Comp 3

Chapter-I
EVOLUTION, CONCEPT AND JUSTIFICATION FOR THE

DEVELOPMENT OF COMPETITION LAW IN INDIA
1.1 GENERAL CONCEPTION OF COMPETITION LAW
1.1.1Meaning
Competition is a process of economic rivalry between players to attract

customers. These market players can be multinational companies, domestic
companies, wholesalers, retailers (even our neighborhood shopkeeper) or a cable
operator. Such a competitive situation may also be affected by market contestability,
where in competition comes not only from existing players, but also from new players
that could enter and contest in the market alike.
According to Professor Whish, ‘competition means a struggle or contention

for superiority, and in the commercial world this means a striving for the custom and
business of people in the market place’.1 This definition is helpful in so far as we do
not confuse means and ends. Rivalry among firms is the means through which a
number of socially desirable ends — e.g. economic efficiency, economic freedom or
consumer welfare — are pursued.2 To judge whether there is a distortion of
competition it is more helpful to look to see whether the ends are met rather than
whether firms are rivals.3
In their pursuit to be better than other enterprises, market players adopt the
following ways:
• Fair: This relates to the adoption of fair means such as producing quality
goods, becoming cost efficient, adopting the best available technology, more
research and development and the like. In this sense, firms do their best in
terms of innovation, choice, quality and service.
1
R. Whish, Competition Law, 5th edn (London: Lexis Nexis, 2003), p. 2.
2
J.F. Brodley, ‘The Economic Goals of Antitrust: Efficiency, Consumer Welfare, and Technological
Progress, (1987) 62 New York University Law Review 1020, 1023.
3
Guirgio Monti, EC Competition Law, Cambridge University Press, Cambridge, UK, 2007, p. 22.
Page | 1
Evolution, Concept and Justification for the Development of Competition Law in India
• Unfair: This relates to the adoption of restrictive business practices such as

predatory pricing, exclusive dealing, tied selling, resale-price maintenance,
cartelization, refusal to deal and the
In either situation, competition in the sense of economic rivalry leads to a

concentrated market, as the number of firms operating in them is reduced while the
size of those still active increases considerably, resulting in a greater market power.
Thus, ‘competition kills competition’. This is true, if one follows the inherent logic
within competition; the natural tendency then would drive competition to result in
monopoly.
Given this, the appropriate definition of competition is “a situation which

ensures that markets always remain open to potential new entrants and that
enterprises operate under the pressure of competition”.4
Competition refers to a situation in a market place in which firms/entities or

sellers independently strive for the patronage of buyers in order to achieve a
particular business objective, such as profits, sales, market share, etc. By responding
to demand for goods arid services with lower prices and higher quality, competing
businesses are pressured to reduce costs, innovate invest in technology and better
managerial practices and increase productivity. This process leads to achievement of
static, dynamic as also resource/allocative efficiencies, sustainable economic growth,
development, and poverty alleviation.5Importantly, competition is not automatic, and
requires to be promoted, protected and nurtured through appropriate regulation
frameworks by minimising market restrictions and distortions, and provision of
related productive inputs such as infrastructure services, finance, human capital etc.
1.1.2 Competition Policy, Competition Law and Competitiveness
Competition policy means government measures, policies, statutes, and

regulations including a competition law, aimed at promoting competitive market
structure and behavior of entities in an economy.6 Competition Law is a sub-set of the
4
Pradeep S Mehta. A Functional Competition Policy for India, CUTS International, Academic
Foundation, New Delhi, 2006 at p. 26.
5
Draft National Competition Policy, 2011, p. 5.
6
Several agencies such as the World Trade Organization (WTO), the World Bank, UNCTAD etc. have
attempted to define the terms competition policy.
Page | 2
Competition Policy. The Raghavan Committee had observed that “Competition law
must emerge out of a national competition policy; which must be evolved to serve the
basic goals of economic reforms by building a competitive market economy”.
The World Trade Organization (WTO) defines competition policy as:
“The full range of measures that may be used to promote competitive market
structures and behavior, including but nor limited to a comprehensive
competition law dealing with anti-competitive practices of enterprises”.
World Bank also provides a definition of competition policy as:
“Government measures that directly affect the behavior of enterprises and the
structure of industry. An appropriate competition policy includes both:
(a) policies that enhance competition in local and national markets, and
(b) competition law, also referred to as antitrust or antimonopoly law.”
Competition Policy is a broader term which includes all government policies

and laws whereas competition law is of a specific stature with a predefined mandate
to adjudicate on violation(s) of the law. It would be seen that a competition law is a
regulatory instrument to check the prevalence of anti-competitive practices whereas a
competition policy is a proactive and positive effort to build a competition culture in
an economy. To strengthen the forces of competition in the market, both competition
law and competition policy are required. The two complement each other. The
competition law prohibits and penalizes anti-competitive practices by enterprises
functioning in the market i.e. addresses market failures.
Competition policy, competition law and competitiveness are three distinct

concepts. Competition Law is a sub-set of Competition Policy. Besides encompassing
the law, Competition Policy tries to bring harmony in all government policies that
affect competition and consumer welfare, such as trade policy, industrial policy etc.
Competition does lead to better competitiveness but it is not necessarily the other
way. As per Michael Porter, competitiveness means ability of a firm or a nation to
WTO (1999), “The Fundamental Principles of Competition Policy: Background Note by the
Secretariat” Working Group on the Interaction between Trade and Competition Policy
WT/WGTCP/W/127.
Page | 3
compete which is based on the productivity of the entity concerned. 7
1.1.3 Types of Competition
Competition can be broadly divided into two parts:
1. Price Competition: This is a form of competition among suppliers where the

suppliers try to win customers by offering them a product at a price which is
lower than their competitors’ price. Lowering down of price is expected to
bring about an increase in the market share of the lower priced product. But
this strategy may not click for those customers who are loyal to any particular
brand and are not price conscious.
2. Non-price Competition: This is a form of competition among suppliers

where they try to win customers not by lowering prices but by advertising,
offering after-sales-service, using sale promotion tools, etc.
Before understanding different forms of competition in the market, it is

essential to understand what market is.
Market is an exchange mechanism that brings together sellers and buyers of

any commodity or service. It is simply a transaction not a place that it is usually
supposed to be. where a buyer agrees to pay a price for the product that he buys from
a seller. Forms of competition in the market can be distinguished according to the
structural characteristics of the market such as: number of sellers and buyers, the type
of goods produced, the nature of entry barriers, i.e. new firms cannot enter the
market, etc.
Generally, there are four forms of market and the associated competition:
1. Large number of sellers and buyers, identical goods, free entry and free exit:
This form of competition is called Perfect Competition. The existence of a
very large number of sellers, producing identical goods, results in same price
for these goods. Existence of a unique price implies that in this form of
competition. Firms are price takers and not price setters and can sell any
quantity of the products they desire at the existing market price.
7
Draft National Competition Policy, 2011, p. 7.
Page | 4
A single individual producer whose share in the market is very small

