Anti- Competitive Practices

and
Other Anti-Competitive
Agreements

Prepared by: Upendra Raj Dulal

Advocate
Anti-competitive behavior?
• Competition in the markets helps produce better prices, higher quality products and services,
a more advanced level of technological development, and finally, better productivity and
competitiveness for our companies.
• In order to obtain greater profits or unfair advantages or dominate the market, a business or
organization may involve to limit, restrict or eliminate competition in a market.
• The practice of limiting, restricting or eliminating competition in a market is known as anti-
competitive practices.
• These practices are often considered illegal or unethical and can harm consumers, other
businesses and the broader economy.
• Anti-competitive behavior can be grouped into two classifications.
1. Horizontal restraints regard anti-competitive behavior that involves competitors at the same
level of the supply chain. Example; These practices include mergers, cartels, collusions,
price-fixing, price discrimination and predatory pricing.
2. The second category is Vertical restraint which implements restraints against competitors
due to anti-competitive practice between firms at different levels of the supply chain.
Example; supplier-distributor relationships. These practices include exclusive dealing, refusal
to deal/sell, resale price maintenance and more.
• These practices can take the form of agreements, of other forms of
cooperation, or of initiatives by business associations that prevent companies
from independently defining their commercial policy on the market, and also
through unilateral abuse of market power.
• Anti-Competitive practices refers to actions taken by firms to manipulate
markets, stifle (restrain) competition, or gain an unfair advantage over rivals,
often to the detriment of consumers and the broader economy.
• It has been known for centuries that anticompetitive practices have harmful
economic effects.
• Eastern Roman Empire (483 AD): The Constitution of Zeno punished price
fixing in relation to clothes, fisheries, sea - urchins and other goods
• Adam Smith (1776) famously declared that “People of the same trade seldom
meet together, even for merriment (Ex. Party) and diversion, but the
conversation ends in a conspiracy against the public, or in some contrivance to
raise prices”
• More than a century after Smith, Alfred Marshall popularized the concepts of
consumer surplus, producer surplus and deadweight loss.
• Consumer surplus measures the difference between the price a consumer
pays for an item and the price he would be willing to pay rather than do
without it.
• Producer surplus is the difference between the market price and the lowest
price a firm is willing to accept to produce a good.
• A deadweight loss is a cost to society created by market inefficiency, which
occurs when supply and demand are out of equilibrium.
• In economic terms, the exercise of monopoly power causes an inefficient
allocation of resources by restricting output below what would be achieved by
a competitive market. As a result, there is a deadweight loss in welfare. In
addition, monopoly redistributes gains from consumers to producers by
transferring consumer surplus to profit.
• Still, laws prohibiting anticompetitive practices were slow to catch on.
• In 1970, only twelve jurisdictions around the world had a competition law regime.
• During the 1970s and 1980s, numerous economic studies were undertaken to
demonstrate the harmful effects of anticompetitive practices on consumers and
producers alike.
• These studies led to a growing awareness among both developed and developing
countries that regulation is necessary to protect economies and that competition
law is not intended to punish companies but that these rules are healthy for
businesses too, because it keeps them on their toes.
• Some 130 jurisdictions have now enacted competition laws and the vast majority
have a competition enforcement authority actively pursuing anticompetitive
practices. Particularly the European Union and the United States have well-
developed competition laws and policies that aim to prevent and penalize
anticompetitive practices.
• Nepal has enacted Competition Promotion and Market Protection Act, 2063
(2007) to control the anti-competitive practices which may happen in Nepal.
Objectives of the Competition Act enacted in Nepal?
• Preamble of this Act contains the answer to this question.
• it is expedient to make legal provisions in order to further make national
economy more open, liberal, market-oriented and competitive by maintaining
fair competition between or among the persons or enterprises producing or
distributing goods or services,
– to enhance national productivity by developing the business capacity of producers or
distributors by way of competition,
– to protect markets against undesirable interference,
– to encourage to make the produced goods and services available to the consumers at a
competitive price by enhancing the quality of goods or services by way of controlling
monopoly and restrictive trade practices, and
– to maintain the economic interests and decency of the general public by doing away
with possible unfair competition in trade practices
• Anticompetitive practices may take the different forms as outlined below:
a) Collusion: When competitors within an industry conspire to fix prices, manipulate
bids, or divide territories to reduce competition.
b) Exclusive dealing: This occurs when a company imposes restrictions on customers or
suppliers that prevent them from dealing with competitors.
c) Predatory pricing: When a company deliberately lowers prices to drive competitors
out of the market, intending to raise prices once competition is eliminated.
d) Tying and bundling: This is when a company requires customers to purchase one
product in order to get another product, often to stifle competition.
e) Price discrimination: When a company charges different prices to different
customers for the same product or service without justification.
f) Misuse of intellectual property: When a company uses its intellectual property rights
(such as patents, trademarks, or copyrights) to stifle competition rather than to
protect innovation.
g) Monopolisation: When a company gains excessive control over a particular market
or industry, leading to decreased competition and potential harm to consumers.
 Cartels and Anti-competitive Agreements
• A cartel is an anti-competitive agreement or concerted practice between two or more
rival firms aimed at coordinating their competitive behavior on the market or influencing
other parameters of competition through practices that include but are not limited to:
– the direct or indirect fixing of prices or other trading conditions;
– the limitation or control of production, markets, technical developments or investment;
– the sharing of markets or sources of supply, including bid-rigging;
– restrictions of imports or exports, or a combination of these practices.
• Exchange of competitively sensitive information can also be treated as cartel conduct in
certain circumstances.
• It involves collusion among rival firms to distort, limit or eliminate competition,
• primarily in pursuit of higher prices and profits, without producing any countervailing
benefits.
• As such, cartels are considered among the most harmful forms of anti-competitive
conduct.
• A cartel typically involves secret meetings or contacts between cartel participants over a
sustained period of time (although in certain jurisdictions a one-off meeting may provide a
sufficient basis for a cartel).
• Such arrangements may take many different forms: cartels can be based on written or oral
agreements, whether formal or informal in nature, or, in the absence of a concluded
agreement, a common understanding by which the parties consciously commit to a common
scheme .
• Cartel participants generally compete in the production and/or supply of a relevant set of
products or services. However, organizations such as trade associations and consultancy firms
may also be found guilty of cartel conduct if they knowingly facilitate cartel meetings, contacts
or the exchange of competitively sensitive information between competitors.
• A cartel may result from an isolated event, a series of acts or from continuous conduct.
• Many cartels are complex and last a long period of time. During the entire duration of the
cartel, some firms may be more active than others: some may abandon the cartel but
subsequently re-join, others may attend only a handful of meetings.
• If a cartel operates on a global basis there may also be a number of sub-agreements covering
different products or services and jurisdictions. For these reasons, competition authorities
have found ways to ensure that a related series of anti-competitive actions may be treated as
a single, overreaching cartel.
Cartel similarly defined or understood in various jurisdictions:-
• “Arrangement(s) between competing firms designed to limit or eliminate
competition between them, with the objective of increasing prices and profits
of the participating companies and without producing any objective
countervailing benefits.”
European Commission, DG Competition, Glossary of Terms used in EU
Competition Policy.
• “A cartel is generally constituted to include conduct by two or more
competitive businesses such as price fixing; market sharing including bid-
rigging or customer sharing; and/or production or sales quotas.”
Australian Competition and Consumer Commission website.
• “Cartels are agreements between undertakings, such as agreements and
decisions of concerted practices which restrain competition…..”
Netherlands Competition Authority website.
• Practices commonly found in cartel arrangements, such as price-fixing, output
restrictions and market-sharing, are treated as among the most serious types
of competition infringement.
• Most forms of cartel activity entail exchanges of information among rivals. The
exchange of certain types of information between competitors can provide a
standalone basis for a cartel finding.

