CompetitionIs “a situation in a market in which firms or sellers independently strive for the buyers‟ patronage in order to achieve a particular business objective for example, profits, sales or market share” (World Bank, 1999)
“Competition” is an age-old phenomenonBenefits of Competition: Companies : Efficiency, cost-saving operations, better utilization of resources, etc. The Consumer : Wider choice of goods at competitive prices The Government : Generates revenueBUT…………………………
….Benefits of Competition………all these benefits are lost if Competition isUNFAIR or NON-EXISTANT • Choice of CARS in the olden days • MTNL Monopoly : The position today • Airlines : INDIAN AIRLINES : JET : SAHARA • Indian Railways : The monopoly continues….
It is not necessary that there are a large number of producers/suppliers to have competition conditions. A single producer can exist and provide a competitive atmosphere provided entry of new firms is easy and not costly. Entry barriers can be due to the market position of incumbent firms, legal barriers or strategic barriers Incumbent firms may use their power as “first Movers” to block entry. Legal barriers include licensing and other Government regulations
Contd… Strategic barriers are generally erected by incumbent firms in the form of artificial and sudden price reduction with a view to thwarting new entry. Contestability of markets ensure competitive conditions in the market. Competition is expected to enhance allocated and productive efficiency so as to maximize economic welfare. Monopoly (market) power tends to lead to inefficient allocation of sources and discourages innovation or introduction of better technology.
OBJECTIVES OF COMPETITION LAW & POLICYPromoting economic efficiency in both static and dynamic senseprotecting consumers from the undue exercise of market powerfacilitating economic liberalization, including privatization. Deregulation and reduction of external trade barriersPreserving and promoting the sound development of a market economy
OBJECTIVES OF COMPETITION LAW & POLICY ensuring fairness and equity in market place transactions Protecting the „public interest‟ including in some cases considerations relating to industrial competitiveness and employment Protecting opportunities for small and medium business
Competition Law It is a tool to implement and enforce competition policy and to prevent and punish anti-competitive business practices by firms and unnecessary Government interference in the market. Competition Law generally covers 3 areas: – Anti - Competitive Agreements, e.g., cartels, – Abuse of Dominant Position by enterprises, e.g., predatory pricing, barriers to entry and – Regulation of Mergers and Acquisitions (M&As).
Contd… The need for Competition Law arises because market can suffer from failures and distortions, and various players can resort to anti-competitive activities such as cartels, abuse of dominance etc. which adversely impact economic efficiency and consumer welfare. Thus there is need for Competition Law, and a Competition Watchdog with the authority for enforcing Competition Law.
Elements of Competition Policy• Putting in place a set of Policies that enhance competition in local and national markets.• A Law designed to prevent anti competitive business practices and unnecessary government intervention.
Competition Policy It includes Reforms in certain Policy areas to make these more pro-competition:- • Industrial policy • Trade policy • Privatization/disinvestment • Economic Regulation • State aids • Labour policy • Other such policies
Industrial Policy Industrial Policy has to address and reform licensing requirements, restrictions on capacities, or on foreign technology tie ups, guidelines on location of industries, reservations for small scale industry, etc. These adversely affect free competition in the market.
Trade Policy Trade policy has important implications for development of competition in the markets. Measures for liberalisation of trade promote greater competition e.g. reducing tariffs, removal of quotas/physical controls, investment controls, conditions relating to local content etc.
Privatization/Disinvestment Thus privatization of state owned enterprises is important element of competition policy. However, in privatization/ disinvestment process, care is to be taken that state monopoly is not replaced by private monopoly.
Privatization/Disinvestment Empirical research has found that state- owned enterprises generally tend to be less efficient than private owned firms, for reasons such as manager compensation, low incentives, lack of direct accountability, hard budget constraints for managers, etc. State owned enterprises are generally insulated from market forces and receive protection/benefits such as government imposed barriers to entry, price regulation and subsidies.
Economic Regulations New legislation and regulations to promote competition and to bring about restructuring of major industrial sectors is essential. Legislation to aim at separating natural monopoly elements from potentially competitive activities, and the regulatory functions from commercial functions, and also create several competing entities through restructuring of essential competition activities and to create a competitive environment . Examples: – Electricity sector – Telecommunications sector – Ports
State Aids Several state aids create unequal operating conditions for businesses. Examples: – Subsidies – Tax rebates – Preferential loans – Capital injection Experience suggests that such policy measures rarely have successful results and destroy incentives for firms to become efficient. Temporary specific state- aid for well stated public purpose can be justified.
Evolution of Competition Law Before MRTP Act came into force (1970), limited provisions existed under : The Indian Contract Act Directive Principles of State Policy (Non-enforceable) The MRTP Act brought in a four-pronged thrust : Concentration of economic power Restrictive Trade Practices Monopolistic Trade Practices Unfair Trade Practices
MRTPs vis-à-vis Competition ActUnder the Competition Act : No provision for Unfair Trade Practices Only Consumer Courts will have jurisdiction Pending cases will be continued by MRTPC for 2 years After 2 years : All cases (except Disparagement Cases) will be transferred to National Commission under CPA All Disparagement Cases will be transferred to Competition Commission
Status of the Competition Commission• It is a body corporate• It has Regulatory and quasi-judicial powers; functions through Benches• Each Bench shall consist of at least two Members and one of such Members must be a judicial Member
Suo Moto Inquiry• Commission has suo moto power to enquire whether an Anti-Competitive Agreement or Abuse of Dominant Position causes or is likely to cause an appreciable adverse effect on competition This power must be exercised within one year from the date combination has taken effect
Anti-competitive AgreementsThese are agreements which cause or are likelyto cause an appreciable adverse effect oncompetition within India: Horizontal Agreements:These are between and among competitors who are at the same stage of production, supply, distribution, etc.These are presumed to be illegalExamples: cartels, bid rigging, collusive bidding, sharing ofmarkets, etc.
