Anti-Competitive Agreements (Under The Competition Act, 2002)

Anti-competitive agreements are agreements between businesses that restrict competition in the market. These agreements can lead to higher prices, lower product quality, reduced innovation, and unfair market control. The Competition Act, 2002 prohibits such agreements to ensure a fair and competitive market.

Types of Anti-Competitive Agreements

1. Cartels

• A cartel is a secret agreement between competitors to limit competition.
• Businesses involved in a cartel fix prices, control supply, or divide markets to avoid competition.
• Example: Cement companies colluding to keep cement prices artificially high.

Penalty: Fine up to 10% of the average turnover of each company involved. In case of an individual, the fine can be up to three times the profit gained from the cartel.

2. Price-Fixing Agreements

• Competitors agree to sell products at a fixed price, preventing natural price competition.
• Can happen in horizontal agreements (between competitors) or vertical agreements (between suppliers and retailers).
• Example: Two smartphone companies agreeing to sell phones at the same price to prevent price competition.

Penalty: Severe fines imposed by the Competition Commission of India (CCI).

3. Bid-Rigging

• Competitors manipulate bidding processes by deciding in advance who will win a contract.
• Creates an illusion of fair competition, but the outcome is already fixed.
• Example: Construction companies taking turns to win government tenders by submitting fake bids.

Penalty: Can lead to criminal action, heavy fines, and disqualification from future contracts.

4. Market-Sharing Agreements

• Competitors divide the market based on region, type of product, or customers to avoid competition.
• Reduces consumer choices and creates monopolistic power in different areas.
• Example: One airline agreeing to operate in the northern region, while another airline takes the southern region, preventing competition.

Penalty: CCI can declare the agreement void and impose heavy penalties.

5. Supply and Distribution Agreements

• Sometimes, agreements between manufacturers and distributors restrict competition.
• A supplier may prevent distributors from selling competitors’ products, limiting consumer choices.
• Example: A soft drink company forcing retailers to sell only their brand and not competing brands.

Penalty: Such agreements can be declared invalid, and businesses can be fined.

6. Exclusive Agreements

• Agreements where a seller or buyer is restricted from dealing with competitors.
• Limits market entry for new players.
• Example: A grocery store chain agreeing to sell only one brand of dairy products, restricting consumer choice.

Penalty: CCI can intervene and cancel the agreement, along with imposing fines.