cannot influence the market. The degree of competition (price or non-price) is
so low that it can be said that competition is virtually absent here. Moreover,
on account of entry and exit being free and easy in this market. Firms make
only normal profits in the long run (i.e. normal return on capital employed
which is comparable to that obtainable in other equally risky markets plus a
bonus for the risk bearing function that the producer undertakes). Example:
Perfect competition is an ideal situation and does not exist in practice but a
near perfect competition can be seen in the market for vegetables. Almost
everywhere in the world where there are large number of. buyers and sellers,
the buyers have perfect information about the market and no individual seller
can usually influence the market on his own.
2. Single seller, large numbers of buyers, and close substitutes of the product,
high entry barriers: This form of competition is called Monopoly. In this
market form the monopolist (i.e. the only seller) is the price and output setter.
The monopolist can set price and allow demand to determine output or, can
set output and allow demand to determine price. There may be reasonably
adequate substitutes but not close substitutes. For example, road transport
services (public and private), airlines etc. are reasonably adequate substitutes
for railways but not close substitutes. Because of absence of close substitutes,
competition is absent in the railway sector. Example: In most of the
developing countries of the world. Public utilities such as railways, electricity
are examples of monopoly where the State is the sole supplier and there are no
close substitutes. Telephone too was another of such service but fortunately no
longer.
3. Large number of sellers and buyers, existence of close substitutable products,

no entry barrier: This form of competition is called Monopolistic Competition.
Existence of large number of sellers and buyers may give an impression that
this form of competition resembles perfect competition. But it is unlike perfect
competition. Here the existence of a large number of buyers and sellers does
not imply that only a single price prevails in the market. Rather, several prices
Page | 5
exist in this market form. Each firm enjoys certain price setting power over its
product because of product differentiation. Firms do not engage in price
competition in this market form since the effect on the demand for the product
of the low-priced firm is negligible. Instead, they engage in non- price
competition, such as product differentiation, to attract more customers, not as
a reaction to the decision taken by other firms.Example: in most of the
countries of the world, markets of the fast moving consumer goods (FMCGs)
such as soap, toothpaste and other toiletries are examples of monopolistic
competition where a large number of close substitutes are available. However,
in order to remain in competition, the suppliers actively engage in product
differentiation to attract customers.
4. Very few sellers, large number of buyers, large number of branded products,
high entry barrier: This form of competition is called Oligopolistic
Competition. The number of sellers is so small that they are conscious of their
interdependence (be it in price, product or promotion). They take into account
the competitors’ possible reactions while deciding their strategy. Firms, in this
market form, tend to produce large number of branded goods in order to
diverse’ the product line and thus compete on non-price terms (such as brand
loyalty) and strengthen this with high advertising budgets. Example: The
Direct to Home (DTH) industry in India can be regarded as oligopolistic.
Although it is growing fast. In 2008. the industry’s key players included Dish
TV, Tata Sky. Blg TV, Digital TV and SUN Direct, with VIDEOCON as a
near entrant. However the first three players above were very dominant with a
combined market share (CR3) of 98 percent, while the last two could only
manage two percent. They offer the same services but competition is generally
on non-price basis, as they try to capture markets by advertising and having
more services (entertainment, news, sport channels etc.) than competitors.8
1.1.4 Necessity of Competition Law
During the nineteenth century, both law and economics began to develop
8
Pradeep S. Mehta. “Why should consumers be interested in a Competition Law and Policy”, CUTS
International , CUTS Centre for Competition, Investment and Economic Regulation, 2010, pp. 4-7.
Page | 6
theories of competition as well as ideological defenses of competition as a social

good. Although classicists were concerned to preserve “competition”, they did not
understand that term as we understand it today. In both classical law and classical
economics, “competition” carried a very different meaning. Competition was not a
theory about price/cost relationships, as it came to be in neoclassical economics. Nor
was it a theory about the “struggle for survival”, as it was for some Social Darwinists
during the Gilded Age.9 Rather, competition was a belief about the role of individual
self-determination in directing the allocation of resources; it was a theory about the
limits of state power to give privileges to one person or class at the expense of others.
Competition was defined by the Court as a process that required numerous

participants and decentralization.10 Competition was described as a tool for de-
concentration and therefore, Court applied merger law to prevent concentration.11
Competition laws have been described as Magna Carta of free enterprise. They are
important to the preservation of economic freedom and our free enterprise system.12
The need for competition law arises because market can suffer from failures and
distortions, and various players can resort to anti-competitive activities such as
cartels, abuse of dominance etc. which adversely impact economic efficiency and
consumer welfare. Thus there is a need for competition law to provide a regulative
force which establishes effective control over economic activities. There is a
widening consensus among jurisdictions with competition laws that “the basic
objective of competition policy is to protect competition as the most appropriate
means of ensuring the efficient allocation of resources—and thus efficient market
outcomes—in free market economies”.
The specific reason for the emergence of competition law is still in debate. J.
Dirlam argues that, as history teaches; ‘efficiency’ is not the reason for competition.13
Rather than efficiency, it is the distrust of power, which is the central and common
ground of supporting competition law regime.14 Mc Chesney has also argued that
9
Hovenkamp: The Political Economy of Substantive Due Process (1988)40 Stan L Rev 379 (417419).
10
United States v. Philadelphia National Bank [19621374 US 321 (369)].
11
Ibid.
12
Unites States v. Topco Associates Inc. [19721405 US 596 (610).
13
Dirlam & A. Khan: Fair Competition: The Law and Economics of Antitrust Policy (1954), p. 28.
14
Pitofsky: The Political Content of Antitrust [19791127 U Pa L Rev 1051 (1053-1054)
Page | 7
there is no reason to assume that efficiency requires a competition system. A society

that values efficiency will not necessarily demands a competition system.15 It was
noticed that:
“Nor was the “efficiency” the central reason for American free enterprise
system. The United States embraced a Markey system rather than the government
ownership of business or governmentally directed allocation of resources because
freedom of private economic action and decentralized centers of decision-making
were components of American democracy. Even if centralized government control of
resource allocation were regarded as more efficient than private-firm competition,
since it avoids the wastes of competition.”16
Elanor M. Fox has very rightly pointed out that17
“One overarching ideas has unified these three concerns (distrust of power,
concern for consumers, and commitment to opportunity for entrepreneurs):
competition as process. The competition process is the preferred governor of
the markets. If the impersonal forces of competition, rather than public or
private power, determine market behavior and outcomes, power is by
definition dispersed, opportunities and incentive for firms without market
power are increased, and the results are acceptable and fair. Some measures
of productive and allocative efficiency are a by-product, because competition
tends to stimulate lowest-cost production and allocate resources more
responsively than a visible public or private hand.”
In sum, the claim that efficiency has been the goal and the fulcrum of antitrust
is weak at best. The values other than efficiency that underlie the commitment to
power dispersion, economic opportunity, and competition as market governor
demand equal attention. The basis upon which some scholars affirmatively have
rejected these historic objectives as goals of antitrust is not apparent. The reasons
offered do not withstand scrutiny.”
15
McChesney: On the Economics of Antitrust Enforcement [1980)68 Geo. U 1103 (1104).
16
J. Dirlam & A. Khan: Fair Competition: The Law and Economics of Antitrust Policy (1954), p. 28.
17
Elanor M. Fox: The Modernization of Antitrust: A New Equilibrium [1980] 66 Cornell L Rev 1140,
1154.
Page | 8
Competition law protects competitive markets for promoting efficiency by

