Understanding Competition Policy: An Academic Perspective on Indian Laws and Regulations, Slides of Competition Law and Policy

Download Understanding Competition Policy: An Academic Perspective on Indian Laws and Regulations and more Slides Competition Law and Policy in PDF only on Docsity! Emerging Competition Laws In India: An Academician’s Perspectives Docsity.com 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) • Is “an essential hand maiden to efficient trade.” • The ultimate raison d’ etre of competition is the interest of the consumer. Docsity.com Contd…  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 Docsity.com 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. Docsity.com 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  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 Docsity.com CONFLICT OF OBJECTIVES  The objectives of competition policy in any country may be conflicting among themselves. For example, the objective of protecting the interests of small and medium industries may conflict with the objective of efficiency.  Therefore, the concept of ‘core values’ for promoting competition policy has evolved.  The anti-competitive nature of a market behaviour is decided based on whether it is in conformity with the ‘core values’ or not. Docsity.com Promotion of Competition  For promotion of competition in the market an appropriate competition policy is required.  Competition policy includes “those government measures that directly affect behaviour of enterprises and structure of industry.” (Khemani and Mark Dutz 1996) Docsity.com Elements of Competition Policy Competition policy has two elements :- • 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. Docsity.com Competition Policy I t 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 Docsity.com 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. Docsity.com 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. Docsity.com State Aids • Several state aids create unequal operating conditions for businesses. Examples: – Subsidies – Tax rebates – Preferential loans – Capital injection – Public procurement • 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. Docsity.com COMPETITION POLICY IN THE WTO CONTEXT  Havana Charter and the still born International Trade Organization (ITO)  Chapter V of the Havana Charter entitled ‘Restrictive Business Practices’ contained Articles on the obligations of member governments to address such practices. ITO WAS TO FACILITATE COMPLAINTS LODGED BY MEMBERS. However, ITO never came into being Docsity.com COMPETITION POLICY IN THE WTO CONTEXT  The Charter defined the purpose of the obligation provisions as follows: “……. To prevent, on the part of private or commercial public enterprises, business practices affecting international trade which restrain competition, limit access to markets, or foster monopolistic control, whenever such practices have harmful effects on the expansion of production or trade ………" Docsity.com Contd…  As mandated by the Singapore Ministerial Conference the progress of the Working Group was reviewed at the end of 1998 on completion of two years of study process.  Subsequently, the General Council of WTO agreed to continued study by the Working Group, but with focussed attention on the following three areas: Docsity.com Contd… 1.The relevance of fundamental WTO principles of national treatment, transparency and ‘most favoured nations treatment’ to competition policy and vice versa; 2.Approaches to promoting cooperation and communication among members, including in the field of technical cooperation; and 3.The contribution of competition policy to achieving the objectives of WTO, including promotion of international trade Docsity.com Background to India’s Competition Law Earlier Law MRTP Act enacted in 1969 • Belongs to the era of controlled economy, as against the market based economy • Objectives were to prevent concentration of economic power, to control monopolies, and to prohibit monopolistic and restrictive trade practices • Major amendments to MRTP Act undertaken in – 1984 – major addition was relating to Unfair Trade Practices, – 1991 – deletion of Chapter relating to Mergers and Acquisitions, and – Addition relating to Award of Compensation. Docsity.com Contd… 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. Docsity.com 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. Docsity.com Relevant Product Market • Physical characteristics or end-use of goods • Price of goods or service • Consumer preferences • Exclusion of in-house production • Existence of specialised producers • Classification of industrial products Docsity.com Contd… Vertical Mergers • Competition law must not normally have any objections to vertical mergers. Conglomerate Mergers • A conglomerate merger is a merger that is neither horizontal nor vertical. Pre-Notification • The requirements for prior notification. Docsity.com Contd… • There are two possibilities: – The first is that approval or disapproval of the merger may be obtained (possibly within a specified time) before going ahead with the merger. – The second option is that no notification of permission is required and that the threat of action in case of a violation should generally enforce legal behaviour. Docsity.com Competition Advocacy • The Competition Commission of India, in terms of advocacy provisions in the Act, is enabled to participate in the formulation of the country’s economic policies and to participate in the reviewing of laws related to competition at the instance of the Central Government. • Commission is required to take measures for promotion of Competition Advocacy, creating Awareness and imparting Training about competition issues [Section 49(3)] Docsity.com Academician’s Perspective • Competition should be a factor to be reckoned with in the trade and market policies of a country. • There should be a competition policy and of course a competition law, which should be structured that they subserve by and large the consumers, consumer interest and consumer welfare. Docsity.com Contd… • There should be a enough flexibility in the competition and trade policies to deal with the specific needs and requirements of a country. • Public interest dimension can have primacy over the consumer interest dimesion, in exceptional circumstances. Care should be taken not to allow public interest to be abused to circumvent competition. • Competition policy should inhere the development dimension in its approach and implementation. Docsity.com