CCI15.9.2011

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WHAT IS COMPETITION POLICY?Competition in economic parlance signifies a market

structure involving a large number of players such that no single player is in a position to significantly influence the market.

At the other extreme is ‘Monopoly’ where a single firm rules the market and earns super normal profit by controlling output and/or supply and by charging higher than cost of production from the consumers

At the intermediate level is ‘Oligopoly’ where a few market players are available. Oligopolists manage to control the market by colluding among themselves since none of them alone may be in a position to control the market. Such collusions are generally tacit.

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Contd… 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

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Contd… 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.

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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 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

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Competition LawIt 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).

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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.

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Promotion of Competition

For promotion of competition in the market an appropriate competition policy is required.

Competition policy includes “those government measures that directly affect behaviour of enterprises and structure of industry.” (Khemani and Mark Dutz 1996)

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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.

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Background to India’s Competition LawEarlier Law

MRTP Act enacted in 1969Belongs to the era of controlled economy, as against the

market based economyObjectives were to prevent concentration of economic

power, to control monopolies, and to prohibit monopolistic and restrictive trade practices

Major amendments to MRTP Act undertaken in1984 – Major addition was relating to Unfair Trade Practices,1991 – Deletion of Chapter relating to Mergers and Acquisitions, and Addition relating to Award of Compensation.

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An Act to establish a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect interest of consumers and to ensure freedom of trade carried on by other participants in markets, in India

Under the Act the Commission can enquire and adjudicate in respect of

Anti-Competitive Agreements Abuse of Dominant Position Regulation of Mergers and Acquisitions Commission also has responsibility to undertake Competition Advocacy

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Competition Act :-

“Anti-competitive Agreements” are declared void “Per Se Rule” applied to 4 Horizontal Agreements “Rule of Reason” applied to 5 Vertical Agreements

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Persons engaged in identical or similar goods or services enter into an agreement :

to determine purchase or sales prices to limit / control production, supply, technological developments,

etc. to share the market, allocate geographical markets or number of

customers for bid rigging or collusive tendering

All the above 4 Agreements “shall be presumed to have an appreciable adverse effect on competition”

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Tie-in” ArrangementsExclusive Supply AgreementsExclusive Distribution AgreementsRefusal to dealResale price maintenance

Such an Agreement will be contravention of the Act IF the Agreement causes – or is likely to cause – an appreciable adverse effect on competition

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After the inquiry into the Agreement, Competition Commission can:direct parties to discontinue the agreementprohibit parties from re-entering such agreementdirect modification of the agreement impose penalty up to 10% of average turnover of the

enterprise

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MRTP ActFirstly, the MRTP Commission cannot pass Orders which restrict the right of any person to restrain the infringement of a patent granted in

India, or any person as to the condition he attaches to a licence to do anything, the doing of which, but for the licence, would be an

infringement of a patent granted in India

Secondly, Section 39, which declares resale price maintenance to be void, does not affect the validity of a licence granted by the

proprietor of a patent or trade-mark, so far as it regulates the price at which articles produced by the licensee may be sold by him.

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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

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Mandate of the Act : “No enterprise shall abuse its dominant position.”

5 categories of “abuse” are listed in the Act, as for instance, Imposing discriminatory conditions in purchase or sale

of goodsPredatory pricingLimiting production or scientific or technical

developmentUsing dominant position in one market to enter

another market, etc.

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Power of the Competition CommissionAfter inquiry into abuse of dominant position, the

Competition Commission can order: discontinuance of abuse of dominant position impose a penalty up to 10% of the average turnover of the

enterprise

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It can : issue a Show Cause Notice to the parties direct the parties to publish details of the combination invite members of the public to file written objections pass appropriate Orders

Two questions are worth considering : Is this just a back-door entry of earlier provisions of the MRTP

Act ? Will monetary limits fixed five years ago remain relevant five

years hence

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MRTP ACT, 1969 Based on the pre-reforms

scenario Based on size as a factor Competition offences implicit or

not defined Complex in arrangement and

language

14 per se offences negating the principles of natural justice

Frowns upon dominance Registration of agreements

compulsory

COMPETITION ACT, 2002 Based on the post-reforms

scenario Based on structure as a factor Competition offences explicit

and defined Simple in arrangement and

language and easily comprehensible

4 per se offences and all the rest subjected to rule of reason.

Frowns upon abuse of dominance

No requirement of registration of agreements

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MRTP ACT, 1969 No combinations regulation Competition Commission

appointed by the Government

Very little administrative and financial autonomy for the Competition Commission

No competition advocacy role for the Competition Commission

No penalties for offences Reactive and rigid Unfair trade practices

covered

COMPETITION ACT, 2002 Combinations regulated

beyond a high threshold limit.

Competition Commission selected by a Collegium (search committee)

Relatively more autonomy for the Competition Commission

Competition Commission has competition advocacy role

Penalties for offences Proactive and flexible Unfair trade practices

omitted (consumer fora will deal with them)

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The Competition Commission of India (CCI) has notified the regulations for mergers and acquisitions that require corporate houses to seek its approval before going in for high-value deals.

As per the notification, the CCI will take a view on the proposed deal within 180 days of the filing of notice by the companies. The commission can approve the merger proposal, reject it or modify it.

Companies with a turnover of over Rs 1,500 crore will have to approach the CCI for approval before merging with another firm.

Only those proposals involving companies having combined assets of Rs 1,000 crore or more, or a combined turnover of Rs 3,000 crore or more, will need to approach the CCI for approval. Also, the target company's net assets have to be a minimum of Rs 250 crore, or it should have a turnover of Rs 700 crore.

These regulations will come into force from June 1, 2011.23

Thank youContact details:K.AnandavasaganE-mail : [email protected] [email protected]

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