• To conclude, People can be part of a cartel in a number of different ways.

Involvement in cartel conduct includes:
• entering into an agreement
• attempting to enter into an agreement
• carrying out the agreed conduct
• facilitating and aiding the agreed conduct.
 Examples;
• It can be hard to prove that a secret cartel exists. There will be little if any written
evidence, and all the members of the cartel have a vested interest in maintaining
the secret. In the given situation, Competition Authorities (such as the CMA in the
UK) therefore generally offer leniency (forgiving or less harsh punishment) to the
first cartel member to confess. Such whistle-blowing is a powerful weapon
because one cartel member can never be sure that other members will remain
silent, so the more nervous may quickly confess. Some Examples;
1. Around 50 UK independent schools, including Eton College, Harrow and
Westminster, who shared information about their costs and so about their likely
fee increases. This cartel was hardly secret and ceased as soon as the schools
realised that their behaviour was illegal. They each then paid fines averaging
£70,000 each. The schools also undertook to make separate voluntary
contributions totaling £3m into a new charitable educational fund, in what the
head teachers acknowledged was an "imaginative solution to a trying inquiry".
2) the American competition regulator, the Department of Justice, won a
$450m settlement from Apple as the company had colluded with several
publishers - more or less in the open! - to remove e-books from Amazon's
Kindle store and increase their price (when sold by Apple) from $9.99 to
$12.99 or even $14.99. E-book buyers were reimbursed $400m.

3) Virgin Atlantic themselves became subject to an Office of Fair Trading (OFT)

investigation in April 2010 when Cathay Pacific sought leniency in connection
with alleged price fixing discussions on the London-Hong Kong route.
 In Nepal?
• Case I : This story is from a period when Nepal was under Panchayat regime. The district
administration office of Jumla issued a notice to buy a horse. The office said it was looking
for a horse with a star in its forehead, a yellow mark at its back, with a short tail and
checkered hoof. After the notice, horse owners of Jumla were excited and offered their
horses to the district administrative office. The officials checked the horses to see if they
met the criteria. Eventually, one horse was identified as the one meeting the criteria. It
belonged to the chairman of district Panchayat. It turned out that the criteria was
deliberately set in such a manner so that only that horse will qualify.
• This story from decades ago might be apocryphal, but it illustrates how government
officials collude with contractors to award them contracts.

• Case II: This trend, however, has continued even in the republican era. Government
officials set criteria that suit a few big contractors. A 65-kilometre Mugu-Humla road serves
as an example of this collusion. Any contractor with an experience of road construction
within Nepal should have qualified for bidding for the project. But a criterion was added
saying the bidder must have an international experience. The criterion was made in order
to allow few construction companies including Kalika Construction at shot at it. Bikram
Pandey, a minister for forest and land reform, is the owner of the company.
 In Nepal?

