Asked January 19, 2014

Threshold Limit

  • 2 Answers

I have a question pertaining to the law of competition in India. Though the CCI has come up with several regulations to upgrade the merger control regime, however, there is one dilemma that bothers me time and again. My query is relating to Section 5 (Combinations) of the Competition Act, 2002, which proscribes a threshold limit enabling the CCI to review a merger. How exactly does the CCI determine/ calculate the threshold limit prescribed while adjudging whether the combination can cause an AAEC in India? I mean what is the standard for calculation of the threshold limit of assets and turnover for the combined entity so formed post merger? What if, I structure my assets and turnover in such a manner that it doesn’t get caught in the statutorily prescribed limit? Eg: If there is a merger between company A and Company B and both the companies jointly structure their assets and turnover in such a manner that they are not caught in the limit prescribed, then what exactly is the ramification? How will the CCI, which has power to monitor any merger for one year even after the merger, will determine that there is some escape route opted by the companies?

Answers 2

The Act envisages appreciable adverse effect on competition in the relevant market in India as the criterion for regulation of combinations. In order to evaluate appreciable adverse effect on competition, the Act empowers the Commission to evaluate the effect of Combination on the basis of factors mentioned in sub section (4) of section 20.

Factors to be considered by the Commission while evaluating appreciable adverse effect of Combinations on competition in the relevant market:

(a) actual and potential level of competition through imports in the market;

(b) extent of barriers to entry into the market;

(c) level of concentration in the market ;

(d) degree of countervailing power in the market;

(e) likelihood that the combination would result in the parties to the combination being able to significantly and sustainably increase prices or profit margins;

(f) extent of effective competition likely to sustain in a market;

(g) extent to which substitutes are available or are likely to be available in the market;

(h) market share, in the relevant market, of the persons or enterprise in a combination, individually and as a combination;

(i) likelihood that the combination would result in the removal of a vigorous and effective competitor or competitors in the market;

(j) nature and extent of vertical integration in the market;

(k) possibility of a failing business;

(l) nature and extent of innovation;

(m) relative advantage, by way of the contribution to the economic development, by any combination having or likely to have appreciable adverse effect on competition;

(n) whether the benefits of the combination outweigh the adverse impact of the combination, if any.

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