Fair Competition & Monopolies

Also read article on 'Anti-Trust Laws: The Magna Carta of Free Enterprise'

“Competition is not only the basis of protection to the consumer, but is the incentive to progress.”

- Herbert Hoover (American President, 1874-1964)

Great words by a great man.However, President Herbert Hoover had somewhat erred while making this statement. He only said ‘competition’, whereas he should have stressed on ‘fair competition’. Competition is present even in oligopoly[1]or even when unfair trade or anti-competitive practices are being performed[2].However, in such competition, the consumer’s interests are not protected[3]. Also there is the constant danger that two or more major enterprises may merge giving rise to a monopoly[4].Barriers to competition caused due to unsuitable
government policies or anti-competitive behavior by firms are very common in developing countries[5]. They diminish opportunities for innovation and growth, and make consumers worse off.[6]

But it is only when large number of entrepreneurs and service providers compete among themselves that the consumers at large would have freedom of choice and consequently better quality at more economical prices will result.Dr. Manmohan Singh, India’s former Union Finance Minister, with help of P.V. Narasimha Rao, former Prime Minister of India, had liberalized economic policies,[7] freeing India from License Raj. The impact of these reforms may be gauged from the fact that total foreign investment (counting foreign direct investment, investment raised on international capital markets  and portfolio investment, ) in India raised from a inconsiderable US$132 million in 1991–92 to $5.3 billion in 1995–96.[8]Annual growth in GDP per capita has accelerated from just 1.25% in the three decades after Independence to 7.5% currently, a rate of growth that will double average income in a decade.[9]

However, it was realized that in order to make sure that that enterprises do not abuse their liberties and in order to give entrepreneurs a level playing field, a statute must be set up with special machinery to regulate its laws[10]. Such a statute, in India, is the Competition Act, 2002(which has repealed the Monopolies and Restrictive Trade Practices Act, 1969) and the machinery to enforce its provisions is the Competition Commission of India[11]. Itsmain objectives are to - prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India.[12]

Roman Legislators

The earliest records of competition laws traces back to the struggles of Roman legislators to control price fluctuations and unfair trade practices. Throughout the Middle Ages in Europe, Kings and Queens repeatedly cracked down on monopolies, counting those created through state legislation. The English common law doctrine of restraint of trade became the precursor to modern competition law. This grew out of the codifications of United States antitrust statutes, which in turn had significant influence on the development of European Community competition laws after the Second World War. Increasingly the focus has today moved to international competition enforcement in a globalized economy[13].

Competition is open market rivalry in which every seller tries to get what other sellers are seeking by offering the best practicable combination of price, quality, and service[14]. Where the market information flows freely, competition plays a regulatory function in balancing demand and supply. Fair Competition is nothing but competition based on the factors of price, quality, and service; not on the abuse of near-monopoly powers, competitor bashing, predatory pricing, etc.[15] Fair competition leads to progress and development of the society as well as the individual.

In order to ensure fair competition, the competition laws must address three main issues, they are- Anti- competitive agreements, Abuse of dominance or exclusionary behavior and merger control regulation[16]. These comprise of anti- competitive practices as well. Anti-competitive practices include but are not limited to- Dumping[17], Exclusive dealing[18], Price fixing, Refusal to deal[19], Dividing territories[20], Limit Pricing[21], Tying[22], Resale price maintenance[23]. Agriculture, accountancy/finance, engineering, law, doctor, journalism and business are the seven professions that require close monitoring[24].

Unfair competition leads to increase in poverty[25]. To give an example, many of the poor are small entrepreneurs, including farmers. They will benefit if entry and exit barriers are low, if they can purchase inputs at fair prices, and if they are able to sell their output on fair terms[26]. They need to be able to do business without much interference and be given equal opportunities[27]. Many of the poor are also recipients of government-funded services. In today’s world, corporations bid rigging for government provided or aided infrastructure, revenue and services is very common, and therefore the government finds it unable to provide for their people from any given budget allocation. And it is common knowledge that poverty breeds violence and also leads to illiteracy and several other severe issues.

Furthermore, many individuals or parties with potential to start useful enterprise are discouraged or not given the proper opportunities. They have disadvantage of time as the other enterprises and associations are existing before theirs had started and are not allowing new comers to make any substantial progress[28]. William S. Knudsen had said, “In business, the competition will bite you if you keep running; if you stand still, they will swallow you.”

