competition is the engine of market economy

Competition its relevance to developing countries: Competition law is a set of rules, disciplines and judicial decisions maintained bygovernments relating either to agreements between firms that restrict competition or tothe concentration or abuse of market power on the part of private firms. Vigorouscompetition between firms is the lifeblood of strong and effective markets.Competitionhelps consumers get a good deal. It encourages firms to innovate by reducing slack,putting downward pressure on costs and providing incentives for the efficientorganisation of production.Competition creates efficiencies in the market place. Some of those efficiencies aredistinguishable: Productive efficiency : Productive efficiency is in ensuring that any time a good or service is produced, it is done by using the smallest number of resources. Thus, if a manuses a tree to make 4 cricket bats, and another man uses a tree to make 5 cricket bats,then the latters productive efficiency is better than the formers. Allocative efficiency : Allocative efficiency interest is in ensuring that the availableresources are used in a satisfactory manner. That is, we want to produce those thingsmost desired by the community first Dynamic efficiency : In the modern world it is important that firms are able to respondquickly to changing economic circumstances. To be dynamically efficient means thatfirms are aware of the changing circumstances, and they are able to adapt to meet thosenew needs, such as searching for and adopting new technologies and ways of doingthings better.However it is important to note that competition can also sow the seed of its owndestruction i.e. when encouraged to compete, successful entrepreneurs may achievepositions where they are able to prevent others from competing and thereby damage theprocess as a whole. Therefore, the primary purpose of competition law is to remedy someof those situations where the activities of one firm or two lead to the breakdown of thefree market system, or to prevent such a breakdown by laying down rules by whichbusinesses can rival with each other.Thus competition laws strive to achieve two things. First, to ensure that wherecompetition already exists, that it

would deliver the goods in terms of realising all theefficiencies normally associated with it. This it achieves by laying down rules by which firms can compete in the market place. Secondly, that where competition does notalready exist, it would be encouraged to exist. Competition is crucial to achieve high rates of economic growth and employment.Economic theory also suggests that competition is beneficial as it gives a wider choice toconsumers and provides sellers with stronger incentive to minimize costs. Thus theimportance of competition to an economys growth and development, policies to promotecompetition has become an important element of policy formulation. Arguments havebeen put forward to adopt open market policies to increase competition. In the past manycountries adopted economic reforms and reduced government intervention. Many reformswere undertaken in the form of reduction of trade barriers, privatization to increasecompetition. It is however possible that, firms may try to eliminate competition byadopting anti competitive practices such as cartels. Hence there is a need for governmentintervention to protect competition by prohibiting agreements and activities thatundermine it. The government intervention in this case takes the form of a competitionpolicy.Effective competition law is a means of inspiring international confidence in aneconomy. Foreign investors would not be willing to commit capital freely in a countrywhere they are not sure of the transparency of the system. The enactment of acompetition law assures to international investors that the market is a true marketeconomy and that participants in the economy, local and foreign, would be equallyguided by rules which condition the behaviour of firms in the marketplace. A goodcompetition policy, along with a sound competition law, should help in fosteringcompetition, economic efficiency, consumer welfare and freedom of trade, which shouldequip the Government in meeting the challenges of globalization by increasingcompetition in local and national markets.The economy of the 21st century is global, but laws to ensure markets are competitive arenational. India has responded to the current world wide trend of globalization by openingup its economy, removing controls and resorting to liberalization. Thus, it was felt thatthe Indian market should be geared to face competition from within the country andoutside. It was also felt that the existing Monopolies and Restrictive Trade Practices Act,1969 has become obsolete in certain respects in the light of international economicdevelopments relating more particularly to competition laws and there is a need to shiftour focus from curbing monopolies to promoting competition. The Governmentappointed the Committee in October 1999 for shifting the approach from curbingmonopolies to promoting competition in line with the international environment. TheCommittee recommended the enactment of Competition Act Hence the Governmentdecided to enact a new law for bringing competition in the Indian market. TheCompetition Act was enacted in 2002 keeping in view the economic development thatresulted in opening up of the Indian economy, removal of controls and consequenteconomic liberalization which required that the Indian economy be enabled to allow competition in the market from within the

country and outside. It was enacted to preventpractices having adverse effect on competition, to promote and sustain competition inmarkets, to protect the interests of consumers and to ensure freedom of trade carried onby other participants in markets in India Competition its relevance to developing countries.Competition law is a set of rules, disciplines and judicial decisions maintained bygovernments relating either to agreements between firms that restrict competition or tothe concentration or abuse of market power on the part of private firms. Vigorouscompetition between firms is the lifeblood of strong and effective markets.Competitionhelps consumers get a good deal. It encourages firms to innovate by reducing slack,putting downward pressure on costs and providing incentives for the efficientorganisation of production. The Competition Act, 2002

