Collective Dominance

An Analysis of S. 4 as it exists and S. 4 as

proposed by the amendment in Competition

(Amendment) Bill, 2012

Summary• 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

market.

• The concept has been developed first in EU regime through the case laws only. The concept

was developed by defining the Article 102 (previously Article 82) of the TFEU.

• In India, the concept is being tried to bring in by amending the present Section 4 of the

Competition Act, 2002.

• Section 4 deals with the “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.

• With the addition of the words “jointly or singly” in S. 4, it is sought to prevent the mischief of

“Collective Dominance” of unrelated entities which had hitherto went unnoticed.

Collective Dominance- Meaning

• Collective Dominance has not been defined anywhere.

However, the concept has evolved through case laws in

EU regime by interpreting present Article 102 TFEU and

its predecessors.

• In terms of this Article, “Dominant Position” may be

held by several undertakings.

• They should be legally independent entities.

• But, from economic p.o.v. must present themselves as a

collective entity.

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.

Dominance- Meaning

• “Dominant Position” has been defined under

Explanation (a) to S. 4 .

• A firm must be in a position of such economic strength

that it can behave independently of its competitors and

customers.

• A dominant firm has a high degree of market power.

• The definition should be understood in terms of

“Substantial impact on the market” and not by specifying

a threshold limit or an arithmetical figure for dominance.

“Dominant Position” means 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

Collective Dominance-Evolution of the concept

• The concept was evolved by interpreting the provisions of

Article 102 (previously Article 82, and before that Article

86)

• The concept is also linked to the Article 2(3) EU Merger

Regulations so as to prohibit the Mergers from taking up on

“collective dominance” if they’re approved.

• The case was basically interpreted by the Europian courts

in the following leading cases:

•Italian Flat Glass case (1992)

•Gencor case (1999)

•Compagnie Maritime case [CEWAL Case] (2000)

•Airtours case (2002)

Article 102 TFEU provides

that 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

Collective Dominance- Conclusions from the case laws

Collective Dominance as

dealt by Courts in Flat Glass case, Gencor case and

CEWAL case

Dominant Position may be held by two or more economic entities; what is

important is their legal independence.

However, from an economic p.o.v. they

must present themselves as a collective entity.

It is necessary to examine economic links or factors that

give rise to a connection between

undertakings.

Mere fact of linkage by way of an Agreement or “Concerted Practice” is

not sufficient unless such practices result in a

“Collective entity”.

Economic assessment of the

“relevant market” is also important to

consider.

Collective Dominance- Tacit Coordination and Airtours case

In this case the Court had laid down 3 conditions necessary for

finding “collective dominance”.

1. Knowledge among the member firms

Each member must have the ability to know the behavior of

other members to monitor that they are adopting the common

policy

2. Sustainable Tacit coordination

The situation of Tacit Coordination must be sustainable over

time; there must be an incentive for no departure from

common policy

3. No reaction from the market

The foreseeable reaction of current and future competitors, as

well as of consumers, would not jeopardize the results

expected from the common policy.

In this case the Court had stated the

ways in which “Collective

Dominance” may be achieved by

way of “Tacit Coordination”:

-As a result of concentration;

-Coming together in common

interests;

- adopting an economically rational

and lasting policy without entering

into any agreement or a concerted

practice.

Collective Dominance- Significance of Proposed Section 4

• With the addition of the words “either jointly or singly”, the

concept of “Collective Dominance” will be brought into force.

• This would be similar as to words of the Article 102 TFEU.

• This section would be able to over come the mischief that may have

been overlooked by Sections 3, Section 4 (present) and Section 5.

• This section would be an express provision for checking on

“Collective Dominance”.

• The Commission wouldn’t have to take recourse to Section 3 or

Section 5.

Proposed Section 4:

No enterprise or group,

either jointly or singly,

shall abuse its dominant

position.

Present Section 4• “Dominant Position” and “Abuse of Dominant Position” are the

two requirements. Dominance itself is not prohibited.

• Prohibits the use of market controlling position to prevent the

individual enterprise or a group in an industry from driving out

competing businesses from the market as well as from dictating

prices.

• Conditions for Abuse of dominance has been given u/s 4(2):

•Imposing Discriminatory or unfair pricing or conditions;

• Limiting or restricting production or R&D;

• Denial of market access;

• Conclusion of unfair contracts or supplementary obligations;

• Entry into another relevant market

Section 4 reads as

under:

“No enterprise or

group shall abuse its

dominant position.”