proscribing certain types of conduct. Any conduct, which prohibits or restricts firms
from entering into market, introducing new products are considered illegal by
competition law.
Competition is the engine of free enterprise. Market economy performs with

respect to competition in the market. From an economist perspective, competition
involves a process of business rivalry between the firms that strive to win customer’s
business by achieving the lowest level of costs and prices, developing new products
or services or exploiting particular strengths, skills or other advantages to meet
customer’s needs more effectively than competitors. The economic rationale behind a
free market economy is that freely operating markets will result in the most efficient
allocation of a nation’s scarce resources and will bring consumers the widest variety
of choices and the lowest possible prices.18
Competition law forces the market players to search for better permutation
and combination for providing greater profits through greater efficiency. Shuffling
and reshuffling of products makes the output maximized because there is no further
possibility of rearrangement of resources that could increase the value to consumers
of total output. This leads to a prosperous society and permits individual consumers to
determine by their own actions what goods and services they want most.
Apart from free market system, competition law also has social purposes. The
social purpose rationale for competition law finds its introduction in the passage of
Justice Hands in United States v. Aluminum Co. of America,19 where he preferred the
preservation of small businesses over the preservation of free market. He noted that20:
“It is impossible, because of its indirect social and moral effect, to prefer
a system of small producers, each dependent for his success upon his
own skill and character, to one in which the great mass of those engaged
must accept the direction of a few.”
18
Herbert Hovenkamp: Federal Antitrust Policy: The Law of Competition and its Practices (West,
1994)
19
148 F 2d 416; 2d Cir 1945
20
Ibid. at 427.
Page | 9
He further stated:21
“Throughout the history of these statutes it has been constantly assumed

that one of their purposes was to perpetuate and preserve, for its own
sake and in spite of possible cost, an organization of industry in small
units which can effectively compete with each other”.
Trade liberalisation is one of the most effective measures to ensure

competition in the market place and curb abuse of market power. However, even this
has its limits, imported goods cannot reach the consumers directly and the well
entrenched marker players may have a grip over the distribution channels, which may
nullify the gains of liberalised trade. Then, there are goods and services which are not
tradable. There are goods which are tradable hut only within a limited market.
Cement being a classic example of this. Due to its bulky nature it is not economical to
transport it to distant markets. As a result, even geographical segments of a national
market can be successfully monopolised or cartelised.22
The need for a competition law thus arises from the following factors:
• To take care of the anti-competitive practices designed to restrict the free play
of competition in the market;
• To take care of the unfair means adopted by firms against the consumers in
order to extract the maximum possible consumers’ surplus; and
• To maintain and promote the competitive spirit in the market.
1.1.5 Goals of Competition
Due to multifarious dimensions of competition law and policy, It is very

difficult to exhaustively enumerate the goals of competition. However, it is generally
accepted that efficiency and consumer welfare are the primary goals of competition
law. Apart from that there are some non-economic and societal goals, which
competition law would like to achieve. It would be important to note that the goals of
competition law are not only economic but also non-economic. Kaysen and Turner
21
Ibid. at 429.
22
Foundation, New Delhi, 2006 at pp. 26-27.
Page | 10
were of the opinion that competition deals with both economic and noneconomic
parameters in the market. They stated that:23
“It is obvious that in passing the Sherman Act, “Congress was dealing
with competition, which it sought to protect, and monopoly, which it
sought to prevent”. The legislators were well aware of common law on
restraints of trade, and of the power of monopolists to hurt the public
by raising price, deteriorating product, and restricting production. At
the same time, there was at least equal concern with the fate of small
producers driven out of business, or deprived of the opportunity to
enter it, by “all-powerful aggregation of capital”. There was no
obvious inconsistency in these two interests it seems probable that the
legislator also desired to protect equal opportunity and equal access
for small business for noneconomic reasons…”
(a) Classical goals
Under classical goals, the widely recognized and primary goals of competition
law have been categorized. They are:
• Enhancement of efficiency in the market;
• Promoting consumer welfare;
• Avoidance of conglomeration of economic power; and
• Protection of smaller firms from anti-competitive agreements.
(b) Specific goals
The specific goal of competition law is the creation of a single market, which
helps in bringing out lower price, better consumer welfare and liberty to sellers and
buyers. The single market relies chiefly on competition and regulatory authorities to
maintain a level playing field for the free movement of goods and services.
The Celler-Kefauver Amendment to the Claytons Act, 1914 considered

competition law as curbing the social evil of “concentration” The amendment was
introduced more on the ground of danger of increasing economic concentration rather
23
C. Kaysen and D. Turner. Antitrust Policy (1959), p. 19
Page | 11
than on the virtues of efficiency. However, apart from any classification, efficiency
and consumer welfare are the primary goals of competition law, which are discussed
herein.
• Competition for efficiency
In recent years, efficiency advocates have gained ascendancy, powerfully

assisted by the perception that efficiency analysis is scientific and rigorous, as
contrasted with the softer values of more inclusive approach that would encompass
noneconomic values. Efficiency is all about maximum utilization and best possible
management of scarce resources in a society. Efficient resource allocation is the
central idea of any economic market. There are three types of efficiency:
• Allocative efficiency;
• Productive efficiency;
• Dynamic efficiency.
Allocative and productive efficiency are together known as static efficiency.

Allocative efficiency deals with optimal allocation of resources and productive
efficiency deals with optimal production of resources. Thus, static efficiency aims at a
better output with same input. Static efficiency can be achieved in the market by
enforcement of a competition policy that seeks to promote competitive pricing and
prevent abuse of market power. This is based on the premise that monopoly or any
other form of imperfect market structure leads to static inefficiency as the pricing of
product is above the marginal cost resulting in monopoly profits.
Market prices are the signals from marginal consumers of the value they
receive from the product, showing their willingness to pay. With the increase in
supply, demand will decrease and as a result, price will also decrease. An efficient
allocation means this price reflects the cost of producing the goods. Allocative
efficiency in a free enterprise economy can be achieved only if all firms are of
sufficient size to realize all significant economies of scale, and all markets are either
competitively structured (that is, they comprise a significant number of producers
with no one or few having market dominance) or entry barriers are low. In such cases,
all producers are price takers; the market, not the producers, sets the price. The
Page | 12
market focuses cause resources to move to the production of goods that consumers
want, given the distribution of wealth, Prices move down to marginal cost, and output
is optimal to serve consumer wants at that cost.
Productive efficiency means optimal production of goods with available input

i.e. use of the most cost effective combination of productive resources available under
present technology. This emphasizes on making best possible use of input resources
and ensuring no wastage.
Dynamic efficiency refers to development of new products. This can be done

