Competition Policy

and Law in India

MRTP ACT 1969

The Monopolies And Restrictive Trade
Practices Act, 1969 is an important piece of
economic legislation designed to ensure that the
operation of the economic system does not result
in the concentration of economic power to the
common detriment.
The act came into force from 1st June, 1970, and
has been amended in 1991.

OBJECTIVES
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.

MONOPOLISTIC TRADE
PRACTICES
It means in order to maximize profit and to
increase market power, certain business
firms unreasonably charge high prices to
prevent competition in the production &
distribution of goods by adopting unfair
trade practices.
It is a trade practice which represents the
abuse of the market power by charging
unreasonably high prices.

Monopolistic Trade
Practices
Any trade practice which seeks to
prevent competition and which
results in high price Such as
Unreasonably high prices
Limiting technical development
Limiting capital investment
Lower quality of good and services
Preventing or lessening competition

REGULATION OF MTPs

Regulation of production and fixing the term

of sale.

Prohibiting any action that restricts

competition.

Fixing standards for goods produced.

RESTRICTIVE TRADE
PRACTICES
Any trade practice that that tend to block the flow
of capital into production and also bring in
conditions of delivery to affect the flow of supplies
leading to unjustified costs. Such as
Refusal to deal with persons or classes of persons
Tie in sales or full line forcing
Exclusive dealing agreements
Collective price distribution and tendering
Discriminatory dealing
Restriction on output or supply of goods
Price control agreements
7

RESTRICTIVE TRADE PRACTICES

A trade practice which restricts or reduces
competition may be termed as Restrictive
Trade Practices and it harm the consumer
interest.
Because of their adverse effect on the
consumer and public interest, they are
sought to be regulated in almost every
country of the world.

REGULATION OF RTPs

The practice shall not be repeated.

The agreement shall be void and shall stand

modified in such a manner as may be
specified in the order.

UNFAIR TRADE PRACTICES

Unfair trade practice means a trade practice
which, for the purpose of promoting the
sale, use or supply of any goods or for the
provision of any service, adopts any unfair
or deceptive practice.

UNFAIR TRADE PRACTICES

Misleading representation regarding
usefulness, need, quality, standard, style etc of
goods and services
Supplying unsafe and hazardous products
Hoarding or destroying of goods
Refusal to sell goods , resulting in a price rise
Giving false facts regarding sponsorship,
affiliation etc. of goods and services.
Giving false guarantee or warranty on goods
and services without adequate tests.
1

REGULATION OF UTPs

The practice shall not be repeated.

Any agreement relating to such an UTP shall

be void or shall stand modified in such a
manner as may be directed by the
commission.

Evolution of Competition Policy

and Law

The MRTP Act was severely criticized

because of its growth defeating provisions.

Therefore, the High Level Committee on

Competition Policy and Law has
recommended that a new law called the
Indian Competition Act may be enacted and
the MRTP Act may be repealed.

What is competition?
Competition
Literary meaning: a contestable situation where
people fight for superiority.
In market economy, competition is a process
whereby firms fight against each other for
securing consumers for their products

Benefits of Competition:
Domestic level

Mechanisms:
Increases economic
efficiency
Safeguards and
promotes consumer
welfare

Results:

Make prices more flexible and closer

to costs

Promote efficient resource allocation

throughout the economy

Augment variety of cheaper or better

quality goods and services for
customers

Encourage technological innovation

Encourage market entry by new

firms

What is Competition Policy

An Act(enacted in December, 2002) to provide,
keeping in view of the economic development
of the country, for the establishment of a
Commission:
to prevent practices having adverse effect on
competition,
to promote and sustain competition in markets,
to protect the interests of consumers
to ensure freedom of trade carried on by other
participants in markets, in India, and for matters
connected therewith or incidental thereto.

Competition Policy /Law

Competition policy => government measures directly

affecting both Firm Behavior and Industrial structure.
A competition policy should include both:
i)
Economic policies adopted by Government, that
enhance competition in local and national markets, and
ii) Competition law designed to stop anti-competitive
business practices.

