‘RELEVANT MARKET’ UNDER COMPETITION ACT, 2002

[Mr. M. GOVINDARAJAN]

The object of the Competition Act, 2002 (‘Act’ for short) is to preserve and promote competition and to prevent anti competitive business practices with minimal Government intervention.    The Competition Act provides for the prevention of anti competitive agreements, abuse of dominant position and combinations.  While inquiring the cases in respect of these matters the Competition Commission mainly consider the relevant market for this purpose.

The term ‘relevant market’ is defined under Section 2(r) of the Act as the market, which may be determined by the Commission with reference to ‘relevant product market’ and ‘relevant geographic market or with reference to both the markets.

The term ‘relevant geographic market’ is defined under Section 2(s) of the Act as a market comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from conditions prevailing in neighboring areas.

The term ‘relevant product market’ is defined under Section 2(t) of the Act as a market comprising of all those products or services which are regarded as interchangeable or substitutable by the consumer, by reasons of characteristics of products or services, their pricds and intended use.

Both the markets have relevance in the determination of the agreements and anti competitive, in evaluating combinations and dominance of an enterprise or group.  An agreement in the nature of cartel which limits of controls production, supply, market, technical development, investments etc., need to be looked as being anti competitive with reference to  relevant market.  Similarly agreement to share the market or sources of production by way of allocation of geographical area of market, types of goods or services or number of customers in the market or by any similar way and these need to be interpreted in the context of the definition of relevant geographical market.

Section 4 of the Act prohibits any enterprise or group from abusing dominant position, meaning thereby a position of strength, enjoyed by an enterprise or group, in the relevant market, in India which enables it to-

• Operate independently of competitive forces prevailing in the relevant market; or
• Affect its competitions or consumers or the relevant market in its favor.

Combination means acquisition of control, shares, voting rights or assets, acquisition of control by a person over an enterprise where such person has direct or indirect control over another enterprise engaged in competing businesses and mergers and amalgamations between or amongst enterprises when the combining parties exceed the thresholds set in the Act.  The thresholds are specified in the Act in terms of the assets or turnover in India and outside India.  Entering into a combination which causes or is likely to cause an appreciable adverse effect of competition within the relevant market in India is prohibited and such combinations shall be void.

According to Section 19(3) of the Act provides that the Competition shall give due regard to all or any of the following factors, while determining whether an agreement has appreciable adverse effect of competition:

• Creation of barriers to new entrants in the market;
• Driving existing competitors out of the market;
• Foreclosure of competition by hindering entry into the market;
• Accrual of benefits to consumers;
• Improvements in production or distribution of goods or provision of services;
• Promotion of technical, scientific and economic development by means of production or distribution of goods or provision of serviced in the relevant market.

The Competition commission, while deciding whether an enterprise enjoys dominant position or not, shall have due regard to all or any of the following factors:

• Size and resources of the enterprise;
• Market share of the enterprise;
• Size and importance of the competitors;
• Economic power including commercial advantages over competitors;
• Vertical integration or sale or service network of such enterprises;
• Dependence of consumers on the enterprise;
• Entry barriers;
• Countervailing buying power;
• Market structure and size of the market;
• Social obligation and social costs;
• Relative advantages;
• Any other factor that the Government may consider relevant for the inquiry.

The Competition Commission, for determining the ‘relevant geographic market’ shall have due regard to all or any of the following factors:

• Regulatory trade barriers;
• Local specification requirements;
• National procurement policies;
• Adequate distribution facilities;
• Transport costs;
• Language;
• Consumer preferences;
• Need for secure, regular supplies or rapid after-sales service.

The Commission, while determining ‘relevant product market’ shall have due regard to all or any of the following factors:

• Physical characteristics or end use of goods;
• Price of goods of service;
• Consumer preferences;
• Exclusion of in-house production;
• Existence of specialized producers;
• Classification of industrial products.

The prescription of parameters for determining appreciable adverse effect on competition of agreement, dominant position with relevant market are intended to bring consistency and certainty in working of the Commission which has to consider all or any of the applicable factors, as the case may be.

The Competition Commission, while determining the combination, shall have due regard all or any of the following factors:

• Actual and potential level of competition through imports in the market;
• Extent of barriers to entry into the market;
• Level of combination in the market;
• Degree of countervailing power in the market;
• Extent of effective competition likely to sustain in the market;
• Extent to which substitutes are available or are likely to be  available in the market;
• Market share, in the relevant market, of the persons ot enterprise in a combination, individually as a combination;
• Nature and extent of vertical integration in the market;
• Possibility of falling of a business;
• Likelihood that the combination would result in removal of a vigorous and effective competitor or competitors in the market;
• Relative  advantage;
• Whether the benefits of the combination outweigh the adverse impact of the combination, if any.