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Seshan Radha

Common property resources


(CPRs):
Common property resources (CPRs): Resources accessible to
and collectively owned\held\managed by an identifiable
community and on which no individual has exclusive
property rights are called common property resources.
Accessibility to a resource is determined either by legal status

or by convention. If the community has a legal right of


ownership or possession on the resource, it is clearly accessible
to the community. Besides such legal rights, resources for
which customarily accepted user rights exist are also treated as
accessible to the community.

Contd
The term Collectively owned or held presumes a legal status.

Thus, a resource collectively owned or formally held (by legal


sanction or official assignment) by a community is considered
to be a common property resource.
A resource nominally held by a community is treated as
collectively managed only when the groups of people who
have the right to its use are governed by a commonly accepted
set of rules -- in most cases unwritten.

Contd
Identifiable community: This means that co-users of the

resources are a well-defined group of persons. For


instance, all inhabitants of a village form an identifiable
community. A large census village usually comprises a
number of distinct settlements. The residents of one or
more such settlements, constituting only a part of the
villages population, can also form a community. Apart
from these, a community may be a caste-based or religionbased or occupation-based group of people or a group
constituted according to the traditional social order.

Introduction
In the pre-reform era various restraints to competition

existed
Investment constraints commonly known as Licence Raj
Control over acquisition of economic power through
Monopolies and Restrictive Trade Practices
Public sector reservation for infrastructure and other
critical industries-State Monopolies
Product reservation for small scale sector
Trade restrictions- Protection measures through tariffs and
quotas
Restrictions on the FDI

Contd
Creation of the WTO changed the rules of the game in

the leveling of the global economic development


Holistic approach combining
Market access
Subsidies
Exchange rate
Tariff and non tariff measures
Product reservation
Technological development and the like

Contd
Rule of reason approach in the place of market share

approach
Market power strategies like trade barriers, sunk
costs, technology, product life cycles rate of growth of
demand and the like
Stitching of trade policy and the competition policy
Inter country trade disputes
Avoidance of dominance dependence
Building up of nations powers and the like
Movement from protection to promotion

Economic Benefits of Competition Law

Competition in the market benefits all the participants.


Competition enables consumer surplus to the consumers
profit maximisation to the producer/seller
and revenue to the state leading to the overall growth and
stability of the economy.
To the Consumers
competitive prices
new and innovative products
Diversification of demand and enhancement of consumer
satisfaction with multiple varieties of products available in
the market
Changing lifestyle of the people to move towards higher
levels of satisfaction

Contd...
To the Producer
the consumer of raw material and energy resources;

telecommunication services; the computer technology;


infrastructure requirements for manufacturing and storing.
positive impact on efficiency and productivity in the pursuit
of getting competitive advantage.
Innovation is possible with technology based production
High standard in the quality of the products
Benefits of economies of scale.

Contd...
To the economy
Fosters restructuring of the sectors of the economy
Decision making based on market factors, such as demand,

product use, costs, technologies and the like


Generation of capital requirements
Interlinking of the various economic activities in the
country from production to distribution, to final
consumption.
In short the micro economic behaviour of producer surplus
and consumer surplus lead to creation and sustenance of
aggregate demand and aggregate supply essential for
growth with stability of the economy.

Concepts of Demand and Supply

Demand and Supply are the two pillars of market and all

the theorising of economics are built up on them. From


Micro economic analysis of simple demand and supply to
the Keynesian aggregate demand and aggregate supply,
economic theorising has enlightened the audience, of the
discipline of economics.

Demand
Demand is the rate at which the consumers buy a product.
Demand consists of two factors-taste and ability to buy.
Taste is the desire for good, which determines the willingness to

buy the good at a specific price.


Ability to buy is determined by money at hand.
Both factors of demand depend on the market price. Demand is

generally at a price and popularly understood as the Price


Elasticity of Demand.
It is presumed that all the other factors such as taste of the
consumer, income of the consumer, availability of substitutes,
price of the substitutes and the like remain constant, when only
the price and the quantity demanded are compared.

The Determinants of Demand are


Income
Prices of substitutes
Prices of complements
Advertising
Population
Consumer expectations

The Demand Function


An equation representing the demand curve

Qxd = f(Px , PY , M, H,)


Qxd = quantity demand of good X.
Px = price of good X.
PY = price of a substitute good Y.
M = income.
H = any other variable affecting demand

Consumer Surplus
Consumer Surplus

measures the benefit to buyers


participating in a market.
It is measured as the amount a buyer is willing to pay for a
good minus the amount a buyer actually pays for it.
For an individual purchaser, consumer surplus is the
difference between the willingness to pay, as shown on the
demand curve, and the market price.

Producer Surplus
Producer surplus measures the benefit to sellers of

participating in a market. Producer surplus is measured as


the difference between the market price and the cost of
production, as shown on the supply curve. For the market,
total producer surplus is measured as the area above the
supply curve and below the market price, between the
origin and the quantity sold.

Supply

Supply is defined as a situation in which the producer is

willing to supply a good at a given price.


At a higher price more of the good will be available to the
buyers.
At a higher price there is more incentive to increase the
production of a good.

Factors that bring about upward shift in


the Supply are
Input prices
Technology or government regulations
Number of firms
Substitutes in production
Taxes
Producers expectations

The Supply Function

Supply function
An equation representing the supply curve:

QxS = f(Px , PR ,W, H,)


QxS = quantity supplied of good X.
Px = price of good X.
PR = price of a related good

W = price of inputs (e.g., wages)


H = other variable affecting supply

Market Equilibrium

Contd...
Market Equilibrium
Balancing supply and demand
Qx S = Qx d

Price Restrictions
Price Ceilings
The maximum legal price that can be charged

Price Floors
The minimum legal price that can be charged.
Examples:

Minimum wage
Agricultural price supports

Contd...
A market for antitrust purposes is that any product or

group of products and any geographic area in which


collective action by all firms (as through Collusion or
merger) would result in a profit maximizing price that
significantly exceeds the competitive price.

Elasticity of Demand
The law of demand states that as the price of a good falls, the

quantity demanded rises.


The responsiveness or sensitivity of quantity demanded to a
change in price is measured by the Price Elasticity of Demand.
Price Elasticity of Demand is defined as, the Ratio of the
percentage change in quantity demanded of a product or
resource, to the percentage change in its price.
Ed = % Change in Q demanded of product X to % Change in

Price of product X

Degree of Elasticity
Elastic Demand demand is elastic if its price elasticity is

greater than 1. (resulting percentage change in quantity


demanded is greater than the percentage change in price)
Inelastic Demand demand is inelastic if its price elasticity
is less than 1. (resulting percentage change in quantity
demanded is less than the percentage change in price)
Unit Elasticity The elasticity coefficient of demand or
supply is equal to 1. (percentage change in quantity is
equal to percentage change in price)
Perfectly Inelastic Demand Quantity demanded does not
respond to a change in price.
Perfectly Elastic Demand Quantity demanded will go
from 0 to infinity at a particular product price.

Contd...

Determinants of Price Elasticity of Demand


1. Substitutability the greater the number of substitute goods

available, greater is the price elasticity of demand Eg.- there is no good


substitute for insulin, and demand is relatively inelastic; for Lays chips
demand is relatively elastic.
2. Luxury elastic demand Eg. Any Television Model
Necessities inelastic demand Eg. rice
3. Income Higher the price of a good relative to the onsumers
income, greater is the price elasticity of demand. Eg. Price of Television
4. Time demand is more elastic when the period is longer. Eg. if the
price of a Coca Cola goes up, the consumer may not switch to Pepsi at
first, but the more time one has to pay the higher price, the more he will
try Pepsi and determine whether Pepsi or other substitute products are
preferred to Coca Cola.

Income Elasticity of Demand


Income Elasticity of Demand
Income Elasticity of Demand is the degree to which the

consumer demand responds to a change in income. The


ratio of the percentage change in the quantity demanded of
a good to a percentage change in the consumer income is
the Income Elasticity of Demand.
Ei = Percentage change in quantity demanded of a good
to the Percentage change in income
A positive coefficient indicates that the good is a normal
good. A negative coefficient indicates that the good is an
informal good

Cross Elasticity of Demand


Cross Elasticity of Demand measures how sensitive the

consumer demand for one product to the change in the


price of the related substitute. The ratio of the percentage
change in quantity demanded of a good to the percentage
change in the price of the substitute.
Exy = Percentage change in the quantity demanded of
good X to the Percentage change in the price of good Y
Positive coefficient indicates that the two goods are
substitutes. A negative coefficient indicates that the goods
are complements. A zero or near zero coefficients indicate
that the two goods are independent .

S 2 (r) Relevant Market


Market determined by the Competition Commission with reference
to
the relevant product market: a market comprising all those

products or services which are regarded as interchangeable or


substitutable by the consumer due to their characteristics, their
prices and intended use [ s 2(r)]
the relevant geographic market: a market comprising the area in

which the conditions of competition for


supply of goods or provision of services or
demand of goods or services

are distinctly homogenous and can be distinguished from the


conditions prevailing in the neighboring areas [ s 2(s)]
or with reference to both the markets

Demand Side Substitutability


Given how relevant markets are typically defined ---i.e., as

the set of all those substitute or interchangeable products


that provide a significant competitive constraint on the
products of interest--- it should be obvious that market
definition exercises are mainly about analysing demand
substitution constraints.
Demand substitutability refers to the ability of consumers
to switch from one product to another in response, inter
alia, to a change in the relative prices of products. It is
obviously the most immediate check on the pricing
decisions of firms. A consumer with access to products that
one regards as substitutes to those sold by a (dominant)
firm can always avoid being abused by switching ones
consumption in response to any attempt to raise prices
.

Supply Side Substitutability


Even if consumers were unable to react immediately to an

increase in price, producers might be able to do so rather


quickly. First, some of them may be endowed with assets
(physical and human) that can be easily adjusted to
produce substitute goods. If these producers were able to
respond to a price increase by switching their production
facilities to produce the substitutable goods or services,
then consumers would be able to avoid abuse.

Contd...
Second, some other firms might consider entering the

market by investing on those assets needed to produce


goods that are regarded as substitutes by consumers. This
de novo entry, however, may help to constrain the
behaviour of the established firms as effectively as demand
substitution only if entry occurs (or it is likely to occur)
promptly.

Contd...
Supply-side substitution and potential entry can be

distinguished along three dimensions.