• Competition Promotion and Market Protection Act, 2063 (2007)

• Section 3: Prohibition on anti-competitive agreements:
1. No person or enterprise that produces or distributes any goods or services shall, with an intention to
limit or control competition, enter into, or cause to be entered into individually or collectively , any
agreement with any other person or enterprise that produces the identical or similar goods or services.
(a) directly or indirectly determines purchase or sale prices of any goods or services or specifies the terms of
purchase and sale of such goods or services;
(b) limits or controls production, distribution or markets of any goods or services or limits or controls
investment to be made for the technical development or advancement thereof;
(c) limits or controls the over all quantity of the production or distribution of any goods or services or
reduce the retail consumption quantity of such goods or quality thereof;
(d) restrains the sale and distribution of such goods or services in any particular place or restricts or causes
to restrict the sale and distribution thereof to any particular place only;
(e) restrains the purchase, sale or distribution of the goods or services of any other person or enterprise
producing or distribution identical or similar goods or services or prevents that entry of such goods or
services in the market in such a manner so as to promote the market of only the goods or services
produced or distributed by any particular person or enterprise;
f) allocates the market, mutually, between the persons or enterprises that
produce or distribute any goods or services;
g) provides for the production of distribution of any goods or services on a
rotational basis or determines quota for the production or distribution of such
goods or services;
h) specifies different prices any goods or services for the purchase, sale or
distribution of such goods or services or specifies different terms and conditions
of the purchase, sale or distribution thereof without any reasonable cause;
i) provides for the submission of tenders or quotations through mutual
agreement or submission of tenders or quotations offering the same price or
other details, in response to an invitation to tenders or quotation made
publicly;
j) applies a syndicate system in the transportation or distribution of goods or
services;
k) provides for doing or causing to be done any other acts as prescribed.
2) With prejudice to the generality of Sub-section (1), no two or more than two
persons or enterprises that produce or distribute any goods or produce,
distribute or operate any services shall, in association with any body or by
way of adopting any other measure, enter into any type of agreement which
restrains another person or enterprise from producing, distributing or
operating such goods or services in the area where those persons or
enterprises are producing, distributing or operating such goods or services or
requires that such other person or enterprise should be associated with such
persons or enterprises or involved in such measure or should comply with
any terms and conditions specified by such agreement or measure in order
to produce, distribute or operate such goods or services.

3) Any agreement entered into in contravention of Sub-section (1) shall, ipso

facto, be void.
• Jyoti Baniya vs. the Government of Nepal: The Supreme Court directed the
Government of Nepal to take necessary action to end cartelling or syndicate
system in public transport and to ensure transparency and competition.
(Decision No. 9920, N.K.P 2074 )
• The case of Lakshmi Dhikta v. Government of Nepal (D.N.8464, N.K.P 2067) is
a notable example of a case related to cartelling in Nepal. Although the case is
primarily about the right to abortion, it also touches on the issue of cartelling
in the medical sector
• Lakshmi Dhikta, a poor mother of five children from Dadeldhura in western Nepal. Lakshmi went with her
husband to a government hospital within the 12 week cut-o‘ but was denied an abortion because of their
inability to pay the fee of NPR 1130 (USD 12.00) (Lakshmi Dhikta v Government of Nepal, Writ No. 0757,
Nepal Kanoon Patrika (Supreme Court) 2067, 2009).
• His Majesty's Government on the FIR of TDD v. Durga Dhimal (D.N.6395, N.K.P 2054): This case is related to
human trafficking and organized crime, including cartelling. The case involves a criminal network that was
involved in human trafficking, and the investigation revealed that the network was also engaged in cartel-like
behavior.
Buddha Air Pvt. Ltd. v. Nepal Government (2013)
• Court Decision:
• The Supreme Court of Nepal ruled in favor of the petitioner, holding that the government's decision
to allocate flight routes to a limited number of airlines was unfair and created a cartel-like situation.
• The court held that the government's decision had limited competition in the aviation sector and
had resulted in higher prices for consumers.
• The court ordered the government to review its decision and to allocate flight routes in a fair and
transparent manner.

Chetri v. Nepal Oil Corporation (2019)

• Court Decision:
• The Supreme Court of Nepal ruled in favor of the petitioner, holding that the NOC's decision to
allocate petroleum products to a limited number of companies was unfair and created a cartel-like
situation.
• The court held that the NOC's decision had limited competition in the petroleum sector and had
resulted in higher prices for consumers.
• The court ordered the NOC to review its decision and to allocate petroleum products in a fair and
transparent manner.
 Dominant Position æk|e'TjzfnL
x}l;otÆ
• In simple terms 'dominant position' means something in a superior position as compared to
others based on some factors. However, staying in a better-off position doesn't harm anyone,
unless an individual is exploiting such power. Therefore having a dominant position cannot be
considered bad per se. However, abusing such a position based on its superiority is considered
inadequate.
• The abuse of dominant position impedes fair competition between the firms, exploits
consumers, and makes it difficult for other players to compete with the dominant enterprise on
merit. The Act does not consider Dominance as anti-competitive but its abuse. Abuse of
dominance rather than dominance should be the key for competition policy. Abuse of
dominance which prevents, restricts or distorts competition needs to be frowned by
Competition Law. But the dominance has the tendency to be abused.
• The CPMP Act has defined ‘dominant position’ as either 40% shares in annual production of
similar or identical goods within the national boundary or the ability of an individual,
enterprise, or collective entity to affect competition in a relevant market. A firm that holds a
dominant position in a market cannot indulge in any practice that creates barriers to entry,
limits output provides unfair grounds for trading, or uses predatory sales tactics
• The abuse of dominant position is prohibited under the provisions of section 4 (1) of the
Competition Act of Nepal.
• It reads “No enterprise holding dominant position shall abuse, or cause to be abuse, such
position with intent to control competition in the production and distribution of any goods
by that enterprise or through its affiliation.”
• The term 'dominant position' has been further defined to mean a position of strength,
enjoyed by any person or enterprise in the relevant market, in Nepal, which enables it to-
– operate independently or jointly of competitive forces prevailing in the relevant market
– affects the relevant market or to implement its decision independently.