Anti-Competitive AgreementsVertical Agreements:• Vertical Agreements are between parties at different stages of production, supply, distribution, etc.• These are not presumed illegal; are subject to rule of reason.Examples: tie-in arrangements, exclusive supply/distribution agreements, refusal to deal.
Agreement Any arrangement or understanding or action in concert –Whether or not such arrangement or understanding is formal or in writingOr whether or not such understanding or arrangement is intended to be enforceable by legal proceedings
Adverse effect on competition Creation of barriers to entry Driving existing competitors out of market Benefits to consumers Benefit to Scientific and technical knowhow
Agreements presumed to have adverse effect Directly or indirectly determines purchase or sales price Limits or controls production, supply, technical know how Shares the market or sources of production Results in bid rigging or collusive bidding
CCI orders against Anti-competitive agreements Penalty equal to three times the amount of profit made out of such agreement or 10% of average turnover of the cartel for preceding three years whichever is higher Modification directed to the agreement
Powers of Competition Commission as Regards Agreements After the inquiry into the Agreement, Competition Commission can: direct parties to discontinue the agreement prohibit parties from re-entering such agreement direct modification of the agreement impose penalty upto 10% of average turnover of the enterprise
PROTECTION OF INTELLECTUAL PROPERTY RIGHTS Competition ActThe prohibition on horizontal and vertical agreements do not restrict the right of any person to impose reasonable restrictions to protect any of his rights under the Copyright Act, the Patents Act, the Trade and Merchandise Marks Act, Designs Act
For those who would want to know more aboutanti competitive agreements --- pls. visit thesite given below; it is a good ppt by CCI http://www.competition-commission- india.nic.in/Capacity_Building_Initiatives/In vestigating_Anticompetitive_Agreements.pdf
Abuse of Dominance “Dominant position” is defined as a position of strength which enables the enterprise to operate independently of competitive forces in the market, or to affect its competitors or consumers in its favor. No mathematical or statistical formula is adopted to “measure” dominance –
Abuse of Dominant PositionIncludes practices like: • Unfair or discriminatory conditions or prices, • Limiting or restricting production or technical/scientific development, • Denial of market access, and • Predatory pricing.
Power of the Competition Commission After inquiry into abuse of dominant position, the Competition Commission can order: discontinuance of abuse of dominant position impose a penalty upto 10% of the average turnover of the enterprise
Combinations Regulation Combinations, in terms of the meaning given to them in the Act, include mergers, amalgamations, acquisitions. in order to establish whether the higher concentration in the market resulting from the merger will increase the possibility of collusive or unilaterally harmful behavior, it must first be established as to what the relevant market is
Contd…Horizontal MergersVertical MergersConglomerate MergersPre-Notification The requirements for prior notification
Relevant Product Market Physical characteristics or end-use of goods Price of goods or service Consumer preferences Exclusion of in-house production Existence of specialized producers Classification of industrial products
Factors to be considered while determining Dominance Dominant position linked to a host of factors Market share of enterprise Size and resources of enterprise Size and importance of competitors Commercial advantage of enterprise over competitors
Relevant Geographic market Relevant geographic market can be defined as the area in which products are available at approximately the same price given transport costs and any increase in demand can be met from neighboring areas profitably
Mergers and Acquisitions Commission is expected to regulate “Combinations”, i.e., large mergers, acquisitions, etc. likely to have appreciable adverse effect on competition.• Threshold:For single enterprise – Assets > Rs.1000 crores – Turnover > Rs.3000 crores
Mergers and AcquisitionsThreshold:For group of enterprises – Assets > Rs.4000 crores – Turnover > Rs.12000 croresSimilarly, threshold is provided for overseas groups.
Mergers & Acquisitions• Notification of Combination to Commission is voluntary • If notified, Commission to take a decision within 90 days on the combination. Decision may allow, disallow, modify, etc. the combination.
Powers of Commission• Cease and desist order• Impose penalty up to 10% of turnover.• In case of cartel, penalty can be 10% of turnover or 3 times of profit illegally gained from cartel activity, whichever is higher.
Powers of Commission• Recommend to Government the division of dominant Enterprise• Various penalties ranging from Rs.1 lac upto Rs.1 crore are also provided for failure to comply with direction/order of Commission.
Competition Advocacy The Competition Commission of India, in terms of advocacy provisions in the Act, is enabled to participate in the formulation of the country‟s economic policies and to participate in the reviewing of laws related to competition at the instance of the Central Government. Commission is required to take measures for promotion of Competition Advocacy, creating Awareness and imparting Training about competition issues [Section 49(3)]
Contd… Advocacy means competition promotion through non- enforcement measures For promotion of competition advocacy and creation of awareness about competition issues, the Commission may:- i) Undertake appropriate programmes / activities etc.; ii) Encourage and interact with the organizations of stakeholders, academic community etc. to undertake activities, programmes, studies, research work, etc. on competition issues;