First, by the length of time that goes from the price rise to
the commencement of supply by the new entrant. Supplyside substitution responds promptly to price increases,
while potential entrants may take longer than a year or so
to commence supplying the market with their products.
Secondly, supply-side substitution involves uncommitted
entry, i.e. Entry at a low cost and without incurring in
irreversible investment. Potential entry or committed
entry refers to entry at a substantial sunk cost.
Thirdly, the competitive constraint imposed by supply-side
substitutes has a clear-cut significant impact on both preentry and post-entry prices.

Contd...
Potential entry comes via lower post-entry prices only.

When entry involves incurring in sizeable sunk costs,


entrants do not decide whether to join the market on the
basis of current prices but, instead, they focus on the price
level that would prevail in the market once entry occurs,
which obviously depends on the credibility of retaliation by
incumbents and, thus, it ultimately hinges on whether the
fundamental/primitive characteristics of the market are
likely to support high post-entry prices or not.

Contd...
This observation should lead to broader market definitions.

In principle, supply-side considerations could be taken into


account for the purposes of merger analysis at three stages:
(i) in the definition of the relevant product (or geographic)
market,
(ii) as part of the identification of market players, once the
relevant market has been defined but prior to the
calculation of market shares, and
(iii) in the assessment of entry, once market shares have
been derived.

Application in antitrust analysis


Both demand-side and supply-side forces may constrain the

price that a firm can profitably sustain. On the demand


side, the constraint comes from the degree to which
consumers would reduce their purchases of the product or
products at issue in response to a price increase. On the
supply side, the constraint comes from the degree to which
other firms would initiate or increase production or
distribution of the product(s) in response to a price
increase. Performed correctly, both approaches generally
lead to the same conclusion about whether a firm possesses
monopoly power as long as they are performed correctly.

Concept of Welfare
Consumer Welfare
Consumer Welfare is defined as the maximisation of consumer surplus
This is realised through, direct and explicit economic benefits received by

the consumers of a particular product as measured by its price and


quality.
The consumer welfare model argues that the ultimate goal of competition
law is to prevent increase in consumer prices, restriction of output or
deterioration of quality due to the exercise of market power by dominant
firms.
The term consumer welfare has several interpretations. It is sometimes
used to refer to economic efficiency or a certain consumer interest.
Depending on its exact content, the consumer welfare standard can lead to
different policy decisions in competition law enforcement.
This is most explicit in merger cases.

Contd...
Social Welfare(Total Welfare)
The welfare of the society is the summation of the utility

maximisation of all the individuals in the society. It is not


the greatest happiness of the greatest numbers or the
majority rule, but everyone in the society is able to
maximise the utility from their consumer behaviour.
That the market and the state provide to the individuals a
quality life for their sustenance.
In welfare economics social welfare is theoretically reached
through various approaches, but the complexity of human
behaviour does not enable, to reach a single welfare
situation due to the differences in value judgements and
inter personal comparison of utility.

Contd...
Competition policy generally has as its aim to increase the overall

material welfare of society through maintaining rivalry among firms.


The ultimate goal is to increase overall economic efficiency while
providing consumers with a fair share of this total wealth. While
societys total welfare is usually the ultimate goal of competition policy
it is rarely its exclusive goal.
Three approaches are possible. First, competition policy may ignore
consumer interests and focus solely on total welfare and economic
efficiency. Second, it may recognise the immediate and short-term
interests of consumers as the primary aim of competition policy. Third,
competition policy might recognise consumer welfare as an essential
long-term goal where the immediate interests of consumers are
subordinated to the economic welfare of the society as a whole.

Total surplus
Total surplus is the sum of consumer and producer surplus. This

calculation demonstrates the total profit to the economy from a


producer to consumer exchange. Economists use this computation
as a reference point to measure the consequences of government
policies, such as taxation, on the market as well as a means to
measure market efficiency. An efficient transaction is one in which
total surplus is maximized.
Consumer Surplus = Willingness to Pay Price - Actual Purchase
Price
Producer Surplus = Actual Selling Price - Economic Cost
To measure total economic welfare, we can add the consumer
surplus to the producer surplus to arrive at the total surplus.
Total Surplus = Consumer Surplus + Producer Surplus

Dead weight loss


In economics, a deadweight loss (also known as excess

burden or allocative inefficiency) is a loss of economic


efficiency occur when equilibrium for a good or service is
not optimal. In other words, either people who would have
more marginal benefit than marginal cost are not buying
the product, or people who have more marginal cost than
marginal benefit are buying the product.
Causes of deadweight loss can include monopoly pricing (in
the case of artificial scarcity), externalities, taxes or
subsidies, and binding price ceilings or floors. The term
deadweight loss may also be referred to as the "excess
burden" of monopoly or taxation.

Definitions
Welfare Definition
Scarcity Definition
Competition and Cost-Price relationships
Consumer Behaviour
Producers Behaviour
Market-Different types

Market Strategy and Market Power


Competition

Competition-Market relationship
Competition as an ordering force dominated the classical

economics. The classical concept of competition as a


guiding force is different from that of the neoclassical
concept of competition as a state of affairs and the two
are incompatible in a fundamental sense, reflecting
precisely the difference between a condition of equilibrium
and the behavioral pattern leading to it.
Competition as opposed to monopoly, is a "force" equating
prices and marginal costs and assures allocative efficiency
in the use of resources. It gravitates resources toward their
most productive uses, and, the price is "forced" to the
lowest level sustainable in the long run.

Contd...
When Adam Smith spoke of competition, it was in

connection with the forcing of market price to its "natural"


level or to the lowering of profits to a minimum. The idea
of division of labor and the associated productive efficiency
in the contemporary business firm was failed to be related
to competition, by Smith. Competition was viewed as a
price-determining force operating in, but not itself
identified as, a market.

MARKET STRATEGY
In relation to:
Content specific relationships, offerings, timing and the

pattern of resource development for competitive advantage


Formulation process how the strategy is arrived at
through market opportunity analysis; competitor analysis
and decision making
Implementation how the strategy is carried out with
organisation structure, co-ordination mechanisms and
control systems
Corporate strategy, business strategy and functional
strategies such as marketing strategy interact to shape the
competitive advantage of individual business

Theories in Marketing Strategy


GAME THEORY understanding the rivals and use strategies
SIGNALING preview of potential actions of the firms intended to

convey information or gain information from competitors. Signaling


interpreted as predatory behaviour
INNOVATION the business environment is inherently dynamic and

therefore characterised by uncertainty and disequilibrium -innovation


and discovery lead to profit maximisation and differential advantage
PRODUCT QUALITY

Contd
MARKET SHARE-market power
The quality explanation
The market power explanation
The efficiency explanation
MARKET PIONEERING first mover advantage
The economic-analytical perspective
The behavioral perspective (consumer preference formation0
MARKET ORIENTATION-creating/developing market power
pertaining to current and future customer needs/dissemiation of
the intelligence across departments

Market Power
Key concern of competition law is with acquisition of

market power i.e. when a firm can profitably raise prices


above marginal cost. A firm that has market power can
raise price without loosing sales.
Conditions necessary to acquire market power
i.e. firms ability to raise price depends on
Availability of substitutes
Number of competitors
Market share
Barriers to entry
Threat of potential competitors
The size of a firms market share

Dominant position : Indian law


Definition :
..means a position of strength, enjoyed by an enterprise, in

the relevant market, in India, which enables it to 9(i) operate


independently of competitive forces prevailing in the relevant market;
or 9(ii) affect its competitors or consumers or the relevant market in its
favour.
Dominant position
ability to profitably increase price independently of competitors/

suppliers/consumers
Determination of dominant position
Many factors are to be considered by the Commission in the

determination of dominance

Factors determine dominance


Market share
Economic power of the enterprise including commercial

advantage over competitors control over source of supply


brand value distribution network -credit sales Vertical
integration of the enterprise or sale or service network of
such enterprise
Dependence of consumers on the enterprise habit inertia
-inelastic demand

Contd
Dominance created by statute or government authority

sole licensee/concession public sector monopoly - Entry


barriers regulatory barriers high sunk cost technical
entry barriers economies of scale
Market structure - Conduct-Performance model - Social

obligation and social costs cost benefit analysis - Relative


advantage of the dominant firm to economic development
discretion of CCI residual factors

Relevant market
Dominance must be established in the relevant market
Relevant market has two aspects
- Relevant product market

and
Relevant geographic market
Relevant product market
Relevant product market is the smallest set of close substitutes
Determine substitutability of products
Two aspects:
Demand side substitutability-shift of demand to
competing product on price rise and
Supply side substitutability-shift
of production to meet demand
Factors to be considered while determining relevant product market:
Physical characteristics of product - End-use of product - Price Consumer preference empirical evidence - Classification of industrial
products

Relevant geographic market


Relevant geographic market can be defined as the area in which products are
available at approximately the same price given transport costs and any
increase in demand can be met from neighbouring areas profitably
Relevant geographic market
Factors to be considered: Shipment cost Regulatory trade barriers
octroi/sales tax -Local specification requirements language display - National
procurement policy only local (state-level or national) suppliers permitted Adequate distribution facilities perishable products
Economists tools to establish dominance
the actual test is based on calculation of elasticity -Price correlation analysis
prices of products that are substitutable will move in tandem
Abuse of dominant position
Definition of abuse can be applied to Imposing unfair or discriminatory
conditions on purchase/sale or on price (including predatory price) Limiting
production - Denial of market access - Forcing supplementary obligations -

Using its position in one market to enter another

Competitive Advantage

An

advantage over other competitors


gained by offering consumers greater value
than others. This gives the market based
performance and financial performance to
the business.

Competitive Analysis
The process of identifying key competitors;

assessing their objectives, strategies,


strengths and weaknesses, and reaction
patterns; and selecting which competitors
to attack or avoid.

