Cartel Risks in Dual-Distribution Models – Too Soon to Tell?

Introduction

Consider a typical supply chain – in the market for supply and sale of plastic bottles, for example, the manufacturer procures raw materials from upstream suppliers to manufacture bottles of various colors and sizes. Depending on the size and scale of its business, the manufacturer then engages a distributor or a network of distributors to facilitate downstream sales to the ultimate consumers. While there may be a network of players (such as distributors, sub-distributors, wholesalers, franchisee networks, etc.) to cover the “last mile” to the ultimate consumer, from a competition law perspective, the relevant point is the one at which economic activity occurs between any two given legal entities.

Under competition rules, these legal relationships can either be categorized as “horizontal” (where they occur between entities operating at the same level of the supply chain) or “vertical” (where they occur between entities operating at different levels of the supply chain). Across jurisdictions, horizontal agreements such as cartels are treated more severely than vertical restraints, and are considered to be illegal per se. In India, cartels are presumed to cause an appreciable adverse effect on competition (but this presumption is rebuttable).2 On the other hand, testing the legality of vertical restraints requires a balancing test between their efficiency-enhancing, pro-competitive effects and their anti-competitive effects (a so-called

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