Competition Act, 2002Competition Act, 2002

Car sold at crash priceCar sold at crash price

OPEC deciding the oil pricesOPEC deciding the oil prices

Microsoft slapped heavy fineMicrosoft slapped heavy fine

Luftansa Cargo for price fixationLuftansa 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 phenomenonCompetition” is an age-old phenomenon

Benefits of Competition: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.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 It is not necessary that there are a large number of producers/suppliers to have competition conditions.producers/suppliers to have competition conditions.

A single producer can exist and provide a A single producer can exist and provide a competitive atmosphere provided entry of new competitive atmosphere provided entry of new firms is easy and not costly.firms is easy and not costly.

Entry barriers can be due to the market position of Entry barriers can be due to the market position of incumbent firms, legal barriers or strategic barriersincumbent firms, legal barriers or strategic barriers Incumbent firms may use their power as “first Incumbent firms may use their power as “first

Movers” to block entry.Movers” to block entry.Legal barriers include licensing and other Legal barriers include licensing and other

Government regulationsGovernment regulations

Contd…Contd… Strategic barriers are generally erected by Strategic barriers are generally erected by

incumbent firms in the form of artificial and sudden incumbent firms in the form of artificial and sudden price reduction with a view to thwarting new entry.price reduction with a view to thwarting new entry.

Contestability of markets ensure competitive Contestability of markets ensure competitive conditions in the market.conditions in the market.

Competition is expected to enhance allocated and Competition is expected to enhance allocated and productive efficiency so as to maximize economic productive efficiency so as to maximize economic welfare.welfare.

Monopoly (market) power tends to lead to inefficient Monopoly (market) power tends to lead to inefficient allocation of sources and discourages innovation or allocation of sources and discourages innovation or introduction of better technology.introduction of better technology.

OBJECTIVES OF COMPETITION LAW OBJECTIVES OF COMPETITION LAW & POLICY& POLICY

Promoting economic efficiency in both static and Promoting economic efficiency in both static and dynamic sensedynamic sense

protecting consumers from the undue exercise of market protecting consumers from the undue exercise of market powerpower

facilitating economic liberalization, including facilitating economic liberalization, including privatization. Deregulation and reduction of external privatization. Deregulation and reduction of external trade barrierstrade barriers

Preserving and promoting the sound development of a Preserving and promoting the sound development of a market economymarket economy

OBJECTIVES OF COMPETITION LAW OBJECTIVES OF COMPETITION LAW & POLICY& POLICY

ensuring fairness and equity in market place ensuring fairness and equity in market place transactionstransactions

Protecting the ‘public interest’ including in some Protecting the ‘public interest’ including in some cases considerations relating to industrial cases considerations relating to industrial competitiveness and employmentcompetitiveness and employment

Protecting opportunities for small and medium Protecting opportunities for small and medium businessbusiness

Competition LawCompetition Law

It is a tool to implement and enforce competition It is a tool to implement and enforce competition policy and to prevent and punish anti-competitive policy and to prevent and punish anti-competitive business practices by firms and unnecessary business practices by firms and unnecessary Government interference in the market.Government interference in the market.

Competition Law generally covers 3 areas:Competition Law generally covers 3 areas:

– – Anti - Competitive Agreements, e.g., cartels,Anti - Competitive Agreements, e.g., cartels,

– – Abuse of Dominant Position by enterprises, e.g., Abuse of Dominant Position by enterprises, e.g., predatory pricing, barriers to entry andpredatory pricing, barriers to entry and

– – Regulation of Mergers and Acquisitions (M&As).Regulation of Mergers and Acquisitions (M&As).

Contd…Contd…

The need for Competition Law arises because The need for Competition Law arises because market can suffer from failures and distortions, market can suffer from failures and distortions, and various players can resort to anti-and various players can resort to anti-competitive activities such as cartels, abuse of competitive activities such as cartels, abuse of dominance etc. which adversely impact dominance etc. which adversely impact economic efficiency and consumer welfare.economic efficiency and consumer welfare.

Thus there is need for Competition Law, and a Thus there is need for Competition Law, and a Competition Watchdog with the authority for Competition Watchdog with the authority for enforcing Competition Law.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 PolicyIndustrial Policy

Industrial Policy has to address and reform licensing Industrial Policy has to address and reform licensing

requirements, restrictions on capacities, or on foreign requirements, restrictions on capacities, or on foreign

technology tie ups, guidelines on location of technology tie ups, guidelines on location of

industries, reservations for small scale industry, etc. industries, reservations for small scale industry, etc.

These adversely affect free competition in the market.These adversely affect free competition in the market.

Trade PolicyTrade Policy

Trade policy has important implications for Trade policy has important implications for

development of competition in the markets. Measures development of competition in the markets. Measures

for liberalisation of trade promote greater competition for liberalisation of trade promote greater competition

e.g. reducing tariffs, removal of quotas/physical e.g. reducing tariffs, removal of quotas/physical

controls, investment controls, conditions relating to controls, investment controls, conditions relating to

local content etc.local content etc.

