Horizontal and vertical agreement

Section 3 of the competition act- prohibits all types of agreements which have the
effect to restrict competition and prevents those which are likely to have such
effect. Such agreements are considered anti- competitive agreements, whereby
members of the same categories directly or indirectly prevents other categories of
players from entering into market or even exclude them
They are divided into two broad categories-----------
i) horizontal agreements ii) vertical agreements
Horizontal agreements:- horizontal agreements are agreements among competitors,
Any agreements between two or more Enterprises that are at the same stage of the
production chain and the distribution in the same market.
=> All horizontal agreements do not hurt competition. Certain horizontal agreements are
beneficial, as they foster efficiencies, reduce risk, creates new or improved production
or methods of distribution or improve information flow and thereby the competitive
functioning of a market.
=> Horizontal agreements as cartels:- certain types of Horizontal agreements are also
known as cartels. Section 2(c) of the competition act defines “Cartel” includes an
association of producers, sellers, distributors, traders or service providers who, by
agreement amongst themselves, limit, control or attempt to control the production,
distribution, sale or price of, or, trade in goods or provision of services. Section 3 makes
cartel as void.
=> Before this act came into force Supreme Court has given two important decisions
regarding cartel---------Union of India vs Hindustan development Corporation :-
It was observed that a cartel is an association of producers who by agreement amongst
themselves, attempt to control production to obtain Monopoly in any particular industry
or commodities.
=> M/s Haridas exports vs all India float glass Association and others,2002:-
Supreme Court noted that a cartel is formed inter alia, with a view that, MRTP against 3
Indonesian companies alleging that they were manufacturing float glass and were
selling the same at predatory prices in India and were hence restoring to restrictive and
unfair trade practices.
=> Reasons why cartels are prohibited:-
In a purpose of cartels, Monopoly firm which is to keep the total profits of all the
participants in a competitive market. Cartels generate situational rents for the most
powerful companies because they need not make an effort either to improve the quality
of their products or to improve productivity. At the same time, cartels artificially keep the
least efficient companies in the market
=> Specific horizontal agreements:-
There is a high degree of consumers, as to what types of horizontal agreements be
treated as hard-core cartels and should be prohibited under competition law. Section
3(3) refers to four categories of horizontal agreements which are void :- a) Fixing prices
b) limiting supply of goods or services c) sharing of market d) bid rigging
# Horizontal agreements are agreements among competitors,-- Any agreements
between two or more Enterprises that are at the same stage of the production
chain and the distribution in the same market.
Section-3(3)applies not only to agreements but also to practices(Section 3(3)--- any
agreement entered into between Enterprises or Association of Enterprises or persons
or associations of persons or between any person and Enterprise or Practice carried on,
or decision taken by any Association of Enterprises or Association of persons,
including ‘’cartels’’, engaged in identical or similar goods or services),All these
agreements are per se void.
In builders Association of India VS cement manufacturers association and
others:-- The CCI imposed penalty on cement manufacturer for deliberately producing
less in order to earn profit. The cement companies were also found to be fixing prices of
Cement in an arbitrary manner
=> Bid rigging:-
bid rigging generally implies collusion amongst the bidders in order to keep the bid
money at the predetermined levels. It is a practice whereby firms agree amongst
themselves to collaborate over their response to invitation to tenders. Through bid
rigging, bidders surrender their autonomy and Independence to file bids. The bids
become non-competitive where every stage is managed. Bid rigging is a form of fraud
and almost always results in economic harm to the agency, which is seeking the bids,
and to the public, who ultimately bear the costs as taxpayers or consumers.
=> It is a form of price fixing and Market allocation, often practiced where contracts are
determined by a call for bids.
=> Kinds of bid rigging:-
These are some very common form of bid rigging practices:---
Bid rigging:- I) bid suppression ii) Complementary bidding iii) Bid rotation iv) Sub
contracting
=> All such above agreements under bid rigging are void. As they are all examples of
horizontal agreements.
=> competition Act 2002 and bid rigging :-Section 3(3)
Defines bid rigging, which has two elements. Bid rigging is a kind of agreement
between Enterprises or persons- engaged in production or trading of identical or similar
of goods or services and that the purpose of the bid rigging is to eliminate or reduce
competition for bidders or adversely affect or manipulate the process for bidding.
Bid rigging or collusive bidding almost always results in higher prices and is beneficial to
the contractors.
=> Observation of the court with regards to bid rigging:---
In Subhas Chandra vs Ganga Prasad :- It was observed that bid rigging is an
agreement which has the adverse effect on competition. collusion is a secret agreement
for illegal purpose or a conspiracy. It is a deceitful agreement for some evil purpose.