By Ayush Gupta
Student, Final Year B.B.A. LL.B. (PRN: 030124141), Symbiosis Law School, Pune
Modern business operates in a world that is economically integrated but politically, culturally and legally diverse. Today, markets are complicated social institutions that require the convergence of appropriate forms of public and private sponsorship and hence, there is a need for regulation.
Time has proved that market forces and the individual decisions of consumers and privately owned businesses make a greater contribution to economic and social development than an inward looking centralized economic system. However, the potential benefits of such a decisive shift towards a more market oriented economy will not be realized unless business firms or companies are prevented from imposing restrictions on competition.
Competition Law aims to control monopolistic, unfair and restrictive trade practices by creating a set of policies that enhance competition or competitive outcomes in the markets. Competition policies are intended to promote efficiency, to maximize consumer or social welfare, and to help in the creation of a business environment which is based on fairness, leads to efficient resource allocation and in which abuse of market power is prevented or curbed. Such policies usually include relaxed industrial policy, liberalized trade policy, conducive entry and exit conditions, reduced controls and greater reliance on market forces.
Competition Law has three main elements:
The principal objective of competition law is to maintain and encourage competition as a vehicle to promote economic efficiency and maximize consumer welfare. It is noteworthy that, Indian law adjudicates anti competitiveness of any firm or company on the basis of its action, rather than simply by its potential to behave in such manner.
Competition law is a form of regulation which involves laws that promote or maintain market competition by regulating anti competitive conduct. An anti competitive practice can be said to be one, which has or is intended to have or is likely to have the effect of restricting, distorting or preventing competition in some market. Anti competitive actions may also include formation of cartels and exclusive agreements by an enterprise or association of enterprises in respect of production, supply, distribution, or control of goods or services, which causes or is likely to cause adverse effects like creation of entry barriers, forcing existing competitors out of market etc. Usually the ability to indulge in anti competitive practices depends on the market power of the business firm or company concerned and so it is obvious that the comparatively bigger firms or companies are more under the scanner.
The social objectives of competition law are very wide in scope and dimension. The prime area of focus of such objectives is to safeguard the public interest and welfare.
The different social objectives of competition law can be studied under the following heads:
All laws need to give due regard to the basic human rights and competition law is no exception to this. Market imperfections have to be corrected for achieving the goal of ensuring basic freedoms for all people. The basic ingredients of a dignified human life like education, employment and health have to be given proper impetus and equal opportunities have to be afforded to all. It is necessary to achieve and maintain a high level of employment and to improve job distribution. In addition, all acts purporting to infringe these basic human rights should be curbed.
Competition law aims at promoting efficiency in respect of production, supply, distribution, acquisition and control of goods or provision of services which is possible only when the present resources are judiciously utilized and maximum benefit is accrued from them. For this purpose it is necessary that there is optimum allocation of resources in the competitive market. Fairness and reasonableness are the keys to achieve this objective.
Another important aspect is that growth and welfare can only be sustained when there is minimum wastage and so it is imperative that all resources should be effectively and efficiently utilized for the greatest good of the greatest number.
An open market is essential to promote and sustain the competitive process. An open market policy aims at enhancing the competition or competitive outcomes in the markets which ultimately promotes efficiency and social welfare. On the other hand, a closed market limits the competition by restricting the quantity and quality of market players and may also give rise to monopoly and abuse. A closed market policy also harms innovativeness and efficiency and consequently the consumers may get unsatisfactory quality of goods and services. Important aspects of an open market policy are a liberalized trade policy, conducive entry and exit conditions, reduced controls and greater reliance on market forces.
A licensing condition can have anti competitive effects. Instances of this can be seen in tie-in clauses which require a licensee to acquire particular goods only from the licensor and in non-competition clauses forbidding the licensee from competing or handling goods which compete with those of the licensor. Objection may also be taken to terms which are attempts to extend a patentee’s monopoly power beyond the protection offered by the patent. Such terms and conditions are contrary to public welfare because they give inferior treatment to consumer interest and may also give rise to abusive behaviour. The solution to this problem may be in form of banning of such clauses and compulsory licensing.