by ensuring proper reward to the inventor in lieu of developing and disclosing the
invention to public. Out of these efficiencies, productive efficiency can be best
measured because productive gains produce directly observable indicia, such a
reduced manufacturing costs that are capable of being assessed with precision. At the
same time, dynamic efficiency is very difficult to measure. Static efficiency is
achieved by strong price competition. Allocative efficiency is attained when prices
are equated to marginal cost, which is a condition for perfect competition. This
reveals an inherent tension between static and dynamic efficiency. As stated earlier,
for static efficiency, the price should be equal to marginal cost. But in such a
situation, dynamic efficient can never be achieved because the cost of producing a
goods that has already been discovered is very low, the price charged would also be
very low or virtually zero. Such market structure based purely on the competitive
price mechanisms does not provide an incentive to innovate and to put in huge
quantum of investments in research and development. A pricing policy based purely
on competitive practices would thus make a socially desirable innovation non-
excludable resulting in loss of potential incentives to innovate. This will discourage
the inventor to develop the innovation into socially desirable product and disclose it
to public. To put it in economics terms, the price of a product is based on its Total
Fixed Cost (TFC) and Total Variable Cost (TVC). Total Fixed Cost is the cost
incurred in developing that product like cost of research and development. Total
Variable Cost is the cost incurred in actual production of unit of that product like cost
of raw material, labour etc. In case of products which require a huge research &
development expenditure, TFC is high and TVC will be very low. If price is kept
Page | 13
equal to marginal cost, i.e. TVC, the TFC put in by the inventor will not be
compensated to him and no one will put his resources into developing socially
desirable inventions. Thus, for dynamic efficiency competition should be for the
market rather than in the market.
Competition should aim at achieving static as well as dynamic efficiency. The

incentives provided to boost dynamic efficiency should be kept less than the overall
social benefit arising from the incentive it provides to innovative activity. At the same
time, Posner has argued that, since, in an economic analysis, we value competition
because it promotes efficiency—i.e., as a means rather than as an end—it would seem
that whenever monopoly would increase efficiency it should be tolerated, indeed
encouraged”.24 In short, the traditional view of competition as an important end in
itself is turned on its head: Competition is valued only when it serves wealth
maximization. That is, competition is valued only as a means to increase the
cumulative market value of private property. Posner’s justification for competition,
probably, rests on the lines of modern utilitarianism, which states, a rule is good when
by its effects society is better well off. However, wealth maximization might be one
important social good and need but it is not the only one aspect on which our society
values. Moreover, wealth maximization doesn’t serve any purpose unless it is
efficiently allocated.
1.1.6 Hurdles to Fair Competition
There are three major ways through which business can engage in anti-
competitive practices.25 These can be explained as follows:
1.1.6.1 Anti-competitive Agreements
Once Napoleon said: “There are only two forces that unite men: fear and
interest”. Competition being a formidable force of the market gives both these
reasons to firms to come together, connive and thwart the cherished fruits of
competition hurting the interests of not only consumers but the economy as welt.
24
R. Posner, Antitrust Law: An Economic Perspective (1976), p. 22
25
Pradeep S Mehta. “Why should consumers be interested in a Competition Law and Policy”, CUTS
International , CUTS Centre for Competition, Investment and Economic Regulation, 2010, pp. 12-25.
Page | 14
Firms can engage in various agreements. either with firms at the same level of
production — supply chain and which are competitors to each other (horizontal
agreement) or with the firms that are at different level of production — supply chain
(vertical agreement). Regardless of the nature of such agreements, all have the
ultimate objective of raising prices and increasing their profits.
A cartel is an agreement between firms to act in concert on prices, production

levels and territories. The elimination of rival firms that formerly competed is
accomplished not by integration of production activities, as would happen in the case
of a merger. Instead, the formal rivals maintain separate firms but act jointly in fixing
prices or dividing the market, or even both. Cartels can also construct private barriers
to prevent entry, such as threat of retaliatory or predatory price wars and patent
pooling. For all these reasons, cartels are the most egregious of all anti-competitive
practices and afford the firm the luxury to remain inefficient.
Horizontal agreements work in following ways to thwart competition:
(i) Price Fixing: The colluding firms undertake these kinds of activities in order
to eliminate price competition between them. Sometimes they also follow this
route in order to eliminate entry of any potential competitors into the market.
A successful cartel raises price above the competitive level and reduces
output. Consumers would have no option but to pay the higher price for the
cartelised product, as these are mostly essential products.
(ii) Bid Rigging or Collusive Bidding: Competitors might agree on who would
win a tender or bid, mostly government tenders, and allows the winner to
quote higher prices than under competition and win. The other members of the
collaboration will either decline to participate in the tender or will make fake
offers, called “cover bids”. These are known as bid rigging cartels.
Mechanisms for bid rigging are numerous and varied such as:
Bid suppression: One or more competitors agree to refrain from tendering or

to withdraw a previously submitted tender so that another firm can win the
tender.
Page | 15
Complementary bidding: The competing firms agree among themselves as to

who should win a tender, and then agree that the others will submit artificially
high bids to create the appearance of vigorous competition.
Bid rotation: The competitors take turns in winning tender, with others
submitting high bids.
(iii) Allocating Markets: Competitors can agree to allocate geographic territories

or type of goods or customers among themselves, and avoid competing with
each other in the areas to allow each other opportunities to enjoy super normal
profits. This is known as marketing allocating agreements. The agreement
between two firms to allocate market is a very serious anti- competitive
practice, and may have a greater impact on competition due to price fixing.
(iv) Limiting Output: Competitors might agree to limit the output they produce
or supply into the market, so as to cause some artificial shortages of the
product, resulting in excess demand for the product and opportunities to raise
prices. These are known as output restricting cartels.
Agreements between, firms which are at different stages or levels of

production chain, can also stifle the competition. This can happen through certain
imposed conditions.
(i) Tie-in Agreement: Here the supplier sells a product (tying product), which is
dependent on the purchase of some other product, usually a slow moving
product (tied product). This tie- in arrangement is such that even if the
customer does not want to buy the tied product, he has to buy it in order to get
the desired product.
(ii) Exclusive Dealing Agreements: Here upstream firms (e.g. producers) force
an agreement upon downstream firms (eg. retailer), whereby the latter is
prohibited from dealing with competing producers or distributors. This
dealing arrangement can act as a barrier for new entrants and hence affects
competition adversely.
(iii) Exclusive Distribution Agreements: This agreement is between the supplier

and the distributor, where the former dictates the latter on his/her market. That
Page | 16
means, whether or not the distributor will sell to any particular region or to
particular class of customers is to be decided by the supplier. Again these are
marketing strategies, generally followed by firms, but sometimes these
practices may pose competition concerns.
(iv) Refusal to Deal: In such cases firms decide among themselves not to sell or
buy from certain customers. In other words, they refuse to deal with any third
party, normally a competitor of one of them. Though this may be a fair
marketing strategy for optimum profit sometimes such practices may reduce
competition in the market and consequently could be restrictive in nature.
(v) Resale Price Maintenance: Here the producer dictates the resale price of
goods that would be charged by the retailers. When resale price maintenance
is imposed, the price of goods becomes uniform at all points of resale
irrespective of the difference in location, character and quality of the services
provided. This practice, however, need not always be anti-competitive.
1.1.6.2 Abuse of Dominant Position
Dominance by an enterprise is to be judged by its power to operate

independently of competitive forces or to disadvantage its competitors or consumers
in its favor, abuse of dominance can also be collective, such as a cartel not allowing
new entrants into the market. It is not necessary that a single firm possess a high
market share to abuse its dominance. However, consequences for competition can be
severe if the firm is dominant.
Abuse of dominance is broadly of two types: Exploitative and Exclusionary

abuse
(i) Exploitative abuse means exploiting customers by ignoring the needs of

customers and competitors. For example, a hike in cable charges despite the
Telecom Regulatory Authority of India’s (TRAI) tariff orders is no surprise to
cable TV subscribers across India. Cable operators have the discretion to
abuse their monopoly because all the operating areas are neatly divided
among them. Efforts by competing operators usually witness dirty rivalry,
such as cutting cables or physical threats. Thus, consumers do not have the
Page | 17
choice to use the services of another cable operator but to accept the rates and
service as provided in their area.
The various ways in which exploitative abuse could be exercised ate
• Refusal to deal, such as denial of essential facilities;