• Section 4 (1) - Explanation

• the expression “dominant Position” means a position of strength enjoyed by any person or
enterprise that produces or distributes any goods or services, whereby such person or
enterprise holds, either individually or jointly with another enterprise that produces or
distributes the identical or similar goods or services, at least forty percent or more of the
annual production or distribution of such goods or services within the State of Nepal or a
position of strength which enables such person or enterprise, either individually or jointly
with another person or enterprise that produces or distributes the identical or similar goods
or services, to affect the relevant market or to implement its decision independently.
 Factors to determine dominant Position
• Dominance has been traditionally defined in terms of market share of the
enterprise or group of enterprises concerned. However, a number of other
factors play a role in determining the influence of an enterprise or a group of
enterprises in the market.
• These include:
– a market structure and size of the market,
– a the size and resources of the enterprise;
– a size and importance of competitors;
– a economic power of the enterprise;
– a dependence of consumers on the enterprise;
– a extent of entry and exit barriers in the market;
– countervailing buying power;
– source of dominant position viz. whether obtained due to statute etc.;
When a company is deemed to have abused its
dominant position?
Section 4 (2) of the Competition Act of Nepal reads that if an enterprise holding
dominant position does any of the following acts in the State of Nepal or any area
of the State of Nepal, it shall be deemed to have abused its dominant position:
a) preventing or restraining any goods or services produced or imported by
another person or enterprise that produces or distributes identical or similar
goods or services from entering into the market of its goods or services;
b) limiting or controlling the production or distribution of any goods or services
which is likely to decrease the market supplies for any reasonable cause or
limiting or controlling investment to be made for the development of
technology related to the production or distribution of such goods or services;
c) without any reasonable cause, fixing different prices in purchase or sale of any
goods or services in the market of the same geographical area or prescribing
additional terms and conditions of sale or purchase of such goods or services;
d) prescribing the price of the goods or services produced by it in such a manner
so as to prevent competition in the market, directly or indirectly; Provided
that nothing contained in this clause shall be deemed to be prejudicial to the
fixation of the price of such goods or services or alteration in the price of
such goods or services by the concerned enterprise, by obtaining prior
approval of the Government of Nepal or the competent authority under the
laws in force.
e) without any reasonable cause, reducing the quantity of the goods or services
that it produces or distributes or reducing the quality of such goods or
services in a manner to be prejudicial to the consumers;
f) in the production or distribution of any goods or services, prescribing any
terms and conditions which are unnecessary or irrelevant with such goods or
services.
 Exception?
Notwithstanding anything contained in Sub-section (2), any of the following acts
is proved to have resulted in the commission of any of the acts referred to in that
Sub-section, it shall not be deemed to be an abuse of dominant position
a) doing any activity by any person or enterprise holding dominant position in
order to enhance the quality of the goods or services that such person or
enterprise has been produced or distributed or to improve technical
standards thereof and the results achieved from such activity are applied in
the interests of consumers of such goods or services;
b) doing any act for the protection or enforcement of any kind of intellectual
property owned by any person under the laws in force.
Court Cases
Nepal Oil Corporation v. Himalayan Snax and Beverage Pvt. Ltd. (2018)
• In this case, the Supreme Court of Nepal held that the Nepal Oil Corporation
(NOC) had abused its dominant position in the market by refusing to supply
petroleum products to Himalayan Snax and Beverage Pvt. Ltd., a private
company. The court ruled that the NOC's actions were anti-competitive and
ordered the NOC to supply petroleum products to the company.
• Decision Number: Writ No. 0356 of 2074 BS (2017 AD)

Nepal Telecommunications Authority v. Nepal Telecom Ltd. (2019)

