COMPETITION ACT

Competition-What


A situation in a market, in which sellers
independently strive for
buyers 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
interest of the Consumer -it empowers the consumer,
best guarantee for 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

Competition Policy

Competition policy is defined as those Government
measures that affect the behavior of enterprises and
structure of the industry. It is to promote efficiency and
maximize welfare. (Sum of consumers. surplus
&producers. surplus and taxes collected by the
Government)

Competition Policy-Goals

Preservation and promotion of the competitive
process.

Efficiency in production and allocation of goods and
services.

Innovation and adjustment to technological change.

Sustained economic growth.

The New Law

A new law called competition act 2002 has been
enacted to replace the extant law, MRTP act
1969.

The new law was challenged in the supreme court
on the ground that the chairperson should only be
from the judiciary.

The new law has been amended on 10 sep 2007
by the parliament.

Competition act-Objective

Competition act, 2002 notified in January 2003. Stated
objective in preamble is to provide “for Establishment of
a Commission”.

to prevent practices having appreciable adverse effect on
competition;

to promote and sustain competition in markets;

to protect the interest of consumers

to ensure freedom of trade carried on by other participants in
markets, in India

Main Features

Prohibits Anti-Competitive Agreements. (sec 3)

Prohibits Abuse of Dominant Position. (sec 4)

Provides for Regulation of Combinations. (sec
5,6)

Anti-Competitive Agreements

Section 3 of the Act deals with agreements among
enterprises or persons or association of persons, which
causes or likely to cause appreciable adverse effect on
competition. Such agreements are rendered void
pursuant to this section.

The Act deals with following kind of agreements.
1.
Horizontal Agreements
2.
Vertical Agreements

Horizontal Agreements

Agreements between enterprises at the same stage of
production, services, etc. and including Cartels.
Examples :
(i) directly or indirectly determines purchase or sale prices;
(ii) limit or control production, supply, technical development
etc.
(iii) allocate areas or customers
(iv) Directly or indirectly results in bid rigging or
collusive bidding.

Above agreements are presumed to cause appreciable
adverse effect on competition in the markets.

Vertical Agreements

Agreements between enterprises at different stages of
production, distribution, etc.-subject to Rule of Reason;
burden of appreciable adverse effect on competition,
they are prohibited.
Examples :
(i) Tie-in arrangement;
(ii) Exclusive supply agreement;
(iii) Exclusive distribution agreement;
(iv) Refusal to deal;
(v) Re-sale price maintenance.

Abuse of Dominance

Unlike MRTP law, the Act does not frown on
dominance by market players. But the abuse
of dominance is prohibited under Section 4 of
the Act. „Dominance‟ or „Dominant Position‟
means a position of strength, enjoyed by an
enterprise, in the relevant market, in India
which enables it to --

Continued..
a. operate independently of competitive forces in the
relevant market; sec .19(7) or
b. affect its competitors or consumers or the relevant
market in its favours sec .19(9)
Dominance is determined by several factors e.g.
market share of the enterprise concerned, market
share of competitors, entry barriers, size and
resources commanded by the enterprise or
competitors, etc. sec .19(4)

Continued..

Examples of abuse include –

Exclusionary practices such as predatory pricing,
denying market access, use of dominance in one
market to enter into, or protect, other relevant market.

Exploitative practices such as discriminatory pricing
and imposing discriminatory conditions of trade,
conclusion of main contract contingent upon accepting
supplementary
obligations unrelated to main contract.

Regulation of Combinations

Section 5 of the Act deals with combinations.
Combination includes acquisition of shares, acquiring
of control and mergers and amalgamations. These
combinations can be horizontal, vertical or
conglomerate. It is the horizontal type of combinations
that has very high potential to thwart competition
when compared to other two kinds of combinations.

In line with the market realities, the Act provides
for very liberal regime of combination regulation. The
salient features of combination regulations are -

Continued..
a. The Act has set very high threshold limit based
on turnover or assets of the enterprises involved in
combination for notification of combinations. The
objective is to keep smaller combinations outside
regulation and encouraging Indian enterprises to grow
in size as well market share in globalised market.
b. Higher threshold limit is set for combination
involving parties having operation both in India
and outside India.
c. The notification of combination to the Commission
is voluntary not mandatory.

Continued..
d. Such notification has to be disposed off
by the Commission within90 working days,
failing which the same is deemed to be
approved.
e. The commission also has the suo moto
enquiry power.

f. Limited exemption is given to combination
involving public financial institution, foreign
institutional investors and venture capital fund.

THANKS!!