Exclusive Supply Agreement Translate
The main theory of harm suffered by exclusive supply agreements is that it can lead to market silos of competing suppliers and potential suppliers. This market silos can in turn have negative effects on inter-brand competition. The theory of the silos of exclusive agreements provides that an upstream producer with market power would use such exclusive trade restrictions to prevent a potential new entrant from having access to the vital inputs of a distribution network, which would ultimately prevent market entry, and allow the incumbent supplier to further increase its market share. Exclusive dealer agreements may also exclude competition at the dealer level. Thus, exclusivity agreements under Section 3 (4) or Section 4 of the Act are only anti-competitive if the parties concerned have significant market power. In summary, there is no linear formula for assessing exclusivity agreements under the act. Each assessment is conducted on a case-by-case basis by the ICC, taking due account of a wide range of factors, including the market power of the parties involved, the pro-competitive effects of the agreements, and the possible economic justifications that the parties may have. Depending on the position of the parties in the market, the ICC may assess them either under the abuse of dominance provisions (according to section 4 of the Act), or under vertical agreement agreements (section 3, 4) of the Act, or both. Exclusive clauses in commercial agreements such as sales and supply agreements, dealer contracts are commonplace in the supply chain. They are found either upstream (when buying a property/service) or downstream (when selling a good/service). Competition law recognizes two broad categories of exclusive agreements, i.e. (a) exclusive supply contracts; and b) exclusive distribution agreements, based on whether the restriction works upstream or downstream.
These factors are also taken into account by the ICC in assessing market power within the meaning of Section 3(4) of the Act. In its decision-making practice, the ICC has taken into account factors such as market share, market structure3, duration of the agreement4, barriers to entry5, etc., while determining market power for the assessment of agreements under Section 3.4 of the Act. It should be taken into account, however, that a company`s dominant position has traditionally resulted in a heavier burden of proof to justify its conduct. Although there is no precedent in India, it is likely that the ICC will draw a sheet of Community guidelines on vertical restrictions and may require a dominant company to impose an exclusive agreement to justify its conduct by demonstrating: (i) that exclusivity leads to competitive efficiency gains; (ii) that exclusivity is essential to achieve competitive efficiency gains; (iii) that efficiency gains that may promote competition outweigh the likely anti-competitive effects; (iv) that the behaviour does not exclude effective competition; and (v) that the party pass on the efficiency gains to end consumers.