Competition Act 2002

Competition
is a situation in a market in which firms or
sellers independently strive for the buyers
patronage in order to achieve a particular
business objective for example, profits, sales or
market share (World Bank, 1999)
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Competition is an age-old phenomenon

Benefits of Competition:

Companies : Efficiency, cost-saving operations, better

utilization of resources, etc.

The Consumer : Wider choice of goods at competitive

prices

The Government : Generates revenue

BUT
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.Benefits of Competition
all these benefits are lost if Competition is
UNFAIR or NON-EXISTANT

MTNL Monopoly : The position today

Indian Railways : The monopoly continues.

Hence WTO?
It is the only International body which deals with rules of trade
between nations
At its heart are agreements negotiated and signed by member
countries. These agreements are binding on Govt.s of respective
countries to keep their trade policies within agreed limits.
Purpose is the help trade flow as smoothly as possible, serve as a
forum for trade negotiations and settle disputes as much possible.

Main legal instruments

All agreements are contained in three main legal
instruments:
1.

2.

3.

General agreement on tariffs and trade (GATT) and

its associate agreements. These apply to trade in
goods.
General agreement on trade in services (GATS). This
applies to trade in services.
Agreement on trade related aspects of intellectual
property rights (TRIPs).
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Objectives of competition law & policy

protecting consumers from the undue exercise of market
power
facilitating
economic
liberalization,
including
privatization. Deregulation and reduction of external
trade barriers
Preserving and promoting the sound development of a
market economy
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Objectives of competition law & policy

ensuring fairness and equity in market place

transactions

Protecting the public interest including in some

cases
considerations
relating
to
industrial
competitiveness and employment

Protecting opportunities for small and medium

business
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Competition Policy
It includes Reforms in certain Policy areas to
make these more pro-competition: Industrial policy
Trade policy
Privatization/disinvestment
Economic Regulation
State aids
Labor policy
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Industrial Policy

Industrial Policy has to address and reform licensing

requirements, restrictions on capacities, or on foreign
technology tie ups, guidelines on location of
industries, reservations for small scale industry, etc.
These adversely affect free competition in the market.

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Trade Policy

Trade

policy

has

important

implications

for

development of competition in the markets. Measures

for liberalization of trade promote greater competition
e.g. reducing tariffs, removal of quotas/physical
controls, investment controls, conditions relating to
local content etc.

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Privatization/Disinvestment

Thus privatization of state owned enterprises is

important element of competition policy.

However, in privatization/ disinvestment process, care

is to be taken that state monopoly is not replaced by
private monopoly.

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Economic Regulations

New legislation and regulations to promote

competition and to bring about restructuring of
major industrial sectors is essential.
Electricity sector
Telecommunications sector
Ports
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State Aids

Several state aids create unequal operating

conditions for businesses. Examples:
Subsidies
Tax rebates
Preferential loans
Capital injection

Experience suggests that such policy measures

rarely have successful results and destroy
incentives for firms to become efficient.

Temporary specific state- aid for well stated public

purpose can be justified.
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Competition Law

It is a tool to implement and enforce competition

policy and to prevent and punish anti-competitive
business practices by firms and unnecessary
Government interference in the market.

Competition Law generally covers 3 areas:

Anti - Competitive Agreements, e.g., cartels,
Abuse of Dominant Position by enterprises, e.g.,
predatory pricing, barriers to entry
Regulation of Mergers and Acquisitions (M&As).
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Contd

The need for Competition Law arises because

market can suffer from failures and distortions,
and various players can resort to anticompetitive activities such as cartels, abuse of
dominance etc. which adversely impact
economic efficiency and consumer welfare.

Thus there is need for Competition Law, and a

Competition Watchdog with the authority for
enforcing Competition Law.
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MRTPs vis--vis Competition Act

Under the Competition Act :
No provision for Unfair Trade Practices
Only Consumer Courts will have jurisdiction
Pending cases will be continued by MRTPC for 2
years
After 2 years all cases will be transferred to
National Commission under CPA
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Status of the Competition Commission

It is a body corporate
It has Regulatory and quasi-judicial powers; functions
through Benches
Each Bench shall consist of at least two Members and
one of such Members must be a judicial Member

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SuosuoMoto
Commission has
moto Inquiry
power to enquire whether
an Anti-Competitive Agreement or Abuse of
Dominant Position causes or is likely to cause an
appreciable adverse effect on competition

This power must be exercised within one year from

the date combination has taken effect

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Anti-competitive Agreements
These are agreements which cause or are likely to cause an
appreciable adverse effect on competition within India:
Horizontal Agreements:
These are between and among competitors who are at the
same stage of production, supply, distribution, etc.

