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APPRECIABLE ADVERSE EFFECT ON COMPETITION

INTRODUCTION

The act’s ultimate purpose is to make sure that the Indian market remains competitive. Every entity should compete on a level playing field, and the market’s leaders should guarantee that no unfair practices are used to distort competition. Effective competition is characterized by: firm rivalry, the lack of limitations, and the absence of a monopolistic market leader. There is no clear-cut measure or standard for quantifying ‘Appreciability’ in India. There will be an evaluation based on the elements outlined in section 19(3) of this act:

  1. The development of barriers to new market entrants.
  2. Compel current market competitors out.
  3. Foreclosing the competition by limiting market entrance.
  4. Consumer benefits accrual.
  5. Advancements in the manufacture, distribution, or provision of products or services.
  6. Promoting technological, scientific, and economic growth through the production or sale of goods or the supply of services.
  7. A brief examination of the factors will reveal that the first three are negative elements that have an anti-competitive effect on competition, while the following three are positive factors that have a pro-competitive influence on competition.

BARRIERS TO NEW ENTRANTS

To compete, a company must join the market. Barriers to entry are economic terms that describe the presence of high start-up costs that hinder new competitors from simply entering an industry or sector of business. Existing forms gain from entrance barriers because they safeguard their earnings and revenues. Common entrance obstacles include specific tax breaks for established businesses, patents, strong brand identification or client loyalty, and high switching costs. Others include the requirement for new businesses to secure a suitable license or regulatory approval before going into operation. The issue arises when anti-competitive agreements enhance these obstacles, making it hard for the surviving market competitors to function or preventing new players from joining the market.

The informant in the case Amit auto agency vs King Kaveri, the trade firm alleged that the opposite party (OP) engaged in a selling agent agreement (SSA) with the informants who were trading in truck and trailer parts in the region of Rajasthan. The OP designated the informant as an SSA to market its goods in the region of Rajasthan. The informant argued that, according to the agreement, he was forbidden from doing dealings with any other individual whom the OP deemed undesirable, and that the OP’s opinion in that regard was to be final and irrevocable on the informant. The informant believed this exclusivity enforced by the OP to be an anti-competitive arrangement that limited the informant’s flexibility to engage. However, the CCI determined that there was no discernible appreciable adverse effect on competition in the relevant market, ‘the market of the truck in trailer parts and accessories in the state of Rajasthan.’ Because there were several competitors in the market, the CCI believed that this agreement would have minimal impact on the market, and the informant had the liberty to work with another party instead of the opposite party.

In the case of Hemant Sharma and Ors vs. All India Chess Federation, the informants were chess players who were forced to sign an undertaking stating that they would not participate in any event that was not sanctioned by the All India Chess Federation (AICF).  The CCI points out that the AICF was the de facto regulator and sole entity in charge of all chess competitions in India. The limitation put on participants utilizing declaration was total, leaving no room for players to compete in any competition not sanctioned by AICF. The repercussions of engaging in any unlawful events were severe and unilateral, with no opportunity to be heard. The limitation prevented the informants from playing chess for several years, creating irreparable harm given that the players’ professional careers were brief. As a result, a significant amount of chess players around the country were affected. As a result, the CCI decided that the AICF’s actions contributed to an AACE by creating hurdles for the chess player.

DRIVING EXISTING COMPETITORS OUT OF THE MARKET

This factor is primarily related to the first element under section 19(3). When obstacles to the entrance of firms are created, established players are frequently threatened with extinction in the market. It may also take the form of penalties, in which the infringing organization may (a) terminate the contract or (b) charge fines to force the relevant market’s participants out of competition. It is not required that it address circumstances in which players were already pushed out of the market. It may also apply in situations where anti-competitive agreements have a chance to force them out of the market. The informant must demonstrate a continuous and studied drop in turnover as well as an estimate of where they will experience damages as a consequence of the anti-competitive arrangement.

FORECLOSURE OF COMPETITION BY HINDERING ENTRY INTO THE MARKET

Market foreclosure denotes a market position taken. This component is usually the consequence of a mix of vertical and horizontal agreements.

The CCI dismissed an allegation of vertical agreements and abuse of dominance in connection to a power purchase agreement entered into between NTPC Limited and Tata Power Delhi distribution limited in the matter of Tata Power Delhi distribution limited and NTPC limited. The CCI investigates the anti-competitive impact of the long-term nature of NTPC limited power purchase agreements. Specifically, whether a lock-in prevented fresh entrants into the power production sector.  As a result, CCI concluded that the probability of consumer harm was minimal because this was a governed market. As a result, the prospect of competition foreclosure did not exist.

APPRECIABLE ADVERSE EFFECT ON COMPETITION

Section 19(3) (d), (e), and (f) provide for balancing the observed anti-competitive effect of such vertical agreements with the accrual of advantages to consumers, efficient gaming for producers, and the overall economic development impact.

The criteria have been established since it is common for agreements to have both pro-competitive and anti-competitive impacts. Determining a considerable unfavourable effect on competition necessitates the commission taking into account both the efficiency gained as well as the impact of the agreements on the welfare of consumers. Many solely vertical practices, such as vertical territorial restriction and many cases of deceit or exclusively dealing, may not result in increased consumer prices at all and may even have an efficiency gain. In such circumstances, balancing is simple, and in any event, customer welfare may be given higher weightage, thus consumer damage can never be traded off for firm-level efficiency.

CONCLUSION

Appreciable adverse effect on competition is one of the most difficult yet critical aspects of competition law, whether in anti-competitive agreements, abuse of dominant position, or merger control. If a prima facie case of AACE cannot be established, none of the cases will proceed to the next step of the inquiry. As a result, during this stage, lawyers must exert the utmost effort in producing information and responses. There is no method for measuring AAEC, hence the results vary from case to instance and the impact varies depending on the industry. This is why, before AAEC can be founded, a detailed market and sector study must be performed. The lower the number of market participants, the greater the AAEC.

Author(s) Name: Sai Krishna Cheekati (Amity University, Noida)