WHAT IS COMPETITION LAW?
Competition law is a law that promotes or seeks to maintain market competition by regulating anti-competition conduct by companies and is implemented and executed through Public and Private Reinforcement.
IS COMPETITION LAW ALWAYS GOOD?
Competition is the backbone of the Economic policy of first world nations such as The United States of America. Competition advocacy is thriving internationally as competition is broadly recognized and accepted as the best available tool for promoting consumer well-being and allocating resources in a free market.
However, this leads us to consider the dark side of competition as well. Alternatively, competition harms society when firms compete to better exploit consumers’ bounded rationality or willpower. Fierce competition is a scenario that ultimately leads to oligopolies or monopolies. This situation however, is subject to market conditions, and not competition itself. Competition in itself is incapable of causing market failures.
HOW DOES IT BENEFIT A CUSTOMER?
A customer, be it an individual, a collective group, or an entire nation, are all affected by these competition laws through a variety of Channels.
- Better Quality
Competition law forces companies to increase their product quality and productivity, so as to attract customers, which eventually provides them with an advantage over their competitors in the market.
- More Choices
A Strong Competition policy is a catalyst to promote social inclusion and reduce inequalities as it tends to provide different customers with alternate options of the same product, commensurate with a specific customer’s needs and affordability factor.
- Low Prices for all
The simplest and perhaps the most sought after way for a company to attain a higher market share is to offer a better product or service at a better price. A competitive market forces companies to push down prices in order to maintain their stand in the marketplace.
- Promotes Innovation
Competition law provides a sense of positive motivation to smaller and less prominent companies to constantly undergo product design innovations and changes so as to be at par with the competitive rivals that have established a monopoly in the respective sector.
IN WHAT WAYS DOES A COMPANY EXPLOIT THROUGH COMPETITION?
- Using framing effects and changing the reference point, such as the price change is viewed as a discount, rather than a free or other charge added to the cost of a good of service.
- Anchoring consumers to an artificially set high selling price or retail price, from which, the consumers negotiate.
- Use the Sunk cost fallacy to remind consumers of the financial investment and commitment already made by them so as to force them to continue paying installments on items.
- Giving the impression that their higher priced product or service is of better quality.
THE COMPETITION ACT, 2002
This act was enacted by the Parliament of India with the key objective to prevent and punish anti-competitive business practices by firms and unnecessary Government interference in the market. The Competitive Act, 2002 was amended by the Competition (Amendment) Act, 2007 and again by the Competition (Amendment) Act, 2009.
Features of the Competition Act, 2002:
- Anti-Competitive Agreements:
Enterprises, persons or associations of enterprises or persons, including cartels, shall not enter into agreements in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which cause or are likely to cause an”appreciable adverse impact” on competition in India. Such agreements would consequently be considered void. Agreements which would be considered to have an appreciable adverse impact would be those agreements which-
- Directly or indirectly determine sale or purchase prices,
- Limit or control production, supply, markets, technical development, investment or provision of services,
- Share the market or source of production or provision of services by allocation of inter alia geographical area of market, nature of goods or number of customers or any other similar way,
- Directly or indirectly result in bid rigging or collusive bidding
- Abuse of dominant position:
There shall be an abuse of dominant position if an enterprise imposes directly or indirectly unfair or discriminatory conditions in purchase or sale of goods or services or restricts production or technical development or create hindrance in entry of new operators to the prejudice of consumers. The provisions relating to abuse of dominant position require determination of dominance in the relevant market.
The Act is designed to regulate the operation and activities of combinations, a term, which contemplates acquisition, mergers or amalgamations. Combination that exceeds the threshold limits specified in the Act in terms of assets or turnover, which causes or is likely to cause adverse impact on competition within the relevant market in India, can be scrutinized by the Commission.
Any person aggrieved by any decision or order of the Commission may file an appeal to the Supreme Court within sixty days from the date of communication of the decision or order of the Commission. No appeal shall lie against any decision or order of the Commission made with the consent of the parties.
If any person fails to comply with the orders or directions of the Commission shall be punishable with fine which may extend to ₹ 1 lakh for each day during which such non compliance occurs, subject to a maximum of ₹ 10 crore.
If any person does not comply with the orders or directions issued, or fails to pay the fine imposed under this section, he shall be punishable with imprisonment for a term which will extend to three years, or with fine which may extend to ₹ 25 crores or with both.
Section 44 provides that if any person, being a party to a combination makes a statement which is false in any material particular or knowing it to be false or omits to state any material particular knowing it to be material, such person shall be liable to a penalty which shall not be less than ₹ 50 lakhs but which may extend to ₹ 1 crore.
THE START-UP SECTOR AND COMPETITION LAW
Recent research has revealed a lack of knowledge about competition law among start-ups and other smaller firms, which means that many of them could become the victims of others breaking the law, or fall foul themselves. A recent study by Competition and Market Authority (CMA) stated that 77% of firms either did not know competition law very well or hadn’t heard of it at all. Furthermore, the research revealed that although 55% of businesses knew price-fixing was illegal, 18% wrongly thought it was acceptable to agree prices with rivals and 27% were unsure.In addition, 23% of company representatives thought it was ‘okay to discuss prospective bids with competing bidders’ and 29% were unsure if bid-rigging was illegal. And 31% thought it was acceptable for businesses to agree not to sell to the same customers as each other.
Contributed and authored by- Ms Jayshree Mishra