Vertical Restraints in Competition Law: The Need to Strike the Right Balance Between Regulation and Competition
Volume 4 Issue 4 (2011)
The regulation of vertical agreements by competition law is anything but straightforward. Economic theories suggest that if inter brand competition exists, then restrictions on intra brand competition should not be capable of restricting competition and the efficiency enhancing effects of vertical agreements would outweigh any possible risks. Yet experience reveals that vertical agreements can have anticompetitive effects which outweigh their pro-competitive effects, and hence they have to be brought within the purview of antitrust law. Countries are still searching for the perfect way to regulate vertical agreements. This paper undertakes a brief study of the US and EC legal regimes for vertical agreements and analyses the problems faced in these jurisdictions while regulating vertical restraints. The paper then applies this analysis to critique the treatment given to vertical agreements under the Competition Act, 2002 (‘the Act’). The Act, which has very recently come into force, has several ambiguities with respect to vertical restraints. The Indian law is similar to the US law inasmuch as there is a clear scope for application of the rule of reason to vertical agreements. As US experience shows, however, there cannot be a uniform application of the rule of reason, since different vertical agreements would call for different standards. The Act is also similar to EC law in the sense that it lays down several criteria which can be taken into account for testing ‘adverse effects’ on competition. Unlike the EC, however, the competition authority in India is free to take into account all or any of the mentioned criteria. This is a dangerously open ended provision. The paper addresses these and various other loopholes in the present law, and finally aims at suggesting how the regulation of vertical agreements by competition law could be better achieved by the Act.