India is a mixed economy which has both public sector and private sector. Both these entities have expanded the corporate sector. The LPG policy (Liberalisation, Privatisation and Globalisation) is a major contributor to the development of the country.
The mixed economy model was promoted by Jawaharlal Nehru. Under the model major industries such as mining, electricity and heavy metals came under public sector as the government believed that these are for the benefit of the general public. The government targeted both capital formation and social reforms.
Before 1991 the Government had major stake in the industries rather than the private sectors. The government enacted Industrial Development and Regulatory Act (IRDA) which stated the procedure, rules, guidelines etc. for the private sectors to set up their industries. They did not allow any foreign investment in India as well. The rules and the procedures for setting up the private industries were stricter and expensive that major people backed out. This led to the failure of the Nehruvian Model.
The biggest issue was the licensing of the industries. It was not a cost effective way to set up an industry in India. Since there was no foreign investment in India this led to balance of payments. The Indian Economy was in a major debt which caused the government to mortgage their gold mines to the World Bank for the loan.
Rajiv Gandhi’s then government by the year 1991 realised that India needs to set up a system for its economic growth. Then finance minister and former Prime Minister Dr. Manmohan Singh brought the LPG policy and foreign investment in India. The complicated procedure for licence was removed except for few industries. The Government took various industries forming PSUs that is the Public Sector Units such as SAIL (Steel Authority of India), ONGC (Oil and Natural Gas Corporation) etc.
Due to privatisation there was a significant increase in the monopoly by the private sector. The purchase of the licences caused them to disproportionately regulate the market. There was a need to set guidelines for regulating the monopolistic practice in the market.
Government enacted the MRTP Act, 1969 that is Monopoly and
Restrictive Trade Practices Act. The MRTP Act was enforced in order to reduce
concentration and monopolistic practices so that consumers do not
suffer. Even though the act was enacted, it lacked the elements of
practices. The act majorly focused on the economic concentration
of power. Therefore, the government thought that
they required such that but not only focuses on
the economic concentration of power; also, it promotes healthy
competition in the Indian Market.
Therefore, the Indian Government constituted a committee under Mr. S.V.S Raghavan for interpreting the International Trade Laws. The laws under MRTP were outdated. The bylaws required amendment as per the International Competition laws so that the companies can engage in the competition which will help the consumer to choose the perfect participant of the market.
The Competition Act, 2000 was enacted in the year which is based as per the International Competition Laws. The main purpose of the Act is not only to check the economic concentration of the power but also promote fair and healthy competition in the market. Unlike in MRTP Act the competition Act provides penalties for the offences committed by the participants and engaging themselves in unfair competition. The other purpose of this act is to save the customers from those participants with ulterior motives. This act has a wider scope than the MRTP Act.
ANTI COMPETITIVE AGREEMENTS (AAEC):
The anti competitive agreements are those agreements which lead to appreciable adverse effect on competition (AAEC) in the market. Section 3 of the Competition Act, 2002 defines these agreements. They are anti competitive in nature since it causes changes the competition scenario in the market causing it to indulge the participants in the unfair and unethical practices affecting the customers.
The anti competitive agreements are not in the public interest and therefore the Competition Act prohibits the same. There are various factors that determine that the agreement is anti competitive in nature or not. They are as follows:
These anti competitive agreements act as a barrier to the new entrants in the market and a way to throw out their competitors from the market. These agreements lead to sudden and the unexpected changes in the forces of demand and supply. These changes affect the consumers and might hit the rock bottom for others. The changes in the market forces lead to change in the prices of the respective commodities in the market. This leads to unethical trade practices in the market.
There are two kinds of anti competitive agreements. They are:
- VERTICAL AGREEMENTS:
Vertical Agreements are those agreements in which two enterprises enter together and are at the different level of production. These enterprises include producers, distributors, buyers, sellers etc. These agreements are generally not an anti competitive agreement until it has been tested by the court through rule of reason. These agreements can have both positive as well as negative impact on the market.
There are five types of Vertical Agreements. They are:
- Tie-In Agreement: They are the vertical agreements in which the buyer is forced to buy certain goods along with the goods he/she is purchasing. In order to sell the certain goods the sellers engage in this agreement as it will cause the customer to buy the respective goods which are either new in the market or they aren’t being sold etc.
Example: Microsoft few years back was selling the windows software to their customers along with the software of windows media player. Therefore Microsoft asked the customer to purchase both of their respective software.
- Exclusive supply Agreement: They are the vertical agreements in which the purchaser is asked to not to supply the goods other than those of sellers or any other persons. In other words the purchase cannot deal in those goods which might act as a substitute to that of the goods of the seller or any other persons.
Example: If a purchaser deals in the products of PepsiCo such as Pepsi, Miranda, 7up etc. and he wants to sell similar products that is product of Coca Cola Company then he is bound not to sell the enemy brand respectively since he is dealing in the other beverage brand.