Privatization/DisinvestmentPrivatization/Disinvestment

Thus privatization of state owned enterprises is Thus privatization of state owned enterprises is

important element of competition policy.important element of competition policy.

However, in privatization/ disinvestment process, care However, in privatization/ disinvestment process, care

is to be taken that state monopoly is not replaced by is to be taken that state monopoly is not replaced by

private monopoly.private monopoly.

Privatization/DisinvestmentPrivatization/Disinvestment

Empirical research has found that state- owned Empirical research has found that state- owned enterprises generally tend to be less efficient than enterprises generally tend to be less efficient than private owned firms, for reasons such as manager private owned firms, for reasons such as manager compensation, low incentives, lack of direct compensation, low incentives, lack of direct accountability, hard budget constraints for managers, accountability, hard budget constraints for managers, etc.etc.

State owned enterprises are generally insulated from State owned enterprises are generally insulated from market forces and receive protection/benefits such as market forces and receive protection/benefits such as government imposed barriers to entry, price regulation government imposed barriers to entry, price regulation and subsidies.and subsidies.

Economic RegulationsEconomic Regulations New legislation and regulations to promote New legislation and regulations to promote

competition and to bring about restructuring of major competition and to bring about restructuring of major industrial sectors is essential. Legislation to aim at industrial sectors is essential. Legislation to aim at separating natural monopoly elements from separating natural monopoly elements from potentially competitive activities, and the regulatory potentially competitive activities, and the regulatory functions from commercial functions, and also create functions from commercial functions, and also create several competing entities through restructuring of several competing entities through restructuring of essential competition activities and to create a essential competition activities and to create a competitive environment . competitive environment .

Examples:Examples:– – Electricity sectorElectricity sector– – Telecommunications sectorTelecommunications sector– – PortsPorts

State AidsState Aids Several state aids create unequal operating Several state aids create unequal operating

conditions for businesses. Examples:conditions for businesses. Examples:– – SubsidiesSubsidies– – Tax rebatesTax rebates– – Preferential loansPreferential loans– – Capital injectionCapital injection

Experience suggests that such policy measures Experience suggests that such policy measures rarely have successful results and destroy rarely have successful results and destroy incentives for firms to become efficient.incentives for firms to become efficient.

Temporary specific state- aid for well stated public Temporary specific state- aid for well stated public purpose can be justified.purpose can be justified.

Evolution of Competition LawEvolution 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 ActMRTPs vis-à-vis Competition ActUnder the Competition Act :Under the Competition Act :

• No provision for Unfair Trade PracticesNo provision for Unfair Trade Practices

• Only Consumer Courts will have jurisdictionOnly Consumer Courts will have jurisdiction

• Pending cases will be continued by MRTPC for 2 yearsPending cases will be continued by MRTPC for 2 years

• After 2 years :After 2 years :

All cases (except Disparagement Cases) will be All cases (except Disparagement Cases) will be

transferred to National Commission under CPAtransferred to National Commission under CPA

All Disparagement Cases will be transferred to All Disparagement Cases will be transferred to

Competition CommissionCompetition 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 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 illegal

Examples: cartels, bid rigging, collusive bidding, sharing ofmarkets, 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.

AgreementAgreement Any arrangement or understanding or action in Any arrangement or understanding or action in

concert –concert –

Whether or not such arrangement or Whether or not such arrangement or understanding is formal or in writingunderstanding is formal or in writing

Or whether or not such understanding or Or whether or not such understanding or arrangement is intended to be enforceable by arrangement is intended to be enforceable by legal proceedingslegal proceedings

Adverse effect on competitionAdverse effect on competition

Creation of barriers to entryCreation of barriers to entry

Driving existing competitors out of marketDriving existing competitors out of market

Benefits to consumersBenefits to consumers

Benefit to Scientific and technical knowhowBenefit to Scientific and technical knowhow

Agreements presumed to have Agreements presumed to have adverse effectadverse effect

Directly or indirectly determines Directly or indirectly determines purchase or sales pricepurchase or sales price

Limits or controls production, supply, Limits or controls production, supply, technical know howtechnical know how

Shares the market or sources of Shares the market or sources of production production

Results in bid rigging or collusive Results in bid rigging or collusive biddingbidding

CCI orders against Anti-competitiveCCI orders against Anti-competitive agreementsagreements

Penalty equal to three times the amount of Penalty equal to three times the amount of

profit made out of such agreement or 10% of profit made out of such agreement or 10% of

average turnover of the cartel for preceding average turnover of the cartel for preceding

three years whichever is higherthree years whichever is higher

Modification directed to the agreementModification directed to the agreement

Powers of Competition Commission as Regards Powers of Competition Commission as Regards AgreementsAgreements