• tying, bundling, forced line selling;
• predatory pricing;
• non-price predation;
• price discrimination;
• intellectual property rights (IPRs) abuses; and
• excessive pricing or price gouging.
(ii) Exclusionary abuse involves exclusion of competitors. For example, in some

states in India, truck operators are not allowed to load and unload goods
within the route unless they become part of the truck association. The truck
association charges tariffs almost 35-40 percent higher than the prevailing
market rates to the non-member truck owners. It happened in Makrana in
Rajasthan where the marble sawing plants had to shut down and move to
Kishangarh.
1.1.6.3 Combinations (Mergers and acquisitions etc.)
Merger is a fusion between two or more firms whereby the identity of one (or
more) is lost and results in a single firm. Acquisition (or takeover) of one firm by
another usually involves purchase of all or a sufficient amount of the shares of
another firm to enable it to exercise control.
Such Mergers and Acquisitions (M&As) might be horizontal, vertical or

conglomerate.
(i) Horizontal M&As: These involves firms that are competitors, i.e. at the same
level of production-supply chain. For example, two firms producing
toothpaste merge together.
(ii) Vertical M&As: These involves firms that are at different level of
production-supply chain. For example, a firm producing cold drinks merges
Page | 18
with the other producing bottles to contain such cold drinks.
(iii) Conglomerate M&As: These involve firms in diversified and unrelated

business. For example, a firm producing cars merges with a firm that deals in
finance. While horizontal mergers may raise competition concerns, vertical
and conglomerate mergers, generally, do not raise any competition concern.
When two competitors merge together, it is but obvious that the market share
of the merged entity would be more than that they individually used to share. Broadly
there could be three cases due to any horizontal merger:
(a) a monopoly situation may arise;
(b) the merged entity may become a dominant player in the market; or
(c) even the merged entity cannot capture enough market power.
While cases (a) and (b) might pose competition concerns, case (c) is unlikely
to give rise to any competition concern, if there remain other competitors in the
market. Hence, the issue from the point of view of competition law and policy is not
merger in itself, hut whether such merger results in a monopoly situation or a
dominant market player.
There are other issues surrounding the matter of ‘combinations’ which mean
any type of partnership between two or more firm which leads to a bigger entity.
These could include mergers, joint ventures, takeovers, acquisitions etc.
1.2 COMPETITION LAW – INTERNATIONAL PERSPECTIVE
For a longtime, there remained a controversy with regard to compatibility of

socialism with any form of competition between Karl Marx and Proudhon. Proudhon
saw socialism essentially as a ‘free association’ of small property owners, of
independent producers owing their means of production.26 He argued that necessary
evil of capitalism is that it gives monopoly on the means of production to bankers and
industrialist and thus, small business enterprises were ousted from the market. This in
turn degraded the small artisan and peasants into wage-slaves. In such a competition,
26
Abir Roy and Jayant Kumar. Competition Law in India, Eastern Law House, Kolkata, New Delhi,
2008, p. 2.
Page | 19
a genuine competition, with presupposed equality and freedom was impossible. He

further argued that socialism would break the capitalist monopoly on the means of
production; it would restore to the individual the tools of his labour; and thereby it
would also restore competition to its proper role. As per him, competition is inherent
in human nature, and therefore there can be no question of destroying competition.
Therefore, socialism would represent the final synthesis between association and
competition. Marx on the other hand, replied to Proudhon’s argument by relying on
hypothesis that “competition is emulation for profit”. He argued historically, that very
capitalism was not always competitive and in the beginning it was monopolistic. Only
with its growth and consolidation, and with the development of modern industry, did
monopoly find place to free trade and competition. But then free competition itself
progressively concentrating wealth in the hands of the few, tended towards
monopoly. Competitive economic activity was thus characteristic only for a relatively
short period in men’s history; and from that period Proudhon mistakenly projected it
into the past and future.27
With this, almost a century ago, Karl Marx theorized that capitalism amidst its
competitive splendor and glory capitalism has a natural tendency to become a global
monopoly.28 Describing capital accumulation as the basic tenet of capitalism, Marx
stated that “competition contains the seed of future centralization”, or rather,
competition contains the seed for future capital accumulation that is achieved through
“mergers and acquisitions”.29 This leads to capital accumulation which then further
results in the demise “of many small firms”, the cannibalism of other competitors,
and the ultimate “evolution of monopoly power”.30 Lenin, adopting a more pragmatic
approach, advocated that socialism is not against competition, in fact, socialism is the
first system “to create an opportunity for competition within the masses; to include
the majority of workers into a task within which they shall be able to prove their best
abilities”.31 Lenin considered the growing monopolization and cartelization in
27
Issac Deutscher: Socialist Competition, 30 Foreign Aff. (1951), pp. 376, 377.
28
Tibor Varady: The Emergence of Competition Law in (Former) Socialist Countries, (1999)47 AM J
Crimp L 229.
29
Ibid.
30
Thomas Karier: Beyond Competition: The Economics of Mergers and Monopoly Power (1993), p.
11.
31
V.J. Lenin: On Communist Morality—Collected Works (Moscow, 1964), p. 290.
Page | 20
capitalist countries, and the ensuring artificial blocking of technical progress, as one
of the important justification for a socialist revolution.32 This shows that social
scientist like Marx and Lenin, were never against the competitive market, but they
were considering the ruthless competition of big firms as a process for
conglomeration of economic power.
According to Raybould, the concept of monopoly is quite ancient and can be