- Exclusive Distribution Agreements: They are the vertical agreements in which the seller does not tend to distribute the products in the respective areas or to the respective sellers as well. They hoard the products so that they can distribute the products in a particular area and to a particular person
Example: If a seller is dealing in a product ‘X’ which is the variety of rice in an area ‘A’ where he believes that he will earn more profit than from the other area ‘Y’ then the seller can withhold the distribution of rice in the area ‘Y.’
- Refusal to Deal: Under this agreement a person or a group of persons are restricted to deal in those goods that they have purchased or that they are going to sell by other people.
Example: If a person ‘A’ ask the seller ‘B’ to sell the product ‘Z’ and that he will purchase all the supplies of the same product on the condition that the seller should not sell the respective goods to other sellers. In other words he will be the purchaser of the give n good.
- Resale Price Maintenance: Under this vertical agreement the prices are decided by the seller and the purchaser. The seller states to the purchaser that he would resale the sold goods in the marker at the price which will be fixed by the seller.
- HORIZONTAL AGREEMENTS:
Horizontal Agreements are those agreements in which the agreement takes place between the people at the same stage of production. These include controlling the prices, controlling the forces of demand and supply etc.
These agreements may include similar goods in the market. These generally have a negative impact in the market since this would end the competition in the market as well as increase the monopolistic activities in the market.
The biggest example of horizontal agreements is ‘Cartels.’
Cartels are a group of people especially producers who tend to come together to sell their goods at profits by price fixing, controlling the forces of demand and supply etc. This would help the producer to run the market as per the requirement.
Cartels tend to create monopolistic market and that leads to unfair trade practices and unethical behaviour of the producer.
One of the main horizontal agreements is bid rigging or collusive bidding. Under this the bidders come together and prefix their bids. In other words the bids are pre determined by the bidders which is done in order to manipulate the prices of the products. The agreement is anti competitive in nature since the biddings are called by the government or the government entities and if bidders act to be together than this would contradict the very purpose of the tenders issued by them.
Bid rigging causes appreciable adverse effect on competition since the bidders will have a pre determined prices which can either be lower or similar to that of the other bidders. This can act as a loss to the government or the entities which are issuing tenders to them. This will also affect the new or the other bidders who might suffer due to other bidders who have an agreement for the same.
ABUSE of DOMINANT POSITION:
It is a situation in which the market participant completely practices in the market freely. The enterprise can operate market as per his requirement. The enterprise can change prices or affect the market forces etc. This is one of the ways of creating one’s monopoly in the market. This is also anti competitive in nature because it does not promote fair and healthy competition in the market. The consumer cannot have the access to the substitute and that he cannot have a choice to fulfil his needs.
The enterprise can increase or decrease the prices of the goods in which they are dealing. This will affect the forces of demand and supply. This might affect the entry of the new entrant since the monopolistic enterprise will act as a road block to it and may limit or provide no access to the same.
The dominant position of an enterprise not only depends on the relevant product but also the geographical location of the market. If a market is new and upcoming and if the enterprise sets its business in that market and it flourishes this would help in gaining monopoly in the market. Holding a dominant does not make an organisation to be guilty but misusing the same leading to abuse of such position in the market is the abuse of such a position.
Abuse of Dominant Position can be done in the following ways:
- Predatory Pricing:
Under this the enterprises reduce or slash their prices to such an extent as to remove the competition from the market. The prices are lower so much that prices would be less that or equivalent to the cost of production of the product. The enterprises do so in order to attract more and more customers.
- Refusal to Deal:
Under this an enterprise refuses to deal with the other enterprise by limiting their demand and supply or change their prices. This affects the medium and small scale enterprises and their business relations. This leads to an unfair trade market and reduces competition among the enterprises.
- Limiting Supply:
The enterprises in order to gain more profits limit the supply of their products so that there can be increase in the demand of such goods and this would automatically lead to increase the prices in the market. This causes exploitation of customer since the market is in the hands of the single enterprise having a dominant position.
It is necessary that there should be a fair competition in the market. The enterprise or the individual should not develop any dishonest interest which can exploit the customers or causes unfair market activities. The customer is the one who benefits the enterprise since he is the one who purchases the goods of the enterprise.
The Competition Law was enacted in India with a view of fair trade as well as for the consumer benefits. The law not only bridges the gap between the consumer and the market but also it gives a platform to the new entrant in the market. Many people are not aware of the bylaws to maintain a fair trade in the market. They are exploited to the core and are damaged by the enterprises.
There should be an awareness programme for the benefit of the consumer. They should know how the market functions and why there is a need to have competition in the market. The government should ensure that the market should provide a smooth platform to the new entrant so that it can flourish and develop in the market and can establish its own identity.
The Competition Commission of India (CCI) has been set up under the Competition Act, 2002 for ensuring the smooth functioning of the competition in the market. It makes the market function as per the rules set by the government and that the cases related with the same come to the commission for adjudication.
Therefore, it must be ensured that there should be a fair and ethical market with healthy competition.
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The above Article has been authored by Medha Malik