Usually it is the consumer, i.e. the general public,who suffers most. Competition should be seen as a state which produces gains for the whole economy, through promoting consumer sovereignty[29]. Even if the main aim of the enterprises and associations is not to promote consumer interests, it should be one of the outcomes. More importantly, it should not hinder or crush their spirit and they should not be exploited. Due to unfair competitive practices they may be deprived of their consumer rights, like the right to choose. They also may be bound to pay a large price for a necessary good or service.

The corruption level in such a circumstance would be unimaginable. Prior to 1991 all kinds of free market mechanisms were shuffled or thwarted, and corruption arose almost as an illegitimate price mechanism, a sinister quasi-market, such that scarce resources could still be allocated within the economy and decisions could get made[30]. These were largely deceptive techniques created by the politico-economic regime[31]. While a major reform change has occurred in our economic policies, in the years following 1991, some of the disfigured cultural norms that prevailed during the earlier period are slowly being repaired by the mere forces of competition. The process will be long, slow and hard. It will not change overnight[32]. We, the people of the nation, choose the public representatives after consideration. However, if they are found to be inefficient, they may be changed by the next elections after their tenure is complete.  Otherwise what is the use of being a democracy? ‘If the state dies then who will protect the individual?’

Fair competition also means that each can have protection in their concepts, methods, technologies, etc. Therefore the need for intellectual property rights has increased. Compulsory license is required to claim rights in patents and designs[33]. Tort laws in India prevent enterprises form passing off of each other’s goods. Such practices also adversely affect the economy and protecting these is much more difficult than protecting any other type of property especially considering the technology today.

Positive global recognition of India’s economy is the need of the hour. Competition laws and policies should be made keeping in mind the fact that none of them must ruin the reputation of our country of being a good and fruitful investment.  It is only when we can ensure fair means of competition that foreign investors will get attracted to our country and our country will prosper not only in wealth but also in development and advancements in technology[34]. Not only that, but it will be good for our relation with other countries as well.

Mr. Taubmanof the World Trade Organization said, “India is developing a good competition policy. To ensure strong IPR regime, the country has put in very significant resources not just on the legislative side but also on legal and institutional aspects” [35]

Thus, in the light of the aforementioned reasons, it can be concluded that fair competition is the back bone of our economy. It is the engine of economic development which must be fuelled by the people’s and government’s constant efforts.Proper competition policies and a forceful consumer movement in particular, can play a productive and huge role in bringing about reforms in the system of competition[36]. Vested interests that oppose developments and just competition have to be overcome. A proactive media and a learned judiciary are needed if competition policy and law are to be completely effective[37].  It is only then that the engine of fair competition will run smoothly, which will further lead our country’s economy to run smoothly. Suitable co-ordination between all these groups and promoting a sense of alliance between the parties, will benefit everyone. As Brain Graham had once said in relation to competition in the market, “Competition creates better products, alliances create better companies.”

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REFERENCES

Books Referred

1.      Fellner William, Competition among the few: oligopoly and similar market structures

2.      Collected papers of Robert E. Kuenne: The economics of oligopolistic competition: price and nonprice rivalry

3.      Peter John Lloyd, Kerrin M. Vautier, Promoting competition in global markets: a multi-national approach 

4.      Vandana Chandra, Organisation for Economic Co-operation and Development, Pier Carlo Padoan, Innovation and growth: chasing a moving frontier

5.      Achim Schmitt, Innovation and Growth in Corporate Restructurings - Solution Or Contradiction?

6.      Organisation for Economic Co-operation and Development Science, Technology and Industry Outlook 2001: Drivers of Growth: Information Technology, Innovation and entrepreneurship

7.      Erlinda M. Medalla, Competition policy in East Asia

8.      Gene M. Grossman, Elhanan Helpman, Innovation and growth in the global economy

9.      Pradeep S. Mehta, CUTS Centre for Competition, Investment & Economic Regulation (Jaipur, India), A functional competition policy for India

10.  Sanjay Tiwari, Market Promotion Policies in India

11.   Ajay Singh and ArjunaRanawanaLocal industrialists against multinationals, Asiaweek.

12.    OECD "Economic survey of India 2007: Policy Brief"

13.   Oscar Schachter, Robert Hellawell, Competition in international business: law and policy on restrictive practices

14.   Eugene M. Makar (2007). An American's Guide to Doing Business in India.

15.    Hugh Stretton, Economics: a new introduction

16.    Joel B. Dirlam, Alfred Edward Kahn, Fair competition: the law and economics of antitrust policy

17.   Susan Joekes, Susan P. Joekes, Phil Evans, Competition and development: the power of competitive markets.

18.  Simon P. Ville, The rural entrepreneurs

19.    Joe S Bain, BarriesTo new competition

20.    Frank Chapman Sharp, Philip Gorder Fox, Business ethics, studies in fair competition

21.  BetinaDimarianan China, India, and the Future of the World Economy: Fierce Competition Or Shared Growth?

22.  Damien Geradin, Competition law and regional economic integration

23.    Nick Oatley, Cities, economic competition and urban policy

24.  Jitendra Singh, "Will Growth Slow Corruption In India?”

25.  Jhala H M, Intellectual property and competition law in India; with special reference to patents, trademarks, copyrights and know-how contracts

