section 3 covers prohibition of “collusive agreements”, “tacit coordination”, “concerted practices”, and “cartelization”. But, again, “concerted practices” and “cartelization” have been considered only in the cases of business in identical or similar trade of goods or provision of services. These have not been considered in the cases of vertical markets. Also, section 3(4) which has provisions for controlling agreements in respect of vertical arrangements has limited the scope to those 5 kinds of arrangements. - Sections 5 and 6 cover the Combinations which have or are likely to have appreciable adverse effect on competition. But, like sub-section 5(b), which deals specifically with the acquisition on the horizontal level of a market, there is nothing in this section which specifically deals with the acquisition in vertical market.
  • 41. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 40 - 7.6.2 However, what has not been able to achieve is “Collective Dominance” in respect of - Vertical arrangements in view of Section 3(4) Excepting those 5 kinds of arrangements the section does not seek to regulate any other situation that may arise, such as concerted practices among the firms on the vertical scales. For example, there are three firms, A, B and C. A and C are already holding a dominant position in their respective sectors in production chain. And, B is doing good in its sector. Enterprise ‘A’ decides to sell bread and buys bread from a firm ‘B’ which buys its raw material from firm ‘C’. A and C by using their dominant positions are able to make an impact over B and convince B to enter into an informal agreement that they (A and C) will fix (increase or decrease) prices of their as well as B’s products in consultation with each other every month irrespective of whether there are any market fluctuations. However, there is no agreement as given under Section 3(4) so as to make it void under Section 3(2). This is a simple agreement to sell at fixed prices for every other player except that they are fixed by the dominant firms in vertical chain in collusion with each other (and by abusing their dominance over one other firm), which has not been included under Section 3. - Vertical Mergers or Combinations in view of Section 5. For the purposes of this section the Raghavan Committee Report has a better explanation as to why a specific mention of acquisition of control on vertical scales was not made. The Raghavan Committee Report had questioned the need of controlling arrangements or combinations on vertical scales. The relevant extracts from the Report are as follows: “4.6.7 Vertical Mergers Competition Law must not normally have any objections to vertical. Vertical mergers are measures for improving production and, distribution efficiencies. The process internalizes the benefits of supply chain management and, as such cannot be perceived as injuries to competition. Vertical mergers can be treated, as a process by which there is a transmission of a good or a service across departments such that the commodity can be sold in the market without much adaptation. This implies that firms choose to bypass market transaction in favor of internal control. 4.6.8 For the purposes of competition law, integration ought to imply only that administrative direction rather than a market transaction forms the basis of the
  • 42. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 41 - cooperation between two or more individuals engaged in productive or distributive activity. The firm chooses, on the basis of relative costs, whether to perform the activity by itself, subcontract it to others, or to sell a finished or semi finished product to other firms who in turn sell it to the market with or without further processing, as the case may be. The law should understand that the definition of a firm should imply that the entity constitutes the area of operations within which administration rather than market process coordinates work. 4.6.9 The prevailing wisdom has obfuscated the distinction between a market transaction with administrative direction, and replaced the latter with the former. It would be naive for the law to suppose that vertical mergers create less efficiency rather than internal growth. The only difference is a question of historicity. Vertical growth is usually the result of efficiencies that have been present within the firm in the past. Vertical mergers on the other hand, are the result of as yet unrealized efficiencies, which the firm attempts to attain through structural change.” 7.6.3 Seemingly fair enough the concept has not been included. But, it is this very situation for which the amendment as proposed could be put to good use. 7.7 Understanding post-amendment Section 4 w.r.t. Vertical arrangements 7.7.1 It has already been discussed that the present Section 4 only condemns the “abuse” of a “dominant position” by an enterprise or group. But, after the amendment any abuse of a dominant position by an enterprise or a group, either on its own or in collusion with any other unrelated enterprise or group will also be taken into consideration. 7.7.2 Arrangements or Combinations between firms or enterprises in vertical segments which could have “appreciable adverse effect on competition”, but were not taken into consideration by the present sections, can now be covered into this amended section as the sub-section (2) of Section 4 will remain intact. 7.7.3 Raghavan Committee Report had pointed out certain objections that may be linked to the vertical integration: “4.7.0 There could, however, be some specific objections to vertical integration, for example:
  • 43. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 42 -  Fear of Foreclosure It is supposed that, through vertical integration, a firm can create captive distribution channels. This will foreclose the rival firms from the market, represented by the captive distribution network. This may be a problem, if it threatens competition in general.  Entry Blocking Monopolies can have the ability to prevent the entry of firms into the market. Sometime it is claimed that even competitors can come together to prevent a potential entrant. This is sometimes referred to as collective foreclosure. If through integration, firms are able to internalize different levels of production, artificial barriers to entry could be created. This implies that because of the size of the incumbent, a potential entrant’s capital requirements will be high.  Price Squeezes Vertical mergers and integration internalize the process of production and enable a firm to perhaps reduce costs. This will result in reduction in output prices, which is usually interpreted as a price squeeze. The law should question only those monopolies resulting from vertical mergers (integration) that lead to output restriction rather than preventing vertical integration.” 7.7.4 If the amendment in section 4 is approved then any “dominant” firm would be guilty of “abusing its dominance”, if it jointly with its raw material supplier or anyone in the vertical chain does any of the things as given in sub-section (2), and would, thus, address the above mentioned objections as follows: - Fear of Foreclosure: Clauses (b): limiting or restricting (i) production of goods or provision of services or market therefor, or (ii) technical or scientific development relating to goods or services to the prejudice of consumers. - Entry Blocking: Clause (c): indulges in practice or practices resulting in denial of market access.