Competitive Strategies
Basic Winning Competitive
Strategies: Porter
Overall cost leadership

Lowest production and


distribution costs
Differentiation
Creating a highly
differentiated product line
and marketing program
Focus
Effort is focused on serving
a few market segments

Competitive Strategies
Basic Competitive Strategies:
Value Disciplines
Operational excellence

Superior value via price and convenience

Customer intimacy

Superior value by means of building strong


relationships with buyers and satisfying
needs

Product leadership

Superior value via product innovation

Competitive Strategy
Competitive
Positions
Market Leader
Market
Challenger
Market
Follower
Market Nicher

Expanding the total demand


Finding new users
Discovering and promoting

new product uses


Encouraging greater product
usage

Protecting market share


Many considerations
Continuous innovation

Expanding market share


Profitability rises with market

share

Competitive Strategy
Competitive
Positions
Market Leader
Market
Challenger
Market
Follower
Market Nicher

Option 1: challenge the

market leader
High-risk but high-gain
Sustainable competitive

advantage over the leader is


key to success

Option 2: challenge firms of

the same size, smaller size


or challenge regional or
local firms
Full frontal vs. indirect
attacks

Pepsi is an
example of
market
challenger
that has
chosen to use
a full frontal
attack
Pepsi newspaper ad 1919

Competitive Strategy
Competitive
Positions
Market Leader
Market
Challenger
Market
Follower
Market Nicher

Follow the market leader


Focus is on improving
profit instead of market
share
Many advantages:

Learn from the market


leaders experience
Copy or improve on the
leaders offerings
Strong profitability

Competitive Strategy
Competitive
Positions
Market Leader
Market
Challenger
Market
Follower
Market Nicher

Serving market niches

means targeting
subsegments
Good strategy for small
firms with limited
resources
Offers high margins
Specialization is key
By market, customer,

product, or marketing
mix lines

Porters Five Forces

Threat of New Entry


the existence of barriers to entry
economies of product differences
brand equity
switching costs
capital requirements
access to distribution
absolute cost advantages
learning curve advantages
expected retaliation
government policies
18- 64

Competitive Rivalry

number of competitors
rate of industry growth
intermittent industry overcapacity
exit barriers
diversity of competitors
informational complexity and asymmetry
brand equity
fixed cost allocation per value added
level of advertising expense

Supplier Power

supplier switching costs relative to firm switching costs


degree of differentiation of inputs
presence of substitute inputs
supplier concentration to firm concentration ratio
threat of forward integration by suppliers relative to the
threat of backward integration by firms
cost of inputs relative to selling price of the product

Buyer Power

buyer concentration to firm concentration ratio


bargaining leverage
buyer volume
buyer switching costs relative to firm switching costs
buyer information availability
ability to backward integrate
availability of existing substitute products
buyer price sensitivity
price of total purchase

Threat of Substitution

buyer propensity to substitute


relative price performance of substitutes
buyer switching costs
perceived level of product differentiation

Different Market Structures


Perfect Competition

Imperfect or monopolistic Competition


Monopoly
Oligopoly

Oligopoly
Concentration ratios Oligopolies may be identified using concentration ratios, which
measure the proportion of total market share controlled by a given number of firms.
When there is a high concentration ratio in an industry, economists tend to identify the
industry as an oligopoly.
Mergers between oligopolists increase concentration and monopoly power and are likely
to be the subject of regulation.
Oligopolists have to make critical strategic decisions, such as:
Whether to compete with rivals, or collude with them.
Whether to raise or lower price, or keep price constant.
Whether to be the first firm to implement a new strategy, or whether to wait and see what
rivals do. The advantages of going first or going second are respectively called 1st and
2nd-mover advantage. Sometimes it pays to go first because a firm can generate headstart profits. 2nd mover advantage occurs when it pays to wait and see what new
strategies are launched by rivals, and then try to improve on them or find ways to
undermine them.
Barriers to entry
Oligopolies and monopolies frequently maintain their position of dominance in a Market
Might because it is too costly or difficult for potential rivals to enter the market. These
hurdles are called barriers to entry and the incumbent can raise them deliberately, or
they can exploit natural barriers that exist

Contd
Natural entry barriers include:
Economies of large scale production

Ownership or control of a key scarce resource.


High set-up costs.- fixed costs, sunk costs and marketing

costs

High R&D costs - widely found in oligopolistic markets

such as pharmaceuticals and the chemical industry.

Contd...
Artificial barriers include:
Predatory pricing.
Limit pricing means the incumbent firm sets a low price, and a high

output, so that entrants cannot make a profit at that price. This is best
achieved by selling at a price just below the average total costs (ATC)
of potential entrants. This signals to potential entrants that profits are
impossible to make.
Superior knowledge
An incumbent may, over time, have built up a superior level of
knowledge of the market, its customers, and its production costs. This
superior knowledge can deter entrants into the market.
Predatory acquisition
Predatory acquisition involves taking-over a potential rival by
purchasing sufficient shares to gain a controlling interest, or by a
complete buy-out. As with other deliberate barriers, regulators, like
the Competition Commission, may prevent this because it is likely to
reduce competition.

Contd

Advertising
Advertising is another sunk cost
A strong brand
A strong brand creates loyalty, locks in existing customers, and deters entry.
Loyalty schemes
Exclusive contracts, patents and licences
These make entry difficult as they favour existing firms who have won the
contracts or own the licenses. For example, contracts between suppliers and
retailers can exclude other retailers from entering the market.
Vertical integration
Vertical integration can tie up the supply chain and make life tough for
potential entrants, such as an electronics manufacturer like Sony having its
own retail outlets (Sony Centres), and a brewer like Heineken owning its own
chain of UK pubs, which it acquired from the brewers Scottish and Newcastle
in 2008.

Contd
Collusive oligopolies
Another key feature of oligopolistic markets is that firms may attempt to collude, rather
than compete. If colluding, participants act like a monopoly and can enjoy the benefits
of higher profits over the long term.
Types of collusion
Overt
Overt collusion occurs when there is no attempt to hide agreements, such as the when
firms form trade associations like the Association of Petrol Retailers.
Covert
Covert collusion occurs when firms try to hide the results of their collusion, usually to
avoid detection by regulators, such as when fixing prices.
Tacit
Tacit collusion arises when firms act together, called acting in concert, but where there is
no formal or even informal agreement. For example, it may be accepted that a particular
firm is the price leader in an industry, and other firms simply follow the lead of this firm.
All firms may understand this, but no agreement or record exists to prove it. If firms do
collude, and their behaviour can be proven to result in reduced competition, they are
likely to be subject to regulation. In many cases, tacit collusion is difficult or impossible
to prove, though regulators are becoming increasingly sophisticated in developing new
methods of detection.

Contd...
Competitive oligopolies
Oligopolists prefer non-price competition in order to avoid price wars.

A price reduction may achieve strategic benefits, such as gaining


market share, or deterring entry, but the danger is that rivals will
simply reduce their prices in response.
This leads to little or no gain, but can lead to falling revenues and
profits. Hence, beneficial strategy to undertake non-price competition.
Pricing strategies of oligopolies
predatory pricing to force rivals out of the market. This means keeping
price artificially low, and often below the full cost of production.
may also operate a limit-pricing strategy to deter entrants, also
called entry forestalling price.
may collude with rivals and raise price together, but this may attract
new entrants.

Cost-plus pricing
is a straightforward pricing method, where a firm sets a

price by calculating average production costs and then


adding a fixed mark-up to achieve a desired profit level.
Cost-plus pricing is also called rule of thumb pricing.
There are different versions of cost-pus pricing,
including full cost pricing, where all costs - that is, fixed
and variable costs - are calculated, plus a mark up for
profits, and contribution pricing, where only variable costs
are calculated with precision and the mark-up is a
contribution to both fixed costs and profits.
.

Contd
Cost-plus pricing is very useful for firms that produce a number of

different products, or where uncertainty exists. It has been suggested


that cost-plus pricing is common because a precise calculation of
marginal cost and marginal revenue is difficult for many oligopolists.
Hence, it can be regarded as a response to information failure. Costplus pricing is also common in oligopoly markets because it is likely
that the few firms that dominate may often share similar costs, as in the
case of petrol retailers.
However, there is a risk with such a rigid pricing strategy as rivals could
adopt a more flexible discounting strategy to gain market share.
Cost-plus pricing can also be explained through the application
of game theory. If one firm uses cost-plus pricing - perhaps the
dominant firm with the greatest market share - others may follow-suit
so that the strategy becomes a shared one, which acts as a pricing rule.
This takes some of the risk out of pricing decisions, given that all firms
will abide by the rule. This could be considered a form of tacit collusion

Non-price strategies
Non-price competition is the favoured strategy for oligopolists because

price competition can lead to destructive price wars examples


include:
Trying to improve quality and after sales servicing, such as offering
extended guarantees.
Spending on advertising, sponsorship and product placement - also
called hidden advertising is very significant to many oligopolists.
Sales promotion, such as buy-one-get-one-free (BOGOF), is associated
with the large supermarkets, which is a highly oligopolistic market,
dominated by three or four large chains.
Loyalty schemes, which are common in the supermarket sector
Each strategy can be evaluated in terms of:
How successful is it likely to be?
Will rivals be able to copy the strategy?
Will the firms get a 1st - mover advantage?

Price stickiness
The theory of oligopoly suggests that, once a price has been

determined, will stick it at this price. This is largely because


firms cannot pursue independent strategies. For example,
if an airline raises the price of its tickets from London to
New York, rivals will not follow suit and the airline will lose
revenue - the demand curve for the price increase is
relatively elastic. Rivals have no need to follow suit because
it is to their competitive advantage to keep their prices as
they are.
However, if the airline lowers its price, rivals would be
forced to follow suit and drop their prices in response.
Again, the airline will lose sales revenue and market share.
The demand curve is relatively inelastic in this context.

Evaluation of oligopolies
The disadvantages of oligopolies
Oligopolies can be criticised on a number of obvious

grounds, including:
High concentration reduces consumer choice.
Cartel-like behaviour reduces competition and can lead to
higher prices and reduced output.
Firms can be prevented from entering a market because of
deliberate barriers to entry.
There is a potential loss of economic welfare.
Oligopolists may be allocatively and
productively inefficient.

Contd
The advantages of oligopolies
Oligopolies may adopt a highly competitive strategy, in

which case they can generate similar benefits to more


competitive market structures, such as lower prices.
Oligopolists may be dynamically efficient in terms of
innovation and new product and process development.
The super-normal profits they generate may be used for
innovation helping the consumers
Price stability may bring advantages to consumers and the
macro-economy

Monopoly
Under competitive conditions, investment will, where the

dominant firms generally seek to slow down and carefully


regulate the expansion of output and investment so as to
maintain high prices and profit marginsand have
considerable power to do so.
monopoly can be a strong force contributing to economic
stagnation, everything else being equal. With the United
States and most of the world economy (notwithstanding
the economic rise of Asia) stuck in an era of secular
stagnation and crisis unlike anything seen since the
1930swhile U.S. corporations are sitting on around $2
trillion in cashthe issue of monopoly power naturally
returns to the surface

Contd...
When we use the term monopoly, we do not use it in

the very restrictive sense to refer to a market with a


single seller. Monopoly in this sense is practically
nonexistent. Instead, we employ it as it has often been
used in economics to refer to firms with sufficient
market power to influence the price, output, and
investment of an industrythus exercising monopoly
powerand to limit new competitors entering the
industry, even if there are high profits.

