The article has been written by Ritika Goel, a 2nd year law student from Faculty of Law- University of Delhi.
Introduction-
India is one of the largest and most dynamic markets in the world which makes it quite a task to maintain the balance between the interests of the consumer and the producer. It is at this point that the Antitrust laws or the Competition act 2002 comes into play, that deal with Anti-Competitive trade practices which includes anticompetitive agreements, abuse of Dominant position by enterprises and also regulation of acquisitions and mergers. After it was realized that competition in markets is essential for all consumers, producers and economy as a whole it had become even more important to keep a check and obviate any attempt at subversion of free trade, abuse of market dominance and competition. It is a universally believed fact that competition laws are essential to ensure quality goods and services at affordable prices.
Antitrust laws are regulations that encourage competition by limiting the market power of any particular firm. This often involves ensuring that mergers and acquisitions don’t overly concentrate market power or form monopolies, as well as breaking up firms that have become monopolies. Antitrust laws also prevent multiple firms from colluding or forming a cartel to limit competition through practices such as price fixing. Due to the complexity of deciding what practices will limit competition, antitrust law has become a distinct legal specialization.
Understanding Antitrust Law
Antitrust laws are the broad group of state and federal laws that are designed to make sure businesses are competing fairly. The “trust” in antitrust refers to a group of businesses that team up or form a monopoly to dictate pricing in a particular market. Supporters say antitrust laws are necessary and that competition among sellers gives consumers lower prices, higher-quality products and services, more choices, and greater innovation. Most people agree with this concept and the benefits of an open marketplace, although there are some who claim that allowing businesses to compete as they see fit would ultimately give consumers the best prices.
Need for antitrust laws
A market is said to be competitive when consumers are given a fair choice to use the product of any company without any imbalance in the cost of the product. In such a market, a particular product is manufactured by various companies and businessmen, but none dominates the market and establishes a monopoly. On the other hand, a market where one company dominates all others and does not provide a fair chance to grow may affect the economy of the country as well. The consumer will have no option but to use the products of only one particular company. Such a market is known as a monopolistic market.
Competition Act, 2002: an overview
The Act was enacted in 2002 to ensure freedom of trade and provide rules and regulations for the conduct of businesses in the market. The Act mainly deals with and regulates 3 things: anti-competitive agreements, the dominant position of any business and abuse of that position, combinations of various companies by way of mergers, acquisitions, amalgamations etc. However, the government felt the need to amend the Act to make it as per the needs of society, and thus, the Competition (Amendment) Act, 2007 came into force.
Scheme of the Competition Act, 2002
The effects doctrine is the basis of the Act and it gives jurisdiction to the Competition Commission of India (CCI) on every anti-competitive agreement, abuse of position by a company having a dominant position in the market or such combinations outside the country or have an Appreciable Adverse Effect on the Competition (AAEC). It provides that all such agreements are not permitted and, hence, will be void. It also talks about horizontal and vertical agreements.
Anti-competitive Agreements
Section 3 of the Act deals with anti-competitive agreements that are signed by the parties. The Act mentions two types of anti-competitive agreements. These are:
- Anti-competitive horizontal agreements (Section 3(3))- the presumptions of these agreements are rebuttable. Such agreements include:
- Agreement for fixing a price,
- An agreement limiting the production or supply,
- The agreement that allocates the market,
- Agreement of collusing biddings.
- Anti-competitive vertical agreements (Section 3(4)) – these are made by the parties during production, distribution, supply etc. However, some conditions are necessary in order to protect the intellectual property rights and are not seen as a violation of the Act as per Section 3(5). The following are such agreements:
- Tie-in arrangements,
- Arrangement of exclusive supply,
- Refusal to deal,
- Maintenance of resale price.
In 2021, penalties were imposed on some firms by the CCI for bid rigging in a tender by GAIL, as reported by a press release.
