Competition Policy and Law in India

The Monopolies And Restrictive Trade Practices Act, 1969 is an important piece of economic legislation designed to ensure that the operation of the economic system does not result in the concentration of economic power to the common detriment.

The act came into force from 1st June, 1970, and has been amended in 1991.

MRTP ACT 1969

To ensure that the operation of the economic system does not result in the concentration of economic power in hands of few,

To provide for the control of monopolies, and

To prohibit monopolistic and restrictive trade practices.

OBJECTIVES

It means in order to maximize profit and to increase market power, certain business firms unreasonably charge high prices to prevent competition in the production & distribution of goods by adopting unfair trade practices.

It is a trade practice which represents the abuse of the market power by charging unreasonably high prices.

MONOPOLISTIC TRADE PRACTICES

Monopolistic Trade Practices• Any trade practice which seeks to prevent competition and which results in high price Such as

• Unreasonably high prices• Limiting technical development• Limiting capital investment• Lower quality of good and services• Preventing or lessening competition

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Regulation of production and fixing the term of sale.

Prohibiting any action that restricts competition.

Fixing standards for goods produced.

REGULATION OF MTPs

RESTRICTIVE TRADE PRACTICES Any trade practice that that tend to block the flow of capital into production and also bring in conditions of delivery to affect the flow of supplies leading to unjustified costs. Such as• Refusal to deal with persons or classes of persons• Tie in sales or full line forcing• Exclusive dealing agreements• Collective price distribution and tendering • Discriminatory dealing• Restriction on output or supply of goods• Price control agreements

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A trade practice which restricts or reduces competition may be termed as Restrictive Trade Practices and it harm the consumer interest.

Because of their adverse effect on the consumer and public interest, they are sought to be regulated in almost every country of the world.

RESTRICTIVE TRADE PRACTICES

The practice shall not be repeated.

The agreement shall be void and shall stand modified in such a manner as may be specified in the order.

REGULATION OF RTPs

Unfair trade practice means a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, adopts any unfair or deceptive practice.

UNFAIR TRADE PRACTICES

UNFAIR TRADE PRACTICES

Misleading representation regarding usefulness, need, quality, standard, style etc of goods and services• Supplying unsafe and hazardous products• Hoarding or destroying of goods• Refusal to sell goods , resulting in a price rise• Giving false facts regarding sponsorship, affiliation etc. of goods and services.• Giving false guarantee or warranty on goods and services without adequate tests.

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The practice shall not be repeated.

Any agreement relating to such an UTP shall be void or shall stand modified in such a manner as may be directed by the commission.

REGULATION OF UTPs

The MRTP Act was severely criticized because of its growth defeating provisions.

Therefore, the High Level Committee on Competition Policy and Law has recommended that a new law called the Indian Competition Act may be enacted and the MRTP Act may be repealed.

Evolution of Competition Policy and Law

What is competition?

Competition

Literary meaning: a contestable situation where people fight for superiority.

In market economy, competition is a process whereby firms fight against each other for securing consumers for their products

• Make prices more flexible and closer to costs

• Promote efficient resource allocation throughout the economy

• Augment variety of cheaper or better quality goods and services for customers

• Encourage technological innovation

• Encourage market entry by new firms

• Increases economic efficiency

• Safeguards and promotes consumer welfare

Results:

Benefits of Competition: Domestic level

Mechanisms:

An Act(enacted in December, 2002) to provide, keeping in view of the economic development of the country, for the establishment of a Commission:

to prevent practices having adverse effect on competition,

to promote and sustain competition in markets, to protect the interests of consumers

to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.

What is Competition Policy

Competition policy => government measures directly affecting both Firm Behavior and Industrial structure.

A competition policy should include both:

i) Economic policies adopted by Government, that enhance competition in local and national markets, and

ii) Competition law designed to stop anti-competitive business practices.

Competition Policy /Law

Why do we need a competition policy?