Contd...
These firms generally operate in oligopolistic markets,

where a handful of firms dominate production and can


determine the price for the product.
As Paul Sweezy put it, the typical production unit in
modern developed capitalism is a giant corporation,
which, in addition to dominating particular industries, is a
conglomerate (operating in many industries) and multinational (operating in many countries).

Contd
By the Reagan era, the giant corporation at the apex of the

economic system wielding considerable monopoly power over


price, output, investment, and employment had fallen out of the
economic picture. John Kenneth Galbraith noted in 2004 in The
Economics of Innocent Fraud: The phrase monopoly capitalism,
once in common use, has been dropped from the academic and
political lexicon.

For the neoliberal ideologues of today, there is only one issue:

state versus market. Economic power (along with inequality) is


no longer deemed relevant. Monopoly power, not to mention
monopoly capital, is nonexistent or unimportant. Some on the
left would in large part agree.

Contd...
what we have been witnessing in the last quarter

century is the evolution of monopoly capital into a


more generalized and globalized system of monopolyfinance capital that lies at the core of the current
economic system in the advanced capitalist
economiesa key source of economic instability, and
the basis of the current new imperialism.

The Real World Trend: Growth of


Monopoly Power
The desirability of monopoly, from the perspective of a capitalist, is

self-evident: it lowers risk and increases profits. Once a firm achieves


economic concentration and monopoly power, it is maintained
through barriers to entry that make it prohibitively costly and risky for
would-be competitors successfully to invade an oligopolistic or
monopolistic industrythough such barriers to entry remain relative
rather than absolute. Creating and maintaining barriers to entry is
essential work for any corporation.
Monopoly, in this sense, is the logical result of competition, and
should be expected. It is in the DNA of capitalism. For Karl Marx,
capital tended to grow ever larger in a single hand, partly as a result of a
straightforward process of concentration of capital (accumulation
proper), and even more as a result of the centralization of capital, or
the absorption of one capital by another. In this struggle, he wrote, the
larger capitals, as a rule, beat the smaller.

Contd...

With the development of capitalist production: the credit

system a new force is added to it. By means of mergers and


acquisitions, the credit system can create huge, centralized
agglomerations of capital in the twinkling of an eye. The
results of both concentration and centralization are
commonly referred to as economic concentration.

Four major trends have occurred that, individually and in

combination, have appeared to foster new economic


competition, and at the same time leading inexorably to
greater concentration: (1) economic stagnation; (2) the
growth of the global competition of multinational
corporations; (3) financialization; and (4) new
technological developments.

Contd
The slowdown of the real growth rates of the capitalist

economies, beginning in the 1970s, undoubtedly had a


considerable effect in altering perceptions of monopoly
and competition. Although monopolistic tendencies of
corporations were not generally seen in the economic
mainstream as a cause of the crisis, the post-Second World
War accommodation between big capital and big unions,
in manufacturing in particular, was often presented as a
key part of the diagnosis of the stagflation crisis of the
1970s.

Contd...
The giant corporations that had arisen in the monopoly stage of capitalism
operated increasingly as multinational corporations on the plane of the global
economy as a wholeto the point that they confronted each other with greater
or lesser success in their own domestic markets as well in the global economy.
The result was that the direct competitive pressures experienced by corporate

giants went up. Nowhere were the negative effects of this change more evident
than in relation to U.S. corporations, which in the early post-Second World
War years had benefitted from the unrivalled U.S. hegemony in the world
economy.

Multinational corporations encouraged worldwide outsourcing and sales as


ways of increasing their profit margins, relying less on national markets for
their production and profits. Viewed from any given national perspective, this
looked like a vast increase in competitioneven though, on the international
plane as a whole, it encouraged a more generalized concentration and
centralization of capital.

Contd...
The U.S. automobile industry was the most visible manifestation of this
process. The Detroit Big Three, the very symbol of concentrated economic
power, were visibly weakened in the 1970s with renewed international
competition from Japanese and German automakers, which were able to seize a
share of the U.S. market itself. As David Harvey has noted: Even Detroit
automakers, who in the 1960s were considered an exemplar of the sort of
oligopoly condition characteristic of what Baran and Sweezy defined as
monopoly capitalism, found themselves seriously challenged by foreign,
particularly Japanese, imports. Capitalists have therefore had to find other
ways to construct and preserve their much coveted monopoly powers. The two
major moves they have made involve massive centralization of capital, which
seeks dominance through financial power, economies of scale, and market
position, and avid protection of technological advantagesthrough patent
rights, licensing laws, and intellectual property rights.

Contd
One of the most important historical changes affecting the competitive

conditions of large industrial corporations was the re emergence of finance


as a driver of the system, with power increasingly shifting in this period
from corporate boardrooms to financial markets. Financial capital in sharp
contrast to the 1950s and 60s during which industrial capital was largely
self-financing and independent of financial capital, the new age of
speculative finance, governed by what journalist Thomas Friedman is
dubbed the electronic herd, over which regulation is inadequate.

Twentieth-century monopoly capitalism was not returning to its earlier

nineteenth-century competitive stage, but evolving into a twenty-firstcentury phase of globalized, financialized monopoly capital. The booming
financial sector created turmoil and instability, but it also expedited all
sorts of mergers and acquisitions. In the end, finance has beenas it
invariably isa force for monopoly.

Contd...
Announced worldwide merger and acquisition deals in 1999 reached

$3.4 trillion, an amount equivalent at that time to 34 percent of the


value of all industrial capital (buildings, plants, machinery, and
equipment) in the United States. In 2007, just prior to the Great
Financial Crisis, worldwide mergers and acquisitions reached a record
$4.38 trillion, up 21 percent from 2006. The long-term result of this
process is a racketing up of the concentration and centralization of
capital on a world scale.

In 2009 the top twenty-five global private mega corporations by

revenue rank which included Wal-Mart Stores, Royal Dutch Shell,


Exxon Mobil, BP, Toyota Motor, AXA, Chevron, ING Group, General
Electric. Such firms straddle the globe.

Contd...

Technological changes also affect perceptions of the role of

the giant corporations. With new technologies associated


in particular with the digital revolution and the Internet
giving rise to whole new industries and giant firms, many
of the old corporate powers, such as IBM, were shaken,
though seldom experienced a knockout punch.

All of these developments are commonly seen as

engendering greater competition in the economy, and


could therefore appear to conflict with a notion of a general
trend toward monopolization, and its relative monopoly
power.

Contd
Antitrust law enforcement in the new neoliberal period was

heavily influenced by the arguments of Robert Bork in his


book The Antitrust Paradox. Bork was a student of Williamsons
work (though focusing on efficiency and not transactions
costs) and that of the Chicago School. He claimed that
monopoly was rational, fleeting, and readily dissipated by new
entry. Referring to monopolistic and oligopolistic market
structures, Bork wrote: My conclusion is that the law should
never attack such structures, since they embody the proper
balance of forces for consumer welfare. Since consumer welfare
was the object of public policy in this area, any antitrust actions
threatened to go against the consumer interest by generating
inefficiency. The issue of monopoly power was simply
irrelevant.

DEFINITION OF MARKET STRUCTURES

- a debate
Perfect

Competition-Monopoly:

Competition

inertia
Perfect competition is not an "ordering force" but
rather an assumed "state of affairs" .
One of the great paradoxes of economic science is that
every act of competition has some degree of monopoly
power. While all other forms of competition represented, in
economic theory, are an admixture of monopoly and
competition, perfect competition means, the absence of
competition, and Monopoly is a market situation
identifying firm itself as an industry in which intra
industry comparison is not possible.

contd
Perfect Competition-Monopoly: A Competition inertia
Competition entered economics as a concept with empirical

relevance and operational meaning in terms of contemporary


business behaviour.
The failure to distinguish between the idea of competition and
the idea of market structure is at the root of much of the
ambiguity concerning the meaning of competition. One of the
great paradoxes of economic science is that every act of
competition has some degree of monopoly power. The debate
moves on to discuss the features of both monopoly and perfect
competition that rule out the competitive behavior by
definition.

Contd
While all other forms of competition represented, in

economic theory, are an admixture of monopoly and


competition, perfect competition means, the absence of
competition, and also monopoly for different reasons.
Monopoly is a market situation identifying firm itself as
an industry in which intra industry comparison is not
possible.
Perfect competition, is an equilibrium situation in which

price becomes a parameter from the standpoint of the


individual firm

Competition as opposed to monopoly, is a "force" equating

prices and marginal costs and assures allocative efficiency in


the use of resources. It gravitates resources toward their most
productive uses, and, the price is "forced" to the lowest level
sustainable in the long run. It is this conception of competition
as an ordering force which dominated the classical economics.
When Adam Smith spoke of competition, it was in connection
with the forcing of market price to its "natural" level or to the
lowering of profits to a minimum. To Smith, Competition is
viewed as a price-determining force operating in, but not itself
identified as, a market.
.

Definition of Competition: A
critique
Adam Smith observed that monopoly "is a great enemy to

good management. His successors failed to relate


competition to the search for cost reduction or to "good
management". Senior wrote, Under free competition,
cost of production is the regulator of price. The question
again arises whether MC=P is the desired optimum which
reflects the efficiency of the firm.

Contd
Another fundamental weakness of the competitive concept has

been its consistent failure to relate to economic growth.


From the standpoint of economic growth, is not . . [price]
competition which counts, but the competition from the new
commodity, the new technology, the new source of supply, the
new type of organization . . . competition which commands a
decisive cost or quality advantage and which strikes not at the
margin of the profits and the outputs of the existing firms but at
their foundations of their very lives.

The Ambiguity of Competition


In our view, the best explanation for the continuing confusion about the degree
of monopoly in the economy is due to what we call the ambiguity of
competition. This refers to the opposite ways in which the concept of
competition is employed in economics, including the language of business
itself.

(Milton Friedman, in his conservative classic Capitalism and Freedom, first


published in 1962): Competition, Friedman writes, has two very different
meanings. In ordinary discourse, competition means personal rivalry, with one
individual seeking to outdo his known competitor.
In the economic world, competition means almost the opposite. There is no
personal rivalry in the competitive market place. No one participant can
determine the terms on which other participants shall have access to goods or
jobs.
They take prices as given by the market and no individual can by himself have
more than a negligible influence on price, though all participants together
determine the price by the combined effect of their separate actions.