These are presumed to be illegal

Examples: cartels, bid rigging, collusive bidding, sharing of
markets, etc.
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Anti-Competitive Agreements
Vertical Agreements:
Vertical Agreements are between parties at different
stages of production, supply, distribution, etc.
These are not presumed illegal; are subject to rule of
reason.
Examples: tie-in arrangements, exclusive
supply/distribution agreements, refusal to deal.
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Agreement

Any arrangement or understanding or action in

concert

Whether or not such arrangement

understanding is formal or in writing

or

Or whether or not such understanding or

arrangement is intended to be enforceable by
legal proceedings
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Effects of competition

Creation of barriers to entry

Driving existing competitors out of market

Benefits to consumers

Benefit to Scientific and technical know-how

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Agreements presumed to have adverse effect

Directly or indirectly determines purchase or

sales price
Limiting or controlling production, supply,
technical know how
Sharing the market or sources of production
Bid rigging or collusive bidding

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CCI orders against Anti-competitive agreements

Penalty equal to three times the amount of

profit made out of such agreement or 10% of
average turnover of the cartel for preceding
three years whichever is higher

Modification directed to the agreement

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Powers of Competition Commission as Regards Agreements

After the inquiry into the Agreement, Competition

Commission can:
direct parties to discontinue the agreement
prohibit parties from re-entering such agreement
direct modification of the agreement
impose penalty upto 10% of average turnover of the
enterprise

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PROTECTION OF INTELLECTUAL
PROPERTY RIGHTS

Competition Act

The prohibition on horizontal and vertical agreements do

not restrict the right of any person to impose reasonable
restrictions to protect any of his rights under the
Copyright Act, the Patents Act, the Trade and
Merchandise Marks Act, Designs Act

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For those who would want to know more about

anti competitive agreements --- pls. visit the
site given below; it is a good ppt by CCI

http://www.competition-commissionindia.nic.in/Capacity_Building_Initiatives/In
vestigating_Anticompetitive_Agreements.pdf

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Abuse of Dominance
Dominant position is defined as a position of strength
which enables the enterprise
to operate independently of competitive forces in
the market or
to affect its competitors or consumers in its favor.
No mathematical or statistical formula is adopted to
measure dominance

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Abuse of Dominant Position

Includes practices like:
Unfair or discriminatory conditions or prices,
Limiting or restricting production or technical/scientific
development,
Denial of market access, and
Predatory pricing.
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Factors to be considered while determining Dominance

Dominant position is linked to a many factors

Market share of enterprise

Size and resources of enterprise

Size and importance of competitors

Commercial advantage of enterprise over competitors

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Power of the Competition Commission

After inquiry into abuse of dominant position, the
Competition Commission can order:
discontinuance of abuse of dominant position

impose a penalty upto 10% of the average turnover

of the enterprise

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Relevant Product Market

Physical characteristics or end-use of goods

Price of goods or service

Consumer preferences

Exclusion of in-house production

Existence of specialized producers

Classification of industrial products

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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 neighboring areas profitably

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Combinations Regulation

Combinations, in terms of the meaning given to them in

the Act, include mergers, amalgamations, acquisitions.

in order to establish whether the higher concentration in

the market resulting from the merger will increase the
possibility of collusive or unilaterally harmful behavior,
it must first be established as to what the relevant
market is
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Mergers and Acquisitions

Commission is expected to regulate Combinations, i.e., large
mergers, acquisitions, etc. likely to have appreciable adverse effect
on competition.
Notification of Combination to Commission is voluntary
If notified, Commission has to take a decision within 90 days on
the combination. Decision may allow, disallow, modify, etc. the
combination.
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Impose penalty
up to 10%
of turnover.
Powers
of Commission

In case of cartel, penalty can be 10% of turnover or 3

times of profit illegally gained from cartel activity,

whichever is higher.

Recommend to Government the division of dominant

enterprise

Various penalties ranging from Rs.1 lac upto Rs.1 crore

are also provided for failure to comply with direction/order

of Commission
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