Critical Analysis of Anti-trust Law-
- Wrong Conception of Coercive Monopolies
One of the stated functions of antitrust laws is to ensure that coercive monopolies are not established in industries. The underlying belief is that of these big organizations are allowed to have a free run the end result will be the formation of monopolies which will overcharge the consumers. The problem with this belief is that it is just not true. The reality is that monopolies cannot be formed in a free market no matter how big a company gets. Monopolies need some form of regulation which prevents the entry of new competitors in the market. This entry barrier can only be provided by the government. Hence, it would be safe to say that in the absence of government, there can be no monopolies at all. The whole antitrust act, therefore, seems like a sham. If the government really wants to prevent the rise of monopolies, they must abolish regulations which create entry barriers in free markets.
- Antitrust Laws Are Vague
Antitrust laws are extremely vague. Bureaucrats can make them look like whatever they want to. For instance, if a company is charging a high price for its product, they can make it look like monopoly overcharging. On the other hand, if they charge the same price as their competitors, bureaucrats can make it appear like a case of collusion amongst competitors. Similarly, if the company charges prices which are lower than the competition, they can be accused of predatory pricing. The laws fail to clearly define what constitutes an antitrust violation. Instead, the onus is left on the bureaucrat who could be using the government given authority to fleece these organizations.
- Antitrust Makes Mergers and Acquisitions Difficult
There is nothing wrong with an organization increasing in size. Big organizations have always been more efficient. This phenomenon is known as economies of scale. Antitrust laws prevent organizations from achieving economies of scale. Many mergers and acquisitions have been disrupted by these antitrust laws. It shouldn’t be illegal to buy out another company if a fair price is being paid. By preventing mergers and acquisitions, antitrust laws impede the most efficient arrangement of capital. These laws protect inefficient managers at the cost of the greater economic good.
- Antitrust Laws Take the Power Away from Consumers
Markets are the most effective mechanism known to mankind. Consumer needs can be best met by free markets. Any alternative is always inferior. However, it seems like the government officials do not believe this argument. They believe that they somehow understand the interests of the consumer better than the consumer does. They also believe that their utopian regulations and expensive law enforcement mechanisms will ensure that the interests are served in the best possible way. The problem is that consumers don’t have a say in this process. They elect a government once every four years. However, they vote for products each time they go to a market. Antitrust laws subvert the market mechanism.
- Government Collusion and Corruption
Any behaviour which can be considered to be predatory and monopolistic is temporary at best. For instance, a company can only engage in predatory pricing for a limited amount of time. Sooner or later, they will run out of money, and the free market will ensure that the competition emerges again. Also, since the monopoly would have bled money for a long time, it would be considerably weaker. It is impossible for corporations to create entry barriers on their own. It is only with the power of law that special regulations can be passed. These special regulations are the ones that rule out the competition. Also, it needs to be noted that the big organizations do not need to do any work. The government keeps the competition at bay on their behalf. This is a system based on cronyism and favouritism. Hence, it inevitably boils down to a complex web of collusion and corruption which sacrifice consumer interests for personal profits.
- Antitrust Laws Are Against Innovation
The underlying objective of a company is to earn maximum profits and grow as big as it can. The problem with antitrust laws is that it prevents the company from growing beyond a certain point. Hence, the company with the maximum resources, which can invest the maximum amount, is prohibited from growing. As a result, technological development stagnates. Also, since competition is restricted by antitrust laws, innovative companies cannot reach the marketplace. The end result of antitrust regulations is that innovation is stifled and economies perform at a suboptimal level.
CONCLUSION-
Antitrust laws are the laws that regulate the market and its activities. Such laws aim at reducing unfair trade practices and prevent monopolies. The Anti trust laws of India have witnessed major transformations throughout these years and is now serving its function in the post liberalized economy where it is realized that Competition is the life and blood of the economy or the markets. The laws have proved to be beneficial in the recent cases due to the regular amendments that have taken place in the legislation in accordance with the recent socioeconomic and legal changes in the country.
Hence it can be said that the Antitrust laws are only enough when they are qualified to deal with the contemporary issues faced by the consumers. In the current scenario when E-commerce giants are leading the market and there is a paradigm shift in the way businesses are handled, it is very important to have a close scrutiny over them to ensure protection of consumer welfare.
REFERENCE-
Aishwarya Says:
The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.
If you would also like to contribute to my website, then do share your articles or poems to secondinnings.hr@gmail.com
Join our Whatsapp Group for latest Job Opening