Understanding Restrictive Trade Practises Section 2(1) (nnn) of Consumer Protection Act [As amended by the Amendment Act,

2002] defines Restrictive Trade Practices (RTP) as one which tends to bring about manipulation of price or its conditions of delivery or to affect flow of supplies in the market relating to goods or services in such a manner as to impose on the consumers unjustified costs of restrictions and shall include a) Delay beyond the period agreed to by a trader in supply of such goods or in providing the services which has led to is likely to lead to rise in the price. b) Any trade practice which requires a consumer to buy, hire or avail of any goods or, as the case may be, services as condition precedent to buying, hiring or availing of other goods or services. Types of Restrictive Trade Practices are a) b) c) d) e) f) Delay in supply of goods and services Tie up sales i.e. full line forcing Refusal to deal Exclusive dealings Price Discrimination Re-sale maintenance

However the definition of RTP is inclusive . It means that any trade practice which tends to bring about manipulation of price or its conditions of delivery or to affect flow of supplies in the market relating o goods or services in such a manner as to impose on the consumers unjustified costs or restrictions will be restrictive trade practice and they are not restricted to just these two types. Tie up sales: This means requiring a person to purchase or hire goods or avail services else compulsorily along with the goods he wants to have or service he wants to avail. For example, a company has two products A and B out of which A is popular but B is not. If it is said that A will not be given unless B is also purchased e.g. forcing dealers to purchase tooth brush (which is not very popular) along with tooth paste (which is popular). Some of the examples of Restrictive Trade Practices are a) b) c) d) Compelling consumers to buy modem with a broadband connection. Asking a person to keep some amount as fixed deposit before allotting him a locker in bank. Compulsory service contract. Uniform and books from school only.

Examples where practise held is not restrictive: In some cases, tie-up was not held as restrictive. Some examples are a) Insistence by car manufacturer that, during the warranty period, air-conditioner can be fitted to car only by authorised dealer to ensure that improper air-conditioner does not affect the performance of car during warranty

b) Manufacturer requiring distributors to maintain quantity of spares for machinery and equipment supplied by them to ensure prompt service. c) Transporters additional amount for goods carried at carrier s risk there was no compulsion on customers - they could send goods either at owner s risk or at carrier s risk. Hence charging extra amount by transporter for taking goods at his risk is not tie in sales. Rule of reason There will always be some restrictions. These are permissible as long as these are reasonable . This is termed as rule of reason . The Court should be satisfied that considering between circumstances and its probable effect, the restrictions are reasonable. Full line Forcing: where a manufacturer producing. Supplying several products requires the buyers of a particular product to buy all the products in his product line, the practice is termed as full line forcing . Protection to the tying products through patent copyright, or trade mark, and fixation of its price under law, tempts the manufacturer to indulge in tie-up sales and full line forcing. Rationale of tie up sales: a) Economic leverage: through tie-up sales, a supplier exploits his dominant position in the market for the tying product to strengthen his position in the market for the tied product. All the tying arrangements do not necessarily involve economic leverage. It is therefore, necessary to distinguish the cases where a supplier enjoys dominant position in the tying product from those where the supplier does not enjoy such power. While, in the former case, the practice will no doubt affect competition adversely, the practice may not have any adverse effect on competition in the latter one. b) Protection of goodwill: When the use of a tied product is linked with the tying product, the supplier tying the sale of his main product with other products can argue that the arrangement is necessary to protect the image of the tying product as well as his own goodwill. c) Evasion of price regulation: where the maximum selling price of one of his products has been fixed under some state regulation, the supplier can find it profitable to tie the sale of such products with one or more of his products. Tying agreements restrict competition in the market for the tied product, as the competitors have to overcome not only ordinary competitive obstacles, but the barriers imposed by the supplier resorting to tie-up sales through the latter s market power in respect of the tying product. Effect of tie-up sales on consumer welfare In general, tie-up sales are against the consumer interest. They have their most serious effect on consumer welfare when they are used as a device to monopolise the tied products market and to foreclose them to competition. This results in a limited supply and increased price of the tied product. Tying of products which are strongly complementary to each other is most serious. Tying of products that are either weak complement to, or independent of, each other can also be serious under two circumstances, a) Where there are relatively significant economies of scale,

b) Where there is a relatively low elasticity of demand for the product. Evaluation of tying arrangements Despite the fact that tying arrangements need not be injurious to competition and they may not always be harmful to the consumer, experts have expressed different opinions as to how these arrangements should be evaluated by the courts. It has been said suggested that the arrangements should be declared illegal because it will limit the potential gain from the monopoly of the seller. Evaluation of a restrictive trade practice of tie-up sale would pose no problem if per so illegal approach is adopted. But the rule of reason approach of evaluation will need some criteria to determine whether tie-up sales adversely affect competition and lead to creation of monopoly power. Tie- up sales in India a) Findings of the Monopolies Inquiry Commission The Monopolies Inquiry Commission (MIC) found this practice prevailing in India on a large scale, particularly among the manufacturers of dye-stuffs and textile auxiliaries, electrical goods, paper, pharmaceuticals, cosmetics, and certain varieties of textiles. The field studies conducted by the MIC in Hyderabad, Delhi, Kolkata and Chennai revealed large-scale prevalence of tie-up sales in earlier years. b) Legal Provisions Any agreement relating to a restrictive trade practice of requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods, shall be subject to registration in this Act. In India, the tied product should be some other goods as distinct from the tying goods. Moreover, an element of coercion is implicit in the expression as a condition of such purchase .

Bibliography Taxmann s Consumer protection Law manual with practice manual. 2003 http://dspace.vidyanidhi.org.in:8080/dspace/bitstream/2009/5630/5/DLU -1981-146-4.pdf