Competition Law : Importance and Assessments

Competition : Why & for Whom

Efficiency Innovation Consumer welfare choices, lower prices, better quality Conducive to economic and political democracy Apprehension of market failure has prompted 100 countries to enact modern competition laws

Competition : Why & for Whom

All these benefits are lost if Competition is UNFAIR or NON-EXISTANT

Choice of CARS in the olden days MTNL Monopoly : The position today Airlines : INDIAN AIRLINES : JET : SAHARA Mobiles : Price Wars Indian Railways : The monopoly continues.

Competition Law

Main features of Competition Act

Prohibits Anti-Competitive Agreements Prohibits Abuse of Dominant Position Provides for Regulation of Combinations

Mandates Competition Advocacy

Anti Competitive Agreements

Horizontal Agreements including cartels, e.g., price fixing, limiting production, sharing markets, bid-rigging Vertical Agreements e.g., tie-in, exclusive supply/ distribution, refusal to deal Cartel regarded most pernicious violation heavy penalties - criminal offence

Abuse of dominance

Not dominance, but abuse is illegal Dominance based, not on arithmetical formula, but on economic factors listed in Acts Abuse includes : discriminatory pricing, limiting production, denying access Examples : Microsoft

Types of anti-Competitive Agreement

Anti-competitive agreements which fall foul of competition law which are per se offences includes price fixing; fixing of output by cartel; collusive tendering; and market sharing

Unlawful Monopolization

Unlawful monopolization is an offence under competition law and consists of the following two elements namely:(a) possession of market power in the relevant market; and (b) the willful acquisition or maintenance of that power, as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.

Market power

Market power has been defined as the power to control prices or exclude competition, market share is the most important factor in measuring market power, with shares exceeding 70 percent usually considered sufficient for a finding of market power, and shares of less than 40 percent generally insufficient.

State of Competition in India

Competition in Different Segments of Markets Competition in Different Sectors of the Economy Competition in Different Markets Competition in Different Products

Background

Market-oriented economic reforms undertaken to stimulate competition and efficiency Competition Commission of India and Sector Regulators established to ensure competitive outcomes

Govt of India making competition a serious policy issue

State of Competition in India ???

Some Basic Concepts

Competition and its benefits Competition vs. Competitiveness

Distinct concepts

Competition and Regulation

Two sides of the same coin

Competition Policy vis-a-vis Competition Law

Trade Policy Industrial Policy Disinvestment Policy FDI Policy Fiscal Policy IPR Policy Labour Policy others

Competition Policy

All Government Policies that affect the functioning of markets Competition Law
Competition Policy a broad concept that seeks to harmonise all government policies

Competition in Competitive Sectors: Agriculture Markets

Markets less competitive where agro-commercials firms deal with consumers and producers Huge gap between prices consumers pay and prices farmers actually receive Intermediaries do not always behave in a competitive manner Agricultural markets brought under Agricultural Produce Market Regulation Act to safeguard interest of producers and raise standard of local markets But, Regulated markets still not competitive

Competition in Competitive Sectors: Agriculture Markets

Evidence of collusion in purchase of basmati paddy/rice from producers (Panipat, Haryana) Grants marketing monopoly to state

Restricts farmer from entering into direct contract

Model Act prepared by Central Government

Allows for contract farming, direct marketing, establishment of agricultural markets in private and cooperative sectors

Alternative marketing avenues through cooperative marketing agencies, government agencies provide better prices to farmers

Competition in Competitive Sectors: Manufacturing

Post-reforms, market certain industries

concentration

increased

in

Emergence of one or two dominant firms Polyester Staple Fibre (Reliance: 54%, worlds 5th largest producer of PSF) Viscose Staple Fibre (Grasim: 91%, worlds largest plant for producing VSF) Storage Batteries (Exide Batteries: 62%) Complaints of excessive pricing (e.g. Indian Cotton Mills Federation, in case of Reliance in PSF) Impact analysis required to assess market behaviour

Competition in Competitive Sectors: Cement

Market fragmented; few players dominate each of the fragmented market Cement industry known to be prone to cartelisation worldwide Accused of price rigging in the past; MRTPC initiated inquiry; Builders Association of India boycott targeting Grasim and GACL Government (major consumer with 30% consumption) Bid Rigging? Bid offers can give important clues

Is there patterns of systematic rotation of winning bids? Is the share of companies in overall procurement stable?

