Competition and Anti-Trust Laws in India

An Article review by Aaryan Wasnik.

 What is Competition ?
• Competition, in economics, is defined as the effort of enterprises to be
leaders in their industry and increase their market share .

• It’s when one business tries to win over another business’ customers or
clients by offering different products, better deals, or by other means .

• Market competition motivates companies to increase sales volume by

utilizing the four components of the marketing mix, also referred to as the
four P's .

• These P's stand for product, place, promotion, and price .

• Knowing and understanding your competition is a critical step in designing

a successful marketing strategy .
 Competition Laws and their needs
• The essential objective of Competition a.k.a Anti-Trust Laws is to encourage
fair market conduct and promote healthy competition between companies
and in the process encourage and ensure efficiency and innovation and
promoting as well as sustaining competition .

• It does so by assuming the role of a ‘watchdog’ for inimical behaviour and

regulating anti-competition tendencies like premeditated mergers,
agreements or associations with avaricious intents to dispel rivals or
discourage possible competitors .

• An effective law for regularizing competition is a means of inspiring

International confidence in an economy .

• A good competition policy , along with a sound competition law should help in
fostering competition , economic efficiency , consumer satisfaction and
freedom of trade .
 Competition Laws and their needs
• In pursuit of Globalisation, India has responded positively by opening up its
economy to global players , removing controls and resorting to Liberalisation .
So , markets need to gear up to face competition from within and outside .

• India was one of the first countries to have a competition law in the form of
the MRTP Act , 1969 .

• However , with the advent of economic reforms in 1991 , the law was found
inadequate for fostering competition in markets .

• Hence , the Competition Act , 2002 was enacted by the Parliament to establish
the new Competition regime in India and the embattled MRTP Act was
repealed .

• Thus , with the increasing integration of the Indian Economy with International
Markets , the Govt has acquired a wider perspective on regulation from
merely curbing monopoly to promoting competition .
 MRTP Act
The Monopolistic and Restrictive Trade Practices Act, 1969, was enacted –

• To ensure that the operation of the economic system does not result in
the concentration of economic power in hands of few .

• To provide for the control of monopolies, and

• To prohibit monopolistic and restrictive trade practices .

It extended to all of India except Jammu & Kashmir.

 Monopolistic Trade Practices
The act defines the Monopolistic Trade Practice as “Such practice indicates
misuse of one’s power to abuse the market in terms of production and
sales of goods and services.

• Firms involved in monopolistic trade practice try to eliminate competition

from the market .

• Then they take advantage of their monopoly and charge unreasonably

high prices.

• They also deteriorate the product quality, limit technical development,

prevent competition and adopt unfair trade practices .
 Restrictive Trade Practices
• The act defines Restrictive Trade Practice as “The traders, in order to maximize their profits and to
gain power in the market, often indulge in activities that tend to block the flow of capital into
production. Such traders also bring in conditions of delivery to affect the flow of supplies leading to
unjustified costs.”

Unfair Trade Practices

The act defines Unfair Trade Practice as –

• False representation and misleading advertisement of goods and services.

• Falsely representing second-hand goods as new.

• Misleading representation regarding usefulness, need, quality, standard, style etc of goods and services.

• False claims or representation regarding price of goods and services.

This provision was added by the 1984 Amendment and was counterproductive to the
extent that petty consumer issues started embattling the Commission and it started
digressing from its initial objectives .
 Faltering leading to Transition
• There was a lot of criticism around the MRTP Act that it prohibited growth.
• A perusal of the Act will show that there is neither definition not even
mention of certain offending and restrictive trade practices like “Abuse of
Dominance, Cartels, collusions and Price Fixing ,Bid Rigging and Predatory
Pricing” .
• A 2000 survey concerning the Economic Resources at its disposal will show
that its allocation in proportion to the Annual Budget was Minuscule .
• Hence a question arose on the effectiveness of the Act and the need to
replace it with a new Legislation . One strong argument is favor of enacting a
new law was that the Law had to fit the changing scenarios on the economic
and trade front .

• The Raghavan committee submitted its report in May 2000 and the Govt
passed a new law in December 2000 named the “The Competition Act 2002”.
 The Competition Act, 2002
• The Act seeks to ensure fair competition by prohibiting trade practices which
cause appreciable adverse effect on competition .

• For this purpose, it provides for the establishment of the Competition

Commission which shall undertake competition advocacy .

• Various regulators at present ensure its implementation like the SEBI , NSE,
BSE etc .

• Competition Act is comprised of the following –

1) Anti- competitive agreements
2) Abuse of Dominance
3) Combinations Regulations
4) Competition Advocacy
 MRTP vs Competition Act
MRTP Act
• Based on command and control
regime .
• Competition concepts not
expressly defined .
• No power to impose penalty
deterrence .
• Reactive and Rigid .
• Govt departments outside its
ambit .
Competition Act
• Based on liberalised regime .
• Competition concepts expressly
defined .
• Power to impose penalty
deterrence factor .
• Proactive and flexible .
• Govt departments within its
ambit.
 Shortcomings of the Act
• The Act took into account ‘contribution to economic development’ as
grounds for acquittal which is problematic as ‘development’ is subjective .

• Cartels were only presumed to be anti-competitive. Thus these presumptions

could be contested in court .

• It allowed rich firms to set below-the-cost prices to meet the competition

allowing them huge profits .

• However the CCI could also charge firms of abuse without evidence of an
Appreciable Adverse Affect on Competition which is very problematic .

• There were institutional issues since the CCI didn’t have complete authority
and the government could supersede it and reconstitute it if it felt it wasn’t
functioning properly .
 CONCLUSION
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