Anti-competitive agreements

Topic: Market Structures, Market Failure and Competition · NCERT: Beyond NCERT

Meaning

An anti-competitive agreement is an agreement between enterprises about production, supply, distribution or pricing that causes, or is likely to cause, an appreciable adverse effect on competition (AAEC), meaning real and noticeable harm to competition. Section 3 of the Competition Act 2002 bans such agreements and treats them as void (the law treats them as having no effect).

• Why it matters: when rival firms join hands, they can behave like a single monopoly. They can raise prices above cost, cut output and shut out new firms. The law attacks this route to market power (the ability to raise prices without losing all your customers).

Explanation

How the AAEC test works (s.19(3))

• AAEC is the legal test. It asks one question: does the agreement hurt competition in a real and noticeable way?
• The CCI (Competition Commission of India) weighs harms against benefits.
• Harms it looks for:
  • barriers for new entrants;
  • existing competitors being driven out;
  • foreclosure of competition (rivals shut out of the market).

• Benefits it looks for:

  • gains to consumers;
  • better production or distribution;
  • technical, scientific or economic development.

• The law targets conduct, not size. Firms may cooperate. Cooperation that harms competition is not allowed.

Type 1: horizontal agreements (s.3(3)), presumed harmful

• Horizontal agreement: an agreement between competitors at the same stage of production. Example: two cement makers.
• What it covers:
• price fixing: rivals agree on one price;
• limiting output: rivals agree to produce less, so prices rise;
• market sharing: "you sell in the north, I sell in the south";

• bid rigging: bidders secretly collude in tenders (public calls for bids).

• Presumption of AAEC: the law assumes these agreements cause harm. The firm must prove that it did no harm. This is close to a per se rule (the act is illegal in itself).

• The three methods of bid rigging:
• bid rotation: firms take turns to win;
• cover bids: fake high bids that make one firm's price look fair;

• bid suppression: some firms agree not to bid at all.

• A cartel (a group of competing firms that agree to act like one monopoly) is the classic horizontal agreement.

• Hub-and-spoke cartel (2023 amendment):
• the rivals (the "spokes") do not talk to each other directly;
• they coordinate through a third party (the "hub"), such as a common supplier, a trade body or an online platform;
• since 2023, a hub that is not in the same trade but actively takes part is also caught under s.3(3).

Type 2: vertical agreements (s.3(4)), rule of reason

• Vertical agreement: an agreement between firms at different levels of the supply chain. Example: a maker and its dealer.
• Rule of reason: harm is not presumed. The CCI must prove AAEC.
• Types:
• tie-in: to buy product A, you must also buy product B;
• exclusive supply: the buyer may take goods only from this supplier;
• exclusive distribution: the seller limits dealers to one area or one set of customers;
• refusal to deal: refusing to sell to, or buy from, certain parties;

• resale price maintenance (RPM): the supplier fixes the minimum or fixed price at which retailers must resell.

• Why the softer treatment: vertical deals can help buyers. An exclusive dealer, for example, may invest more in service. So the harm has to be shown, not assumed.

Breaking cartels: the leniency programme (s.46)

• Leniency means a lower penalty. A cartel member who discloses the cartel and cooperates with the CCI pays less.

Order of applicant	Maximum reduction
1st	up to 100%
2nd	up to 50%
3rd	up to 30%

• Worked example: the CCI sets a penalty of ₹100 crore on each of three cartel members.
• 1st applicant: could pay as little as ₹0.
• 2nd applicant: pays at least ₹50 crore.
• 3rd applicant: pays at least ₹70 crore.

• Lesson: coming forward first pays the most. Members start to distrust one another, and the cartel breaks up.

• Lesser penalty plus (2023): a firm already applying for leniency in cartel A gets an extra cut if it reveals a second, undisclosed cartel B. The CCI (Lesser Penalty) Regulations 2024 put this into effect on 20 February 2024 [3].