Contd...
Competition, in other words, exists when, because of the large

number and small size of firms, the typical business unit has no
significant control over price, output, investment, which are all
given by the marketand when each firm stands in a non-rivalry
relation to its competitors.
An individual firm is powerless to intervene in ways that change
the basic competitive forces it or another firm faces.
The fate of each business is thus largely determined by market
forces beyond its control.
Yet, as Friedman emphasizes, the above economic definition of
competition conflicts directly with the way in which the concept
of competition is used more generally and in business analyses to
refer to rivalry, particularly between oligopolistic firms.

Contd...

Friedman states: Monopoly exists when a specific individual or enterprise has sufficient control over
a particular product or service to determine significantly the terms on which other individuals shall
have access to it. In some ways, monopoly comes closer to the ordinary concept of competition since it
does involve personal rivalry.
In economic terms, he is telling us, monopoly can be said to exist when firms have significant
monopoly power, able to affect price, output, investment, and other factors in markets in which they
operate, and thus achieve monopolistic returns.
Such firms are more likely to be in rivalrous oligopolistic relations with other firms. Hence, monopoly,
ironically, comes closer, as Friedman stressed, to the ordinary concept of competition.
The ambiguity of competition evident in Friedmans definitions of competition and monopoly
illuminates the fact that todays giant corporations are closer to the monopoly side of the equation.
Most of the examples of competition and competitive strategy that dominate economic news are in
fact rivalries struggles between quasi-monopolies (or oligopolies) for greater monopoly power.
Hence, to the extent to which we speak of competition today, it is more likely to be oligopolistic
rivalry, i.e., battles between monopoly-capitalist firms. Or to underline the irony, the greater the
amount of discussion of cutthroat competition in media and business circles and among politicians
and pundits, the greater the level of monopoly power in the economy.

What we are calling the ambiguity of competition was first raised as an issue in the 1920s by Joseph
Schumpeter, who was concerned early on with the effect of the emergence of the giant, monopolistic
corporation on his own theory of an economy driven by innovative entrepreneurs. The rise of big
business in the developed capitalist economies in the early twentieth century led to a large number of
attempts to explain the shift from competitive to what was variously called, trustified, concentrated,
or monopoly capitalism.

Marxist and radical theorists played the most prominent part in this, building on Marxs analysis of
the concentration and centralization of capital.

The two thinkers who were to go the furthest in attempting to construct a distinct theory of
monopoly-based capitalism in the early twentieth century were the radical American economist
Thorstein Veblen in The Theory of Business Enterprise (1904) and the Austrian Marxist Rudolf
Hilferding in his Finance Capital (1910). In hisImperialism, The Highest Stage of Capitalism Lenin
depicted imperialism in its briefest possible definition, as the monopoly stage of capitalism.

The Sherman Antitrust Act was passed in the United States in 1890 in an attempt to control the rise
of cartels and monopolies. No one at the time doubted that capitalism had entered a new phase of
economic concentration, for better or for worse.

Contd
In 1928 Schumpeter addressed these issues and the threat they represented to
the whole theoretical framework of neoclassical economics in an article
entitled The Instability of Capitalism. The nineteenth century, he argued,
could be called the time of competitive, and what has so far followed, the time
of increasingly trustified, or otherwise organized, regulated, or managed,
capitalism.
For Schumpeter, conditions of dual monopoly or multiple monopoly (the
term oligopoly had not yet been introduced) were much more important
practically than either perfect competition or the assumption of a single
monopoly, and of more general importance in a theoretic sense.
Trustified capitalism raised the ambiguity of competition directly ----- the use
of non-economic force, a will to force the other party to their knees, have much

more scope in the case of two-sided monopolyjust as cut-throat methods


have in the case of limited competitionthan in a state of perfect competition.

Contd...
Schumpeters own solution to this in The Instability of Capitalism (and much
later in his 1942Capitalism, Socialism, and Democracy) was to introduce the
concept of corespective pricing. deliberately seeking to restrict their rivalry,
particularly in relation to price, by various forms of collusion, in order to
maximize group advantage.

Contd...

In the United States in the 1930s, the issues of economic concentration and monopoly
took on greater significance in the context of the Great Depression, with frequent claims
that administrative prices imposed by monopolistic firms and restraints on production
and investment had contributed to economic stagnation.
In the words of President Roosevelt in 1938, the United States was experiencing a
concentration of private power without equal in history, while the disappearance of
price competition was one of the primary causes of our present [economic] difficulties.
In his 1942 Capitalism, Socialism, and Democracy, Schumpeter famously responded to
these New Deal criticisms of monopoly by trying to combine realism with a defense of
monopolistic practices, viewed as logically consistent with competition in its most
important form: the perennial gale of creative destruction, or what Marx had called the
constant revolutionizing of production.
Schumpeter argued that what mattered most were the waves of innovation that
revolutionized the economic structure from within, incessantly destroying the old one,
incessantly creating a new one. This process of Creative Destruction is the essential fact
about capitalism. Yet such creative destruction, he recognized, also led to consolidation
of capitals.

such oligopolistic firms remained under competitive

pressure from the outside in the sense that failure to


continue to innovate could lead to a weakening of the
barriers to entry, protecting them from potential
competitors. It was precisely innovation or creative
destruction that made the barriers surrounding the
giant monopolistic firms vulnerable to new
competitors.

Contd
In neoclassical economics, the very rigor of the

concept of competition was the Achilles heel of the


entire analysis. This was best explained, he argued, by
quoting Friedrich Hayek, who had insisted: The price
system will fulfill [its] function only if competition
prevails, that is, if the individual producer has to adapt
himself to price changes and cannot control them.

Much more significant than even conglomeration, however, was the rapid
growth of multinational corporations, a term coined by David Lilienthal,
previously director of the Tennessee Valley Authority, in 1960, and then
subsequently taken up by Business Week in a special report in April 1963.
Multinational corporations, particularly emanating from the United States,
were widely seen as increasingly menacing to states and peoples, not only in
the periphery of world capitalism but also in some states of the developed core.
For Baran and Sweezy, the rise of this phenomenon was not difficult to explain:
multinational corporations represented monopoly capital abroad, with the
giant corporations moving beyond their home countries, in the developed core
of the system, to control resources and markets elsewhere. What multinational
corporations wanted was monopolistic control over foreign sources of supply
and foreign markets, enabling them to buy and sell on specially privileged
terms, to shift orders from one subsidiary to another, to favor this country or
that depending on which has the most advantageous tax, labor, and other
policiesin a word, they want to do business on their terms and wherever they
choose.54

Contd...
Initial strategies to explain the growth of multinational

corporations in the mainstream focused on such


elements as: (1) different factor endowments of labor
and capital between countries; (2) risk premiums in
international equity markets; and (3) the need to
expand firms markets while relying on internallygenerated funds. None of this, however, got at the
reality of multinational corporations in terms of
accumulation and power.

Increasingly, corporations contracted out labor in

order to weaken unions and reduce costs, and relied on


greater global sourcing of inputs, taking advantage of
low wages in the periphery. Global competition
between corporations increased, but it did so in Marxs
sense of constituting a lever, along with finance, for
the greater centralization of capital.

Contd...
The most important theoretical development in sidelining the

traditional issue of monopoly power was a new theory of the


emergence of the firm rooted in the concept of transaction costs.
In 1937 Ronald Coase (who was to join the University of Chicago
economics department in 1964) had written his now famous
article The Nature of the Firm, which argued that the reasons
for corporate integration (particularly vertical integration) had
to do with reducing external transaction costs arising from
purchasing inputs within the market, as opposed to producing
them internally within a given firm. Vertical integration, when it
took place, was then seen as a way in which firms optimized on
costs and efficiency by reducing transaction costs rather than
an attempt to generate monopoly power.

Coases argument in The Nature of the Firm had little

influence until the late 1970s and 80s, but was increasingly
seized, with the ascendance of free market conservatism, to
attack all notions of monopoly power, and to challenge
traditional industrial organization theory and antitrust
actions. With the new emphasis on transaction costs, all
developments in firm integration were interpreted as optimizing
efficiency, while the question of monopoly power was largely
set aside as irrelevant.
Coases transaction cost analysis was later carried forward in
Oliver Williamsons influential 1975 Markets and Hierarchies,
which extended its putative claims with respect to efficiency,
and was aimed specifically at moderating antitrust attacks on
monopolies, oligopolies, vertically integrated firms, and
conglomerates.

Competition & Economic Efficiency


Characteristics of markets under competition
Lower prices because of many competing firms
The cross-price elasticity of demand for one product will be high suggesting

that consumers are prepared to switch their demand to the most


competitively priced products in the marketplace.
Low barriers to entry
Entry of new firms provides competition and ensures prices are kept low in
the long run.
Lower total profits and profit margins than in markets dominated by a
few firms.
Greater entrepreneurial activity
Competition is a process. Entrepreneurs innovate and invent to drive
markets forward and create what Joseph Schumpeter called the gales of
creative destruction.
Economic efficiency
Competition ensures that firms move towards productive efficiency. The
threat of competition leads to a faster rate of technological diffusion, as
firms have to be responsive to the changing needs of consumers. This is
known as dynamic efficiency.

Collusion
Cartel is a non-competitive agreement between rivals

which attempts to disrupt the market's equilibrium. By


collaborating with each other, rival firms look to alter the
price of a good to their advantage. The parties may
collectively choose to restrict the supply of a good, and/or
agree to increase its price in order to maximize profits.
Groups may also collude by sharing private information,
allowing them to benefit from insider knowledge.
The most prominent example is OPEC, a cartel which
made up of sovereign states, not companies. Cartels are
also called trusts.

Market Power
Market Power is defined by the extent to which a firm can

influence the price of an item by exercising control over its


demand, supply, or both. Under the economic concept of
perfect competition, all firms in a market are assumed to have
zero market power. Thus, each firm has to accept the current
market price without being able to exercise any control over it.
In reality, however, in every market some firms do have
varying levels of market power; firms with highly
differentiated products having almost monopoly power.

Importance of market power in


competition analysis
Market Concentration
In economics, market concentration is a function of the number

of firms and their respective shares of the total production


(alternatively, total capacity or total reserves) in a market.
Alternative terms are Industry concentration and Seller
concentration.

Measurement of market
concentration
The concentration ratio measures the combined market

share of the top n firms in the industry. Share can be by


sales, employment or any other relevant indicator. The
value of n is often five, but may be three or any other
small number. If the top n firms gain a high market share
the industry is said to have become more highly
concentrated.

Contd
The Herfindahl-Hirschman Index (HHI)
This is a measure of market concentration. The index is calculated by

squaring the % market share of each firm in the market and summing
these numbers.

