COMPETITION

LAW
ASSIGNMENT
TOPIC: NEED FOR COMPETITION LAW

SUBMITTEED BY,

AFITHA P BEERAN

CONTENTS
1. INTRODUCTION
2. COMPETITION LAW
3. NEED FOR COMPETITION LAW
ANTI-COMPETITIVE AGREEMENTS
ABUSE OF DOMINANT POSITION
ANTI-COMPETITIVE COMBINATIONS

4. CONCLUSION
5. BIBLIOGRAPHY

INTRODUCTION
Competition is a process of economic rivalry
between market players to attract customers. These market players which
include multinational companies, domestic companies, wholesalers, retailers etc
adopt both fair and unfair ways to become better than other players in the
market. Competition not only comes from existing players but new entrants to
the market can also contest in the market. One appropriate definition of

competition is as follows a situation which ensures that markets always remain

open to potential new entrants and that, enterprises operate under the pressure of
competition. The World Bank has given a definition to competition as 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 shares
In the period prior to
liberalisation, India's annual growth rate was low at around 3.5%, only a few
licenses were given out for important sectors like steel, electrical power, energy
and communication, and these licence owners built up powerful corporate
empires. India at that time was a socialistic economy with excessive
government control. Core industries were directly managed by the govt. as
public sector enterprises, and banking and airline industries were nationalised. A
huge public sector emerged and state-owned enterprises made large losses.
There was public sector monopoly and investment in infrastructure was poor.
Government of India began the process of privatisation in 1991. Privatisation
means having private ownership, management and control into public sector
undertakings. The purpose of privatisation is to improve the efficiency of public
undertakings and to raise funds for public investment. As a result financial
institutions have become more active, working culture is improving and
management is being professionalised, there is improvement in technology,
better investment behaviour of Indian entrepreneurs and companies are aware of
the significance of human capital. The banking, financial services & insurance
(BFSI) and airline sectors have become extremely competitive.
India Report by Astaire Research states: "A Balance
of Payments crisis in 1991 pushed the country to near bankruptcy. In return for
an IMF bailout, gold was transferred to London as collateral, the rupee devalued
and economic reforms were forced upon India. That low point was the catalyst
required to transform the economy through badly needed reforms to unshackle
the economy. Controls started to be dismantled, tariffs, duties and taxes
progressively lowered, state monopolies broken, the economy was opened to
trade and investment, private sector enterprise and competition were encouraged
and globalisation was slowly embraced. The reforms process continues today
and is accepted by all political parties, but the speed is often held hostage by
coalition politics and vested interests."

Thus due to an IMF bailout in the year 1991 and its

aftermaths, the then closed Indian market was opened and more entrants were
allowed to play in the market. It was the need of the day as Indian economic
growth was stagnating and the consumers were left with no choice than to buy
the least variety of products available. The long wait for a Bajaj scooter or a
Premier Padmini car changed as competition was established by virtue of
Liberalisation, Privatisation and Globalisation. So Competition has forced
manufacturers to be innovative and responsive to customer needs.

COMPETITION LAW
Competition Law is one form of law that is
specifically intended to shape market conduct; it is also known as antitrust
law. Competition laws are intended to protect the process of competition from
restraints that can impair its functioning and reduce its benefits. Competition
law can both contribute to the efficiency of markets and embed them in society.

It can aid efficiency by increasing incentives to compete and eliminating

obstacles to innovation and expansion.1
It is being increasingly recognised that the markets have an important role to
play in any economy. As the role of the market expands, the role of the state
also undergoes a change. In any economic system, the state can play three roles:
1. as a producer of marketable goods and services,
2. as a producer of public goods and merit goods, and
3. as a regulator of the system.
As the state reduces its role in the production of
marketable goods and services and yields to the market, its role as regulator
and facilitator gets enhanced2. Among other things, the regulatory role of the
state demands action to maintain competitive conditions in the market.
Efficiency is associated with competition and the markets can fulfil their
functions efficiently only if they remain competitive. Legislation is, therefore,
required to prevent the degeneration of the markets to a monopolistic or a near
monopolistic situation. Competition Law is a framework of legal provisions
designed to maintain competitive market structures.

