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Exclusive dealership agreements with group companies not anti-competitive

23rd November, 2012

Exclusive dealership agreements with group companies do not lead to anti-competitive business practices. The Competition Commission of India (CCI) has held that agreement between group companies cannot be said to be falling under the category of contraventions of Section 3 of the Competition Act, 2002. It was held that the principle is in conformity with the internationally accepted doctrine of 'single economic entity'.

The Opposite Party was alleged as violating provisions of the said Act by entering into exclusive distribution agreement with a particular company, thereby restricting the informant and other prospective dealers from operating in the market and by adopting a discriminatory pricing policy.

The Commission, in its order dated 6-11-2012, noted that while considering whether an enterprise is dominant in the market or not, factors such as market share, size and resources of the enterprise, the size and importance of competitors, dependence of consumers on the enterprise, economic power of the enterprise, entry barriers, market structure, etc. are taken into account and that the informant failed to prove majority of the said factors.

With reference to facts of the case, it was observed that since the market of super sports cars in India was miniscule, no one company had commercial advantage of another and it was not necessary for the OP to have too many dealers. According to the CCI, every company has the right to open its subsidiary companies and offices and assign business contracts to them and that cannot be complained against as abuse of dominant position. Market for super sports cars was also found to be distinct relevant market within the auto industry.
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