Rules for determining effect on competition - PowerPoint Presentation

Slide1

Rules for determining effect on competition

It should be noted that there are two rules of interpretation, which are applicable in law relating to anti-competitive agreements.

The rule of Reason

The

per se

rule

Rule of Reason

It is a legal approach where an attempt is made to evaluate the pro-competition effect in order to decide whether the practice should be prohibited or not.

Under this rule, the effect on competition is found in particular case and its effect on the market conditions and the present standard of competition in the market.

The rule of reason is the rule of construction wherein the investigating/prosecuting agency establishes existence of anti-competitive agreements by considering all the facts and features of the case.

In

Tata Engineering and Locomotive Co. Ltd. Vs. Registrar of Restrictive Trade Agreement

(1977) 2 SCC 55, the SC held that “to determine whether the restrain promoted or suppressed competition, it is necessary to consider

three

matters:

First

, what facts are peculiar to the business to which the restraint is applied;

Second

, what was the condition before and after the restraint was imposed;

Third

, what is the nature of restraint and what is its actual and probable effect.”

Per se

Rule

Per se rule means finding an illegality on the face of an agreement or practice. It is a rule of evidence.

This rule considers a particular restraint of trade to be manifestly contrary to competition and so does not require an inquiry into precise harm or purpose for an instance of it to be declared illegal.

This usually occurs during a joint venture between companies who get involved in price fixing and thereby distorting the true market price.

Rules and the Competition Act

The competition act has been ambivalent about the application of these rules.

Section 3(3) embodies the rule

per se

of evidentiary nature and Section 3(4) embodies the rule of reason.

Breaches under Section 3(3) by cartels or such groups and their effects set out in (a) to (d) of Section 3(3) are governed by the

per se

rule.

Agreements listed in Section 3(4) (a) (e) are governed by rule of reason.

Anti-Competitive Agreements

There are broadly two categories of anti-competitive agreements –

Horizontal Agreements

Vertical Agreements

Horizontal

(Between two or more enterprises that are at the same stage of production chain and, in the same market).

Agreements between producers, wholesalers, retailers, etc.

Vertical

(Between non-

competeting

undertakings at different levels of manufacture and distribution).

Agreement between a wholesaler and retailer or manufacturer or distributor.

Types of Agreements

Presumed to cause Appreciable Adverse Effect

(per se

void

)

Void only when they cause Appreciable Adverse Effect

(Rule of reason)

Horizontal and Vertical Agreements

Horizontal Agreements Vertical Agreements

Between enterprises or persons operating at the same level Between enterprises or persons operating at different level

in the supply chain. in the supply chain.

Cartels (fixing directly or indirectly, purchase or sale Tie-in Arrangements

price.)

Limiting, controlling production, supply, markets or Exclusive Supply

Technical development, investment or provision of service. Exclusive Distribution

Sharing markets or production source by allocating area, Refusal to deal

type of goods or services, no. of customers etc. Resale price maintenance

Bid rigging or collusive tendering.

Presumed to have an Appreciable Adverse Effect on Competition. Subject to Rule of reason-type approach(i.e. need to be assessed for

effect on the competition)