Competition Act 2002

And Its Role In Promoting Marketing In India

Presented By :Ms. Sunaina NagarMr. Gopi M. MurishettyMs. Vinita Dandwani

Competition is a situation in market in which firms or sellers independently strive for the buyers’ patronage in order to achieve a particular business objective i.e. profits, sales or market share.

What is competition?

Companies :·Cost Saving operations

·Efficiency

·Better utilization of resources etc.

Consumer : ·Wider choice of goods at competitive price.

government :

·Generate revenue.

How competition can be Useful?

How does competition ensure economic efficiency?

promotes efficiency;encourages innovation;leads to higher productivity;boosts choice;improves quality; reduce costs;ensures availability of goods in abundance of acceptable quality at affordable price.

Why Do market Fail?

Competition can promote efficiency so long as private and social costs and/or benefits do not differ.

However due to externalities in real world social and private costs do differ and hence government intervention in the form of appropriate fiscal measure

Competition Act V/s MRTP Act

Competition Act 2002 MRTP Act

Aims at promoting competition Aims at curbing monopolies

Focus on effects on competition in the market

Focus on size and on behavior

Seeks to prohibit anti-competitive agreements, abuse of dominant position and to regulate combinations

Prohibit monopolistic, restrictive and unfair trade practices

Statutory Authorities can seek CCI’s opinion No provision to seek opinion

Appreciable adverse effect is a key factor – Factors prescribed to determine AAEC

‘Prejudicial to public interest is a key factor –parameters not mentioned in the law

Primary duty to achieve the objectives of the Act devolves on CCI

Act implemented partly by Central Government and partly by the MRTP Commission

Enactment of Competition Act, 2002

The Competition Act, 2002 was enacted by the Parliament of India and governs Indian competition law. It replaced the archaic Monopoly and Restrictive

Trade Practices Act, 1969. 

The Competition Act, 2002 was amended by the Competition (Amendment) Act, 2007 and again by the Competition (Amendment) Act, 2009.

The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises and regulates combinations (acquisition, acquiring of control and Merger

and acquisition), which causes or likely to cause an appreciable adverse effect on competition within India.

The objectives of the Act are sought to be achieved through the Competition Commission of India (CCI), which has been established by the Central Government

with effect from 14 October 2003. CCI became fully functional in May 2009 with Dhanendra Kumar as its first Chairman.

Key Objectives of CCI :

To augment productivity;

Enhance transparency;

Maximize consumer welfare;

Help in achieving inclusive growth.

Various Provisions under Competition Law :

Prohibits Anticompetitive

Agreements (Section 3)

Prohibits Abuse of Dominant

Position (Section 4)

Chapter II

Prohibits Anticompetitive Agreements (Section 3)

Agreements which cause or are likely to cause appreciable adverse effect on competition are anti-competitive agreements.

Agreements

Horizontal Vertical

Between enterprises at the same stage of the production chain.

Eg : agreement between two rivals

In cases of agreements between rivals for fixing prices or for limiting production or for sharing markets

Horizontal

agreements

Between enterprises at different stages of the production chain.

Eg : an agreement between the manufacturer and a distributor is a vertical agreement.

Vertical agreeme

nts

Cartels

Cartels includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services.

Categories of cartels

Service cartels

Those concerned with the regulation of terms

of employment

Trade cartels

Those concerned with the regulation of trading terms and conditions

INTERNATIONAL &

INDIAN CASE LAW:

Cartels Abroad :•Collusive price fixing by boaters•Vitamins cartel•Lysine cartel

Cartel Case In India :•The cement cartelization case

Section 4: Prohibition Abuse of Dominant Position

Dominance means position of strength, enjoyed by an enterprise, in the relevant market in India, which enables it to:(i) Operate independently of competitive forces

prevailing in the relevant market; or

(ii) Affect its competitors or consumers or the relevant market in its favour.

position of

strength of an

enterprise

behaviour which

is independent of competi

tive forces

ELEMENTS OF

DOMINANT

POSSISSION

→Market Share of the Enterprise→Size and Resources of the Enterprise→Size and Importance of Competitors→Economic Power of the Enterprise Including commercial Advantage Over Competitors→Vertical Integration of the Enterprises or Sales or Service Network of Such Enterprises→Dependence of Consumers on the Enterprise→Entry Barriers Including Barriers Such as Regulatory Barriers etc.

Elements of Dominant Positions :

What is Predatory Pricing?

Price predation occurs when dominant firm charges a price lower than the cost of production, making it difficult for equally efficient firms to operate.

Predatory conduct seeks to reduce competition on some basis other than efficiency, maximising profit only because of its exclusionary tendencies.

