Competitionact2002 090902133438-phpapp01

Competition Act, 2002Competition Act, 2002

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

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

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 protecting consumers from the undue exercise of market powermarket power

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.

Competition PolicyCompetition Policy

It includes Reforms in certain Policy areas to It includes Reforms in certain Policy areas to make these more pro-competition:-make these more pro-competition:-

• • Industrial policyIndustrial policy • • Trade policyTrade policy • • Privatization/disinvestmentPrivatization/disinvestment • • Economic RegulationEconomic Regulation • • State aidsState aids • • Labour policyLabour policy • • Other such policiesOther such policies

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.

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.

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

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

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

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.

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

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

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

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.