Competition Act, 2002

Learning Outcomes

To understand the role and

regulations of this act.
Introduction
Car sold at crash price

OPEC deciding the oil prices

Microsoft slapped heavy fine

Luftansa Cargo for price fixation

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)
“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…………………………
 ….Benefits of Competition
………all these benefits are lost if Competition is

UNFAIR or NON-EXISTANT

• Choice of CARS in the olden days

• MTNL Monopoly : Till 2000

• Airlines : INDIAN AIRLINES : JET : SAHARA

• Indian Railways : The monopoly continues….

 It is not necessary that there are a large number of
producers/suppliers to have competition conditions.

 A single producer can exist and provide a competitive

atmosphere provided entry of new firms is easy and not
costly.

 Entry barriers can be due to the market position of

incumbent firms, legal barriers or strategic barriers
• Incumbent firms may use their power as “first Movers” to
block entry.
• Legal barriers include licensing and other Government
regulations
 Contd…
• Strategic barriers are generally erected by incumbent
firms in the form of artificial and sudden price reduction
with a view to thwarting new entry.

 Contestability of markets ensure competitive conditions in

the market.

 Competition is expected to enhance allocated and

productive efficiency so as to maximize economic welfare.

 Monopoly (market) power tends to lead to inefficient

allocation of sources and discourages innovation or
introduction of better technology.
Objective
 Eliminate practices having adverse effect on competition

 Promote and sustain competition in the market

 Protect the interests of the Consumers

 Ensure freedom of trade is carried on by other participants in market in

India

 Power to grant Compensation

Main Features
 Prohibits Anti – Competitive Agreements

 Prohibits abuse of Dominant Position

 Provides for Regulation of Combinations

 Enjoins Competition Advocacy

 OBJECTIVES OF COMPETITION LAW &
POLICY

Promoting economic efficiency in both static and

dynamic sense
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
 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
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 and

– Regulation of Mergers and Acquisitions (M&As).

Contd…
 The need for Competition Law arises because
market can suffer from failures and distortions, and
various players can resort to anti-competitive
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.
Elements of Competition Policy

• Putting in place a set of Policies that enhance competition

in local and national markets.

• A Law designed to prevent anti competitive business

practices and unnecessary government intervention.
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
• Labour policy
• Other such policies
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.
 Trade Policy
Trade policy has important implications for
development of competition in the markets. Measures
for liberalisation of trade promote greater competition
e.g. reducing tariffs, removal of quotas/physical
controls, investment controls, conditions relating to
local content etc.
 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.
 Privatization/Disinvestment

Empirical research has found that state- owned

enterprises generally tend to be less efficient than
private owned firms, for reasons such as manager
compensation, low incentives, lack of direct
accountability, hard budget constraints for managers,
etc.

State owned enterprises are generally insulated from

market forces and receive protection/benefits such as
government imposed barriers to entry, price regulation
and subsidies.
Economic Regulations
New legislation and regulations to promote
competition and to bring about restructuring of major
industrial sectors is essential. Legislation to aim at
separating natural monopoly elements from
potentially competitive activities, and the regulatory
functions from commercial functions, and also create
several competing entities through restructuring of
essential competition activities and to create a
competitive environment .
Examples:
– Electricity sector
– Telecommunications sector
– Ports
 State Aids
 Several state aids create unequal operating conditions for
businesses. Examples:
– Subsidies
– Tax rebates
– Preferential loans
– Capital

 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.
 Evolution of Competition Law
Before MRTP Act came into force (1970), limited provisions
existed under :
The Indian Contract Act
Directive Principles of State Policy (Non-enforceable)

The MRTP Act brought in a four-pronged thrust :

Concentration of economic power
Restrictive Trade Practices
Monopolistic Trade Practices
Unfair Trade Practices
 MRTPs vis-à-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 (except Disparagement Cases) will be

transferred to National Commission under CPA

All Disparagement Cases will be transferred to

Competition Commission
 DIFFERENCE BETWEEN MRTP AND
COMPETITION ACT

MRTP ACT COMPETITION ACT

 Based on Pre 1991 legislation
 Procedure Oriented
 Large number of offences in it
 Reactive
 No competition advocacy
 Based on post 1991 legislation
 Result oriented
 Just four offences (rest by rule of
reason)
 Proactive
 CCI has competition advocacy
 MRTP ACT
1. BASED ON PRE-1991 LPG
2. PREMISED ON SIZE
3. PROCEDURE ORIENTED
4. NO TEETH (REFORMATORY)
5. OFFENCES DEFINED IMPLICITLY
(CARTELS, BID-RIGGING ETC.)
6. FROWNS ON DOMINANCE
(25% OF MARKET SHARE)
7. A LARGE NO. OF PER SE
OFFENCES
(AGAINST PRINCIPLES OF
NATURAL JUSTICE)
NEW LAW
1. BASED ON POST-1991 LPG
2. PREMISED ON BEHAVIOUR/
CONDUCT
3. RESULT ORIENTED
4. CAN BITE (PUNITIVE )
5. OFFENCES DEFINED
EXPLICITLY
6. FROWNS ON ABUSE OF
DOMINANCE
(NO PERCENTAGE OF MARKET
SHARE)
7. JUST FOUR ARE PER SE
OFFENCES
(REST BY RULE OF REASON)
 MRTP ACT
8. COVERS UNFAIR TRADE
PRACTICES (INDIVIDUAL
CONSUMER INTEREST)
NEW LAW
8. UNFAIR TRADE PRACTICES
EXCLUDED (COVERED UNDER CONSUMER
PROTECTION ACT)

9. POLITICAL APPOINTMENTS OF
9. APPOINTMENTS BY A COLLEGIUM
CHAIRPERSON/MEMBERS
10. NO COMPETITION ADVOCACY
10. CCI HAS COMPETITION ADVOCACY
ROLE ROLE
11. REACTIVE 11. PROACTIVE

NO LAW IS BETTER THAN A POORLY ADMINISTERED LAW


 Powers to CCI
 To issue cease and desist order
 To modify trade agreement
 To award compensation
 To impose penalty
CCI and CAT
 Common Appellate
Tribunal(CAT)
 Will hear and dispose of appeals
against orders of CCI.
 Will adjudicate on claims for
compensation.
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
 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.
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.
Agreement
Any arrangement or understanding or action in concert –

Whether or not such arrangement or understanding is formal

or in writing

Or whether or not such understanding or arrangement is

intended to be enforceable by legal proceedings
Adverse effect on
competition
Creation of barriers to entry

Driving existing competitors out of market

Benefits to consumers

Benefit to Scientific and technical knowhow

Agreements presumed to have
adverse effect
Directly or indirectly determines purchase
or sales price
Limits or controls production, supply,
technical know how
Shares the market or sources of production
Results in bid rigging or collusive bidding
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

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
 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
 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 –
 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.
 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