For example in a market consisting of only four firms with shares of


30%, 30%, 20% and 20% the Herfindahl Index would be 2600 (900
+ 900+ 400+ 400).
The index can be as high as 10,000 if the market is a pure monopoly
(100*)
The lower the index the more competitive the market is and can
reach almost zero for perfect competition
If an industry has 1000 companies each with 0.1% market share then
the index would only be 10 (1000 x 0.1*).

There are three main alternative competition paradigms

that can be identified: structuralist, contestability and


Chicago. According to the structuralist school, market
structure, namely the degree of concentration, is the main
determinant of market performance. Monopoly is
considered bad, because it is likely to distort prices and
efficient resource allocation. Thus, the structuralist
approach to competition is characterised by interventionist
approaches. US antitrust policy during 1950-1970 and EC
competition policy during 1960-1990 are good examples.

Contd
Proponents of the Contestability school, initiated by Baumol in the

early 1980s, focus on free entry to markets, rather than on market


shares. As long as markets remain contestable (easy entry and easy
exit), the potential entry/competitive pressures of new competitors
is/are likely to ensure efficiency and prevent monopolists from
raising prices above competitive levels or compromising quality.

Chicago School believes in the relevance of contestability theory


for firm behaviour- view monopolies as a sign of superior efficiency

monopoly profits are temporary and will operate as an incentive for


competitors to become more efficient

Emerging Market
The term emerging market was originally coined by the

International Finance Corporation (IFC) to describe a fairly


narrow list of middle to higher income economies in the
developing world with stock markets open to foreign
participation. The meaning is since been expanded to
include other developing countries.

Contd
Emerging economies have been defined as those regions

of
the
world
that
are
experiencing
rapid
informationalisation under conditions of limited or partial
industrialisation. This framework allows us to explain how
the non-industrialised nations of the world are achieving
unprecedented economic growth using new energy,
telecommunications and information technologies
.

Contd
Developing economies have sectoral variations

unequal development of various sectors


socio-economic and political factors
Competition law enforcement has to be adjusted to
address such variations, resulting in competition
regimes different from those in developed countries.
Competition policy involves a set of policies that
enhance competition in local and national markets
and further consumer interest.

Contd

The period after 1990, particularly the late 1990s, normally referred
to as post-Chicago, was characterised by the increasing popularity of
game theory and behavioural economics, in which the simplistic
modelling of human behaviour gave way to more complex depictions,
with greater emphasis on empirical relevance of economic theories.
The mentioned schools of thought have fashioned the competition
regimes of various countries over the years. Canada was the first
country in the world to adopt a competition law in 1889. The second
country to adopt a competition law was the US in 1890 (Sherman Act,
1890). Due to better implementation of the antitrust law in the US, it
is widely believed that it was the first country in the world to have a
competition law.

Contd
Most early competition laws were designed for countries in

a less globalised world.


During the 1950s, the thinking on the subject emphasised
the primacy of market structure. Subsequently, with the socalled New Industrial Economics, the emphasis rightly
shifted from structure to the conduct of firms and, more
recently, to concern with their strategic behaviour.
The shift of focus from market structure per se to firm
behaviour and conduct is now well-established in the
implementation of competition law worldwide.

Contd
As in the case of US, many developing countries,

including emerging economies, have been graduating


to emphasis on behaviour, rather than structure, of
enterprises in implementing their competition laws.
India, where a new competition law (Competition Act,

2002), which emphasises a behavioural approach, has


been enacted in place of the previously structuralist
anti-monopoly Monopolies and Restrictive Trade
Practices (MRTP) Act, 1969, is a case in point.

Contd
In all the other emerging economies with
competition laws, a gradual approach was
preferred to ensure that the law would be
compatible with the existing economic policies
The competition laws emphasised consumer
protection, regulation of monopolies, including
natural monopolies, and regulation of misleading
advertisements and deceptive marketing.

Contd
In the 80s the approach of the developing world was to get

a policy to promote global competition.


While the rich countries were more interested in setting
standards for a competition law for members to adopt, the
experiences of Japan, South Korea and China, with regard
to industrial policy and its implications for competition law
enforcement, might serve as a useful guide for emerging
economies.

Contd
Porter et al , studying the Japanese model, have listed antitrust

enforcement, aggressive promotion of exports and selective


protection of domestic producers as some of its important
components. High rates of investments and strengthening of
incentives to upgrade technology, enabled Japan to compete
successfully in the global market: in contrast to the
conventional paradigm in economic development which
proposes that competition leads to economic growth, the
Japanese experience suggests reverse causality; that it was growth
which stimulated competition, at least in the sense of reducing
industrial concentration, rather than the other way round.

The introduction of competition policy early in Japans economic

reconstruction, as well as the subsequent evolution of this in


response to economic development, was a great factor in Japans
rapid economic growth in the past.

Contd
China

originally had a centrally planned economic system,


subsequently transited towards a socialist market economy. This
transition took place without a full-fledged competition law. But,
Chinas economic policies did inject competition into the market and
inter-firm rivalry. From the late 1970s to the mid-1980s, the countrys
industrial policies promoted competition; from mid-1980s these
policies limited competition and since the mid-1990s, the policies
promoted and limited competition in concert.

During

the late 1970s, when China undertook economic


reconstruction,
- noted the drawbacks of central planning and realised that
competition among enterprises would increase output, improve
efficiency and promote innovation. The government encouraged new
enterprises, competition among enterprises and relaxed price controls.

Contd
The experiences of Japan, South Korea and China have

been aptly adds further credibility to the view that the


active and appropriate enforcement of competition law in
East Asian economies would have reinforced rather than
compromised their national development strategy.
In other words, the absence of competition laws in the
three economies does not imply absence of competition:
competition was a generator of growth in emerging
markets over the past 40 years, even though it was not
regulated. Japan, for example, had, and has, fierce
competition among its auto companies and its electronics
companies the greatest source of its eventual competitive
advantage over the US and the EU.

Contd
Although competition laws were not enforced during the periods

of high growth, the countries used other means to encourage


competition in the economy. It can be argued, therefore, that
enforcement of competition laws during this period might not
necessarily have reversed development.

Competition is an unambiguously good thing in the first-best

world of economists. That world assumes large numbers of


participants in all markets, no public goods, no externalities, no
information asymmetries, no natural monopolies, complete
markets, fully national economic agents, a benevolent court
system to enforce contracts and a benevolent government
providing lump sum transfers to achieve any desirable
redistribution.

Contd

The CPA mandates that all relevant factors should be considered when
deciding whether restrictions on competition are warranted. CPA lays
down an array of community interest matters, where restrictions on
competition may be justified31 . These include ecologically sustainable
development, occupational health and safety, industrial relations,
access and equity, economic and regional development, including
employment and investment growth, social welfare and equity
considerations, including community service obligations, consumer
interest, the competitiveness of Australian business and the efficient
allocation of resources.
For instance, the merits of a statutory marketing arrangement in a
country would need to be reviewed in terms of factors such as the
welfare of consumers, the impact of barriers to competition on farmers
incomes, the value of exports, environmental impact, socio-economic
implications for regional communities, employment effects, economies
of scale in transport and marketing and the like.
The CPA model is fairly well-conceived and wort

Contd
A question can be raised as to whether a competition law is

needed at all for emerging economies. The opponents of


competition law advanced the argument that
general domination of an economy by the informal sector
necessarily implies that market forces would ensure
competition.
it would be difficult to police the activities of the market
players
that a competition regime may extinguish small and weak
firms and spell doom for domestic firms.

Contd
Others contend that the process of establishment of

competition should be gradual.


that industrial policies to be harmonised with competition
law enforcement to strengthen competitiveness.
Notwithstanding the apprehensions of possible injury to
domestic industry (particularly the SMEs), a competition
law in developing countries is a desirable objective and
instrument for promoting consumer welfare.
Without a competition law, the erring market players
would get away with anti-competitive practices, with
adverse consequences for the consumers.

Trade laws and policy


Trade policy, primarily regulates competition amongst

firms across national boundaries. It is defined as the


complete framework of laws, regulations, international
agreements
and negotiating stances adopted by governments to
achieve legally binding market access for domestic firms.
A trade policy addresses two broad and interrelated issues.
First, a liberal trade policy seeks to create trading
opportunities to ensure freer trade by removing tariff and
non-tariff barriers.
Second, it seeks to ensure fair trade by eliminating anticompetitive practices in international trade.

Contd
Fair trade implies the creation of an equitable trading system where the
conduct of trade is governed by the competitive advantage of market players,
rather than the economic power and
influence of government.
A liberal trade policy is no longer restricted to the reduction of traditional
border restrictions such as tariff and import licensing but also the reduction of
non-tariff barriers (NTBs), including sanitary and phyto-sanitary (SPS)
measures and technical regulations, which limit cross-border access.
It aims to address domestic and export subsidies and other forms of assistance
which discriminate in favour of domestic producers.
competition policy and liberal trade policy seek to achieve the
same objective of economic efficiency.
-by liberalising domestic markets through laws that protect and promote
competition.
-by liberalising markets through the removal of barriers to trade at the border.
Free trade and competitive behaviour are thus necessary conditions for
efficiency

Competition Policy and the WTO


Approximately 80 WTO Member countries, including

some 50 developing and transition countries, have adopted


competition laws, also known as antitrust or antimonopoly laws.
These laws provide remedies to deal with a range of anticompetitive practices, including price fixing and other
cartel arrangements, abuses of a dominant position or
monopolization, mergers that limit competition, and
agreements between suppliers and distributors (vertical
agreements) that foreclose markets to new competitors.

Contd
The concept of competition policy includes competition laws in

addition to other measures aimed at promoting competition in the


national economy, such as sectoral regulations and privatization
policies.
As a result of the Ministerial Conference in Singapore (1996), the
Working Group on the Interaction between Trade and Competition
Policy (WGTCP) was established to study various aspects of this issue,
with the participation of all WTO Members.
Under the Doha Ministerial Declaration (2001), the study work within
the Working Group was focusing on the clarification of:
- core principles, including transparency, non-discrimination and
procedural fairness
- provisions on hardcore cartels;
- modalities for voluntary cooperation; and
- support for progressive reinforcement of competition institutions in
developing countries through capacity building.