traced back to the civilizations of India and the Roman Empire B.C. The modern
statutes controlling cartels and monopolies, however, first appeared in the United
States in 1890.33 The development of competition law started with grant of individual
freedom against existing guilds in the Europe in early 18th century. This shows that
the roots of competition law are very deeply rooted. The first traceable event of origin
of competition law can be regarded as the book of Wealth of Nations by Smith, where
he gave the metaphor of the invisible hands. Smith argued that those who seek wealth
by following their individual self-interest, inadvertently stimulate the economy and
assist society as a whole. According to him, the person intends only his own path, and
he is in this, led by an invisible hand to promote an end which was no part of his
intention.34 Competition, which Smith conceptualized as a striving of all to maximize
wealth, performed three functions. First, competition explained how prices, wages,
and rents would be set provided all were free to enter any occupation. Competition
ensured that wages and prices of goods would be naturally set, Second, the idea of
competition explained how economic relations would function without State
interference. The “invisible hand” of competition ensured that social welfare would
be maximized. And third, competition provided a theory that justified whatever
prices, wages, and rents were received. Smith’s idea was that competition legitimated
the distribution of wealth and income that resulted from market exchange.35 However,
this was vehemently criticized by Kenneth Arrow and Gerard Debreu, who received
the Nobel Prize in economics for their development of general equilibrium theory,
which is another landmark in development of modern competition law. In general
32
V.J. Lenin: Imperialism, The Highest Stage of capitalism—Collected Works (Moscow, 1964), p. 22.
33
D.M. Raybould: Comparative Law of Monopolies (E. Susan Singleton Ed., 1999), pp. 3-4.
34
Smith: Wealth of Nation (W. Pickering, 1995)
35
John T. Nockleby: Two Theories on Competition in the Early 19th Century Labor Cases, 38 AM J
Legal Hist 452 (457).
Page | 21
equilibrium theory, they claimed that any socially desirable outcome can be achieved
by a competitive market provided the initial distribution of rights and resources is
appropriate.
However, the Sherman Act, 1890 is considered as the first attempt in the
drafting of modern competition law, which was an attempt to promote and preserve
competition. The Act was enacted in response to the rising number of large- scale
business enterprise in the post-civil war period and the growing number of trusts,
which uses their power to oppress individuals and injure the public. The Act
contained the well- established principles of common law contracts or conspiracy in
restraint of trade is void. Moreover, it has been suggested, unconvincingly, that the
Act is based in part on the Constitution of Zeno, Emperor of the East from 471 to
491, promulgated in 483. Roman legislation dealing with some aspects of competition
predates the Constitution by over 500 years.36
The first competition law was the Combines Act of 1889 in Canada, followed
by the United States anti-trust laws (Sherman Act in 1890). In the United Kingdom
and countries following the United Kingdom model, after 1947 restrictive trade
practices laws and Monopolies and Restrictive Trade Practices (MRTP) laws were
enacted. In the 1970s, OECD, then UNCTAD, adopted the terminology of Restrictive
Business Practices (RI3Ps) law, which was more recently changed to competition
law. Countries in transition have different names. The basic structure of all
competition laws is broadly the same, and usually covers the following aspects:
Objectives; Definitions; Scope of application; Exemption and exceptions; Prohibited
practices horizontal and vertical Merger control; the Competent Authority; Sanctions;
Appellate procedure.
1.2.1 Sherman Act, 1890-
The American Sherman Act of 1890 attempts to sustain the competitive

process. Section 1 of the Act sets forth the basic prohibition against contracts and
conspiracies “in restraint of trade” or commerce; and, section 2 prohibits
monopolization and “attempt to monopolization” and conspiracies to monopolies any
36
Mark Furse: Competition Law of the EC and UK, (Oxford University Press, 2004).
Page | 22
part of trade or commerce. It is, therefore, designed to prevent consuming public from
conspiracies and monopolies and also small competitors from unfair trade practices.
The Act makes it illegal to try to restrain trade, or to form monopoly.
The terms “restraint of trade” and ‘attempts to monopolies” as used in the

Sherman Act took their origin in the common law and were familiar in law in
America prior to and at the time of adoption of the Act. The original doctrine that all
contracts in restraint of trade were illegal was long since so modified in the interest of
freedom of individuals to contract that the contract was valid if the resulting restraint
was only partial in its operation and was otherwise reasonable. At common law
monopolies were unlawful because of their restriction upon individual freedom of
contract and their injury to the public and at the common law; and contracts creating
the same avails were brought within the prohibition as impeding the due course of, or
being in restraint of trade.
At the time of the passage of the Act, the English rule was that an individual
was free to contract and to abstain from contracting and to exercise every reasonable
right in regard thereto, except only as he was restricted from voluntarily and
unreasonably or for wrongful purposes restraining his right to carry on his trade
(Mogul Steamship Co. v. McGregor 1892 AC 25). n enacting the Sherman Act,
America followed the line of development o law in England, and the public policy
has been to prohibit, or treat as illegal, contracts, or acts, entered into which intend to
wrong the public and which unreasonably restrict competitive conditions, limit the
right of individuals, restrain the free flow of commerce, or bring about public evils
such as enhancement of prices. The Supreme Court of the United States observed as
follows in The Standard Oil Company v. United States 221 US 1:
“The Anti-trust Act of 1890 was enacted in the light of the then
existing practical conception of the law against restraint of trade, and
the intent of Congress was not to restrain the right to make and
enforce contracts, whether resulting [ruin combination or otherwise,
which do not unduly restrain inter-state or foreign commerce, but to
protect that commerce From contracts or combinations by methods,
whether old or new, which would constitute an interference with, or an
Page | 23
undue restraint upon it.”
The Sherman Act had some loopholes. It did not deal with corporate
amalgamations. It forbids collusion (section 1) and monopolisation, including
predation (Section 2). It does not deal with anti-competitive mergers. Further, in
passing this Act, the Congress did not give any indication of its intention about what
the expressions ‘restraint of trade’ and “attempts to gain monopoly” mean and stand
for. Uncertainty prevailed about what is legal and the businessman did not know what
was allowed or not. In an effort to clear up some of the ambiguity, Congress passed
the Clayton Act, 1914 which prohibited specific business actions (such as price
discrimination, tie-in sales, exclusive dealership agreements, mergers, acquisition and
inter-locking corporate directorship), if they substantially lessen competition. With its
passage, the three routes to monopoly are closed by prohibiting collusion (section I of
the Sherman Act), monopohsation including predation (section 2 and anti-
competitive mergers (Clayton Act).
1.2.2 Clayton Act, 1914 -
The Clayton Act, 1914 expands on the general prohibition of the Sherman Act
and addresses anti-competitive problems in their infancy. This Act specifically
prohibited discriminatory discrimination, exclusive dealings, tying contracts (which
made the purchase of an entire line of products a condition of purchase of any one of
them), interlocking directorates in competing corporations, and purchase of stock in
competing concerns. The test for prohibition is “substantially to lessen competition or
tend to create a monopoly in any line of business”. Thus, monopolising acts as
condemned under the Sherman Act, were further extended and specified under the
Clayton Act. It prohibits any merger or acquisition of stock or assets ‘where in any
line of commerce or in any activity affecting commerce in any section of the country,
the effect of such acquisition may he substantially to lessen competition, or to tend to
create a monopoly” (section 7). The Clayton Act extended the prohibition of the
Sherman Act to price discrimination, exclusive dealing and mergers. In the same year,
the Congress passed another Act, Federal Trade Commission Act, 1914, to impose a
general ban on ‘unfair” acts, practices and methods of competition.
Page | 24
1.2.3 Federal Trade Commission Act, 1914
The Federal Trade Commission Act, 1914 declares unlawful unfair methods
of competition, and unfair or deceptive acts or practices, in or affecting commerce. It
establishes a commission, known as the Federal Trade Commission which is
empowered to take action against persons, partnerships, or corporations from using
those unfair methods or acts or practices. It is also empowered to take action against
conduct that violates the Sherman Act and the Clayton Act, as well as anti-competitive
practices that do not fall within the scope of those Acts.
1.2.4 Celler-Kefauver Act, 1950
The Celler-Kefauver Act, 1950 amended the Clayton Act. Before its
amendment, section 7 forbade acquisition by one corporation of stock of another. It
covered any acquisition by one corporation of all or any part of the stock of another
corporation, whenever there is a reasonable likelihood that the acquisition would
result in a restraint of commerce or in the creation of monopoly of any line of
commerce, i.e., it applied to vertical as well as horizontal stock acquisition.37 The
Celler-Kefauver amendment now forbids acquisition of the assets of a competing
firm. Thus, what is now forbidden is every acquisition, whether it involved stock or
asset. By the amendment of section 7 of the Clayton Act, the Congress intended to
close loophole in the original section by broadening its scope so as to cover the entire
range of corporate amalgamations from pure stock acquisitions to pure acquisitions of
assets.38
Competition Law of the European Union - Just as in the United States, the
freedom to trade and business in the European Union is subject to many restrictions.
Articles 85 and 86 of the 1957 Treaty of Rome (now articles 81 and 82) serve as a
principal Competition Law o the European Commission/European Union. Article 85
regulates competition and applies to so called “horizontal agreements” between
competitors operating at the same level in the economic process and to so-called
“vertical agreements” between non-competing undertakings operating at different
levels. Paragraph I of that Article enumerates several examples of forbidden cartels,
37
United States v. E.L. Du Pont 353 US 586
38
United States v. Philadelphia National Bank 374 US 321
Page | 25
such as, discount cartels, price cartels, condition-fixing cartels, market information
agencies, tied distribution systems, prohibition of cross-deliveries, and agreements
which discriminate against third persons. Article 86 forbids the use of market -
controlling position to prevent individual enterprises from driving competing business
from the market as well as from dictating prices. Article 87 requires prior EU
Commission authorization for mergers which have a community-wide importance.
1.2.5 The U.K. Competition Act, 1998
The U.K. Competition Act, 1998 is the recent Act, which came into force on
March 1, 2000. It is more closely in tune with the competition law of the European
Commission. It has prohibitions that are in line with Articles 85 and 86 of the Treaty
of Rome. One key difference is that mergers are required to be compulsorily notified
under the European Commission Law but not under the U.K. law. The Act prohibits
agreements which have the object or effect of preventing, restricting or distorting
competition in the UK Agreements which directly or indirectly fix prices or trading
conditions; limit or control production, markets, technical development or
investment; limit or control share markets or sources of supply, to name a few are
prohibited. The Act also prohibits the abuse of a dominant position. Some of the
agreements relating to intellectual property rights are, however, exempt.
1.2.6 WTO Obligations39
The obligations under the agreements of the WTO as stated earlier, made it
necessary for the government to provide a legal means that would assure reciprocal
rights to the other members of the WTO.
The WTO provides a common institutional framework for the conduct of