A fair deal in the market place with:

The best possible choice of quality

The lowest possible prices, and

Adequate supplies of commodities.

Benefits to Consumers

A safeguard against practices that could drive companies out of

business.

Lower entry barriers to promote entrepreneurship and growth of

SMEs.

Efficient allocation and utilization of resources ensures more output

and employment.

Control of international unfair competition and restrictive business

practices, such as international cartels

Benefits to Efficient Producers

Components of competition policy

Competition Policy

Competition Law

Government Policies

Private Actions

Deregulation and

Privatization

Trade Policy

Industrial Policy

Regulations Governing Capital and FDI

ConsumerPolicy

Competition law is the enactment of that policy and achieves its objectives in three ways:

(1) prohibiting anti-competition agreements and practices that harm free trade and competition;

(2) preventing abuse of dominant position and

anti-competitive practices that lead to such a dominant position;

(3) regulating mergers and acquisitions.

Competition Law

Competition Law (National)

Anti-Competitive Agreements Between

Firms ( Collusion)

Abuse of a Dominant

Market Position

Regulation of Mergers to Prevent Tactics to Gain

Excessive Dominance in a Market

Applies to:•Import cartels•Price fixing•Market sharing•Bid rigging•Limiting production•Refusal to buy or supply•Tie-in arrangements•Exclusive-dealing •Resale price maintenance•Territorial allocation

• Predatory pricing

• Price discrimination

• Excessive pricing

• Abuse of intellectual property monopoly

•Total unification of the companies involved

•Buying of sufficient shares in a company so as to have a say in policy formulation

According to Ruman, “Foreign direct investment is the ownership and control of foreign assets. In pratice, FDI usually involves the ownership, whole or partial of a company in a foreign country. This is called foreign subsidiary. This ongoing company.”

Foreign Direct Investment

Types of FDI

Direct Investment

Portfolio Investment

FDI brings Capital New technology and methods Increasing the skills of labour pool Expand various networks export expansion Foreign exchange earning Increase the domestic economy Significant growth Competitive market structure

Benefits of FDI

FDI interferes in the national politics More focus on high profit areas rather than

to the priority sectors Undermine national interests Foreign investors sometimes engage in

unfair and unethical trade practices.

Limitations of FDI

as in the case of trade in goods and services, open and contestable markets for FDI do not destroy all market power of incumbents

a wide range of RBPs - both horizontal and vertical - could affect potential entrants' investment decisions and impede FDI flows

moreover, MNC’s strong competitive position can lead to anti-competitive structures and behaviour and thus to the establishment of new entry barriers, especially when FDI is accompanied by M&As

FDI and competition

anti-competitive practices impair the process of development in developing countries more significantly than has previously been thought

trade and FDI liberalization may not by themselves eliminate the propensity of firms to engage in anti-competitive practices

What have we learned?

• Competition policy is not a luxury for the rich: poor countries suffer most from RBPs

• There is need for competition law and policy in all countries, including LDCs

• merely adopting a competition law is no panacea…• what really makes a key contribution to

competitiveness and development is effective CLP implementation

• If not part of a well-coordinated set of legal and economic institutions, the impact of competition policy on productive capacities and in favour of more competitive economies is likely to remain sub-optimal

What have we learned? (cont’d)

What have we learned? (cont’d)

• It is not possible to copy existing competition law and policy from developed countries: there is no “one-size-fits-all” system:

• Each country needs its own “tailor-made” competition law and policy (CLP);

• Each country will have to experiment and amend gradually its CLP;

• Each country will need to adopt its CLP as the economy develops.

◦ Synergy between Government Action and Competition

◦ Assess all laws and government policies on the touchstone of competition

◦ All government policies should have an explicit statement about the likely impact of the policy on competition

◦ Governments at the union and the state level should frame and implement policies by acknowledging the market process

◦ Government should evolve a system of ‘competition audit’ which could be applied to all existing and future policies

To Conclude