In India

• Law: Section 3 of the Competition Act 2002. The Act came from the Raghavan Committee (report 2000). The committee advised moving from controlling size (MRTP Act 1969) to controlling conduct.
• Regulator: the CCI, set up on 14 October 2003. The anti-trust provisions (ss.3-4) came into force on 20 May 2009.
• Appeals: CCI → NCLAT (COMPAT was merged into it by the Finance Act 2017) → Supreme Court. Since 2023, a firm must deposit 25% of the amount in the CCI order before the NCLAT will hear its appeal [1].
• Scale: the CCI investigated 35 cartel cases in the five years before March 2025 [3].
• Key cases:

Case	Year	Key fact
Cement cartel	CCI 2012	Penalties over ₹6,000 crore (≈₹6,307 crore) on 11 firms; upheld by NCLAT, July 2018
Beer cartel (UB, Carlsberg, AB InBev)	2021	About ₹873 crore; uncovered through leniency

• How the cement penalty was worked out: 0.5 times the profit of each firm for 2009-10 and 2010-11 [4].
• A firm earns ₹400 crore profit in each year, so its total profit is ₹800 crore.

• Penalty = 0.5 × ₹800 crore = ₹400 crore.

• Bid rigging cases:

• suppliers to Indian Railways and other public buyers;
• cement companies, penalised for bid rigging in a separate case [4];

• a cartel in Pune Municipal Corporation tenders, busted with the help of lesser penalty provisions [4].

• Settlement and commitment (2023 amendment): these are available for s.3(4) (vertical) and s.4 cases. Cartels are excluded [1]. The regulations were notified on 6 March 2024 [2].

Don't confuse with

• Abuse of dominance (s.4): this is one dominant firm misusing its strength. An anti-competitive agreement (s.3) needs two or more enterprises acting together.
• Combinations (ss.5-6): firms merge or acquire each other above set thresholds, and the CCI reviews the deal before it closes. In an anti-competitive agreement, the firms stay separate but coordinate their conduct.
• Horizontal vs vertical: horizontal agreements (same stage, s.3(3)) are presumed to cause AAEC. Vertical agreements (different stages, s.3(4)) follow the rule of reason, so the CCI must prove the harm.
• Unfair trade practices (CCPA): the CCPA works under the Consumer Protection Act 2019 and protects individual consumer rights, for example against misleading ads. The CCI protects competition in the market as a process.

Prelims Hooks

• Anti-competitive agreements are covered by Section 3 of the Competition Act 2002. Agreements that cause AAEC are void. The AAEC factors are listed in s.19(3).
• Trap: price fixing, output limits, market sharing and bid rigging are horizontal agreements, presumed to cause AAEC under s.3(3). Tie-in, exclusive supply, exclusive distribution, refusal to deal and RPM are vertical agreements under s.3(4), judged by the rule of reason.
• Leniency (s.46): up to 100% / 50% / 30% off for the 1st / 2nd / 3rd applicant. Lesser penalty plus regulations were notified on 20 February 2024 [3].
• Since the 2023 amendment, a hub in a hub-and-spoke cartel can be caught under s.3(3) even if it is not in the same trade as the cartel members.
• Settlement and commitment are available for s.3(4) and s.4 cases, not for cartels [1].
• The anti-trust provisions (ss.3-4) have been in force since 20 May 2009. The cement cartel penalty (CCI 2012, ≈₹6,307 crore) was upheld by the NCLAT in July 2018.

Mains Points

• Conduct, not size: the move from the MRTP Act to the 2002 Act lets Indian firms grow to world scale after 1991. Section 3 still punishes firms that collude. This ties competition law to the reforms and to ease of doing business.
• Deterrence vs speed:
• Deterrence: leniency and lesser penalty plus make cartel members distrust one another, so cartels become riskier [3].
• Speed: the 25% pre-deposit reduces appeals filed only to delay payment [1]. Settlement and commitment close vertical cases faster [2].

• Gap: penalties often stall on appeal. Of ₹20,350 crore in CCI penalties, ₹18,512 crore was stayed or dismissed by appellate courts (as of 30 April 2025) [5].

• Wider idea of harm: the Standing Committee (2025) said the AAEC test should also count non-price harms, such as lower quality, loss of privacy and entry barriers [5]. This matters for platform-led hub-and-spoke cartels. Enforcement is also held back by 42% vacant posts at the CCI (2025) [5]. Reforms to suggest: more staff, tech experts, and formal coordination agreements with sector regulators.

Related concepts

• Appreciable adverse effect on competition
• Horizontal agreement
• Bid rigging
• Vertical agreement
• Resale price maintenance
• Leniency programme
• Dominant position
• Relevant market
• Abuse of dominance
• Predatory pricing

Read more

• Competition law in India: the Competition Act 2002 and the CCI