Why do we need a
competition policy?

Benefits to Consumers

A fair

deal in the market place with:

The

best possible choice of quality

The

lowest possible prices, and

Adequate

supplies of commodities.

Benefits to Efficient Producers

A safeguard against practices that could drive companies out of
business.
Lower entry barriers to promote entrepreneurship and growth of
SMEs.
Efficient allocation and utilization of resources ensures more output
and employment.
Control of international unfair competition and restrictive business
practices, such as international cartels

Components of competition policy

Competition Policy
Competition Law

Government Policies

Private Actions
Deregulation
and
Privatization

Trade Policy

Industrial
Policy

Consumer
Policy

Regulations Governing
Capital and FDI

Competition Law
Competition law is the enactment of that policy
and achieves its objectives in three ways:
(1) prohibiting anti-competition agreements and
practices that harm free trade and competition;
(2) preventing abuse of dominant position and
anti-competitive practices that lead to such a
dominant position;
(3) regulating mergers and acquisitions.

Competition Law (National)

Anti-Competitive
Agreements Between
Firms
( Collusion)

Import cartels
Price fixing
Market sharing
Bid rigging
Limiting production
Refusal to buy or
supply
Tie-in arrangements
Exclusive-dealing
Resale price
maintenance
Territorial allocation

Abuse of a
Dominant
Market Position
Predatory pricing
Price
discrimination
Excessive pricing
Abuse of
intellectual property
monopoly

Regulation of Mergers to
Prevent Tactics to Gain
Excessive Dominance in a
Market

Applies to:
Total unification
of the companies
involved
Buying of
sufficient shares in
a company so as to
have a say in
policy formulation

Foreign Direct Investment

According

to Ruman, Foreign
direct investment is the ownership
and control of foreign assets. In
pratice, FDI usually involves the
ownership, whole or partial of a
company in a foreign country. This
is called foreign subsidiary. This
ongoing company.

Types of FDI

Direct
Investme
nt

Portfolio
Investme
nt

Benefits of FDI
FDI brings Capital
New technology and methods
Increasing the skills of labour pool
Expand various networks export expansion
Foreign exchange earning
Increase the domestic economy
Significant growth
Competitive market structure

Limitations of FDI
FDI interferes in the national politics
More focus on high profit areas rather than
to the priority sectors
Undermine national interests
Foreign investors sometimes engage in
unfair and unethical trade practices.

FDI and competition

as in the case of trade in goods and services,

open and contestable markets for FDI do not
destroy all market power of incumbents
a wide range of RBPs - both horizontal and
vertical - could affect potential entrants'
investment decisions and impede FDI flows
moreover, MNCs strong competitive position
can lead to anti-competitive structures and
behaviour and thus to the establishment of
new entry barriers, especially when FDI is
accompanied by M&As

What have we learned?

anti-competitive practices impair the

process of development in developing
countries more significantly than has
previously been thought

trade and FDI liberalization may not by

themselves eliminate the propensity of
firms to engage in anti-competitive
practices

What have we learned?

(contd)
Competition policy is not a luxury for the rich: poor
countries suffer most from RBPs
There is need for competition law and policy in all
countries, including LDCs
merely adopting a competition law is no panacea
what really makes a key contribution to competitiveness
and development is effective CLP implementation
If not part of a well-coordinated set of legal and
economic institutions, the impact of competition policy
on productive capacities and in favour of more
competitive economies is likely to remain sub-optimal

What have we learned? (contd)

It is not possible to copy existing competition

law and policy from developed countries:
there is no one-size-fits-all system:
Each country needs its own tailor-made
competition law and policy (CLP);
Each country will have to experiment and
amend gradually its CLP;
Each country will need to adopt its CLP as the
economy develops.

To Conclude
Synergy between Government Action and
Competition
Assess all laws and government policies on the
touchstone of competition
All government policies should have an explicit
statement about the likely impact of the policy on
competition
Governments at the union and the state level
should frame and implement policies by
acknowledging the market process
Government should evolve a system of
competition audit which could be applied to all
existing and future policies