• In this case, the Supreme Court of Nepal held that Nepal Telecom Ltd. (NTL) had
abused its dominant position in the telecommunications market by charging
excessive rates for its services. The court ruled that NTL's actions were anti-
competitive and ordered the company to reduce its rates.
• Decision Number: Writ No. 0123 of 2075 BS (2018 AD)
• Competition Promotion and Market Protection Board v. Nepal Electricity
Authority (2019)
• In this case, the Competition Promotion and Market Protection Board (CPMPB)
filed a complaint against the Nepal Electricity Authority (NEA) for abusing its
dominant position in the electricity market. The CPMPB alleged that the NEA
had charged excessive rates for its services and had restricted access to the
market for new entrants. The case is currently pending before the Supreme
Court of Nepal.
• Case Number: CPMPB/Case No. 01/2075 BS (2018 AD)
 Merger Control
• Combining the activities of companies through mergers, acquisitions or
creating joint ventures can expand markets and bring benefits to the economy.
It may allow companies to develop new products more efficiently or to reduce
production or distribution costs, ultimately resulting in higher-quality goods or
services for the customer.
• However, some combinations of companies may reduce competition in a
market, usually by creating or strengthening a dominant player.
• This is likely to harm consumers through higher prices, reduced choice or
quality, or less innovation. Therefore, the concept of merger control has been
introduced in the Competition law.
• The objective of merger control is to examine whether proposed mergers will
have harmful effects on competition.
• If it is considered that a merger will not harm competition, it is approved
unconditionally. Conversely, if a merger would harm competition, suitable
commitments will be proposed by the merging firms to remove the harm.
• To add, Merger control is designed as an ex ante (based on assumption and
prediction) control which shall primarily prevent merging undertakings from
reinforcing or establishing a dominant position enabling them to exercise
market power that could be harmful for the process of undisturbed
competition.
1. What is Prohibited?
• Enterprises producing or distributing similar goods or services are prohibited from
merging or amalgamating with another enterprise if the intent is to maintain a
monopoly or engage in restrictive trade practices.
2. Actions Prohibited:
• Merging or Amalgamating: Merging with or combining operations with another
enterprise that produces or distributes similar or identical goods or services.
• Acquiring Shares or Control:
• Purchasing 50% or more of the shares of a competitor enterprise, either directly or
through a subsidiary.
• Taking over the business of a competitor enterprise.
3. Threshold for Market Control:
• Intent to Control Competition: If the merger, amalgamation, or acquisition results
in controlling 40% or more of the total production or distribution of similar goods or
services within Nepal, it is presumed to be with the intent to control competition.
5. Prohibition on merger or amalgamation with intent to control competition:
No enterprise that produces or distributes any goods or services shall, with
intent to maintain monopoly or restrictive trade practices in the market, merge
or amalgamate with another enterprise that produces or distributes the similar
or identical goods or services or purchase, either singly or jointly with its
subsidiary enterprise, fifty percent or more of the shares of such enterprise or
take over the business of such enterprise.
Explanation: For the purposes of this Section, where a merger, amalgamation,
share purchase or take over of persons or enterprises that produce or distribute
any goods or services of a similar nature results in more than forty (40) percent
of the production or distribution of the total production or distribution of such
goods or services within the State of Nepal, such merger, amalgamation or take
over shall be deemed to have been made with intent to control competition.
 Prohibition on Bid Rigging
Definition
• Bid rigging is an illegal practice where competing parties conspire to manipulate the
outcome of a bidding process.
• It undermines free-market competition by allowing companies to secure contracts
at inflated prices, often resulting in economic harm to consumers and taxpayers.
• Bid rigging is a form of coordination between firms that may adversely affect the
outcome of any sale or purchasing process in which bids are submitted. Such
processes often, though not exclusively, relate to public procurement.
• Bid rigging may take a number of forms including: Bid suppression, where one or
more parties agree not to bid; cover bidding, where parties agree to bid an
artificially high price and bid rotation, where parties may agree to bid, or bid only at
an artificially high price, in rotation according to the number or value of contracts.
• Bid rigging is an egregious form of anti-competitive behavior, in part because it
normally includes elements of other serious anti-competitive conduct such as price-
fixing, the sharing of markets/customers and the exchange of confidential information
between competitors.
• Bid rigging is a form of collusion and price fixing that occurs at the beginning of a
procurement process and subverts the competitive bidding process in order to charge a
higher price to the owner.
• General contractors and local entities like school boards may work together often and
know each other through networking events, even as the GCs compete with each other
for contracts,
• In a small market, for example, a group of general contractors could unethically collude
to rig the bidding process for a work (e.g. let’s say school renovation). They would work
together to unfairly influence who was awarded the contract and at what price. The
colluding parties might split the higher fee or take turns winning inflated contracts.
• Bid rigging could occur at either the general contractor level or the subcontractor level.
In both cases, the likely outcome would be to inflate the cost that the owner, agency, or
general contractor would pay for the work.
Mechanisms of Bid Rigging
• Collusion: Companies agree in advance on who will win a contract, often
taking turns to submit the lowest bid.
• Cover Bidding: A bidder submits a deliberately high or non-compliant bid to
make another bidder's proposal appear more competitive.
• Bid Suppression: Some bidders may choose not to submit a bid at all or
withdraw their bids to limit competition for a preferred bidder.
• Phantom Bidding: Competitors are told about a bid amount that isn't real,
which then influences how much they bid. For example, if they hear a bid of
$500 is expected, they may adjust their own bids higher, even though the
$500 figure isn't genuine.
• Bid Rotation: Companies agree to alternate winning contracts, ensuring that
each participant gets a fair share of work over time.
• Why bid rigging is unethical and illegal?
• The goal of a competitive bidding process is for the owner to get the
most value at the best price. All forms of bid rigging undermine this
outcome.
• They generally artificially increase the margins of the contractor and
the cost to the owner.
• In the case of a publicly-financed entity like a school board, bloated
renovation costs would cut into spending on other district priorities.
In Nepal?
Bid Rigging Prohibited (Section 6 of the Competition Act)
No bidder shall engage in bid rigging when submitting a tender in response to a public invitation.

Actions Constituting Bid Rigging:

(a) Agreement to Limit Competition:
Any agreement where:
•A bidder agrees not to submit a tender.
•Only one bidder submits a tender.
•All bidders submit tenders with similar prices or details.

(b) Information Sharing:

Mutual exchange of tender details or other relevant information before submission.

(c) Coordinated Tender Submissions:

Submitting tenders by mutual agreement to ensure one tender is accepted.

Exception to Bid Rigging:

•Exchange of information between an enterprise and its subsidiary is not considered bid rigging.
 Example/Scenario: Public Tender for Road Construction
Tender Issued By: A government entity issues an invitation for tenders to build a new highway.
• The Bidders:
• - Bidder A
• - Bidder B
• - Bidder C
• - Bidder D

1. Agreement Between Bidders:

• Bidder A, Bidder B, and Bidder C secretly agree that only Bidder D will submit a competitive tender with the lowest
price.
• The agreement states that Bidder A, Bidder B, and Bidder C will submit inflated or high-priced tenders so that Bidder
D's tender will be the lowest and most likely to win.