After the inquiry into the Agreement, Competition After the inquiry into the Agreement, Competition Commission can:Commission can:

• direct parties to discontinue the agreementdirect parties to discontinue the agreement

• prohibit parties from re-entering such agreementprohibit parties from re-entering such agreement

• direct modification of the agreementdirect modification of the agreement

• impose penalty upto 10% of average turnover of impose penalty upto 10% of average turnover of the enterprise the enterprise

PROTECTION OF INTELLECTUAL PROTECTION OF INTELLECTUAL PROPERTY RIGHTSPROPERTY RIGHTS

Competition ActCompetition Act

The prohibition on horizontal and vertical The prohibition on horizontal and vertical

agreements do not restrict the right of any agreements do not restrict the right of any

person to impose reasonable restrictions to person to impose reasonable restrictions to

protect any of his rights under the protect any of his rights under the

Copyright Act, the Patents Act, the Trade Copyright Act, the Patents Act, the Trade

and Merchandise Marks Act, Designs Actand Merchandise Marks Act, Designs Act

For those who would want to know more about For those who would want to know more about anti competitive agreements --- pls. visit the anti competitive agreements --- pls. visit the

site given below; it issite given below; it is a good ppt by CCIa good ppt by CCI

http://www.competition-commission-http://www.competition-commission-india.nic.in/Capacity_Building_Initiatives/india.nic.in/Capacity_Building_Initiatives/Investigating_Anticompetitive_Agreements.pInvestigating_Anticompetitive_Agreements.pdfdf

Abuse of DominanceAbuse of Dominance

““Dominant position” is defined as a position of Dominant position” is defined as a position of strength which enables the enterprisestrength which enables the enterprise

• to operate independently of competitive to operate independently of competitive forces in the market, orforces in the market, or

• to affect its competitors or consumers in its to affect its competitors or consumers in its favor.favor.

No mathematical or statistical formula is No mathematical or statistical formula is adopted to “measure” dominance – 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 Power of the Competition CommissionCommission

• After inquiry into abuse of dominant position, the After inquiry into abuse of dominant position, the Competition Commission can order:Competition Commission can order:

discontinuance of abuse of dominant positiondiscontinuance of abuse of dominant position

impose a penalty upto 10% of the average impose a penalty upto 10% of the average turnover of the enterpriseturnover of the enterprise

Combinations RegulationCombinations Regulation

Combinations, in terms of the meaning given to Combinations, in terms of the meaning given to them in the Act, include mergers, amalgamations, them in the Act, include mergers, amalgamations, acquisitions.acquisitions.

in order to establish whether the higher in order to establish whether the higher concentration in the market resulting from the concentration in the market resulting from the merger will increase the possibility of collusive or merger will increase the possibility of collusive or unilaterally harmful behavior, it must first be unilaterally harmful behavior, it must first be established as to what the relevant market is established as to what the relevant market is

Contd…Contd…

Horizontal MergersHorizontal Mergers

Vertical MergersVertical Mergers

Conglomerate MergersConglomerate Mergers

Pre-NotificationPre-Notification The requirements for prior notificationThe requirements for prior notification

Relevant Product MarketRelevant Product Market

Physical characteristics or end-use of goodsPhysical characteristics or end-use of goods

Price of goods or servicePrice of goods or service

Consumer preferencesConsumer preferences

Exclusion of in-house productionExclusion of in-house production

Existence of specialized producersExistence of specialized producers

Classification of industrial productsClassification 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 marketRelevant 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 AdvocacyCompetition Advocacy The Competition Commission of India, in terms of The Competition Commission of India, in terms of

advocacy provisions in the Act, is enabled to participate advocacy provisions in the Act, is enabled to participate in the formulation of the country’s economic policies in the formulation of the country’s economic policies and to participate in the reviewing of laws related to and to participate in the reviewing of laws related to competition at the instance of the Central Government.competition at the instance of the Central Government.

Commission is required to take measures for promotion Commission is required to take measures for promotion of Competition Advocacy, creating Awareness and of Competition Advocacy, creating Awareness and imparting Training about competition issues [Section imparting Training about competition issues [Section 49(3)]49(3)]

Contd…Contd…

Advocacy means competition promotion through non-Advocacy means competition promotion through non-enforcement measuresenforcement measures

For promotion of competition advocacy and creation of For promotion of competition advocacy and creation of awareness about competition issues, the Commission awareness about competition issues, the Commission may:-may:-

i) Undertake appropriate programmes / activities etc.;i) Undertake appropriate programmes / activities etc.;

ii) Encourage and interact with the organizations of ii) Encourage and interact with the organizations of stakeholders, academic community etc. to undertake stakeholders, academic community etc. to undertake activities, programmes, studies, research work, etc. on activities, programmes, studies, research work, etc. on competition issues;competition issues;