trade relations among its members in matters related to the agreements and annexes
which are part of the agreement establishing the WTO. The material agreements
under the WTO are, the General Agreement on Tariffs and Trade, 1994 (‘GATT
1994’), the ‘GATS’, and ‘TRIPS’. They are all multilateral agreements entered into
by governments, which are member states. India is a member of the WTO. GATT and
GATTs provide for the liberalization of the international movement of goods,
39
T. Ramappa, pp. 8-12
Page | 26
services, and service providers. The agreement on TRIPs is in recognition of the need
to promote effective and adequate protection of intellectual property rights, and to
ensure that measures and procedures to enforce intellectual property rights do not
themselves become barriers to legitimate trade’. These agreements also prescribe
guidance for the member states as to their trade regulations and other laws as they
may affect trade.
1.2.7 Trade Related Aspect of Intellectual Property Rights (TRIPs)
TRIPs aims ‘to promote effective and adequate protection of intellectual

property rights, and to ensure that measures and procedures to enforce intellectual
property rights do not themselves become barriers to legitimate trade’. The principal
objective of TRIPs is to obtain the establishment of legislation in member states that
would prevent the abuse of intellectual property rights by right holders, or the resort
to practices which unreasonably restrain trade or adversely affect the international
transfer of technology.40 It makes provisions relating to the following: copyright and
related rights, trademarks, geographical indications, industrial designs, patents,
layout- designs (topographies) of integrated circuits, protection of undisclosed
information, and control of anti-competitive practices in contractual licenses.
Article 40 of TRIPS providing for the control of anti-competitive practices in

contractual licenses is relevant. It permits members to specify in their legislation what
would constitute an abuse of intellectual property rights having an adverse effect on
competition in the relevant market. The members may also take appropriate measures
to prevent or control such practices. The following practices ate given as examples of
such practices: exclusive grant-back conditions, conditions pretending challenges to
validity and coercive package licensing.
Monopoly imposes heavy costs in every society. It is a conspiracy against the

public, to raise prices. It hates competition because competition lowers price to a
level which is fair and honest earned under competitive environment. Adam Smith
spoke of “the wretched spirit of monopoly”, the “mean rapacity, the monopolizing
spirit’ in which “the oppression of the poor must establish the monopoly of the rich.”
40
T. Ramappa, pp. 8-12
Page | 27
Monopoly is exercised through a collusion between competitors or through market

shares gained by buying up or bullying the present competitors out of, and the
potential from, the market. The purpose is to earn maximum profit at the cost of
consumers and rival competitors, more than the natural profit which the fair arid free
competition endures, It also destroys efficiency and discourages innovation.
Competition enhances consumer choice and promotes competitive prices, with the
result society as a whole benefits from the best possible allocation of resources. At
common law monopolies were unlawful because of their restriction upon individual
freedom of contract and their injury to the public.41
1.3 COMPETITION LAW- INDIAN PERSPECTIVE
1.3.1 Monopolies Inquiry Committee
The Monopolies Inquiry Commission (MIC) submitted its report in 1965.42

The MIC was appointed under the Commissions of Inquiry Act, 1952, to:
(a) enquire into the extent and effect of concentration of economic power in
private hands and the prevalence of monopolistic and restrictive practices in
important sectors of economic activity other than agriculture with special
reference to
(i) the factors responsible for such concentration and monopolistic and
restrictive practices;
(ii) their social and economic consequences, and the extent to which they
might work to the common detriment; and
(b) suggest such legislation and other measures that might be considered
necessary in the light of such enquiry; including, in particular, any new
legislation to protect essential public interests and the procedure and agency
for the enforcement of such legislation.
The appointment of MIC was prompted by a report of the Mahalanobis