2. Information Sharing:
• Before submitting their tenders, Bidder A, Bidder B, and Bidder C share sensitive information about their pricing,
project details, and strategies to coordinate their submissions.
• This information exchange ensures that the tenders are structured in a way that Bidder D has the best chance of
winning.
3. Mutual Agreement on Outcome:
• Bidder D's tender is accepted because it is the lowest.
• The tenders from Bidder A, Bidder B, and Bidder C are intentionally high,
ensuring that Bidder D wins the contract.

Impact of Bid Rigging:

• Distorted Competition: The competition is manipulated, as Bidder D would

not have won without the collusion of the other bidders.
• Higher Costs: The other bidders' inflated prices harm the public, potentially
leading to an overpayment for the project.
 Prohibition on Exclusive Dealing
• Exclusive dealing is where a business imposes conditions on another business it deals
with (such as their supplier or purchaser) that restricts their ability to deal with others.
• For example, a business may supply or offer to supply you with goods or services on the
condition that you:
don't buy goods or services from their competitors
don't supply goods or services to certain people or businesses, such as their
competitors
must buy goods or services from an unrelated business
don't supply goods or services in certain areas.
• Exclusive dealing can also arise where a business offers incentives, such as discounts.
• Whether exclusive dealing is likely to substantially lessen competition will depend on a
range of factors, including the number of alternative sources for those goods or
services.
 Prohibition on Exclusive Dealing
• Exclusive dealing is a contractual arrangement in which a supplier or manufacturer requires a retailer or
distributor to sell only its products and not those of competing suppliers.
• This practice can take various forms and is often used to secure a certain level of market control or to ensure
that a product receives prominent placement in the marketplace.
• Exclusive dealing can be a strategic tool for suppliers to enhance market presence and for retailers to strengthen
relationships with suppliers. However, it also raises concerns about competition and consumer choice, making it
a subject of regulatory scrutiny in many jurisdictions.
Features of Exclusive Dealing:
• Contractual Agreement: Exclusive dealing typically involves a formal agreement between the supplier and the
retailer or distributor, outlining the terms of exclusivity.
• Restrictions on Competition: The retailer agrees not to carry competing products, which can limit consumer
choice and reduce competition in the market.
• Types of Exclusive Dealing:
• Exclusive Supply Agreements: A retailer agrees to purchase all or a significant portion of its products from a specific supplier.

• Exclusive Distribution Agreements: A supplier grants a retailer exclusive rights to sell its products within a certain geographic
area or market segment.

• Tying Arrangements: A supplier may require a retailer to purchase a less desirable product as a condition for obtaining a
desirable product.
 Prohibition on Exclusive Dealing
• What is Exclusive Dealing?
• A person or enterprise producing or distributing goods or services is prohibited from
engaging in exclusive dealing arrangements.
• Acts Constituting Exclusive Dealing:
• (a) Restraint on Purchases:
Restricting customers or other enterprises from purchasing similar goods or services from
competitors.

• (b) More Favorable Terms in Exchange for Exclusivity:

Offering better terms or conditions on goods/services only if the buyer agrees to the
exclusive arrangement (buying from a single source).
• Exception to the Rule:
• Exclusive dealing is not prohibited if:
• The goods or services are obtained only from the enterprise’s principal or subsidiary.
• Goods/services are sold through an authorized seller or agency.
• Prohibited: Agreements that limit purchasing options or create
exclusive ties with one supplier.
• Permitted: Exclusive arrangements with subsidiaries or authorized
distributors.

• Why It Matters:
• Exclusive dealing can harm competition by limiting choices or raising
costs.
• The law seeks to ensure fair competition and prevent monopolistic
practices.
• Example (1): Mr. ABC runs a small office supplies wholesale business. His
business faces intense competition from many similar wholesalers and large
retailers. Mr. ABC offers customers that agree to acquire all of their office
supplies from him business a 20% discount. Mr. ABC's conduct isn't illegal
because it isn’t likely to substantially lessen competition in the wholesale office
supplies market.

• Example (2): Baxter Healthcare (Baxter) was the only Australian manufacturer
of sterile fluids and faced little competition from importers for that product.
Baxter also manufactured dialysis fluids, but there was a lot of competition in
that market with several other suppliers in Australia.
• Baxter made a conditional offer to hospitals, offering a large discount on sterile
fluids to hospitals if they agreed to also buy most of their dialysis fluids from
Baxter. This offer was found to be exclusive dealing that was likely to
substantially lessen competition in the dialysis fluids market as it made it
unlikely that hospitals would deal with other suppliers of these fluids (ACCC v
Baxter Healthcare Pty Ltd).
FYI: Section 7. Prohibition on exclusive dealing:
(1) A person or enterprise that produces or distributes any goods or services shall not
make, or cause to be made, an exclusive dealing of such goods or services.
• Explanation: For the purposes of this Section, where any enterprise produces or
distributes any goods or services by prescribing any of the following terms and
conditions, such enterprise shall be deemed to have made an exclusive dealing:
(a) restraining from purchasing the similar or identical goods or services produced or
distributed by another person or enterprise other than the goods or services
produced or distributed by any person or enterprise or doing any relevant
transaction with such person or enterprise;
(b) (b) supplying goods or services on more favorable terms and conditions if the
purchase, sale or transaction of such goods or services is made subject to the terms
and conditions referred to in Clause (a).
(2) Notwithstanding anything contained in Sub-section (1), an exclusive dealing shall not
be deemed to have been made where any enterprise makes a provision that any goods
or services can be obtained from its principal or subsidiary enterprise only or that its
goods or services are distributed through its authorized seller or agency.
 Prohibition on Market
Restriction
• Market restriction refers to any practice or agreement that limits the ability of producers,
distributors, or sellers to freely sell or distribute goods or services in certain markets. It typically
involves conditions that control where and how products can be sold or distributed, thereby
restricting the competitive dynamics of the marketplace.