Anti-Dumping Policy
Trade policy includes tariffs, quotas, subsidies, anti-dumping actions, domestic content
regulations and export restraints.
Until the 1970s, the focus of trade policy in India was on regulating the utilisation of
foreign exchange, through the use of quota restrictions.
This implied licensing for all categories of imports. The broad instruments of trade
policy were across-the-board import substitution and the protection of domestic
industry.
Eg.The State of Karnataka in India is a famous silk-producing region. There are a large
number of Karnataka-based organisations representing silk producers. The Central Silk
Board, set up by the Government, is at Bangalore. The Board, on behalf of various
associations representing the power loom silk fabric producers, alleged dumping of silk
fabrics weighing 20-100 gms per metre originating from the PRC. The allegations were
investigated by the Director General of Anti-Dumping and Allied Duties (DGAD) of the
Government of India, functioning under the Commerce and Industry Ministry. The
DGAD found evidence of dumping and levied hefty anti-dumping charges on various
Chinese firms. The popular varieties of silk covered by this levy are crepe, georgette,
chiffon and habutai

Contd
With best wishes
SESHAN RADHA

Introduction to the Competition


Act, 2002 (the Act)
The Act deals with the abuse of dominance, anti-competitive

agreements and undesired combinations. The extent of


dominance can be defined as the position of strength enjoyed by
an undertaking that enables it to operate independently of the
competitive pressures in the relevant market and also to affect
the firms and consumers connected therein. It should be noted
that the Act does not prohibit the mere possession of a
dominant position, but only its abuse. The superior
economic performance of a firm may sometimes enable it to
reach a dominant position.

Section 4 of the Act details on the

abuse of dominance to
include imposition of unjust conditions, imposition of unfair
pricing, predatory pricing, create hindrance to entry of new
operators and abuse of market positioning.

Section 2 (a) Acquisition


directly or indirectly, acquiring or agreeing to
acquire
(i) shares, voting rights or assets of any enterprise; or

(ii) control over management or control over assets of any


enterprise;

S. 2 (b) Agreement
Agreement includes any agreement, understanding or
action in concert which
a.

Need not be necessarily formal or in writing

b. May or may not be intended to be enforceable by legal

proceedings

S. 2 (c) Cartel
includes an association of producers, sellers, distributors,
traders or service providers.
Cartel is the group of enterprises which collectively make
some agreement to limit, control or attempt to control
production, distribution, or price of, trade in goods and
services.
The agreement between the cartel may be explicit or
implicit. But it is restricted by the competition law due
the reasons of artificial price hike, collusive bidding etc.

Cartels are in the nature of prohibited horizontal


agreements and are presumed to have appreciable
adverse effect on competition.
CCI has wide power to take the cartel in their cognizance

and refer it to director general for investigation.

It

further provides the penalty provision upto three times


of yearly profit to the offenders.

S 2 (f) Consumer
`consumer' means any person who buys any goods for a
consideration which has been
paid or promised or partly paid and partly promised, or
under any system of deferred payment and includes any

user of such goods other than the person who buys such
goods for consideration, or
under any system of deferred payment when such use is

made with the approval of such person, but


does not include a person who obtains such goods for

resale or for any commercial purpose.

who hires or avails of any services for a consideration which has

been paid or promised or partly paid and partly promised, or


under any system of deferred payment and includes any beneficiary

of such services other than the person who hires or avails of the

services for consideration, or


under any system of deferred payment, when such services are

availed of with the approval of the first mentioned person, but


does not include a person who avails of such services for any

commercial purposes.
`commercial purpose does not include use by a person of goods

bought and used by him and services availed by him exclusively for

the purposes of earning his livelihood by means of self-employment.

S. 2 (h) Enterprise
Enterprise includes
a person or Government Department/ Unit engaged in any

activity,

relating

to

the

production,

storage,

supply,

distribution, acquisition or control of articles or goods, or


in investment, or in the business of acquiring, holding,

underwriting or dealing with shares, debentures or other


securities of any other body corporate
either directly or through one or more of its units or divisions

or subsidiaries
But does not include sovereign functions viz. defence, atomic

energy, space and currency

S 2 (i) Goods
As defined in Sale of Goods Act
Includes products manufactured, processed or mined;

debentures, stocks and shares after allotment;


goods supplied, distributed or controlled in India,
goods imported into India

S 2 (l) Person
Person means both legal/juristic or natural person. Includes:
an individual
Hindu undivided family
Companies incorporated both within and outside India

(MNCs)
firms
association of persons
statutory bodies
Registered cooperative societies
Local authorities

S 2 (m) Practice
Any practice relating to the carrying on of any trade by a
person or an enterprise

S 2 (n) Prescribed means prescribed by rules made under


this Act
S 2 (o) Price includes
every valuable consideration, whether direct or indirect,

or deferred, and
includes any consideration which in effect relates to the

sale of any goods or to the performance of any services


although ostensibly relating to any other matter or thing

S 2 (p) Public Financial Institution


Refers to a public financial institution specified

under section 4A of the Companies Act, 1956

Includes a State Financial, Industrial or Investment

Corporation
S 2 (q) Regulation means the regulations made by the
Commission under section 64

S 2 (u) Services
Service of any description which is made available to
potential users and includes
the provision of services in connection with business of

any industrial or commercial matters


such as banking, communication, education, financing,

insurance, chit funds, real estate,

transport, storage,

material treatment, processing,


supply of electrical or other energy, boarding, lodging,

entertainment,

amusement,

construction,

conveying of news or information and advertising.

repair,

S 2 (v) Shares
shares in the share capital of a company carrying
voting
rights and includes
(i) any security which entitles the holder to receive
shares with voting rights;
(ii) stock except where a distinction between stock and

share is expressed or implied

S 2 (w) Statutory Authority


any authority, board, corporation, council, institute,

university or any other body corporate


established by or under any Central, State or

Provincial Act
for regulating production or supply of goods or

services or markets or for any other incidental

matters

S 2 (x) Trade
Any trade, business, industry, profession or occupation.
relating to the production, supply, distribution, storage

or control of goods, and


includes the provision of any services.

S 3 Anti Competitive Agreements


This section provides that no enterprise or person shall enter into

any agreement in respect of production, supply, distribution,


storage acquisition or control of goods or provision of services
which is likely to cause an adverse effect on competition within
India.
Competition law indentifies two type of agreement. First

Horizontal agreements which are among the enterprises who are


or may compete within same business. Second is the vertical
agreement which are among independent enterprise.
Horizontal agreement is presumed to be illegal agreement but

rule of reasons would be applicable for vertical agreements.

Anti-competitive agreements includes but is not limited to: 1. Agreement which limit the production.
2. Agreement which limit the supply.
3. Agreement to allocate market.
4. Agreement to fix prices.
5. Agreement to collusive bidding.

6. Conditional purchase (Or tie-in-agreements)


7. Refusal to deal.
8. Exclusive supply agreement.

9. Exclusive distribution agreement.


10.Condition sale agreement to by second products as well compulsorily.

Following are not Anti competitive agreements:


1. Agreement to Protect IPRs. Viz trademark, copyright or
patent.
2. Agreement to protect geographical indications.

3. Agreement to Design Act.


4. Agreement to lay out designs for Act 2000.

5. Agreement to export goods (with certain conditions).

Dominance
Dominance refers to a position of strength which enables a
dominant firm to operate in a manner
independent of competitive forces giving it the ability to

prevent effective competition or


Affect its competitors or consumers or markets in its favor, i.e.,

Ability to behave independently of two sets of market actors,

namely:
a.

Competitors

b.

Consumers

Dominance is not per se illegal, abuse of such dominance is.

S 4 Abuse of Dominance
It is the misuse of an advantageous position by an enterprise to
gain extra benefits but which resultantly damage the

consumer interest and make it difficult other players to


compete.
It includes: Imposition of unjust conditions.
Imposition of unfair pricing.

Predatory pricing.

Create hindrance in entry of new operators.


Abuse of market positioning.

Predatory Pricing
Predatory pricing is some thing called pricing below then the
cost of the product. The objective of pricing to eliminate the
competition and then create dominant position in the market
and put the price so high to recover the earlier losses. It is sort
of abuse of dominant position. There are some methods in
economics to establish that whether a pricing is predatory
pricing or not. Once the predatory pricing is fixed then the
CCI can pass a order that enterprise has abuse its dominant
position in contravention of the competition act and pass the
penal order for it.

Combination
Combination is legal concept of analyzing the merger,

acquisition, acquisition of an enterprise by a person having

shares/ right to vote with the completion business enterprise.


Combination includes acquisition of shares, acquisition of

control by the enterprise over another and amalgamation


between or amongst enterprises.
Combination which exceeds the threshold limits defined in

the Act

or those which can create adverse impact on

competition or consumers at large


competition law of India.

are prohibited by the

S 5 Meaning of Combination
The acquisition of one or more enterprises by one or more
persons or merger or amalgamation of enterprises will be treated
as combination if:
Acquisition is by a large enterprise
Acquisition is by a group
Acquisition is of enterprise having similar goods/services

Acquisition by a group of an enterprise having similar

goods/services
Merger of Enterprises

Merger in group Company

S 6 Regulation of Combination
S 6(1) prohibits any person or enterprise to enter into a combination which
causes or is likely to cause appreciable adverse effect on competition within
the market in India, such combinations being void.

Exemptions:
a.

Any person or enterprise proposing to enter into such combination may,


at his/its option,

give notice disclosing details of the proposed

combination to the CCI along with the fees determine by regulations


b.

Execution of any agreement or other document for acquisition referred to


in s 5 (a) or acquiring of control refered to in s 5 (b).

Section 6 does not apply to share subscription or financing facility or any


acquisition by a public finance institution, foreign institutional investor,
bank or venture capital fund, pursuant to any covenant of a loan
agreement or investment agreement.

Illustration: abuse of dominance

BCCI v. Competition Commission of India


Facts: The CCI conducted an enquiry on whether the BCCI had abused its dominant position under
Section 4 of the Act and had committed irregularities in the grant of franchise rights for team
ownership and in the grant of media rights, sponsorship rights and other local contracts related to
organization of the Indian Premier League. Based on the report of this investigation, the Commission
arrived at its decision.
Decision: The Competition Commission of India (CCI) held that the Board of Control for Cricket in
India had abused its dominant market position and violated Section 4 (2) of the Competition Act,
2002.

MCX Stock Exchange v National Stock Exchange of India Limited


Facts: the CCIs analysis of predatory pricing and leveraging on the basis of a complaint by MCX
Stock Exchange Limited against the largest stock exchange in India, the NSE, was one of the first
significant cases relating to abuse of dominance.
Decision: The CCIs assessment of pricing strategy in the currency derivatives (CD) segment led to
the conclusion that NSEs zero pricing policy amounted to unfair pricing, a new variant to the
predatory pricing concept. The CCI also held that the NSE was leveraging its power in other segments
of the stock exchange, where it is an established player, in order to strengthen its position in the CD
segment. The CCIs finding of abuse of dominance and penalty is currently under appeal before the
COMPAT.

