Competition Law: Meaning & Application

Any economy's expansion needs a dynamic, realistic foundation, which is provided by competition law. It aids in policing a fair market that is devoid of any anti-competitive behavior that is harmful to both customers and enterprises. By prohibiting a few dominant businesses from having total control over a market, competition legislation is an essential tool for maintaining market equilibrium. Instead, the market should operate in a way that precludes practices from imposing unfair burdens on firms or obstacles to entry for small enterprises, which would otherwise force them to engage in unfair activities or go up against the competition. In India, the framework for competition law has evolved from being governed by the former Monopolistic and Restrictive Trade Practice Act, 1969 (MRTP) to the current Competition Act, 2002 (Act).

What is the Meaning of Competition Law?

Competition law in India is known by the Competition Act, 2002 which establishes a Commission to prevent actions that have a negative impact on competition and to foster and sustain competition in markets while keeping in mind the economic development of the nation. It safeguards consumer interests and the freedom of commerce practiced by other market participants in India.

Significance of Competition Law

The significance of the competition law is −

• It encourages and facilitates competition.

• It creates a commission to stop actions that have a negative impact on competitiveness.

• It encourages and maintain market competition.

• It upholds the interests of customers.

Evolution of Competition Law

The Competition Act 2002 has come into force to replace the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 (repealed on September 1, 2009). After the economic reforms of 1990, it was felt that MRTP had become obsolete pertaining to international economic developments relating to competition law and that there was a need for a law that curbs monopolies and promotes competition. In the 1990s, India saw substantial increases in the value and volume of international trade in goods and services, in foreign direct investment (FDI), and in cross border mergers and acquisitions. Over the course of time, trade barriers fell and restrictions on FDI were reduced. The Competition Act, 2002, was enacted to provide a competition law regime that meets and suits the demands of the changing economic scenario in India and abroad.

The Competition Act has repealed the Monopolies and Restrictive Trade Practices Act, 1969, and dissolved the Monopolies and Restrictive Trade Practices Commission. The cases pending before the MRTP Commission are transferred to the Competition Commission of India ("CCI"), barring those that are related to unfair trade practices, and the same are proposed to be transferred to the National Commission constituted under the Consumer Protection Act, 1986.

The following table gives the comparative study of monopolistic and restrictive trade practice act and competition act −

Basis	Monopolistic and Restrictive Trade Practice Act, 1969 (MRTP)	Competition Act, 2002
Focus	It is based upon Pre- Liberalization	Curbing Monopolies
Registration of Agreements	Registration of Agreements	Promoting Competition
Dominance	Under MRTP, dominance itself is bad	Under the Competition Act, dominance per se is not but only abuse of dominance is considered bad.
Provisions for combination	There are no provisions for combination.	The Competition Act contains provisions for combinations
Penalties	No penalties for offenses	Penalties for offences
Principles	Rule of law approach	Rule of reason approach
Competition Advocacy	No competition Advocacy role for the MRTP	CCI has a competition advocacy role
Provision for Unfair Trade practices	Provisions was there in MRTP Act (Section 36A )	Not included in the new completion Act and now under purview of Consumer protection Act.

Component of Competition law

The Competition Act, 2002 has essentially four compartments −

Anti- Competitive Agreements

According to Section 3 (1) of the Competition Act, any arrangement that has or is likely to have an appreciable adverse effect on competition ("AAEC") in India is considered anti-competitive. Any arrangement involving the "production, supply, distribution, storage, and acquisition or control of products or services which creates or is likely to cause an appreciable adverse effect on competition inside India" is forbidden.

According to the Act, agreements or a "practice carried" out by businesses or individuals (including cartels) engaged in the trade of identical or similar goods are presumed to have AAEC in India if they:

• Directly or indirectly fix purchase or sale prices;

• Limit or control production, supply, markets, technical development, investments, or the provision of services; and

• Result in sharing markets or sources of production or provision of services;

• Engage in collusive bidding or bid rigging.

Abuse of Dominance

Section 4 of the Act forbids all types of businesses from abusing a dominant position. The Act defines "dominant position" as a position of power enjoyed by an enterprise in the relevant market in India that allows it to act independently of competitive dynamics present in the relevant market or affect its competitors, consumers, or the relevant market in its favor.

Relevant Market −The relevant market needs to be identified in order to establish if a company holds a dominant position in that market. There are two different types of pertinent markets

• Relevant Product Market − On the demand side, relevant product markets include all the close substitutes to which the consumer will shift if the price of the product increases. On the supply side, relevant product markets include all the producers who can produce substitutes with the existing production facility.

• Relevant Geographical Market − Depending on the product, the geographic scope of the rivalry in the relevant market may be local, national, international, or global. Transportation and consumption patterns are key considerations in this case. A company or group must not misuse its position of dominance. It is against the law for a business or group to abuse its dominant position.

Combination Regulation

Combinations are defined as the purchase of one or more businesses by a merger, an amalgamation, or control over the businesses.

If a transaction meets the necessary financial requirements and involves −

• The acquisition of control, shares, voting rights, or assets of any enterprise by any person;

• A merger between two or more enterprises; or

• The amalgamation of two or more enterprises, a combination is defined as the foregoing.

• Any time a person takes direct or indirect management of one company and has already done so with another company engaged in a comparable industry.

• A combination of businesses through a merger.

Combinations that have a value more than the specified financial thresholds must be filed with the CCI and get its prior approval before becoming effective. Combinations may be examined by CCI, modified, or rejected.

Competition Advocacy

While formulating competition policy, the central government may obtain the opinion of CCI on the possible effect of the policy on competition. On receipt of deference, the commission is required to give its opinion to the central government within 60 days. The role of the commission is advisory. Opinions given by a commission are not binding on the central government.

The commission has also been assigned the role of taking the following measures −

• Promotion of competition advocacy

• Creating awareness about competition

• Imparting training about the competition issue.

Conclusion

The Competition Act of 2002 is the current competition legislation, and it covers one of the substantive laws dealing with the prohibition of anti-competitive agreements. An agreement that affects the production, supply, distribution, storage, acquisition, or control of goods or the delivery of services in India and has the potential to have a significant negative impact on competition is deemed anti-competitive if it involves two or more businesses, people, or associations of businesses. These contracts are void because they are against the Act. In the aforementioned essay, among other things, we discussed the legislative context surrounding anti-competitive agreements under the Monopolies and Restrictive Trade Practices Act of 1969 ("MRTP Act").

Frequently Asked Questions

Q1. What are the major rules in competition law?

Ans: The Competition Act seeks to regulate two kinds of agreements −

• Anti-competitive agreements between or among competitors (horizontal agreements) and

• Anti-competitive agreements between enterprises or persons at different stages or levels of the production chain (vertical agreements).

Q2. What are the major elements of competition law?

Ans: Competition law has the following major elements −

• Anti-competitive Agreements.

• Abuse of dominance.

• Mergers, amalgamations, and acquisitions control.

Q3. What are the main forms of competition?

Ans: There are four types of competition in a free market system −

• Perfect competition,

• Monopolistic competition,

• Oligopoly, and

• Monopoly.

Q4. Why does India need to enact a competition law?

Ans: Competition has become a cornerstone of any market economy in modern times. Market competition spurs firms to be more efficient and innovative, which generally leads to more choices, lower prices, and better products and services. The economy benefits from the competition law through greater productivity gains and more efficient resource allocation. Competition policy and law set the framework within which a competitive market economy can develop and operate. Competition law provides clear rules and codes of conduct to create a level playing field for small, medium, and large entities to compete fairly within the Indian economy.