Predatory behaviour occurs in two phases

Predation phase

Where extremely

high values are offered to the consumers to overthrow competition

Recoupment phaseWhere

consumers are provided lower

values in terms of the product, as competition

has been overthrown

Condition precedent to price predation

Dominant position Significant entry barriers

Financial prowess of predator

Regulation of Combination

What Is Combination ?

Combination under the Act means acquisition of control, shares, voting rights or assets, acquisition of control by a person over an enterprise where such person has control over another enterprise engaged in competing businesses, and mergers and amalgamations between or amongst enterprises when the combining parties exceed the thresholds set in the Act.

Combination is a broad term which includes - Merger - Acquiring control

- Acquisition - Amalgamation

Regulation:No person or enterprise shall enter into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and such a combination shall be void.

Regulation of Combination

ENTITY GROUP

IN INDIA IN INDIA OR OUTSIDE INDIA

IN INDIA IN INDIA OR OUTSIDE INDIA

Assets > Rs. 1000 crores

OR

Turnover > Rs.3000 crores

Assets >US$ 500 million, including at least Rs.500 crores in India,

OR

Turnover > US$ 1500 million, including at least Rs.1500 crores in India;

Assets > Rs. 4000 crores

OR

Turnover > Rs.12000 crores

Assets >US$ 2 billion, including at least Rs.500 crores in India,

OR

Turnover > US$ 6 billion, including at least Rs.1500 crores in India;

Adverse effect of combination

• Horizontal merger reduces number of players

• Market share post merger goes up;• Embracing unhealthy competition;• Reduces the tax liability;• Rivalry in firms is friendly to

consumers;• Unilateral/Coordinated effects

Procedure of enquiryFirst prima facie opinion on possible AAEC

Show-cause notice to acquirer-30 days to respond

May call for report from DG

Second prima facie opinion on possible AAEC –in 7 days

Direction to publish details of combination in 10 days

May invite objections from the public to proposed combination in 15 days from date of publication of

detailsMay call for additional information from parties

which is to be given in 15days

FACTOR CONSIDERED BY CCI WHILE REGULATING COMBINATION

•Actual and potential competition through imports•Extent of entry barriers into the market•Level of combination in the market.•Degree of countervailing power in the market•Possibility of the combination to significantly and substantially increase prices or profits •Extent of effective competition likely to sustain in a market•Availability of substitutes before and after the combination•Market share of the parties to the combination individually and as a combination •Possibility of the combination to remove the vigorous and effective competitor or competition in the market •Nature and extent of vertical integration in the market•Nature and extent of innovation•Whether the benefits of the combinations outweigh the adverse impact of the combination.

The Competition Act 2002 provides a provision to establish a commission called Competition Commission of India (CCI) for execution of provisions of this act.

Duties of the Competition Commission of India [Section 18]

- Eliminate practices having adverse effect on competition- Promote and sustain competition- Protect consumers’ interests- Ensure freedom of trade carried on by other participants in markets in India

PenaltiesPenalty not less than Rs. 10 lacs [Section 42(1)]

For failure to comply with a direction of Commission or DG – Rs 1 lac per day of failure [Section 43]

If party to a combination makes a false statement or omits a material particular – not less than Rs. 50 lacs up to Rs. 1 crore [Section 44]

For willfully omitting to furnish information – penalty up to Rs. 10 lacs [Section 45]

Comparing the Indian competition Act with other countries

Comparing the Indian competition Act with other countries

Indian and Chinese competition laws- comparison :•Enactment OF Act •Objects of competition Act.•Powers of authority •Similar or different implementation of the two laws

Indian and USA competition laws - comparison:

•Enactment •Enforcement Structure•Regulations of anti competitive agreements •Abuse of dominance •Merger regulation

In Competition Act, 2002

ISSUE 1 :

What if it is a small merger with localized impact?

Recommendation :

The Act should specify the thresholds for each industry with respect to the investment or turnover of industries. By such slabs those industries which have lesser investments or turnover will also not be able to form the cartels or abuse their dominant position in a specified territory.Further those industries which requires higher amount of investments or turnover will also be able to carry on their business without coming under the disclosure requirements to CCI.

ISSUE 2 :

Ineffective enforcement Inadequate Funding

Technical Assistance

Recommendation :The Government should provide the required infrastructure and funds to make the Competition Commission an effective Tribunal to prevent, if not eliminate anti-competition practices and also to play its role of competition advocacy.

The government has the responsibility to provide adequate funds along with requisite resources in dealing with cases in which there is a public interest vests.

Furthermore, it is necessary to give utmost powers in dealing and implementation of implantation of Competition act effectively.

ISSUE 3 :

Do we need a national competition policy?

Coal mining are still under the monopoly control of the State through Public Sector Undertakings.

Recommendation: The act has to be amended in such a way that all the undertakings must be included under competition Act.

All the public procurement of goods and services by the governments such as electricity Boards, Railways etc must be covered under the Act.