NEED FOR COMPETITION LAW

The purpose of competition law is the control in the
public interest of the actual or potential market power of business firms. This
power may arise either from the dominant market position of a single firm or
1 David J Gerber: Global Competition, Law, Markets and Globalisation, Oxford
University Press.
2 Vinod Dhall: Competition Law Today, Concepts, Issues, and the Law in
Practice, Oxford University Press.

from agreements between a number of firms which have the effect of reducing
or eliminating competition. In the European Commissions words3:
Competition is the best stimulant of economic activity since it guarantees the
widest possible freedom of action to all. An active compensation policy pursued
in accordance with the provisions of the Treaties establishing the Communities
make it easier for the supply and demand structures continually to adjust to
technological development. Through the interplay of decentralised decisionmaking machinery competition enables enterprises continuously to improve
their efficiency, which is the sine qua non for a steady improvement in living
standards and employment prospects within the countries of the community.
From this point of view competition is an essential means for satisfying to a
great extent the individual and collective needs of our society.
Although the process for competition forces firms to
become efficient, and offer a greater choice of products and services at lower
prices and higher quality, these may not be the sole reasons for the governments
to enact competition legislation. Competition law in several countries is based
on a multiple set of values that are neither easily quantifiable nor reduced to a
single economic objective. These values may reflect the societys wishes,
culture, history, institutions, and other factors that cannot nor should necessarily
be ignored.
The objectives and scope of competition law-policy
tends to vary across countries and overtime. For instance, in countries such as
Canada and New Zealand, the primary objective of the competition legislation
is to maintain and encourage competition with emphasis being placed on the
promotion of economic efficiency. In the United Kingdom, emphasis is placed
on public interest-broader concept than that of competition alone. In the
United States, the enforcement of competition laws has increasingly focussed
on the consumer welfare and economic efficiency. In the Economic Union,
priority is given to economic or market integration and prevention of dominance
by large firms. In Germany preserving or ensuring the freedom of individual
action and economic freedom are viewed as being important among the
objectives of competition law-policy.4
3 First Report on Competition Policy, (1971), p.11. cp.n.53
4 Chapter I of the World Bank and OECD A Framework for the Design and
Implementation of Competition Law and Policy (1999)

In India, the objectives of competition Act are ...keeping in view the economic
development of the country...to prevent practices having an adverse effect on
competition, to promote and sustain competition in markets, to protect the
interests of consumers and to ensure freedom of trade...
Generally an effective and efficient competition law is needed for various
purposes, which includes:
Prohibition of anti-competitive conduct
Liberal international trade policies;
Free movement of all factors of production(labour, capital, etc.) across
internal borders;
Removing government regulation that unjustifiably limits competition,
e.g., legislated entry barriers of all kinds, professional licenses, minimum
price laws, restrictions on advertising, etc.;
The reform of inappropriate monopoly structures, especially those created
by governments;
Appropriate access to essential facilities;
A level playing field for all participants, including competitive neutrality
for government businesses and an absence of state subsidies that distort
competition; and
Separation of industry regulation from industry operations, e.g., dominant
firms should not set technical standards for new entrants.
Conventional competition law prohibits anti-competitive conduct by business
enterprises. It prohibits cartel behaviour, monopolization, anti-competitive
mergers, and other anti- competitive practices and may extend to prohibitions
on false advertising and misleading and deceptive conduct.
The Competition Act was enacted in 2002 keeping in view the economic
developments that resulted in opening up of the Indian economy, removals of
controls and consequent liberalisation which required that the Indian economy
be enabled to allow competition in the market from within and outside.
Competition law, almost everywhere, prohibits three kinds of activities, namely
anti-competition agreements, abuse of dominant position, and regulate anticompetitive mergers and acquisitions

ANTI-COMPETITIVE AGREEMENTS

Anti-competitive agreements between enterprises that restrict competition fall

into two categories: horizontal agreements which are those between
enterprises at the same stage of the supply chain and vertical agreements
which are between enterprises at different stages of the supply chain. Usually it
is the horizontal agreements that cause the greatest concern to competition
authorities.
A Cartel is a horizontal agreement to fix prices, allocate customers or territories,
restrict output or rig bids. A Cartel is regarded as the most pernicious form of
violation of competition law since it unequivocally damages competition and
causes loss to the economy and to the consumers.

ABUSE OF DOMINANT POSITION

The traditional definition of dominance is that it relates to a position of
economic strength enjoyed by an enterprise in the relevant market which
enables it to prevent effective competition by affording it the power to behave
independently of competitors and of consumers5. Thus dominance incorporates
two characteristics: exploitative abuse and exclusionary abuse. The former
denotes the ability of the enterprise to behave independently of customers or
competitors, thereby allowing it to exploit customers and the latter to exclude
competitors. An enterprise abuses its dominant position when it resorts to an
anti-competitive practice to maintain or increase its position in the market,
especially when such practice is not a response to the market, and when it has a
significant effect on competition.
However it is important to note that competition can also sow the seed
of its own destruction i.e. when encouraged to compete, successful
entrepreneurs may achieve positions where they are able to prevent others from
competing and there by damage the process as a whole. Therefore the primary
aim of competition law is to remedy some of the situations where the activities
of one firm or two lead to the breakdown of the free market system, or to
prevent such a breakdown by laying down rules by which businesses can rival
with each other.

