Amity School of Business Monopolies and Restrictive Trade

Amity School of Business Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 1

Amity School of Business MRTP Act- 1969 The Background: Monopolies (tend to) – restrict output, competition, & consumer choices; lead to higher prices, inhibit research & development, breed inefficiency, promote uneconomic use of national resources, accentuate concentration of wealth and income in the society, and are detrimental to economic growth. Section 39 of the Directive Principles of State Policy, directs the State to ensure that ‘the operation of economic system does not result in concentration of wealth and means of production to the common detriment’. 2

Amity School of Business In 1964, the Mahalanobis committee reported a high degree of producer concentration in a wide range of producer and consumer goods industry. In 1965, the Monopolies Enquiry Commission (under the Chairmanship of K. C. Das Gupta) found that in 62 % of the total 1380 products, . In this product group, monopoly (only one producer) was found in 425 products, duopoly (only two producers) in 225 products, and only three producers in 160 products. 3

Amity School of Business MRTP Act, 1969 In India the Monopolies and Restrictive Trade Practices (MRTP) Act was enacted in 1969 to prevent (in trade & business) the concentration of economic power to common detriment, control of monopolies, and prohibit monopolistic, restrictive and unfair trade practices. The Act was latter amended in 1974, 1980, 1982, and 1991 to remove inconsistencies, and make it more effective and in tune with changing economic policies from time to time. In 2002, the MRTP Act, 1969 was repealed by a new Competition Act, 2002. 4

Amity School of Business 1. Monopolistic trade practices (MTPs) Under Section 2(i) of the MRTP Act, 1969 a MTP was defined as one which had (or was likely to have) any of the following effects: • To limit or control, the supply or distribution of goods or services, thereby maintaining their prices at unreasonable levels; • To limit technical development or capital investment, or allow the quality of goods or services to deteriorate; • To unreasonably prevent or restrict competition; • To unreasonably raise the prices of goods; 5

Amity School of Business 2. Restrictive trade practices (RTPs) Under the MRTP Act, a RTP was defined as one which had the effect of preventing, distorting or restricting competition in any manner. Following acts or agreements are deemed to be RTPs: 1. To obstruct flow of capital or resources in production; 2. To restrict buying and selling; 3. Tie-in sales (e. g. requiring a customer to buy a shaving blade along with shaving cream); 4. An agreement requiring a dealer of a particular product not to deal in rival company product; 5. Collective price fixation; 6

Amity School of Business RTPs (continued) 6. Collective tendering; 7. Minimum resale price maintenance; 8. Manufacturing process restricting agreements (on use of certain equipment, technology, and process, quantity etc. ); 9. Output / supply restricting agreements (for a product or in a particular market); 7

Amity School of Business 3. Unfair trade practices (UTPs) were added to the 1. 2. 3. 4. 5. MRTP Act, in 1984. This was done in order to protect consumers from wide variety of UTPs, which exploit consumers. Some common practices deemed to be UTPs are as follows: False or misleading representation; Bargain sale (bait) and switch selling Restriction on buying and selling; Free promotional gifts (tempt people to buy products on considerations different from cost, quality or need); Ignoring product safety standards Hoarding or deliberate destruction of goods; 8

Amity School of Business Competition Act, 2002 9

Amity School of Business India’s new Competition Law • Competition Act, 2002. • Under the aforesaid Act, Competition Commission of India established in October 2003. • Competition (Amendment) Act, 2007. The main objective of the Competition Law is to maintain, promote and protect the ‘process of competition’, in the interest of the consumer. Therefore, the Law attempts to eliminate practices having adverse effect on competition. 10

Amity School of Business Why Competition ? • Competition promotes allocative and productive efficiencies, innovation, and consumer welfare; • Is integral to a market-based economy; • Is an essential condition for national competitiveness 11

Amity School of Business Benefits of Competition According to Paul London, Economist, “Competition contributes to economic growth more than technology, tax-cuts, and budget policies. ” According to Joseph Stiglitz, “Strong competition policy is not just a luxury to be enjoyed by rich countries, but a real necessity for the countries striving to create market economies. ” 12

Amity School of Business Under the Competition Act, 2002, the Competition Commission of India (CCI) performs following four primary functions: 1. To prohibit anti- competitive agreements; 2. To prohibit abuse of dominant position; 3. To regulate potentially anti-competitive combinations (mergers); 4. To perform competition advocacy. Competition Commission of India (CCI) www. cci. gov. in 13

Amity School of Business COVERAGE OF THE ACT • All enterprises, whether public or private; • Government Departments, except when engaged in discharge of sovereign functions: Currency, Atomic energy, Space and Defence specifically indicated; • Extra-territoriality (Sec. 32); • Provision to enter into MOUs with foreign competition authorities. 14

Amity School of Business 1. ANTI COMPETITIVE AGREEMENTS • Horizontal Agreements, including cartels • Four types presumed to have appreciable adverse effect on competition (AAEC): 1. Price fixing 2. Quantity/supply limiting 3. Market sharing 4. Bid rigging/collusive bid Burden of proof on the defendant. 15

Amity School of Business Anti-competitive Agreements (An example): Siem Reap in Cambodia- a popular tourist town, housing the famous Angkor Vat temples. There are three means of transportation from Phnom Penh, capital of Cambodia to Siem Reap – boat, road and air. Eight boat companies: The price for one-way travel is 40, 000 Riels (about us $ 10). Because of competition prices plummeted to as low as 20, 000 Riels, below profitable level. The boaters entered into an ‘understanding’ to fix prices at 40, 000 Riels. They further agreed that they would not compete with each other and would share their departure schedules. There was no written agreement but only an understanding. The understanding constitutes a cartel agreement. 16

Amity School of Business 2. DOMINANCE (defined) Position of strength enjoyed by an enterprise in the relevant market which enables it to: 1. Operate independently of competitive forces prevailing in relevant market; or 2. Affect its competitors or consumers or the relevant market in its favour. Therefore, the • Ability to prevent effective competition and • Ability to behave independently of two sets of market actors, namely: Competitors, and Consumers. 17

Amity School of Business DOMINANCE – Not Bad, however, ABUSE OF DOMINANCE - is bad, and is thus prohibited under Section 4 of the Competition Act, 2002. Abuses are broadly of two types: • Exploitative (towards consumers); • Exclusionary (towards competitors). 18

Amity School of Business 3. COMBINATIONS (covers) • Merger & Amalgamation • Acquisition • Acquiring control Any combination which causes or is likely to cause appreciable adverse effect on competition (AAEC) is void. Competition Commission of India can: • Approve with modifications • Not approve, any combination in India. 19

Amity School of Business 4. COMPETITION ADVOCACY (by Competition Commission of India on promoting competition) • With Government/Regulators - to promote pro -competition policies, laws, and regulations. E. g. those relating to disinvestment, concessions, industrial policy, international agreements, entry/exit policies etc. • With industry, trade associations etc. - to strengthen competition culture and improve compliance. 20

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