Reassessing Margin Squeeze: A Critique of Supreme Court’s Ruling in Schott Glass v/s CCI

[Aditya is a student at National Law University Odisha.]

After more than a decade, on 13 May 2025, the Supreme Court of India (SC) gave a landmark judgment in Schott Glass India Private Limited (Schott Glass) v. Competition Commission of India (CCI) overruling the CCI's findings that Schott India abused its dominant position in the market. The court's ruling is seminal for Indian competition law since it clarifies the test to determine margin squeeze under Section 4(2)(e) of the Competition Act 2002, a comparatively under-litigated abuse of dominance in Indian case law.

The case arose from a complaint by Kapoor Glass, who claimed that market leader Schott India employed its market power to suppress competition by providing large volume discounts by signing a special supply deal with its joint venture, Schott Kaisha, providing it with lower cost inputs, fixed prices, and high-priority access and by tying discounts to converters buying clear and amber tubes in combination. The CCI found these practices to be anti-competitive and penalized Schott India. However, the SC disagreed. It held that none of the three legal conditions required to establish a margin squeeze were satisfied. Emphasizing that actual or likely harm to competition must be proven, not merely assumed, the court rejected the CCI’s findings. The judgment establishes a test for margin squeeze and brings much-needed clarity to the legal standard; however, the court’s narrow application raises concerns about whether it has set the threshold too high, especially in sectors where vertical integration is prevalent. 

While the SC also addressed issues relating to rebates and discounting in its analysis, this blog is limited to a discussion of margin squeeze. It aims to critically examine the court’s approach and consider its broader implications for the future of competition enforcement in India.

Margin Squeeze: Legal Test 

A margin squeeze occurs when a vertically integrated dominant firm sets upstream prices high while maintaining low downstream prices, so that competitors, no matter how efficient, face unsustainable input-output spreads. This exclusionary conduct forecloses rivals and damages consumer welfare. Though not explicitly defined, Section 4(2)(e) prohibits a dominant enterprise from using its position in one market to enter into or protect another. Indian courts and the CCI have interpreted this to encompass margin squeeze where upstream pricing impairs downstream competition. 

The court, drawing from EU case TeliaSonera Sverige AB v. Konkurrensverket (paras 31-34), laid down that a margin squeeze occurs when: 

1. The firm must participate in both upstream and downstream markets. 

2. The margin between wholesale and retail prices must be insufficient for an equally efficient rival to compete. 

3. That insufficient margin must cause or threaten foreclosure.

   
   

Analysis

The court, in rejecting the CCI order, applied a three-prong test. In the first test, the court underlined the fact that Schott India did not directly run downstream and held that Schott Kaisha, although a joint venture, was a legally separate company with independent ownership, management, and accounts. This formalist view invites criticism. While Schott India and Schott Kaisha are not wholly owned by a common parent, both are substantially influenced by Schott AG, which exerts strategic and economic control over their operations. This raises a crucial question that which court did not acknowledge: do these entities, though formally distinct, function independently in the market, or do they operate in concert to achieve shared commercial goals? Rather than focusing solely on legal ownership thresholds, the court could have adopted a more nuanced inquiry into functional integration, examining whether pricing, supply, and sales strategies are independently determined or centrally aligned. Such a strategy is nothing new; it has roots in EU competition law, where partially owned companies can be considered a "single undertaking" if they perform under decisive influence, as was applied in Viho Europe BV v. Commission. The court would be opening the door for dominant firms to avoid Section 4(2)(e) by channeling conduct through related entities which are legally separate but economically coordinated if it dispenses with this functional analysis.