This act was introduced Keeping in view of the economic development of the country, For the establishment of a commission to prevent practices having adverse effecton competition, To promote and sustain competition in markets, To protect the interests of consumers and To ensure freedom of trade carried on by other participants in markets in India. This act is extends to the whole of India except the state of Jammu and Kashmir. THE FRAMEWORK OF THE COMPETITION BILL IN INDIA:The preamble of the Competition bill states that it is a law to foster and maintaincompetition in the Indian Market to serve consumer interest while protecting thefreedom of economic action of various market participants and to preventpractices which affect competition, and to establish a commission therefore.This law replaces the age-old MRTP act. The MRTP act had two parts, one, therestriction of monopoly, and the other the curtailing of restrictive trade practices.While the restriction of monopoly implied that no firm could expand beyond acertain limit of investments, and artificial efforts at raising prices or restrictingsupply in a market in such a way so as to get a price above the one that marketwould be prepared to pay under normal circumstances. Thus the emphasis of competition bill is more on consumer freedom and freedom of economicactivities rather than control and elimination of monopolies the different chaptersdeal with the length and breadth of this law. The rubric of the new law,

Competition Act, 2002 has essentially four compartments: Anti -Competition Agreements Abuse of Dominance Combinations Regulation Competition Advocacy

Anti -Competition Agreements Firms enter into agreements, which may have the potential of restricting competition. Ascan of the competition laws in the world will show that they make a distinction betweenhorizontal and vertical agreements between firms. The former, namely thehorizontal agreements are those among competitors and the latter, namely the verticalagreements are those relating to an actual or potential relationship of purchasing or selling to each other. A particularly pernicious type of horizontal agreements is thecartel. Vertical agreements are pernicious, if they are between firms in a position of dominance. Most competition laws view vertical agreements generally more lenientlythan horizontal agreements, as horizontal agreements are more likely to reducecompetition than agreements between firms in a purchaser seller relationship.The key aspect in the implementation of the provision of this section is the identificationof situation involving adverse effect on competition. The Act has identified the followingtypes of agreements that are likely to cause adverse effect on competition: Determining sale price or purchase price directly or indirectly Limiting or controlling production, supply, markets, technical development or investment Sharing markets or sources of supply by territory, type, size or in any other manner Bid rigging or collusive bidding Tie-in arrangement Exclusive supply agreement Exclusive distribution agreement Refusal to deal

Resale price maintenance

HORIZONTAL AGREEMENTS : Agreements between two or more enterprises that are at the same stage of the productionchain and in the same market constitute the horizontal variety. An obvious example thatcomes to mind is an agreement between enterprises dealing in the same product or products. But the market for the products is critical to the question, if the agreementtrenches the law. The Act has taken care to define the relevant market. To attract theprovision of law, the products must be substitutes. If parties to the agreement are producers or retailers, they will be deemed to be at the same stage of the productionchain.A specific goal of competition law is and needs to be the prevention of economic agentsfrom distorting the competitive process either through agreements with other companiesor through unilateral actions designed to exclude actual or potential competitors. It needsto control agreements among competing enterprises on prices or other important aspectsof their competitive interaction.The following four types of agreements between enterprises, involved in the same or similar manufacturing or trading of goods or provision of services have an appreciableadverse effect on competition : Agreements regarding prices. These include all agreements that directly or indirectlyfix the purchase or sale price. Agreements regarding quantities. These include agreements aimed at limiting or controlling production, supply, markets, technical development, investment or provision of services. Agreements regarding bids (collusive bidding or bid rigging). These include tenderssubmitted as a result of any joint activity or agreement. Agreements regarding market sharing. These include agreements for sharing of markets or sources of production or provision of services by way of allocation of geographical area of market or type of goods or services or number of customers inthe market or any other similar way.Such horizontal agreements, which include membership of cartels, are presumed to leadto unreasonable restrictions of competition and are therefore presumed to have anappreciable adverse effect on competition.