Contd

DLF v. Competition Commission of India (CCI)


Facts: The CCI imposed a headline penalty and gave rise to several complaints against real estate companies and also
investigation into the real estate sector.
Decision: The CCI found the DLF to be abusing its dominance in relation to the ostensibly unilateral terms and
conditions of the apartment purchase contracts, on the basis of a complaint filed by the Apartment Owners
Association. The CCI held that the conduct of DLF in arbitrarily changing the terms and conditions of the apartment
purchase agreements was unfair and, owing to the lack of countervailing buyer power and its position of dominance,
its conduct amounts to an abuse of dominance. While the issue in the matter could also be characterised as a consumer
complaint, the CCI brought competition concerns to the fore by imposing the highest penalty it had ever imposed at
the time. The matter was appealed by the DLF before the COMPAT, which recently ruled that the CCI should review
and propose modifications to the apartment purchase agreements.

Reliance Big Entertainment Private Ltd v Tamil Nadu Film Exhibitors Association
Facts: The Reliance Big Entertainment Private Limited (the informant) obtained distribution rights for film titled
Osthi in Tamil language, which was a remake of Hindi film (Dabbang), from Balaji Real Media Private Limited. The
informant granted the said exclusive distribution rights of the film for the Territory of Tamil Nadu, Kerala and
Karnataka to M/s Kural TV Creations Pvt. Ltd. Further, the informant assigned the Satellite Rights of the said film to
Sun TV Network Ltd. The Opposite party association directed its member theatre owners not to screen this film since
SUN TV was owing certain sum to the OP. The DG was asked to make an investigation on the matter.
Decision: The report said that TNFEA being the biggest and most powerful distributor in the market in the area was
abusing the dominant position to restrict the market of Reliance Big entertainment and Sun TV which was held to be
in contravention of section 3 (3)(b).

Illustration: No abuse of
dominance
Dhanraj Pillai v Hockey India
Facts: The CCI examined Hockey Indias conduct with respect to, first,
precluding other competing private professional hockey leagues from entering
into the market, on account of its rules relating to the sanctioning of events;
and secondly, restricting hockey players from participating in unsanctioned
hockey events, which included disqualification from the national team for such
participation.
Decision: The CCI absolved Hockey India, a hockey federation, of abuse of
dominance. Even though the CCI determined that Hockey India was dominant
in the relevant market for the organisation of private professional hockey
leagues in India, the CCI used an effects-based approach to absolve Hockey
India of having abused its dominance, as there was no substantive evidence to
demonstrate that Hockey India was, in fact, restricting both hockey players and
rival hockey leagues (especially given that the rival hockey league in question
had never approached it for sanction). The CCI also went so far as to state that
the restrictive conditions imposed on hockey players were intrinsic and
proportionate to Hockey Indias objectives and therefore did not amount to an
abuse of dominance.

Illustration: Anti-cartelization
Sec. 3(3) of the Competition Act prohibits formation of cartels. In the Varca
Drugs & Chemists and Ors. v. Chemists & Druggists Association in Goa
and Santukha Association Pvt. Ltd. v. AIOCD, it was held that association,
formal or informal, becomes cartel if members of association take joint
decisions in respect of maintaining prices or refuse entry into market to others
and thereby limit supply of drugs in market.
The High Court of Gawhati in the case of Jai Balaji Industries Ltd. v. UOI
held that the primary purpose of the competition law is to avoid/ restrict those
situations where the activities lead to formation of cartels.
The Competition Commission of India (CCI) in the case of FICCI Multiplex
Association of India v. United Producers/ Distributors Forum held that
controlling and fixing of market is one of the essential factors in the
formation of cartel.

Contd
M/S Gulf Oil Corporation Ltd v. Competition Commission of India (2013)

Facts: Electronic Reverse Auction was held by the Coal India Ltd. There was a bid for the
supply to CIL in 2012 where a cartel was formed between the oil company and certain
explosive suppliers.
Decision: The CCI held that the bid was a mock and the 26 suppliers had already formed
a cartel in contravention to section 3 (3) of the Act read with section 3 (1). This was an
appeal against the order of the CCI, imposing penalties. The ceiling price was already
known to all of them and this was a concerted action between the Appellants to save their
business interests. They were after all competing with each other and had to stay in the
market and any individual decision would have been fatal under the circumstances. On
the question of price fixing it was held that a company cannot be stated to enter into an
anti-competitive agreement with its subsidiary as the subsidiary is the same entity as CIL.
There will be no competition between CIL on one part and the subsidiary on the other
and thus there is no price fixing. As regards Section 4 also by merely setting a ceiling
price, there was no question of abusing its dominance by a monopoly. There was no
evidence to suggest that this price was unfair or discriminatory for purchase. There were
presence of mitigating circumstances such as trying to delay the auctions and even in the
second auction that was held and where the appellants participated, no supplier was
affected. In view of the above mitigating factors the punishments were diluted..

Contd
M/S International Cylinder (P) Ltd. And Ors. V. Competition
Commission of India and Ors. (2013)
Issue: The question before the Commission was whether the Commission had
erred in holding that LPG cylinders were in contravention of Section 3(3)(d)
read with Section 3(1) of the Act.
Decision: Wrong exoneration of some parties did not entitle others who were
decidedly guilty of breach of provisions and incorrect exoneration of some did
not create any right to others particularly when exoneration was incorrect and
party claiming such treatment was proved to be guilty. There was no reason to
disbelieve that parties had access to each other through their association and
prior meetings. There was concerted agreement between parties on the basis
of which identical or near identical prices came to be quoted in tenders for
supply of cylinders to 25 States. There was presumption about appreciable
adverse effect on competition in the wake of mere proof of agreement under
Section 3 of the Act. The turnover of immediate three years was not considered
in a number of concerns on the ground that companies had not provided
financial details of the previous year. The court held the parties guilty of
forming anti competition agreements but taking into consideration the large
no. of parties involved did not impose penalties till it had heard all the parties

Illustration: anti-competitive
agreement
Section. 3 of the Act prohibits agreements which are anti-competitive

in nature.

All India Tyre Dealers Federation v Tyre Manufacturers

Facts: The complainant pleaded that the tyre manufacturers have


constantly raised the price of the tyres citing the rise in the cost of
natural rubber although they have mostly been using cheap imported
rubber for the purpose of manufacturing tyres. The complainant
further added that such rise in the price of the tyres has been possible
due to cartelization of all the tyre manufacturers.
Decision: CCI absolved the tyre manufacturers of liability and
observed that in absence of a tacit understanding or concerted action
restricting competition, tyre manufacturers could not be held anti
competitive.

Recent Amendments/
Developments
CCI further amended Combination Regulations.
In exercise of the powers conferred by Section 64 of the Act, CCI by

way of a Notification dated March 28, 2014, has further amended the
Competition Commission of India (Procedure in regard to the
transaction of business relating to combinations) Regulations, 2011.
The major changes are as under:
Regulation 5: Substance of proposed combinations to be considered:
A new Sub-Regulation (5) to Regulation 9 has been inserted, which
clarifies the position that while considering a combination; CCI would
focus on the substance of the proposed combination rather than its
structure. This means that, the CCI will disregard the structure and
consider the intent of the transaction. This provision is similar to the
General Anti Avoidance Rule (GAAR to minimize tax avoidance
proposed in the Union Budget for 2012-13) to be implemented from
April 2016. This provision in intended to restrict clever manoeuvring by
companies to avoid notice to CCI when due.

The Google case


CCI by way of its order dated March 26, 2013, has fined Google 10 million for not
cooperating with the DG Investigation by not providing the complete information as
sought by DG for the purpose of investigation.
Facts: Consim Info Private Limited and Consumer Unity & Trust Society (CUTS)
approached CCI alleging abuse of dominant position by Google under Section 4 of the
Act. The Informants alleged that Google is abusing its dominant position by practices
like search bias, search manipulation, denial of access and creation of entry barriers for
competing search engines. CCI by way of order dated April 3, 2012 and June 20, 2012
referred the matter for DG Investigation.
Investigation by DG: While conducting the investigation, the DG sought certain
information and documents from Google by way of seven separate notices. DG alleged
that Google did not furnish the information as requisitioned. Accordingly, the DG
reported the matter to CCI seeking initiation of proceedings under Sections 43 and 45 of
the Act. On recommendation by DG, CCI observed that the Google shown an attitude of
either withholding the information or furnishing only a part of the information. The DG
proposal for initiation of penalty proceedings was considered by the CCI in its ordinary
meeting held on February 13, 2014 wherein it was observed that Google have not supplied
complete information/ documents as sought for by the DG. On the basis of that, CCI
issued a show cause notice to Google under Section 43 of the Act.

Contd
Reply filed by Google: Google filed a written response to the show
cause notice and argued that it has provided the information/replies to
all the notices issued by DG. Further, Google put every effort to engage
frequently with the DG, including facilitating direct interactions with
its employees (often located overseas) who were best placed to explain
the highly technical issues that form part of the investigations. It was
further argued that, Google is a global organization with offices all over
the world. There is no single central database from which to source all
the information sought by the DG and the information sought is
seldom "off the shelf". As such, responding to information requests has
often required extensive work to be undertaken by Google employees
located in different countries, departments, divisions and roles, across
multiple time-zones.

Contd

Decision of the CCI: On the issue of widening the scope of investigation by DG, CCI held that the
scope of the investigations is very broad and encompasses various aspects relating to Googles policies
with respect to online search advertising.
Google failed to comply with the directions given by the DG. Despite liberal indulgence shown by the
DG, Google engaged in dilatory tactics in order to procrastinate and prolong the investigations
without any justifiable reason.
Law casts an obligation upon the party to comply with a direction, the same needs to be complied
with in the manner and the time stipulated therein. Every failure to comply with the directions and
requisitions constitutes a separate ground for imposition of penalties. The period of failure to comply
commenced w.e.f. February 26, 2013 in terms of the first notice of the DG dated February 12, 2013.
Google failed to comply fully with the various notices issued by the DG on different occasions.
Despite reminders and opportunities extended by the DG, Google advanced frivolous and vexatious
pleas to delay and avoid compliance.
Taking into consideration the totality of the facts and circumstances of the case, CCI imposed fine
upon Google by taking only one instance of non- compliance. CCI further observed that, if Google
failed to comply with the directions of the DG in future, each instance of non-compliance shall be
taken separately besides considering the same as aggravating factor for the purposes of imposition of
fine.
In view of the above observations, CCI decided to impose a fine of ` 10 million on Google for not
providing the complete information as sought by DG for the purpose of investigation.