Competition Act PPT

Competition Act, 2002

Competition- What?

• A situation in a market, in which sellers

independently strive for buyer’s patronage

to achieve business objectives such as

profits, sales or market share.

• It is the foundation of an efficiently working market system.

Competition- Why?

• The ultimate objective of competition is to secure the interestof the Consumer - it empowers the consumer, best guaranteefor consumer protection.

• It is a means of reducing cost and improving quality.• It also implies an open market where shortages are rapidly

eliminated through the best allocation of resources.• It accelerates growth and development; preserves economic

and political democracy.

Benefits of Competition

• Companies : Efficiency, cost-saving operations, betterutilization of resources, etc.

• The Consumer : Wider choice of goods at competitiveprices

• The Government : Generates revenue

BUT…………………………

………all these benefits are lost if Competition is

UNFAIR or NON-EXISTANT

• Choice of CARS in the olden days

• 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 atmosphereprovided 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– Strategic barriers are generally erected by incumbent firms in the

form of artificial and sudden price reduction with a view tothwarting new entry.

• Monopoly (market) power tends to lead to inefficient allocation ofsources and discourages innovation or introduction of bettertechnology.

Why a competition policy ?

• Competition policy is defined as those Government measuresthat affect the behaviour of enterprises and structure of theindustry.

• It is to promote efficiency and maximise welfare.(Sum of consumers’ surplus & producers’ surplus and taxescollected by the Government).

• There are two elements of competition policy.– First, a set of competition enhancing policies, such asliberalised trade policy, relaxed FDI policy, de-regulation,etc.

– Second, competition law to prevent anti-competitivepractices with minimal government intervention.Competition law also prevents artificial entry barriers,facilitates market access and compliments othercompetition promoting activities.

Competition Act 2002 -Background

• Government constituted a committee in 1999 to examineMRTP Act, 1969 for shifting the focus of the law from curbingmonopolies to promoting competition and to suggest amodern competition law in line with internationaldevelopments to suit Indian conditions.

• As a sequel to the Report of the Committee, the CompetitionAct, 2002 was enacted and notified in January, 2003.

Establishment ofCompetition Commission of India

• Competition Act 2002 provides for establishment of aCommission to prevent practices having adverse effect oncompetition etc.

• Duties of the Commission– To eliminate practices having adverse effect oncompetition

– To promote and sustain competition– To protect interests of consumers, etc.

Introduction- MRTP Act, 1969

• The Monopolistic and Restrictive Trade Practices Act, 1969,was enacted– To ensure that the operation of the economic system doesnot result in the concentration of economic power inhands of few,

– To provide for the control of monopolies, and– To prohibit monopolistic and restrictive trade practices.

• The MRTP Act extends to the whole of India except Jammuand Kashmir.

Restrictive Trade Practice

• A restrictive trade practice is a trade practice, which– Prevents, distorts or restricts competition in any manner;or

– Obstructs the flow of capital or resources into the streamof production; or

– Which tends to bring about manipulation of prices orconditions of delivery or affected the flow of supplies inthe market of any goods or services, imposing on theconsumers unjustified cost or restrictions.

Unfair Trade Practice

• An unfair trade practice means a trade practice, which, for thepurpose of promoting any sale, use or supply of any goods orservices, adopts unfair method, or unfair or deceptivepractice.

• Unfair practices may be categorised as under:• False representation• False offer of bargain price• Free gifts offer and prize schemes• Non-compliance of prescribed standards• Hoarding, destruction, etc.

Monopolistic Trade PracticesA monopolistic trade practice is one, which has or is likely to havethe effect of:

i. maintaining the prices of goods or charges for the services at anunreasonable level by limiting, reducing or otherwise controllingthe production, supply or distribution of goods or services;

ii. unreasonably preventing or lessening competition in theproduction, supply or distribution of any goods or services whetheror not by adopting unfair method or fair or deceptive practices;

iii. limiting technical development or capital investment to thecommon detriment;

iv. deteriorating the quality of any goods produced, supplied ordistribute; and

v. increasing unreasonably -a. the cost of production of any good; orb. charges for the provision, or maintenance, of any services; orc. the prices for sale or resale of goods; ord. the profits derived from the production, supply or distribution of anygoods or services.

Competition Act 2002• The Act will replace the current Monopolies and Restrictive

Trade Practices Act 1969 ("MRTP Act").

Whilst the MRTP Act was designed to govern restrictivetrade practices in the context of a closed and centrallyplanned economy,

the Competition Act draws upon concepts of competitionlaw found in more liberalised economies such as the USand EU.

It extends to whole of India

Objectives of Competition Act

• To prevent practices having adverse effect oncompetition

• To promote and sustain competition in market• To protect the interest of consumers• To ensure freedom of trade carried on byother participants in markets in India

• According to the Competition Act,for any multinational companies ("MNCs")operating in India,– the Competition Commission of India ("CCI"),will be empowered to scrutinizeall mergers, acquisitions and joint venture activity inIndia wherethe asset value of the parties involved ismore than Rs. 1,000 crore within India or$500 million globally,ORturnover is greater than Rs. 3,000 crore within India or$1,500 million globally.