  • 44. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 43 - - Price squeezes: Clause (a): directly or indirectly, imposes unfair or discriminatory (i) conditions in purchase or sale of goods or services, or (ii) price in purchase or sale of goods or services. 7.7.5 Besides addressing the above objections the Sub-section (2) also includes in its domain: (i) Any making or conclusion of contracts subject to acceptance by other parties of supplementary obligations which have no connection with the subject of such contracts; (ii) Using its (or their) dominant position(s) in one relevant market to enter into, or protect other relevant market.
  • 45. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 44 - 8. Conclusion 8.1 In conclusion, with the coming into effect of the proposed amendment to Section 4 of the Competition Act, 2002, the concept of “Collective Dominance” can be put to effect and can be curbed with the help of an express and more direct provision in the Act. 8.2 As regards the questions that may be raised by the Competition Law practitioners as to the necessity of this amendment when we already have Section 3 and Section 5, the amended Section 4 will be an express answer to deal more specifically with the abuses of “Collective Dominance” than going through the Sections 3 and 5. 8.3 Besides, “Collective Dominance” should and need also to be understood in the manner as have been held by the European Courts in the leading cases of Italian Flat Glass case, Gencor case, Compagnie Maritime Belge v. Commission, and the Airtours case, relevant part of which have already been discussed in section 6.2 of this dissertation. This is so because the Article 102 TFEU (previously Article 82, and before that Article 86), which was finely discussed by the courts in the above mentioned cases, contains the words “Any abuse by one or more undertakings of a dominant position” which are similar in nature with the words “No enterprise or group shall, jointly or singly, abuse its dominant position.” 8.4 In cases of conflict as to in which section, whether Section 3 or 4, would a case be dealt with, which can be interpreted both ways, i.e. a cartel like behavior or a collective dominance behavior, the legal position in EU case law of Hoffman La Roche61 is worth mentioning here. The Court of Justice had confirmed in this case that when the conditions of both Article 101 and Article 102 are met so that both provisions have been infringed, the Commission may bring proceedings under either Article. The commission has generally treated anti-competitive joint conduct by parties, including cartel activity, as a matter to be addressed under Article 101. On occasion, however, it has applied the notion of collective dominant position to be addressed by Article 102. 62 8.4 Therefore, in Indian context too the conflict can be resolved by reading both the provision is the same way. By harmonizing both the provisions the situation could be made clear. Further, the penal provisions are also same for the cases falling under Sections 3 and 4 which are contained in Section 27, excepting the provisions for division of enterprise(s) enjoying dominant 61 Case no. 85/76, Hoffmann-La Roche & Co. AG v Commission of the European Communities 62 Mark R. Joelson, supra n. 15, Page 396-397
  • 46. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 45 - position contained in Section 28. Hence, whether a particular the case which has both types of situations of cartelization and of collective dominance, the case can be taken up by the Commission under either of the Section 3 for cartelization or Section 4 for “Collective Dominance”. 8.5 Even if still the practitioners believe that this amendment need not be brought merely because this concept of “Collective Dominance” is more applicable in the oligopolistic markets and on the horizontal level of an industry, then, as I have discussed in section 7.7, one needs to understand that the amendment has proposed to put in the words “jointly or singly” in the middle of the Section 4(1) in place of “Collective Dominance” which, in simple literal sense, would mean a firm together with any other firm (whether related or unrelated and whether on the horizontal level or the vertical level of an industry) “abuses its dominant position”. 8.6 And, hence, it is only in the benefit of the Country’s Competition law regime that the amendment be brought in keeping in view of the policy laid down in the Preamble to the Competition Act, 2002.
