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Competitive

environment
 Efficiency of economy depends upon
competitiveness of market…
 Degree of competition depends upon
the number of firms in the market &
distribution of market share between
them..
 Barriers, government interventions,
immobility of factors of production,
dominance of public sector firms
tend to decrease degree of
competition & increase the market
imperfections..
 India is also moving towards
competitive environment!
Factors contributing to competitive
environment in India..
 Public sector disinvestment &
privatization
 Opening up of new sectors to private
enterprises
 De licensing
 De reservation of SSI items
 Liberalization of FDI
Benefits of competitive markets..
 Growth of entrepreneurial culture
leading to increase in number of
producers & sellers in the market.
 Increase in investment & capital
formation leading to increase in
supply capabilities.
 Sustained R&D efforts
 Reduction in wastage
 Customer focus
Benefits of competitive markets..
 Increased foreign market entry
 International trade & investment
 Better resource utilization
 Wider range of goods & services
 Competition between the firms of
unequal strength can really be self
destructive…
Negative effects of competition..
 Information asymmetries
 Unethical collusions
 Hostile takeovers
 Transfer pricing
 Strategic market alliances
 Differentiated pricing
 Interlocking directorates
 So there comes the need to regulate
competition!!!
MRTP Act-1969
 Objectives:
-To prevent concentration of
economic power in few hands
-To control monopolies
-To prohibit monopolistic &
restrictive trade practices
 MRTP act replaced by competition act
2002..
Major flaws in MRTP Act..
 MRTP Act failed to recognize
following anti competitive practices:
-collusions
-bid rigging
-predatory pricing
-full-line forcing
New competition policy 2002
 A set of government measures aimed
at stimulating competition,
encouraging growth, preventing
monopolistic & restrictive trade
practices and promoting efficiency
Objectives of competition policy in
India
 Promotion & sustenance of
competition in markets to increase
economic efficiency
 Protection of consumers’ interest
 Ensuring freedom of trade
Features of competition Policy
2002
 Anti-competitive agreements
 Prohibition of abuse of dominant
position
 Regulation of combinations
 Competition fund
 Competition commission of India-
the apex body
Features of a good Competition
Policy
 Capable of controlling the misuse of
the market power of dominant firms.
 Should be able to identify anti-
competitive effects of mergers &
acquisitions
 Should be able to check barriers
 Capable to identify & monitor
collusions
Features of a good Competition
Policy
 Capable to protect anti-competitive
agreements
 Provide wider choice to consumers
 Must provide protection to SSI’s of
national importance
 Should apply to all the major
segments