What Ss. 3, 5 & 6 do not provide

• Explicit provisions for Concerted Practices

and Cartelization in the vertical line of

business.

• Any other situations other than those

provided for in S. 3(4)that may arise in cases

of firms in vertical line;

• Does not consider “Dominance” or “abuse

of Dominance” of parties in concert;

• S. 5 regulate Mergers & Combinations, but,

does not provide expressly for Vertical

Mergers.

• Presupposition that Vertical Combinations

enhance economic efficiencies, but certain

situations were ignored, like fear of

foreclosure, entry blocking, prize squeezes,

etc.

What Ss. 3, 5 & 6 provide

• Anti-competitive agreements, tacit

coordination, Concerted Practices and

Cartelization in the horizontal line of

business.

• Anti-competitive Agreements between

firms in vertical line; agreements like:

• tie-in arrangements;

• exclusive supply agreements;

• exclusive distribution agreements;

• refusal to deal;

• resale price maintenance

•S. 5 & 6 regulate Mergers &

Combinations.

• S. 5(b) expressly provides for

Combinations in horizontal line of

business.

Why new S. 4 when S. 3 , 5 & 6 are present?

• Express provision which would require satisfaction of only 2 conditions, “Dominant Position” and “Abuse of

Dominant Position” of the entities acting collectively.

• Would be able to bring in its purview collective dominance of unrelated firms also.

• While mere concerted action without dominating position would be covered under Section 3, and dominating

position post-M&A will be covered u/s 5, “abuse of dominating position” without entering into any agreement or

any combination will be covered u/s 4.

• Vertical Mergers which may not get covered u/s 5 & 6, can now be covered u/s 4

• Conditions which may not be covered by S. 3 and situations leading to economic inefficiencies in a market which

may be created by a Vertical Merger can now be covered u/s 4(2) for “Abuse of dominance” as follows:

• Fear of Foreclosure: Clause (b) Limiting or restricting production or R&D;

• Entry Blocking: Clause (c) Denial of market access;

• Price squeezes: Clause (a) Imposing Discriminatory or unfair pricing or conditions;

• Besides, S. 4 will also cover prohibitions on Vertical Mergers in these cases:

• Conclusion of unfair contracts or supplementary obligations;

• Entry into another relevant market

Will the proposed Section 4 be able to achieve more?

A Hypothetical Situation on proposed S. 4

• Suppose there are three firms, A, B and C.

• A and C already hold a dominant position in their respective sectors in

production chain. And, B is doing just 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, and promising B to get him

too a dominant hold over its market, 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.

• This could also give an opportunity to the dominating firms to enter

into another relevant markets.

Solution here will be amended S. 4:

• A and C hold “dominant position”;

•A and C are “abusing” their

“dominant position”, jointly (or

singly) over B;

• Abusing elements are

• imposing unfair prices

(Clause (a));

• Entry into another relevant

market (Clause (e))

Situations of Conflict while applying to real cases

• There may arise situations where apparently a particular case may fall

into the purview of both the sections 3, i.e. for cartelization or concerted

practice, and the amended S. 4, i.e. collective dominance. The CCI may

then find itself in a dilemma as to under what section the case be

considered.

• In such cases, the CCI may bring proceedings under either of these

provisions as is the practice in the EU regime.

• Besides, the penal provisions for the cases falling under S. 3 and S. 4 are

same and are given under S. 27 of the Competition Act.

• Except that, the provisions of S. 28 are exclusively applicable to cases

involving dominant entities. S. 28 provides for the division of enterprise

enjoying “dominant position”.

Conclusion• With the amendment in S. 4 as proposed by the Competition (Amendment) Bill, 2012, the

concept of Collective dominance will be put into force.

• Section 4 will be an express provision to deal with “Abuse of Collective Dominance”.

• Section 4 will also allow dealing with the anti-competitive issues that may arise out of any

Vertical Merger.

• Even though on proper interpretation of the words “jointly or singly”, the concept of

“Collective Dominance” will be put into action, yet the exact words have not been used.

• These words, 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”.

• This would increase the reach of the CCI in maintaining the competitive markets in India.

• 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.

Thank-you

Presented By:

SHASHANK

AGARWAL