Competition Law in India: Perspectives

Abstract

Introduction: In 2002, the Parliament of India enacted the Competition Act, replacing the archaic Monopoly and Restrictive Trade Practices Act (popularly referred to as the MRTP Act) of 1969. The primary goal of the Act, as stated in the preamble, is ‘…keeping in view of the economic development of the country … to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect interests of consumers and to ensure freedom of trade …’.1 Economic theory clearly shows that the total profit in an industry characterized by monopoly is greater than the combined profit of all firms in the industry in case the industry is competitive in nature. At the same time, due to higher prices, consumer welfare suffers under monopoly when compared to a more competitive setup. To me, this is the fundamental theoretical premise behind the competition law. The Act intends to curb any activity that could harm consumer welfare or freedom of any individual (or individuals) to freely and fairly compete in the market. Therefore, the three broad areas for the Competition Act to look at are: (a) cartelizing behaviour of the firms, (b) abuse of dominant position, and (c) mergers and acquisition. Cartels can be interpreted as the joint effort on the part of firms in an industry to drive prices higher than warranted under competitive conditions. In a seminal study, Stigler points out that, despite this advantage, firms may not collude (and form a cartel) because short-term deviations from collusion agreements yield significant short-term payoffs. One interpretation of this argument is that the free markets would dissuade any cartel agreements.