Competition in Competitive Sectors: Steel

Highly heterogeneous and fragmented industry

Hot Rolled Coils: Single largest steel product traded Allegations of differential pricing between intermediate and end product Allegations of cartelisation Regulatory Authority?

Instead required enabling government policies and active role by competition agency

Competition in Competitive Sectors: Pharmaceuticals

Consumption patterns not affected by prices; Doctors and pharmacists decision makers Collusive behaviour of pharmacies Central Government making efforts to curb trade margins NCMP promises to "take all steps to ensure availability of life-saving drugs at reasonable prices" Supreme Court order in K.S. Gopinath case, March 10, 2003, directing government to ensure that essential and life-saving drugs do not fall out of price control" Regulatory regime - hard on manufacturers but soft on doctors and pharmacists

Competition in New Economy Areas: Information Technology

India still to emerge as major user of ICT Hardware segment:

Strong competition between Indian brands, foreign firms, and non-branded sector Microsoft operating system controls over 90 percent of desktop software market Lack of competition sets limits on development of application software based on this operating system

Software segment:

Open source software can make software segment competitive Enabling Government policy to promote use of open source software, particularly in e-governance projects

Competition in Regulated Sectors: Energy

Market structure for coal production and distribution completely dominated by State owned entities

Distribution of coal government agencies

managed

or

mediated

through

Petroleum products: Lack of transparency in pricing Power sector, poor regulatory environment due to governments continuous interference

intra-state transmission and distribution still a monopoly

Government still dominates most of primary as well as secondary energy sectors

Competition in Regulated Sectors: Transportation

Freight Transport Seaports

Intra-port and inter-port competition, not adequate Port Trusts as owners and service providers, possibility of discrimination against competing service providers TAMP not given adequate mandate Requires neutral regulatory regime to ensure access to essential facilities

Container movement by rail

Cartelisation of cargo operators; cartelised operation of truckers union

Competition in Regulated Sectors: Transportation

Passenger Transport State-owned transport corporations given monopoly on profitable routes, particularly inter-state

Volvo fare: Rs.250 for Delhi-Vijaywada (intra-state; distance 276 kms and route served by private operators also) Volvo fare: Rs.450 Delhi-Jaipur (inter-state; distance 252 kms and exclusively reserved for state transport corporation)

Route dispersal guidelines in civil aviation discriminates against state-owned carrier; Public sector airlines subject to procedural bottlenecks Transport sector remains inefficient due to policies that inhibit competition and their poor regulation

Competition in Regulated Sectors: Telecommunication

Significant private sector participation after liberalisation and establishment of a regulatory body Substantial growth and dramatic expansion in range of services available, as well as fall in tariffs Interconnection in telecom still unresolved Access Deficit Charge to BSNL: lack of transparency BSNL cross-subsidising competitive ISP business with the less competitive dialup business Intervention in regulatory functioning

Central Government Policies and Competition

Thrust of reforms to allow for more competition and for the government to play the role of a facilitator rather than the controller of economic activity

Several policies and practices of the government distort the market process and competition
Examples emerging from sectoral slides Trade Policy: anti-competitive dimension exists (e.g. antidumping measures, inverted duty structures) Labour Policy: exit difficult; inspection regime constitutes a significant barrier to entry and operations

Central Government Policies and Competition

Government Procurement

Purchase preference to public enterprises Procurement rules result in anti-competitive outcomes (e.g. procurement of concrete sleepers by Railways) Intervention in pricing of commodities (foodgrains, coal, oil)

Price Regulation

Rules and Regulations

Clearances required for setting up business and time involved Essential Commodities Act: discretionary power to officials and leads to excessive control and intervention

Conclusions

Generally, policies framed and implemented without acknowledging the market process Government should evolve a system of competition audit Government policies should have an explicit statement about the likely impact on competition Adopt a National Competition Policy to provide guidelines at all levels of government in maintaining appropriate competition dimension