Collective Dominance

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

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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.


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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 [email protected]

mailto:[email protected]


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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


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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


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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

http://fr.slideshare.net/karolinarydman/collective-dominance-karolina-rydman-13171127

http://fr.slideshare.net/karolinarydman/collective-dominance-karolina-rydman-13171127


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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:

5Report 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”)

9Section 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)

http://www.prsindia.org/uploads/media/Competition%20%28A%29%20Bill,%202012/The%20Competition%20%28A%29%20Bill,%202012.pdf

http://www.prsindia.org/uploads/media/Competition%20%28A%29%20Bill,%202012/The%20Competition%20%28A%29%20Bill,%202012.pdf


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“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.


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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


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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


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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


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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.


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(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.


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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

http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTINFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/0,,contentMDK:21035032~menuPK:282850~pagePK:210058~piPK:210062~theSitePK:282823~isCURL:Y,00.html#C




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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


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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


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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


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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


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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


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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)


- 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


- 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


- 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


- 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.


- 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



- 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


- 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


- 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


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


- 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”)


- 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


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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



- 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


- 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.


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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


- 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


- 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


- 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”.


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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


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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


- 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.


- 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


- 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:


- 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.


- 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.


- 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


- 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.


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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)


- 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 Tobacco69

, 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


- 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


- 49 -

(1) Subject to section 19, any conduct on the part of one or more undertakings

which amounts to the abuse of a dominant position in a market is prohibited if

it may affect trade within the United Kingdom.”76

9.3.3 The words of this Section can be directly related the Article 102 TFEU and be linked to

the cases of “Collective Dominance” as have been interpreted in various cases while interpreting

Article 102 TFEU.

9.4 China

9.4.1 The Chinese competition law is contained in the Anti-monopoly Law of the People's

Republic of China (“AML”).77

And, the provisions relating to abuse of dominant position can be

seen spread over a number of Articles.

9.4.2 Article 2 provides that AML shall be applicable to monopolistic conducts in economic

activities within the People's Republic of China.

9.4.3 Article 3 defines what “monopolistic conduct” means for the purpose of AML and

provides that:

“Article 3 For the purposes of this Law, "monopolistic conducts" are defined as the

following:

(1) Monopolistic agreements among business operators;

(2) Abuse of dominant market positions by business operators; and

(3) Concentration of business operators that eliminates or restricts competition or

might be eliminating or restricting competition.

9.4.4 Article 12 provides the definition of “Business operators” as follows:

“Business Operators” refers to a natural person, legal person, or any other organization

that is in the engagement of commodities production or operation or service provision.

9.4.5 Article 17 provides that a business operator with a dominant market position shall not

abuse its dominant market position to conduct the acts as given under this Article. And

76

http://www.legislation.gov.uk/ukpga/1998/41/section/18 77

http://www.china.org.cn/government/laws/2009-02/10/content_17254169.htm


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“dominant position” has been defined as "dominant market position" refers to a market position

held by a business operator having the capacity to control the price, quantity or other trading

conditions of commodities in relevant market, or to hinder or affect any other business operator

to enter the relevant market.

9.4.6 Article 18 provides for the various factors to be considered while determining the

dominant market status of a business operator.

9.4.7 And, Article 19 provides for the circumstances where a business operator will be

assumed to have a dominant position. These circumstances are:

(1) the relevant market share of a business operator accounts for1/2 or above in the

relevant market;

(2) the joint relevant market share of two business operators accounts for 2/3 or above; or

(3) the joint relevant market share of three business operators accounts for 3/4 or above.

9.4.8 And, A business operator with a market share of less than 1/10 shall not be presumed as

having a dominant market position even if they fall within the scope of second or third item.

9.4.9 It is this Article 19 that clarifies the position that even the Chinese Competition Law

regime has included in its purview the situations of “Collective Dominance”. The clauses (2) and

(3), in fact, begin with the words “the joint relevant market share”.

9.5 Mexico

9.5.1 The Mexican law of competition is contained in the Ley Federal de Competencia

(“Federal Economic Competition Act” or “LFCE”). And, the substantive provisions of the

LFCE, setting out the prohibited activities, are contained in Chapters II and III of the statute.

