Horizontal vs Vertical Agreements
Chapter II, Section 3 of the Competition Act 2002, prohibits anti-competitive agreements that cause an appreciable adverse effect on competition within India. The section further provides two kinds of agreements namely, horizontal agreements and vertical agreements.
HORIZONTAL AGREEMENTS:
According to section 3(3) of the Competition act, horizontal agreements are formed between those parties which are at the same level of production, supply and distribution and engaged in similar/identical trade of goods or services as a means of coordination or collaboration. These agreements, which may include cartels, pertain to:
- Fixing purchase/sale prices
- Limiting or controlling production, supply, markets, technical development, investment or provision of services
- Allocating market areas, sources or customers in a way that limits competition.
- Bid rigging or collusive bidding
HUB & SPOKE ARRANGEMENTS:
Enterprises or individuals not directly engaged in similar trades shall also be presumed to be part of an agreement explained under the ambit of horizontal agreements should they participate or intend to participate in its progress.
EXAMPLE:
An Agreement between Manufacturers, Agreement between Distributors.
EXCEPTION:
Joint ventures that increase efficiency in production, supply, distribution, storage acquisition or control of goods or services are exempted.
PER SE RULE:
Such agreements limit competition among competitors, affecting the market. Therefore, they are automatically considered void per se. This means that once the existence of such agreements is proven, there’s no need to additionally prove that the agreement is causing an appreciable adverse effect on competition in India. It’s presumed that the agreement is harmful.
VERTICAL AGREEMENTS:
According to section 3(4) of the Competition act, vertical agreements are formed between those parties involved at different levels of production, supply or distribution chain in different markets, such vertical restraints include:
(a) tie-in arrangement;
(b) exclusive 3[dealing] agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance,
If a vertical agreement causes an appreciable adverse effect on competition, it shall be declared void.
EXAMPLE
An example of a vertical anti-competitive agreement could be ‘An agreement between manufacturer and supplier’ between ‘Producers and Whole-Sellers’ or between ‘Producers, Wholesalers and Retailers’.
EXCEPTION
Agreements entered into between an enterprise and an end consumer are exempted
RULE OF REASON
In contrast to the per se rule applied to horizontal agreements, the Rule of Reason is applied to vertical agreements. Under this rule, the appreciable adverse effect on competition must be explicitly proven considering the factors mentioned under Section 19(3) of the Competition Act. The Burden of proving AAEC lies on CCI.
PENALTIES FOR HORIZONTAL AND VERTICAL AGREEMENTS [Section 27]
Section 27 of the Competition Act, 2002 CCI to levy a penalty on enterprises involved in any anti-competitive agreement