Professional Documents
Culture Documents
Efficiency Innovation Consumer welfare choices, lower prices, better quality Conducive to economic and political democracy Apprehension of market failure has prompted 100 countries to enact modern competition laws
Choice of CARS in the olden days MTNL Monopoly : The position today Airlines : INDIAN AIRLINES : JET : SAHARA Mobiles : Price Wars Indian Railways : The monopoly continues.
Competition Law
Horizontal Agreements including cartels, e.g., price fixing, limiting production, sharing markets, bid-rigging Vertical Agreements e.g., tie-in, exclusive supply/ distribution, refusal to deal Cartel regarded most pernicious violation heavy penalties - criminal offence
Abuse of dominance
Not dominance, but abuse is illegal Dominance based, not on arithmetical formula, but on economic factors listed in Acts Abuse includes : discriminatory pricing, limiting production, denying access Examples : Microsoft
Unlawful Monopolization
Unlawful monopolization is an offence under competition law and consists of the following two elements namely:(a) possession of market power in the relevant market; and (b) the willful acquisition or maintenance of that power, as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.
Market power
Market power has been defined as the power to control prices or exclude competition, market share is the most important factor in measuring market power, with shares exceeding 70 percent usually considered sufficient for a finding of market power, and shares of less than 40 percent generally insufficient.
Competition in Different Segments of Markets Competition in Different Sectors of the Economy Competition in Different Markets Competition in Different Products
Background
Market-oriented economic reforms undertaken to stimulate competition and efficiency Competition Commission of India and Sector Regulators established to ensure competitive outcomes
Distinct concepts
Competition Policy
All Government Policies that affect the functioning of markets Competition Law
Competition Policy a broad concept that seeks to harmonise all government policies
Markets less competitive where agro-commercials firms deal with consumers and producers Huge gap between prices consumers pay and prices farmers actually receive Intermediaries do not always behave in a competitive manner Agricultural markets brought under Agricultural Produce Market Regulation Act to safeguard interest of producers and raise standard of local markets But, Regulated markets still not competitive
Evidence of collusion in purchase of basmati paddy/rice from producers (Panipat, Haryana) Grants marketing monopoly to state
Allows for contract farming, direct marketing, establishment of agricultural markets in private and cooperative sectors
Alternative marketing avenues through cooperative marketing agencies, government agencies provide better prices to farmers
concentration
increased
in
Emergence of one or two dominant firms Polyester Staple Fibre (Reliance: 54%, worlds 5th largest producer of PSF) Viscose Staple Fibre (Grasim: 91%, worlds largest plant for producing VSF) Storage Batteries (Exide Batteries: 62%) Complaints of excessive pricing (e.g. Indian Cotton Mills Federation, in case of Reliance in PSF) Impact analysis required to assess market behaviour
Market fragmented; few players dominate each of the fragmented market Cement industry known to be prone to cartelisation worldwide Accused of price rigging in the past; MRTPC initiated inquiry; Builders Association of India boycott targeting Grasim and GACL Government (major consumer with 30% consumption) Bid Rigging? Bid offers can give important clues
Is there patterns of systematic rotation of winning bids? Is the share of companies in overall procurement stable?
Hot Rolled Coils: Single largest steel product traded Allegations of differential pricing between intermediate and end product Allegations of cartelisation Regulatory Authority?
Instead required enabling government policies and active role by competition agency
Consumption patterns not affected by prices; Doctors and pharmacists decision makers Collusive behaviour of pharmacies Central Government making efforts to curb trade margins NCMP promises to "take all steps to ensure availability of life-saving drugs at reasonable prices" Supreme Court order in K.S. Gopinath case, March 10, 2003, directing government to ensure that essential and life-saving drugs do not fall out of price control" Regulatory regime - hard on manufacturers but soft on doctors and pharmacists
Strong competition between Indian brands, foreign firms, and non-branded sector Microsoft operating system controls over 90 percent of desktop software market Lack of competition sets limits on development of application software based on this operating system
Software segment:
Open source software can make software segment competitive Enabling Government policy to promote use of open source software, particularly in e-governance projects
Market structure for coal production and distribution completely dominated by State owned entities
managed
or
mediated
through
Petroleum products: Lack of transparency in pricing Power sector, poor regulatory environment due to governments continuous interference
Intra-port and inter-port competition, not adequate Port Trusts as owners and service providers, possibility of discrimination against competing service providers TAMP not given adequate mandate Requires neutral regulatory regime to ensure access to essential facilities
Volvo fare: Rs.250 for Delhi-Vijaywada (intra-state; distance 276 kms and route served by private operators also) Volvo fare: Rs.450 Delhi-Jaipur (inter-state; distance 252 kms and exclusively reserved for state transport corporation)
Route dispersal guidelines in civil aviation discriminates against state-owned carrier; Public sector airlines subject to procedural bottlenecks Transport sector remains inefficient due to policies that inhibit competition and their poor regulation
Significant private sector participation after liberalisation and establishment of a regulatory body Substantial growth and dramatic expansion in range of services available, as well as fall in tariffs Interconnection in telecom still unresolved Access Deficit Charge to BSNL: lack of transparency BSNL cross-subsidising competitive ISP business with the less competitive dialup business Intervention in regulatory functioning
Thrust of reforms to allow for more competition and for the government to play the role of a facilitator rather than the controller of economic activity
Several policies and practices of the government distort the market process and competition
Examples emerging from sectoral slides Trade Policy: anti-competitive dimension exists (e.g. antidumping measures, inverted duty structures) Labour Policy: exit difficult; inspection regime constitutes a significant barrier to entry and operations
Government Procurement
Purchase preference to public enterprises Procurement rules result in anti-competitive outcomes (e.g. procurement of concrete sleepers by Railways) Intervention in pricing of commodities (foodgrains, coal, oil)
Price Regulation
Clearances required for setting up business and time involved Essential Commodities Act: discretionary power to officials and leads to excessive control and intervention
Conclusions
Generally, policies framed and implemented without acknowledging the market process Government should evolve a system of competition audit Government policies should have an explicit statement about the likely impact on competition Adopt a National Competition Policy to provide guidelines at all levels of government in maintaining appropriate competition dimension