Understanding the economic incentive structures in vertically integrated markets reinforces why such an inquiry matters. An upstream undertaking has a clear economic motivation to favour its downstream joint venture over third-party competitors. By offering preferential input pricing, assured supply, and priority access, the upstream firm can strengthen the market position of its affiliated downstream entity, thereby capturing a larger share of the overall vertical chain’s profits. This not only increases internal profitability but also marginalizes independent downstream competitors, diminishing competitive pressure and potentially making a dominant position across multiple levels in the market more likely. Thus, by refusing to embrace a functionally oriented concept of "undertaking," the court can open the door to allowing dominant companies to hide anti-competitive behaviour behind legal corporate separations. This would make Section 4(2)(e) ineffective  for dealing with sophisticated vertical restraints, particularly in industries where partial ownership and strategic co-ordination are prevalent.

The second test, whether the price difference rendered equally efficient competitors unable to compete application was also misconceived. The court noted that all competitors remained profitable despite Schott Kaisha’s 5% rebate agreement. However, profitability alone does not prove the absence of harm: firms can remain in the profit yet be competitively squeezed. Moreover, the court relied on EBITDA analysis, which does not include costs like depreciation, interest, and overhead. It is also worth noting that while the court developed the test from an EU case, it has failed to consider how LRAIC is considered an appropriate benchmark in applying the test by EU courts.

The court's third test, foreclosure evidence, also suffers from insufficient economic scrutiny. The court referred to indicators such as increasing imports, the appearance of new converters, and increasing EBITDA margins, and concluded that this reflects heightened competition. However, this reasoning rests on correlation rather than causation. While these factors indicate competition, they could merely be evidence of broader market forces. For instance, global expansion of the pharmaceutical sector post-COVID-19, India’s shift toward domestic pharmaceutical self-sufficiency under the Production Linked Incentive Scheme, or global supply-side developments like Schott AG’s capacity expansions in China, may have independently improved supply conditions and enhanced downstream converter performance. A well-constructed counterfactual investigation would pit reality against a plausible "no-Long-Term Tubing Supply Agreement", thus determining whether rival converters have performed better, gained more market share, or priced more competitively if Schott India had not given Schott Kaisha those preferential terms.

Implications

One key implication is the court’s formalist insistence on distinct legal entities, which allows vertically integrated firms to shield anti-competitive conduct behind related yet legally separate subsidiaries. This risks rendering Section 4(2)(e) structurally ineffective in markets like telecom, pharmaceuticals, and digital platforms, where economic control and strategic alignment often transcend legal boundaries. In contrast, the EU permits looking beyond corporate form to assess decisive influence or economic unity between entities. Evidentiary-wise, the decision arguably imposes a high hurdle for complainants in terms of evidence, transferring the burden of proof to one that might discourage smaller companies from bringing margin squeeze claims. Lastly, the court's accommodation of efficiency rationales such as furnace use or long-term planning, without applying to them a proportionality or least-restrictive-means test, inadvertently provides an exclusion masquerading as an operating strategy with a safe harbour.

Way Forward

To make margin squeeze enforcement more effective, the CCI has to provide specific guidance on how to calculate downstream participation, what cost benchmarks to use, like long-run average incremental cost, and the objective justification standard of proof. Because margin squeeze differs between industries like telecom, pharma, and digital markets, the CCI ideally should have sector-specific screening tools and standards in mind. When firms make their arguments for efficiency, such as cost synergies or efficiency needs, these need to be thoroughly examined to determine their impact on competition. Additionally, the CCI must have the authority to demand elaborate data on cost, price, and margins from dominant companies as well as harmed competitors. In the absence of such institutional mechanisms, the burden of evidence may become unmanageable, compromising the scrutiny of exclusionary price conduct.

Conclusion

The Schott Glass ruling requires a structured, effects-based test in line with international best practice and appropriately directs focus away from form-based claims toward demonstrating competitive harm. To maintain the potency of Section 4(2)(e), enforcing agencies have to fill this judicial vacuum with diligent, evidence-based investigations and more precise institutional direction. A standard based on effects has to be accompanied by investigative tools to identify pricing dynamics and evaluate the exclusionary effect in context. Only then can Indian competition law effectively safeguard market access, ensure competitive neutrality, and prevent efficiency claims from becoming a veil for exclusionary conduct.