Self reliance or non dependence is the key to success in any field. Dependency is a sign of weakness and promotes subjugation. Hence, competition law strives to achieve strength in the form of self reliance because any sort of dependence or subjugation will harm the social interests. For this purpose it is necessary to promote, build and sustain strong competition culture within the country. At the same time, practices that make or are likely to make the country dependent on outside forces also need to be discouraged. Self reliance will also help the domestic firms and companies in realizing their aim of becoming globally competent.
A single national market is desirable because fragmented markets are impediments to competition. For establishing and sustaining such a market it is important to achieve harmonization of policies, laws and procedures regarding different dimensions of competition at all levels of governance. Further, an institutional mechanism with a synergized relationship between the national and sectoral regulators will also be required.
Establishment of such a market would also result in the capacity building of all the stakeholders including law makers, judiciary, policy makers, business, trade associations, consumers and their associations, and the members of the civil society.
Manufacturers and suppliers have always inadvertently tried to enforce a minimum price at which their goods can be resold by dealers or retailers. This practice adversely affects the public because it causes an increase of prices in the resale market. Competition law aims at curbing this practice and allowing for free pricing of goods in the resale market.
It is most essential to encourage the competitive process so as to maximize consumer welfare and to protect consumer interests. The benefits from competition in economic growth and in enhancement of consumer welfare are self evident and widely recognized.
An important aspect of consumer welfare is offering wider choice to consumers at lower prices. In common parlance, competition in the market means sellers striving individually for buyer’s patronage to maximize profit or other business objectives. Such competition makes enterprises more efficient and innovative and consequently the consumers are benefited.
The need for Advocacy is obvious in a subject like competition. Enforcement of the competition law alone is not sufficient for ensuring competition in the market because the purpose will not be completely achieved until and unless there is strong competition awareness amongst market players. This is essential because it would encourage self compliance and reduce the need for direct action against erring firms or companies. Advocacy is often referred to as compliance without enforcement. Thus, competition advocacy and enforcement can be said to be mutually complementary. Seminars, workshops, training and awareness programmes are some modes of achieving the above stated purpose.
Another aspect of competition advocacy can be seen in Section 49 of the Competition Act, 2002 of India which gives an advocacy role to the Competition Commission. Under this section, the government may make a reference to the commission for its opinion on the possible effect on competition of a policy or law and the commission is required to give its opinion.
There are certain special aspects like allocative efficiency, greater good of greater numbers, consumer sovereignty, equality of opportunity, and freedom to trade which are sacrosanct and any infringement is to be seriously viewed. There maybe different situations and each one has to be handled in a fair and reasonable manner, and thus a same approach may not be adopted in every matter.
The relationship between competitive markets and democracy is also evident here, as the nature of market mechanism is judged by its allocative efficiency in the same manner as democratic institutions are judged by the degree of equity they create. It may also be said that the concepts of consumer sovereignty in economic literature and voter rights in democracy have the same philosophical source.
xi. Democratic Principles
The basic tenets of a democracy and of market competition are ingrained in the same value system, i.e., the pillars of public interest, common good, welfare and prevention of practices that result in common detriment. The goals of democracy and market competition are similar in many respects and the most important among them are freedom of individual choice, abhorrence of concentration of power, decentralized decision making, and adherence to rule of law.
Competitive markets and democratic governments can therefore be considered complementary in correcting market imperfections. They need to interact in a manner that maximizes the larger public interest and such an interaction would be the most ideal relationship for achieving the above stated goals.
The aims of the national competition policy are to a certain extent similar to those of the welfare state principles like preservation of the competitive process, encouragement of competition in the domestic market, optimization of efficiency, maximization of consumer welfare, and most importantly, harmonization of social justice with economic growth.
Competition law is a unique law as it stresses the necessity of protecting the process of competition and also refers to the broader political and social policy goals. It aims to strike a balance between unrestrained interaction of competitive forces and the preservation of our democratic, political and social institutions. This balance is essential for the co-achievement of economic goals such as lowest prices, highest quality, greatest material progress and of social goals like consumer welfare, self reliance, optimum allocation etc. which are interrelated by their very nature. Thus, it can be said that competition law is an inevitable medium of regulation that caters to the modern market needs and also tries to reconcile personal and public interest without causing any unreasonable harm to either.