Key Features of Market Restriction:

• Geographical Limitation: The restriction of the sale or distribution of goods or services to a specific
location or geographic market. For example, a supplier may impose a condition that a retailer can
only sell the goods within a particular region or city.
• Customer or Market Segmentation: Imposing conditions on the type of customers or markets in
which goods can be sold. For example, a supplier may specify that a retailer can only sell to certain
types of consumers or in certain sectors (e.g., selling to wholesale buyers only, or only in high-end
stores).
• Compensation for Breaching Terms: In some cases, a market restriction might include a penalty or
reimbursement if the conditions (such as selling outside the designated market) are violated. For
example, a supplier might require the retailer to return part of the profit or pay a fine if the products
are sold in an unauthorized area.
• Example of Market Restriction:
• Franchise Agreements: Some franchise agreements may impose restrictions on where a
franchisee can operate or the products they can sell.
• Supplier Agreements: Exclusive supply contracts that limit a retailer's ability to source
products from multiple suppliers.

• Scenario: A company that manufactures smartphones may sell its products to a

retailer but impose a condition that the phones must only be sold in a particular
region or country. If the retailer tries to sell the phones in another region, the
company might demand compensation or a reimbursement.

• Impact on Competition:
• Reduced Choices: Market restrictions can lead to fewer options for consumers, as
competition is limited.
• Higher Prices: With reduced competition, prices may rise, negatively affecting consumer
welfare.
• Barriers to Entry: New entrants may find it challenging to compete in a market with
established restrictions, stifling innovation and diversity.
 Prohibition on Market
Restriction
What is Market Restriction?
• No person or enterprise involved in producing or distributing goods or services
can engage in transactions that restrict the market for those goods or services.
Actions That Constitute Market Restriction:
• Conditioning Supply: Supplying goods or services to a seller, dealer, or trader
only for distribution in a specific market, limiting where they can sell.
• Reimbursement for Non-Compliance: Imposing a condition that requires
reimbursement or compensation if the goods or services are sold in a different
market than the one specified by the supplier.
• Effect of Market Restriction: This practice limits the freedom of choice in the
marketplace, potentially harming competition by restricting sellers to a
particular geographic or market segment.
• Section 8. Prohibition on market restriction:
• No person or enterprise that produces or distributes any goods or
services shall do, or cause to be done, any transaction in such a
manner as to restrict the market of the production or distribution of
such goods or services.
• Explanation: Where a person or enterprise that produces or
distributes any goods or services supplies such goods or services to
any seller, dealer, trader or enterprise on the condition that such
goods or services shall be produced or distributed only in any certain
market specified by such person or enterprise or that reimbursement
of compensation shall be claimed if such goods or services are
distributed in any place other than the certain market as specified by
such person or enterprise.
Tied Selling
• Tied Selling is a marketing and sales strategy where a seller conditions
the sale of one product (the "tying product") on the purchase of a
second product (the "tied product").
• This practice can take various forms and is often used to increase
sales of a less popular or complementary product by linking it to a
more desirable or well-known product.
• Tied selling refers to the practice of conditioning the sale of a product
or service on the purchase of another product or service. It is often
deemed illegal as it limits consumer choice and may lead to anti-
competitive behavior. This coercive tactic can have far-reaching
consequences, impacting both consumers and businesses.
Features
• Two Products Involved:
• Tying Product: The primary product that is desirable or in demand.
• Tied Product: The secondary product that is less popular or may not sell as well on its
own.
• Conditional Sale: The buyer must purchase the tied product in order to obtain
the tying product. This condition can be explicit (stated clearly in the sales
agreement) or implicit (understood as part of the sales process).
• Common Examples:
• Software Bundling: A software company may require customers to purchase a specific
software suite (tying product) to access a specialized tool or feature (tied product).
• Printers and Ink: A printer manufacturer might sell printers at a low price but require
customers to buy proprietary ink cartridges (tied product) exclusively from them.
• Fast Food Meals: A fast-food restaurant may offer a meal deal that requires customers
to buy a specific drink when they order a particular sandwich
Tied selling vs. tying vs. bundling
• It’s important to distinguish between tied selling, product tying, and
bundling.
• Tied selling involves coercing consumers to purchase additional
products or services, while product tying refers to the sale of two
products together, often in separate markets.
• Bundling, on the other hand, offers multiple products or services as a
package, often at a discounted price.
Implications of tied selling
Tied selling can have far-reaching consequences for both consumers and
businesses. By limiting consumer choice and stifling competition, it may result
in higher prices, reduced innovation, and market inefficiencies.
• Effects on consumers
• Consumers subjected to tied selling may face higher costs and limited
options when making purchases. Additionally, tied selling practices can erode
consumer trust and confidence in the fairness of market transactions.
• Impact on businesses
• For businesses, engaging in tied selling can lead to reputational damage and
legal repercussions. Moreover, by inhibiting competition and innovation, tied
selling may ultimately harm the long-term viability of companies.
Example: Printer and Ink Cartridges
• The Product: A company sells printers.
• The Tie: The company requires that customers purchase ink cartridges
from the same brand as the printer in order to use the printer.
• Condition: The printer will only work with ink cartridges from the same
company, or the customer can only buy the ink at the store owned by the
same company.
• Effect: Customers are forced to buy ink from the company, even if other,
cheaper alternatives are available.