9.5.2 Chapter II, entitled “Monopolies and Monopolistic Activities”, contains Articles 8-15 and

have their thrust against monopolistic practices, rather than against monopolies. While Article 8

declares that monopolies are prohibited, unless exempt, there are no additional provisions

expressly addressing and prohibiting single firm monopolization or abuse of a dominant position,

such as exist in the EU, UK, Canadian, etc. competition law regimes.78

78

Mark R. Joelson, Supra n. 15, Page 470


- 51 -

9.6 Japan

9.6.1 The Japanese Anti-Monopoly Act (“AMA”), 1947, prohibits entrepreneurs from

engaging into 3 types of anti-competitive conducts:

(1) Private monopolization;

(2) Unreasonable restraint of trade;

(3) Unfair Trade Practices.

9.6.2 Private monopolization and unreasonable restraint of trade are prohibited by Section 3 of

the AMA, and unfair trade practices are prohibited by Section 19.

9.6.3 “Private Monopolization” has been defined in Section 2(5) as to mean such business

activities, by which any entrepreneur, individually or by combination or conspiracy with other

entrepreneurs, or by any other manner, excludes or controls the business activities of other

entrepreneurs, thereby causing, contrary to the public interest, a substantial restraint of

competition in any particular field of trade.79

9.6.4 The term "unreasonable restraint of trade" as defined under Section 2(6) means such

business activities, by which any entrepreneur, by contract, agreement or any other means

irrespective of its name, in concert with other entrepreneurs, mutually restrict or conduct their

business activities in such a manner as to fix, maintain or increase prices, or to limit production,

technology, products, facilities or counterparties, thereby causing, contrary to the public interest,

a substantial restraint of competition in any particular field of trade.80

9.6.5 Article 8 of the AMA deals with the provisions against cartel activity and other anti-

competitive acts engaged in by entrepreneurs through trade associations.

9.6.6 Article 19 provides that No entrepreneur shall employ unfair trade practices. And, unfair

trade practices have been defined in Article 2(9) as acts falling within any one of six listed

categories of activity that tend to impede fair competition.

9.6.7 And, Article 8-4 of the AMA authorizes the JFTC81

to take remedial actions against

“monopolistic situations”, defined in terms of an oligopolistic market structure within an

79

http://www.jftc.go.jp/en/legislation_gls/amended_ama09/amended_ama09_01.html 80

Ibid 81

Japan Fair trade Commission

http://www.jftc.go.jp/en/legislation_gls/amended_ama09/amended_ama09_01.html


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industry, rather than by specific conduct on the part of an enterprise. Pursuant to Article 2(7), an

enterprise or enterprises are in a monopolistic situation when –

(i) One enterprise has a market share of 50% or two enterprises have a market share

of 75% or more;

(ii) Conditions in the industry make new entry difficult;

(iii) The enterprise’s prices have been excessive, and

(iv) The enterprise’s profit rate is also excessive or the enterprise expends an

excessive amount on general expenses.82

9.6.8 However, this provision applies only in the case of markets where the aggregated total

value of goods and services that were supplied within Japan during the last one year period

exceeded 100 Billion Yens.

9.6.9 Thus, with this provision of Article 8-4, one can see that the concept of “Collective

Dominance” has been applied in Japanese competition law regime but within the limit scope.

9.7 South Africa

9.7.1 In the Republic of South Africa, the Competition law is contained in the Competition

Act, 1998.83

And, the provisions relating to abuse of dominant position are contained in Sections

7, 8 and 9 of Chapter 2.

9.7.2 Section 7 defines “Dominant Firm” as follows:

A firm is dominant in a market if—

(a) it has at least 45% of that market:

(b) it has at least 35%, but less than 45%, of that market, unless it can show

that it does not have market power; or

(c) it has less than 35% of that market, but has marker power.

9.7.3 Section 8 prescribes the acts that are prohibited for a “Dominant firm” and begins with

the words “It is prohibited for a dominant firm to…”

82

Marl R. Joelson, Supra n. 15, Page 523-524 83

Downloaded from: http://www.compcom.co.za/assets/Files/pocket-book-2005-R.pdf


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9.7.4 Thus, it can be seen that the concept of “Collective Dominance” is not used in the South

African Competition law regime.

9.8 Conclusion

Thus, it can be seen, that many of the world’s grown economies also have either this concept of

“Collective Dominance” in their respective Competition law regimes or are now introducing the

same in their laws. And, with India introducing the same would then be joining the elite class of

those nations.