The Competition Act has four main components:– Prohibition of Anti-Competitive Agreements;– Prevention of Abuse of Dominance;– Regulation of Mergers and Acquisitions;– Establishment of the 10 member CCI.

Prohibition of Anti-CompetitiveAgreements

• Prohibits and voids any agreement which causes or is likely tocause an appreciable adverse effect on competition in India.

Adverse effect on competition meansAny agreement entered into that• Contains presumption against agreements which indirectly or

directly determine purchase or sale prices;• control production, supply, markets, technical development,

investment or provision of services;• Shares the market or sources of production either by

geographical allocation or types of goods or services ormarket shares; or

• which either directly or indirectly result in bid rigging orcollusive bidding.

• Bid rigging: any activity which has the effect ofeliminating or reducing competition forbidsor adversely affecting or manipulating theprocess for bidding.

• Cartel: by agreement amongst themselves ,limit , control or attempt to control theproduction, distribution, sale or price of, ortrade in goods or provision of services.

• An agreement which causes or is likely to causean appreciable adverse effect on competitionincludes:– Tie-in arrangement: requiring the purchaser of thegoods , as a condition of such purchase, to purchasesome other goods

– Exclusive supply agreement: restricting the purchaserfrom acquiring any goods other than those of theseller

– Exclusive distribution agreement: limit or allocate anymarket or area

– Refusal to deal: restrict to whom goods are sold orbought

– Resale price maintenance: resale prices stipulated bythe seller

Prohibition of Abuse of DominantPosition

• Prohibits abuse of dominant position by any enterprise.

• “Dominant Position” means a position of strength, enjoyedby an enterprises, in the relevant market, whether in India oroutside India which enables it to –

– Operate independently of competitive forces prevailing in the relevantmarket

– Affect its competitors or consumers or the relevant market in its favor

• “Predatory Price” meansThe sale of goods or provision of service, at a price which is below thecost(as may be determined by regulations of production of goods orprovision of services)with a view to reduce competition or eliminate the competitors.

• An abuse of dominant position consist of:– directly or indirectly imposing unfair or discriminatory

• conditions in the purchase or sale of goods or services, or• setting prices in the purchase or sale (including predatory pricing) of goods or

services;

– limiting or restricting• the production of goods or provision of services or market therefor; or• limiting technical or scientific development relating to goods or services to the

prejudice of consumers;

– indulging in practice or practices resulting in the denial of marketaccess;

– making conclusion of contracts subject to acceptance by other partiesof supplementary obligations which have no connection with thesubject of such contracts;

– utilisation of a dominant position in one market to enter into, orprotect, another market.

Regulation of Combinations

• Prohibits and voids any "combination" which causesor is likely to cause an appreciable adverse effect oncompetition within the relevant market in India.

• “Combination” meansThe acquisition of one or more enterprises by one ormore persons orMerger or amalgamation of enterprises,If certain conditions are fulfilled—

• Acquisition of control, shares, voting rights or assets• Acquisition of control over production, distribution ortrading

• Merger or Amalgamation

• The following thresholds apply for determining whether amerger or acquisition becomes a "combination" subject toscrutiny:

– enterprises with operations in India:

Rs. 1,000 crore asset value or Rs. 3,000 crore turnover;

– enterprises with global operations:

$500 million asset value or $1,500 million turnover;

– groups of companies with operations in India:

Rs. 4,000 crore or Rs. 12,000 crore turnover;

– groups of companies with global operations:

$2 billion asset value or $6 billion turnover.

Regulation of Combinations

No person or enterprise shall enter into a combination whichcauses or is likely to cause an appreciable adverse effect oncompetition within the relevant market in India and such acombination shall be void.

Exemption:Any person or enterprise , who proposes to enter intocombination may give notice to the Competition Commissionof India and the fee which may be determined by regulations,disclosing the details of the proposed combination within 7days of—– approval of the proposal relating to merger or amalgamation by

Board of Directors of enterprises– execution of any agreement or other document for acquisition

Penalty of making false statements or omissionto furnish material information

If any person, being a party to a combination—• Makes a statement which is false in any materialparticular, or knowing it to be false, or

• Omits to state any material particular knowing tobe material

He shall be liable to a penalty which shall not beless than Rs. 50,00,000 but which may extend toRs. 1,00,00,000 as may be determined by thecommission

Competition Commission of India• The CCI has replaced the MRTP Commission.• The commission consist of a Chair person and not less than 2 and

not more than 10 other members to be to be appointed by theCentral Government.

• CCI is authorized to inquire into whether a "combination" hascaused or is likely to cause an appreciable adverse effect oncompetition in India. Any such inquiry must be initiated within oneyear of the combination taking effect.

• Duties of the Commission

– To eliminate practices having adverse effect on competition– To promote and sustain competition– To protect interests of consumers– Ensure freedom of trade carried by other participants, inmarkets in India

References

• http://www.cci.gov.in/• http://economictimes.indiatimes.com/