NEED FOR A COMPETITION POLICY IN THE NEW LIBERAL ECONOMY Competition Policy Liberal Economy

Adam Smith on Economic Liberalism Rests on a particular assumption of human nature.: within the economic sphere mankind is motivated (broadly speaking) by a desire for gain. Self Interest will serve public interest : Pursuit of self interest is the unintended source of the greatest public good. Freely pursuing ones own interest (to specialise and exchange for a profit) one is unintentionally involved in the provision of goods for the needs of others.

Competition Law C. L. is the law that which promotes or maintains market competition by regulating anticompetitive conduct by companies. Competition: Stimulates innovation & efficiency. Provides consumers wider set of alternatives. Enhance product differentiation. Better satisfaction of consumer demand. *Eg: telephone and mobile service. Advantages of Competition Policy Allocative Efficiency : ensure effective allocation of resources. Productive Efficiency : ensure that cost of production are kept at a minimum. Dynamic Efficiency: Promotes innovative practices.

Competition & Liberal Economy Truly competitive economy has to be Free. Freedom : absence of either public/private constraints on markets. Market situation where, neither buyers nor sellers exercise any influence on price. Has many defects: big companies eliminate small companies influence price consumers not sovereign . India and Competition Policy

Independence - Industrial Revolution started. Shift in policy: Directed & regulated market (1948) Policy Resolution (1958) - free market economy (1991). 1948 : delineated role of State in industrial development as an entrepreneur & authority. 1956: achieve objective of growth, social justice & self-reliance in the industrial sector defined parameters of Govt. regulatory mechanism. - agriculture left to pvt. Initiative.MRTP Act. 1991: Liberalisation

India before 1991 Nehruvian Model : ltd. access to pvt. Sector public sector was allowed to achieve the commanding heights by controlling major share of production. Govt. intervened directly through monopoly purchasing & distribution agency - STC (State Trading Corporation), MMTC (Mines & Minerals Trading Corporation), OIL (Oil India Ltd.) Nehruvian model aimed at achieving defined set of investment allocations (adm. Mechanism of licensing & quotas for scarce resources) based on the State determined priorities.

Need for a Competition Policy in Liberal Economy Needed to ensure free & competitive market assure consumers low price & high quality that flow from competition. Regulations should be able to preclude any attempt at subversion of free trade & competition. Necessary to curb abuse of market: Predation : (forcing a competing firm out of business), Takeover/Merger: buying out competing firms. Cartelisation : colluding with competing firms. Competition cannot be left out unfettered in the belief that it will drive out unfair trade practices. Free trade has become more complex with technological advancement it does not provide clear safeguards. Competition policy is necessary to curb forces of monopoly. By enacting a competition law Govt. takes the responsibility of assuring competition among private firms. Competition Commission of India v. Steel Authority of India, [Civil Appeal No. 7779 of 2010]

 Discussed the enactment Competition Act and appointment of Competition Commission. The primary purpose of competition law is to remedy some of those situations where the activities of one firm or two lead to the breakdown of the free market system - prevent such a breakdown by laying down rules by which rival businesses can compete with each other. Competition Policy & its Effect Legislation Political & Social - Employment Environment

Competition Policy & the Legislature Competition is an Economic phenomenon - Developing/Changing competition Policy must have sound Economic Knowledge. Consider economic theories. Reason: There cannot be good law without good knowledge of the subject matter to which that law applies.

Political & Social Impact of Competition Policy Expels inefficient enterprises from market - Unemployment increase in concerned sector - Bankruptcy Anti-competitive practice would raise Price - Impose burden on Consumers & industries. Hamper national Economic Growth Welfare Public sector undertakings will become a failure - State enterprise becomes failure irresponsible management & lack of competition - Ensure Competition in the Domestic Market.

Competition Policy & Environment Competition is a drawback for Environment Increase Pollution Production Process intervention at Micro Level Goods produced - Pollutive Exploits Natural Resources Merger should be encouraged without affecting Competition CSR

Focus of Competition Policy

1. Primary object should be to enhance consumers welfare - Ensure Consumer Surplus avoid protecting competitors interests directly & focus instead on the efficiency on the Competition process, 2. Better Regulating Agency - Economic welfare generation of Employment Merger, 3. Proper balance between Competition Policy & IPR prevent abuse of dominant position, 4. Make Mandatory and implement properly CSR Protect Environment Industrial Policy. Conclusion According to laissez-faire theorists, when the firm tries to raise prices to take advantage of its monopoly position - it creates profitable opportunities for others to compete curb evils like predation, merger, cartelisation. Indian competition Law is of recent origin which is yet to go in full swing there are no rules to provide the path & no precedent to follow.