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List of Abbreviations

1. AMA Japanese Anti-Monopoly Act, 1947

2. AML Anti-Monopoly Law of the People’s Republic of China

3. Co. Company

4. ECMR/EUMR Council Regulation (EC) No 139/2004 of 20th January 2004 on

the control of concentrations between undertakings

5. EU European Union

6. JFTC Japan Fair Trade Commission

7. No. Number

8. Plc. Public Limited Company

9. TEC Treaty of European Community

10. TFEU Treaty on Functioning of the European Union

11. UK United Kingdom of Great Britain and Northern Ireland

12. US United States of America

13. w.r.t. With respect to


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Bibliography

I. Statutes, Treaties and Legislations

1. The Indian Competition Act, 2002

2. The Indian Competition (Amendment) Bill, 2012.

3. Treaty on the Functioning of the European Union.

4. Council Regulation (EC) No 139/2004 of 20th

January 2004 on the control of

concentrations between undertakings (“the EC Merger Regulations” or “ECMR”)

5. The Sherman Anti-trust Act, 1890

6. The Competition Act, (R.S.C., 1985, c. C-34) of Canada

7. The Competition Act, 1998 of UK

8. Anti-monopoly Law of the People's Republic of China

9. Ley Federal de Competencia (“Federal Economic Competition Act” or “LFCE”),

1992 of Mexico

10. The Anti-Monopoly Act, 1947 of Japan

11. The Competition Act, 1998 of the Republic of South Africa

II. Reports and Articles

1. Report of the High Level Committee on Competition Policy and Law, Government of India,

2000

2. Report of the Working Group on Competition Policy, Planning Commission, Government of

India, 2007

3. Karolina Rydman, “Collective Dominance- How is it interpreted and how does it

correlate with tacit coordination”, Stockholm University

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1. Suzanne Rab, Indian Competition Law- An International Perspective, CCH India,

Wolters Kluwer (India) Pvt. Ltd., 2012

2. Mark R. Joelson, An International Anti-Trust Primer, Kluwer Law International, 3rd

Edition, 2006


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3. Ana Rosado Cubero, Barriers to Competition: The evolution of the debate, Number 3,

Pickering and Chatto Ltd., 2010.

4. Josef Drexl, Laurance Idot and Joel Monegar, Economics Theory and Competition

Law, Earthscan Pubns Ltd, 2009.

5. Manfred Neumann and Jürgen Weigand, The International Handbook on

Competition, Edward Elgar Pub, 2nd

Revised Edition, 2013

6. Simon Bishop and Mike Walker, The Economics of EC Competition Law, Sweet &

Maxwell, 3rd

Edition, 2010

7. D. P. Mittal, Competition Law & Practice, Taxmann Publications, 3rd

Edition, 2011

8. Dr. Deepashree, Micro Economics-II (for University of Delhi), 2nd

Edition, 2013

IV. Case Laws

1. United Brands Company and United Brands Continentaal BV v. Commission of the European

Communities (1978), Case 27/76

2. Società Italiana Vetro SpA, Fabbrica Pisana SpA and PPG Vernante Pennitalia SpA v

Commission of the European Communities (1992), Joined cases T-68/89, T-77/89

and T-78/89

3. Gencor Ltd v Commission of the European Communities (1999), Case T-102/96

4. 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 (2000), Joined Cases 395/96 P. and 396/96 P.

5. Airtours plc v Commission of the European Communities (2002), Case T-342/99

6. Hoffmann-La Roche & Co. AG v Commission of the European Communities (1979),

Case no. 85/76

7. United States v. American Tobacco Co., 221 U.S. 106 (1911)

8. American Tobacco Co. v. United States, 328 U.S. 781 (1946)

V. Websites

1. Google.com (as a search engine)

2. www.cci.gov.in

3. http://planningcommission.nic.in

4. www.globalcompetitionforum.org

5. www.eur-lex.europa.eu


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6. www.law.cornell.edu

7. www.supreme.justia.com

8. www.slideshare.net

9. www.prsindia.org

10. http://web.worldbank.org

11. http://en.wikipedia.org

12. www.stolaf.edu

13. www.laws.justice.gc.ca

14. www.legislation.gov.uk

15. www.china.org.cn

16. www.jftc.go.jp

17. www.compcom.co.za

Collective Dominance

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