  • 47. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 46 - 9. Position in other Competition Law Regimes 9.1 United States of America 9.1.1 The United States anti-trust law has not developed the principle of “joint” or “collective dominance” as has been fashioned under the EU competition law regime.63 9.1.2 The US Anti-Trust law is basically contained in the Sherman Act in Sections 1 and 2. Section 1 regulates joint conduct, but this is more in the nature of “restraint of trade”. It declares every contract, combination, or conspiracy in restraint of trade to be illegal.64 And, Section 2 provides for the unlawful monopolization. Section 2 does not forbid the status of being a monopoly, but the act or attempted act of monopolization. Therefore, it is not illegal in and of itself for a company to have achieved great dominance in its industry or for effective competition to be lacking in the industry and marketplace. Unlawful monopolization under Section 2 involves the attainment of monopoly power by unfair means or the use of that power unfairly to maintain the monopoly and exclude effective competition.65 9.1.3 Section 2 can be read as follows: “Section 2. Monopolizing trade a felony; penalty “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony…”66 9.1.4 In a 1911 Supreme Court decision in US v. American Tobacco Co.67 , various American firms and two English corporations engaged in the tobacco trade were charged with monopolization under Section 2, as well as with a conspiracy in restraint of trade under Section 1. There was involved a division of markets restricting, among other things, sales into and from the US. The Court held that the defendants had monopolized interstate and foreign commerce, finding that they had obtained “dominion and control over the tobacco trade”. The factual record was sufficient to “justify the inference that the intention existed to use the power of the 63 Mark R. Joelson, supra n. 15, page 161 64 Ibid, page 13 65 Ibid, page 17-18 66 Taken from: http://www.stolaf.edu/people/becker/antitrust/statutes/sherman.html 67 United States v. American Tobacco Co., 221 U.S. 106 (1911)
  • 48. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 47 - combination as a vantage ground to further monopolize the trade in tobacco… either by driving competitors out of business or compelling them to become parties to the combination…”68 9.1.5 Much later, in a 1946 case involving American Tobacco 69 , in which the primary American cigarette manufacturers were found to have fixed prices and excluded competition in the purchase of tobacco, the Court described Section 2 as making it a crime for parties: “…to combine or conspire to acquire or maintain the power to exclude competitors from any part of the trade or commerce among the several states or with foreign nations, provided they also have such power that they are able, as a group, to exclude actual or potential competition from the field and provided that they have the intent and purpose to exercise that power.” 9.1.6 The 1949 General Electric incandescent lamp case likewise contained counts under both Sections 1 and 2 in an international market-sharing setting. General Electric was found, by reason of its dominant position in the industry, its restrictive agreements with other firms, its use of foreign subsidiaries to eliminate foreign competition, and other activities to have monopolized the US incandescent lamp industry in violation of Section 2. Philips, a Dutch firm, was found to have also violated Section 2, by aiding General Electric to maintain latter’s monopoly.70 9.2 Canada 9.2.1 The provisions as to “abuse of dominant position” are contained under Sections 78 and 79 of the Competition Act71 . Section 78 contains a non-exhaustive list of the “anti-competitive acts”, the practice of which may constitute abuse of a dominant position under Section 79. 9.2.2 Section 79 (1) provides that72 : “79. (1) Where, on application by the Commissioner, the Tribunal finds that (a) One or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business, 68 Mark R. Joelson, Supra n. 15, Page 161 69 American Tobacco Co. v. United States, 328 U.S. 781 (1946) 70 Mark R. Joelson, Supra n. 15, Page 161 71 The Canadian Competition Act, (R.S.C., 1985, c. C-34) 72 Taken from: http://www.laws.justice.gc.ca/eng/acts/C-34/page-50.html#h-34
  • 49. Collective Dominance- An analysis of S. 4 as it exists and S. 4 as proposed by the Competition Bill, 2012 - 48 - (b) That person or those persons have engaged in or are engaging in a practice of anti-competitive acts, (c) The practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market, the Tribunal may make an order prohibiting all or any of those persons from engaging in that practice.” 9.2.3 Section 78 and 79 apply only if the Tribunal finds that the party (or parties) engaging in the anti-competitive acts has a dominant position, i.e. in the language of Section 79(1)(a), “one or more persons substantially or completely control a class or species of business”.73 9.2.4 The Competition Bureau has issued Enforcement Guidelines on the Abuse of Dominant Provisions of the Competition Act (“Dominance Guidelines”). These Guidelines point out that the reference to “one or more persons” in Section 79 “clearly contemplates cases where a group of the unaffiliated firms may possess market power even if no single member of the group is dominant by itself.”74 9.2.5 In assessing cases of alleged joint dominance the Bureau will consider, among other factors, the collective market share of the group of firms, whether the firms engage in coordinated anti-competitive behavior, the existence of entry barriers, and whether customers can exercise countervailing market power to offset the attempted abuse. However, there is no significant case law on the question of what type and extent of economic connection between otherwise independent firms is need to establish collective dominance.75 9.3 UK 9.3.1 The provisions relating to abuse of dominant position in the context of UK competition laws are contained in Section 18 of Chapter II of the Competition Act, 1998. 9.3.2 Section 18 is based on the Article 102 TFEU and can be read as follows: “18. Abuse of dominant position 73 Mark R. Joelson, Supra n. 15, Page 457 74 Ibid, Page 458 75 Ibid