Competition Act, 2002

Car sold at crash price

OPEC deciding the oil prices

Microsoft slapped heavy fine

Luftansa Cargo for price fixation

 Competition

Is “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 phenomenon

Benefits of Competition:

 Companies : Efficiency, cost-saving operations, better

utilization of resources, etc.

 The Consumer : Wider choice of goods at competitive

prices

 The Government : Generates revenue

BUT…………………………
 ….Benefits of Competition
………all these benefits are lost if Competition is

UNFAIR 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
& POLICY

Promoting economic efficiency in both static and

dynamic sense
protecting consumers from the undue exercise of market
power
facilitating economic liberalization, including
privatization. Deregulation and reduction of external
trade barriers
Preserving 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 Act
Under 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 Agreements
These are agreements which cause or are likely
to cause an appreciable adverse effect on
competition 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 illegal

Examples: cartels, bid rigging, collusive bidding, sharing of

markets, etc.
 Anti-Competitive Agreements

Vertical 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 writing

Or 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 Act

The 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 about
anti competitive agreements --- pls. visit the
site 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 Position
Includes 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 Mergers

Vertical Mergers

Conglomerate Mergers

Pre-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 Acquisitions

Threshold:

For group of enterprises

 – Assets > Rs.4000 crores
 – Turnover > Rs.12000 crores

Similarly, 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;