26.  HiauLooiKeeHoekman Bernard, Imports, entry and competition law as market disciplines

27.  T. Ramappa, Competition Law in India Policy: Policy, Issues, and Developments

Several Websites were also referred and have been cited in the footnotes below.

Also read article on 'Anti-Trust Laws: The Magna Carta of Free Enterprise'

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[1]Fellner William, Competition among the few: oligopoly and similar market structures

[2]Collected papers of Robert E. Kuenne: The economics of oligopolistic competition: price and nonprice rivalry

[3]Pradeep S. Mehta, CUTS Centre for Competition, Investment & Economic Regulation (Jaipur, India), A functional competition policy for India.

[4] Peter John Lloyd, Kerrin M. Vautier, Promoting competition in global markets: a multi-national approach

[5]Erlinda M. Medalla, Competition policy in East Asia

[6] Gene M. Grossman, Elhanan Helpman, Innovation and growth in the global economy;

Vandana Chandra, Organisation for Economic Co-operation and Development, Pier Carlo Padoan, Innovation and growth: chasing a moving frontier;

Achim Schmitt, Innovation and Growth in Corporate Restructurings - Solution Or Contradiction?;

OECD - Organisation for Economic Co-operation and Development Science, Technology and Industry Outlook 2001: Drivers of Growth: Information Technology, Innovation and entrepreneurship

[7] Sanjay Tiwari, Market Promotion Policies in India

[8]Ajay Singh and ArjunaRanawanaLocal industrialists against multinationals,Asiaweek.

[9] OECD "Economic survey of India 2007: Policy Brief"

[10]Oscar Schachter, Robert Hellawell, Competition in international business: law and policy on restrictive practices

[11]Eugene M. Makar (2007). An American's Guide to Doing Business in India.

[12]Preamble of the Competition Act, 2002.

[13]http://en.wikipedia.org/wiki/History_of_competition_law

[14] Hugh Stretton, Economics: a new introduction

[15] Joel B. Dirlam, Alfred Edward Kahn, Fair competition: the law and economics of antitrust policy

[16]Susan Joekes, Susan P. Joekes, Phil Evans, Competition and development: the power of competitive markets

[17]where a company sells a product in a competitive market at a loss. Though the company loses money for each sale, the company hopes to force other competitors out of the market, after which the company would be free to raise prices for a greater profit

[18] where a retailer or wholesaler is obliged by contract to only purchase from the contracted supplier

[19] e.g., two companies agree not to use a certain vendor

[20] an agreement by two companies to stay out of each other's way and reduce competition in the agreed-upon territories

[21] where the price is set by a monopolist at a level intended to discourage entry into a market

[22] where products that aren't naturally related must be purchased together

[23] where resellers are not allowed to set prices independently

[24] http://cmaindia.informe.com/blog/2011/04/05/fair-competition-and-economic-development/

[25]Simon P. Ville, The rural entrepreneurs

[26] Joe S Bain, Barries To new competition

[27] Frank Chapman Sharp, Philip Gorder Fox, Business ethics, studies in fair competition

[28]BetinaDimarianan China, India, and the Future of the World Economy: Fierce Competition Or Shared Growth?

[29]en.wikipedia.org/wiki/Competition_(economics)

[30] Damien Geradin, Competition law and regional economic integration

[31] Nick Oatley, Cities, economic competition and urban policy

[32]Jitendra Singh, "Will Growth Slow Corruption In India?”

[33]Jhala H M, Intellectual property and competition law in India; with special reference to patents, trademarks, copyrights and know-how contracts

[34]HiauLooiKeeHoekman Bernard, Imports, entry and competition law as market disciplines

[35]  3^rd February, The Hindu

[36]T. Ramappa, Competition Law in India Policy: Policy, Issues, and Developments

[37] A. Michael Ferrill, American Bar Association, Business torts and unfair competition handbook