5 See United Brands and United Brands Continental BV v. Commission of the

European Communities[1978] 1 CMLR 429

ANTI-COMPETITIVE COMBINATIONS
Broadly, combination under the Act means acquisition
of control, shares, voting rights or assets, acquisition of control by a person over
an enterprise where such person has direct or indirect control over another
enterprise engaged in competing businesses, and mergers and
amalgamations between or amongst enterprises when the combining
parties exceed the thresholds set in the Act. The thresholds are specified in the
Act in terms of assets or turnover in India and outside India.
Entering into a combination which causes or is likely to
cause an appreciable adverse effect on competition within the relevant market in
India is prohibited and such combination shall be void.
Horizontal combinations are those that are between rivals and are most
likely to cause appreciable adverse effect on competition.
Vertical combinations are those that are between enterprises that are at different
stages of the production chain and are less likely to cause appreciable adverse
effect on competition.
Conglomerate combinations are those that are between enterprises not in the
same line of business or in the same relevant market and are least likely to cause
appreciable adverse effect on competition.
The combination under the Act is usually expected to take place before it comes
into effect with an idea of preventing a possible anti-competitive behaviour
which may adversely affect the consumers. Combinations likely to have an
anti-competitive effect can be permitted after such effects are removed by
modifications.
Competition Act 2002 seeks to ensure fair competition
in India by prohibiting trade practices which cause appreciable adverse effect
on competition in markets within India and for this purpose provides for
establishment of a quasi-judicial body to be called the competition
commission of India which shall also undertake competition advocacy for
creating awareness and imparting training on competition issues. The act aims
at curbing negative aspects of competition through the medium of CCI. Various
other regulators such as SEBI, TRAI, IRDA etc, are present to ensure its
implementation.

CONCLUSION

Competition is the backbone of Economy. Lack of

competition results in a mass of complacency which leads to poor products that
destroy creativity and thus ultimately hold back the progress in the markets.
Competition is necessary for high economic growth and low unemployment.
The need arises because market can suffer from failures and distortions and
various players can resort to anticompetitive activities such as cartels, abuse
of dominance which adversely impact economic efficiency and society
welfare. Fierce competition between companies both locally and globally is like
a life ventilator support system of strong and effective markets. It encourages
firms to replenish, rejuvenate and innovate. Competition reduces slack, putting
downward pressure on costs and providing incentives for efficient organization
of production. It helps improving quality standards.
Competition is a necessity for every economy to flourish to its
highest. But at the same time competition kills competition. If the competition
is not healthy and is followed in an uncontrolled manner, then it can destroy an
economy. Here comes the need and importance of a competition law. An
effective competition law ensures the fair play of companies in a market place.
It helps the consumers, government and the society as a whole from the adverse
effects of unhealthy competition by prohibiting Anti-competitive practices.
A good competition policy, along with a sound competition
law should help in fostering competition, economic efficiency, consumer
welfare and freedom of trade. This would enable the government in meeting the
challenges of globalization by increasing competition in local and international
markets.

BIBLIOGRAPHY

 Vinod dhall, Competition Law Today, Concepts, Issues and

the Law in Practice, Oxford University Press.
T.Ramappa, Competition Law in India, Oxford University
Press.
David J Gerber, Global Competition, Law, Markets and
Globalisation, Oxford University Press.
Taxmanns Guide to Competition Law, Taxmann Publications
Pradeep S. Mehta, Evolution of Competition Laws and their
Enforcement, Routledge.
G. Ganesh, Privatisation in India, Mittal Publications.
Pradeep S. Mehta, A Functional Competition Policy for
India, Academic Foundation.

WEBLIOGRAPHY
Competition Law & Practice in India, Prepared by Competition
Commission of India, June 2004
An introduction to Competition Policy and Law, Carl Buik,
Senior Advisor, Competition and Consumer Policies Branch,
UNCTAD, 13 April 2010.
When world at large is a single platform for carrying out trade
and commerce, the need for Competition Act 2002, Legal
Environment of Business Group assignment report