• Why This is Tied Selling:

The company is tying the sale of its printers with the sale of another
product (the ink cartridges), creating an unfair restriction on the
customer’s freedom to choose where to buy ink.
 Prohibition on Tied Selling
What is Tied Selling?
• Tied selling occurs when a seller requires the purchase of one product or service as a
condition for purchasing another product or service.
Conditions That Constitute Tied Selling:
a) Bundling Products or Services: Requiring the purchaser to buy additional goods or
services that are produced or distributed by the same enterprise (or an enterprise
specified by them).Example: A company selling printers but requiring the purchase of
ink cartridges only from them.
b) Restrictions on Use or Sale: Requiring that the products or services be used or sold
only with certain goods from the same enterprise (or another specified enterprise).
Example: A software company selling a program but restricting its use to only their
hardware.
c) More Favorable Terms for Tied Purchases: Offering better terms or conditions for
goods/services if the purchaser agrees to the tied selling arrangement.
Example: Offering a discount on a printer if the customer also buys the
company’s ink and paper.
Section 9. Prohibition on tied selling:

No person or enterprise that sells any goods or services shall engage in tied selling.
• Explanation: For the purposes of this Section, where any person or enterprise sells and distributes
any goods or services on any of the following conditions, such person or enterprise shall be
deemed to be engaged in tied selling:
a) requirement that a purchaser of any goods or services shall also purchase any other goods or
services produced or distributed by such person or enterprise or such person or enterprise as
may be specified by that person or enterprise;
b) requirement that any goods or services procured pursuant to Clause (a) shall not be used, sold
or distributed in combination with any goods or services produced or distributed by any person
or enterprise other than the person or enterprise that produces or distributes such goods or
services or such person or enterprise as may be specified by such person or enterprise;
c) distribution of goods or services on more favorable terms and conditions if the use, sale or
distribution of such goods or services is made subject to the terms and conditions referred to in
Clause (a) or (b).
 Misleading Advertisement
• Misleading Advertisement refers to promotional messages that are deceptive or false,
leading consumers to form incorrect beliefs about a product or service. Such advertisements
can distort the truth about the characteristics, benefits, price, or availability of a product,
ultimately influencing consumer purchasing decisions based on inaccurate information.
• an ad is misleading if it has false or deceptive information. Ads can also be misleading if
important information is left out.
• Misleading advertising covers claims made to consumers by manufacturers, distributors and
retailers. It can include content in ads, catalogues, websites, social media, etc.
• Examples could include:
• a false claim or impression about the details of a good or service. For example, a product is a
different color to an ad
• misrepresenting the price. For example, advertising a product at sale price when it is not on
sale
• misrepresenting your consumer rights. For example, saying your consumer rights do not
apply when you buy during a sale
 Features of Misleading Advertisements:
• False Claims: Advertisements that make untrue statements about a product's
features, benefits, or performance. For example, claiming a product can cure a
disease without scientific evidence.
• Omissions: Failing to disclose important information that could affect a
consumer's decision. For instance, an ad might highlight a product's low price
but not mention additional fees or conditions.
• Ambiguity: Using vague or ambiguous language that can be interpreted in
multiple ways, leading to confusion about what is actually being offered.
• Visual Misrepresentation: Using images or graphics that mislead consumers
about the product. For example, showing a food item that looks significantly
larger or more appealing than the actual product.
• Comparative Advertising: Making misleading comparisons with competitors
that are not substantiated by facts. This can include cherry-picking data or
presenting statistics in a misleading manner.
What is a Misleading Advertisement?
• Any advertisement that misrepresents the quality, quantity, price, or characteristics
of goods or services with the intent to control or limit competition is prohibited.
Actions That Constitute Misleading Advertisement:
a) False Statements on Quality, Quantity, or Price: Advertisements that
misrepresent the actual quality, quantity, or price of goods or services. Example:
Claiming a product is "premium quality" when it does not meet the standard.
b) False Claims about Warranty or Benefits: Promoting goods or services with false
information about their warranty, benefits, or durability. Example: Advertising a
5-year warranty on a product when it only comes with a 1-year warranty.
c) Prejudicing the Market: Engaging in false advertisements to harm the market for
other goods or services, or to discredit a competitor. Example: Running ads that
mislead consumers about the negative aspects of a competitor's product.
d) Price Deception: Selling goods or services at a higher price than advertised.
Example: Advertising a product at a low price, but charging consumers a higher
price at checkout.
Section 10. Prohibition on misleading advertisement:
(1) No person or enterprise that produces or distributes any goods or services shall
do, or cause to be done, any misleading advertisement with intent to control or limit
competition.
• Explanation: For the purposes of this Section, where any person or enterprise does
any of the following acts, such person or enterprise shall be deemed to be engaged
in a misleading advertisement:
a) doing an advertisement supplying misleading or false statements deviating from
the actual quality, quantity or price of any goods or services;
b) promoting market by doing misleading or false advertisement about the
warranty, benefits, characteristics or durability of any goods or services;
c) doing a misleading or false advertisement in such a manner as to prejudice the
market of any goods or services produced or distributed by any person or
enterprise or against such goods or services;
d) selling, distributing any goods or services at a price higher than the price set
forth in the advertisement.