Oligopoly, Competition, Cartels and Beyond: Establishing the Need for ‘Collective Dominance’

[Swetha Somu is a 2nd year B.B.A. L.L.B (Hons.) student at Gujarat National Law University in Gandhinagar]

‘Collective dominance’ in competition law points to a scenario where two or more independent undertakings, possibly through established economic links, hold a dominant position in the market together while still being independent of each other. This concept was first recognized in the Italian Flat Glass case in Europe. It was the interpretation of Article 82 of the EC Treaty (now Article 102 of the Treaty on the Functioning of the European Union (TFEU)) by the court that brought the concept to the judiciary’s cognizance.

As mentioned above, the TFEU acknowledges and prosecutes ‘collective dominance’ under Article 102, whilst the Indian competition law (the Competition Act, 2002) does not recognize the concept under section 4, as it provides for the abuse of dominant position solely by a dominant enterprise. Nevertheless, an effort to bring in ‘collective dominance’ was introduced by the Competition (Amendment) Bill, 2012; however, it never saw the light of day. Moreover, the recent draft Competition (Amendment) Bill, 2020 did not mention the inclusion of ‘collective dominance’ under the scope of section 4 and, thus, turning it into a case of missed opportunity.

Besides, there are four different market structures in an economy: monopoly, monopolistic, oligopoly and perfect competition. This post focuses solely on oligopoly markets since allegations of ‘collective dominance’ are highly probable against undertakings in oligopoly markets. This is due to oligopoly’s structure where two to three big firms are dominant. In Gencor v. Commission, the General Court of EU substantiated the link between ‘collective dominance’ and ‘oligopoly’ by stating that “a relationship of interdependence existing between the parties to a tight oligopoly which created a likelihood of coordination was sufficient to establish collective dominance”. Hence, the importance of ‘collective dominance’ arises since oligopoly markets, after monopolistic markets, are most often found in the real world.

The Market Structure Quandary

The function of oligopoly is itself tricky as only a few firms have huge concentration altogether in the relevant market. With market power only being centred around a few big firms, the temptation to connive shared dominance or collectively dominate the market to accrue benefits becomes inevitable. Moreover, with important sectors like the telecom markets and mobile phone markets tilting towards a duopoly, it is high time that the Indian competition jurisprudence recognizes and appreciates the necessity for enforcing the concept of ‘collective dominance’.

The dilemma that must be revolving around the regulatory authorities is the risk of letting joint dominants scot-free while being hesitant of excessively regulating the market, which consequently harms the existing competition. The nature of oligopoly markets must be taken into account as the level of interdependency amongst the firms is higher due to few market players, hence leading to their deliberate engagement in parallel behaviour. This prevailing limitation inherently present in its market structure naturally makes it difficult to ascertain the actual cause and the definite effect on competition, thus prompting hesitancy amongst legislators and regulators in implementing the concept.

When speaking about abuse of dominance in oligopolies, the concept of cartels comes to mind. However, the laws pertaining to cartels are just one face of competition law, since the nature of market structure is seen to dictate the firms’ parallel behaviour. The point of difference between a cartel and ‘collective dominance’ has been aptly distinguished in the research paper written by Gudofsky and others as:

“One key difference between abuse of joint dominance and a cartel is that, in the case of the former, depending on the scope of the relevant law, it may be possible for conduct to be subject to an administrative or judicial order where the parties act in a parallel manner without agreement (i.e., as a normal market outcome), whereas in the case of the latter, the parties have forgone independent competitive conduct and instead have agreed to act in a particular manner in a market.”

Further, in terms of proof, it is a given that cartels are prosecuted through discoverable evidence of an overt or covert agreement between the firms; however, the same is very hard to ascertain and affirm in front of the competition authorities and courts due to ‘lack of sufficient evidence’. This is why the recognition of ‘collective dominance’ becomes imperative as it is able to bridge the void between shared dominance through any, yet, established agreements (cartels) and collective dominance through pure understanding between the undertakings.

The Unchanging Indian Scenario

In Amazon & Flipkart v. Competition Commission of India (‘CCI’) (2020), the informant had accused both the e-commerce giants of anti-competitive practices, as provided under section 3(4) of the Competition Act, such as giving preferential treatments to selected sellers, having exclusive tie-ups and providing deep discounts. Further, the informant asserted that both the e-commerce entities were jointly dominant in the relevant market under section 4 of the Act. However, the CCI concluded that there is no scope for invoking section 4 as the law does not recognize ‘collective dominance’, hence making it untenable in front of CCI. Moreover, in Ashok Kumar Vallabhaneni v. Geetha SP Entertainment LLP, the concept of ‘collective dominance’ was dismissed and the CCI rather chose to approach the case by examining the chances for cartelization based on the evidence gathered.

Similar allegations of ‘collective dominance’ were made previously in Arjun Ganj v. Viacom 18 (2017) in which the CCI referred to the famous case of Fast Track v. ANI Technologies where it elucidated “that there are various provisions in the Act that signify the intent of the legislature that there cannot be more than one dominant enterprise in the relevant market at a particular point of time”. Likewise, this was reiterated in Shri Sonam Sharma v. Apple, Vodafone, Airtel & Ors., Indian Sugar Mills Association v. Indian Jute Mills Association and several other disputes, which pointed to the CCI’s inability to recognize and penalise against ‘collective dominance’.

In sum, the CCI has been constantly facing allegations of ‘collective dominance’ and has monotonously rejected the contentions of joint dominance under section 4 as portrayed above. The repeated accusations of collective dominance in India shows how it has become an unavoidable cause of concern.

Bridging the Vacuum in Indian Competition Law

The vacuum existing between abuse of dominance amongst firms through a cartel and abuse of dominance in the way of mere understanding could be filled by the concept of ‘collective dominance’. It is high time that Indian jurisprudence revisits the Competition (Amendment) Bill, 2012 that proposed a modification to section 4 of the Act to include abuse of dominant position by undertakings either “singly or jointly”. This incorporation will be seen in consonance with the EU competition law (Article 102 of TFEU) and will become another tool for the authorities to monitor the market competition in a fresh angle.

The limitations that the nature of oligopoly poses should undoubtedly be kept in mind and, thus, the market conditions need to be thoroughly analysed by the authorities while dealing with ‘collective dominance’. This way, the nature of the market is not misconstrued while the alleged artificiality is actively weeded out.

Since India’s competition law is at its nascent stage while the Indian markets are simultaneously developing at a rapid pace, it is normal for such dilemmas to spring up. The right step to take now is to address the issues and provide a suitable solution instead of waiving the allegations as being ultra vires of the legislation. These loopholes in legislation will only breed anti-competitiveness by forgoing the concerns of the affected parties ultimately deviating from the objectives of competition law. After all, the main purpose of the Competition Act is to foster fair competition and nurture consumer welfare.

Swetha Somu

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