VERTICAL AGREEMENTS: Vertical agreements between firms at different levels of the manufacturing or distributionprocesses which are likely to harm competition. However it is less likely to less harmfulthan horizontal agreements.

EXCEPTIONS The provisions relating to anti-competition agreements will not restrict the right of anyperson to restrain any infringement of intellectual property rights or to impose such reasonable conditions as may be necessary for the purposes of protecting any of his rightswhich have been or may be conferred upon him under the following intellectual propertyright statutes; The Copyright Act, 1957; The Patents Act, 1970; The Trade and Merchandise Marks Act, 1958 or the Trade Marks Act, 1999; The Geographical Indications of Goods (Registration and Protection) Act, 1999; The Designs Act, 2000; The Semi-conductor Integrated Circuits Layout-Design Act, 2000.The rationale for this exception is that the bundle of rights that are subsumed inintellectual property rights should not be disturbed in the interests of creativity andintellectual/innovative power of the human mind. No doubt, this bundle of rights essaysan anti-competition character, even bordering on monopoly power. But withoutprotecting such rights, there will be no incentive for innovation, new technology andenhancement in the quality of products and services. However, it may be noted, that theAct does not permit any unreasonable condition forming a part of protection or exploitation of intellectual property rights. In other words, licensing arrangements likelyto affect adversely the prices, quantities, quality or varieties of goods and services willfall within the contours of competition law as long as they are not in reasonablejuxtaposition with the bundle of rights that go with intellectual property rights.Yet another exception to the applicability of the provisions relating to anti-competitionagreements is the right of any person to export goods from India, to the extent to which,an agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export. In a manner of speaking, export cartels areoutside the purview of competition law. In most jurisdictions, export cartels are exemptedfrom the application of competition law. A justification for this exemption is that mostcountries do not desire any shackles on their export effort in the interest of balance of trade and/or balance of payments. Holistically, however, exemption of export cartels isagainst the concept of free competition.The Central Government has power under the Act to exempt from the application of theAct, or any provision thereof, a class of enterprises, a practice, an agreement etc

ABUSE OF DOMINANCE "Dominant Position has been appropriately defined in the Act in terms of the positionof 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 . This definitionmay perhaps appear to be somewhat ambiguous and to be capable of differentinterpretations by different judicial authorities. But then, this ambiguity has a justificationhaving regard to the fact that even a firm with a low market share of just 20% with theremaining 80% diffusedly held by a large number of competitors may be in a position toabuse its dominance, while a firm with say 60% market share with the remaining 40%held by a competitor may not be in a position to abuse its dominance because of the keyrivalry in the market. Specifying a threshold or an arithmetical figure for definingdominance may either allow real offenders to escape (like in the first example above) or result in unnecessary litigation (like in the second example above). Hence, in a dynamicchanging economic environment, a static arithmetical figure to define dominance may,perhaps, be an aberration. With this suggested broad definition, the Regulatory Authoritywill have the freedom to fix errant undertakings and encourage competitive marketpractices, even if there is a large player around. Abuse of dominance is key for the Act, inso far as dominant enterprises are concerned. It is important to note that the Act has been designed in such a way that its provisions onthis count only take effect, if dominance is clearly established. As already stated, there isno single objective market share criterion that can be blindly used as a test of dominance.The Act seeks to ensure that only when dominance is clearly established, can abuse of dominance be alleged. Any ambiguity on this count could endanger large efficient firms.Thus an abuse of dominant position is said to occur, when an enterprise: Directly or indirectly imposes unfair or discriminatory purchase of selling priceson condition, including predatory prices; Limits production, markets or technical development to the prejudice of consumers; Indulges in action resulting in denial of market access; Makes the conclusion of contracts subject to acceptance by other parties; Uses dominance in one market to move into or protect other markets.

PRODUCT MARKET & GEOGRAPHICAL MARKET

Before assessing whether an undertaking is dominant, it is important, as in the case of horizontal agreements, to determine what the relevant market is. There are twodimensions to this the product market and the geographical market . On the demandside, the relevant product market includes all such substitutes that the consumer would