Committee on Distribution of Incomes and Levels of Living in 1960 which had
41
S.K. Agrawal, Kurukshetra University, pp. 6-9
42
Vinod Dhall. “Competition Law Today – Concepts, Issues and the Law in Practice”, Oxford
University Press, New Delhi, 2007, pp. 479-489.
Page | 28
highlighted growing income inequality in India in the post-independence period. The

growing income inequality was contrary to unambiguous provisions contained in the
Directive Principles of the Constitution against concentration of wealth, which made
the government sit up and take notice of the problem of economic concentration. It
has been noted that big business houses were emerging because of the ‘planned
economy’ model practiced by the government.43
Article 39 of the Constitution states:
39. Certain principles of policy to be followed by the State. –
(a) The State shall, in particular, direct its policy towards

securing—
(b) that the ownership and control of the material resources

of the community are so distributed as best to sub serve
the common good;
(c) that the operation of the economic system does not

result in the concentration of wealth and means of
production to the common detriment.
The government realized that for political democracy to thrive, economic

power must be kept within control. The greater the economic concentration the more
likely is the pressure on democratic values. Acquiring market power meant loss of
benefits of competition which could ultimately lead to ‘cast shadows over political
democracy and social values’.44
Even though the MIC recognized the ill effects of concentration of market
power, it did not find it feasible to define the term beyond generality. It was,
however, clear to the MIC that acquisition of market power meant loss of benefits of
competition. The MIC considered monopolistic and restrictive practices to be
functions of ‘economic concentration’.45
43
“Mahalanobis Committee Report on Distribution of Income and Levels of Living”, Government of
India, New Delhi, 1964.
44
p. 1 of MIC Report.
45
p. 1, read ‘economic concentration’ as market power.
Page | 29
The MIC was unhappy with the consequences of monopolistic and restrictive
trade practices, especially exclusionary behavior. ‘Big business by its very “bigness”
sometimes succeeds in keepingout competitors’.46 The “bigness” factors were
financial strength, predatory pricing, and large scale advertising. The working of
licensing system has resulted in disproportionate growth of some of the big business
houses in India.47 This led to flow of investment in non-priority sectors that were not
conducive to economic growth. The social consequences of increase in concentration
were a great divide between the rich and the poor and gave rise to corruption.
The MIC noted the occurrence of public sector monopolistic positions in

many sectors but refrained from making recommendations on two counts. First, the
TOR did not include public sector. Second, parliamentary oversight on public sector
enterprises was taken as sufficient guard against unacceptable behaviour.
1.3.2 HIGH-POWERED EXPERT COMMITTEE ON COMPANIES AND MRTP ACT
A High-Powered Expert Committee on Companies and MRTP Acts was set

up48 in 1977 ‘to consider and report on what changes are necessary in the Companies
Act, 1956’ and the MRTP Act, 1969, with particular reference to modifications which
are required to be made in the form and structure of the Companies Act, 1956, and the
MRTP Act, 1969, so as to simplify them and to make them more effective, wherever
necessary’. This committee will be referred to as the Sachar Committee, for sake of
convenience, after its Chairman. The Sachar Committee was asked to report inter alia
on the following:
(i) what improvements, if any, are required to be made in the present

administration, structures, and proceedings regarding the enforcement of the
provisions of the two Acts;
(ii) changes required in the MRTP Act in light of experience gained;
(iii) any other matter incidental or ancillary to the administration of... the MRTP
46
p. 137 of the report.
47
Hazari Committee Report on Industrial Licensing Procedure, Ministry of Industry, Government of
India, 1965.
48
Department of Company Affairs (Ministry of Law, Justice and Company Affairs) Resolution No
7/6/77 – CL.V of 23rd June 1977.
Page | 30
Act having regard to the growth of trade, commerce and industry.49
The Sachar Committee looked into the practical difficulties the operation of
the law for the eight years of its existence and found that the role assigned to the
MRTPC was limited and mostly advisory The Sachar Committee felt that, apart from
making some changes in law, especially for protection of consumers against unfair
trade practices, it was imperative to make the MRTPC more effective and
independent.
The law was amended in 1984 on the basis of the Sachar Committee report
though these amendments also made significant departure from the recommendations.
The powers of the Central Government to deal with monopolistic practices and
division of enterprises were not touched. Since the role of the MRTPC remained
advisory, it did not bother to take up cases dealing with either monopolistic practices
or recommending division of enterprises.
The amendments made to the provisions50 dealing with RTPs in 1984 brought
in the concept of deemed illegality to a host of trade practices for which registration
was made mandatory. This was to overcome court rulings to the effect that even when
a trade practice fell under Section 33 (1), the MRTPC had to establish that it was a
restrictive trade practice under Section 2(o)51 of the Act. These trade practices were
exclusionary behaviour, tie-in sales, resale price maintenance, bid rigging, allocation
of market, boycott, predatory pricing,52 etc. The presumption of such practices to be
anti- competitive made sanctions by the MRTPC easy. There was no longer the need
to prove the harmful effects of a trade practice on competition.
The 1984 amendments introduced provisions relating to UTPs in Section

36A.This dealt with cases of misrepresentation as well as misleading or disparaging
advertisements. Injury or harm to the consumer was necessary before it could be
taken up by the MRTPC. These provisions became the bread and butter of the
MRTPC and numerous cases were brought to it.
49
50
Section 33 (1) of the MRTP Act.
51
Section 2(o) defines restrictive trade practice.
52
These expressions were not used in the law and have been inserted by the author for easy
understanding.
Page | 31
1.3.3 ECONOMIC REFORMS AND ITS IMPACT
It was in 1991 that India took the initiatives on favor of economic reforms
consisting essentially of liberalization and deregulation. In the manner of speaking,
India embarked on what is described as the LPG regime, an acronym for
liberalization, privatization and globalization. In the post-1991 LPG policy paradigm,
a number of changes were introduced in policies relating to industrial licensing,
foreign investment, technology imports, government monopolies and ownership,
price and purchase preferences for the public sector, reservations for the small scale
sector, financial sector, etc. The main objective has been, and is, to make the market
driven by competitive forces, so that there could be incentives for raising
productivity, improving efficiency and reducing costs. The concept of size and
monopoly, not viewed with prejudice any more, resulted in amendments to the MRTP
Act. Furthermore, the licensing requirement became confined to a very short list of
industries. The other features of the post-1991 paradigm include decontrolling, de-
regulating, de-licensing, de-canalizing and de-bureaucratizing of industry and trade.
Constraints of space prevent a description of the reforms in the various sectors of the
economy.
1.3.4 HIGH LEVEL COMMITTEE ON COMPETITION POLICY AND

LAW53
The Raghavan Committee was setup in l999.54 The TOR inter alia included
the following:
a suitable legislative framework, in the light of international

developments and the need to promote competition, relating to
competition law, including law relating to mergers and demergers.
Such a legislative framework could entail a new law or appropriate
amendments to the MRTP Act, 1969;
53
Vinod Dhall. Competition Law Today – Concepts, Issues and the Law in Practice, Oxford
54
Order No. 1/9/99-CL-V of 25th October 1999.
Page | 32
The Raghavan Committee noticed that the word ‘competition’ has been used
sparsely in the MRTP Act55 and effectively finds place only at two places; while
defining restrictive trade practice in Section 2(o) and in Section 38(1)(h).While a
generic definition of competition is provided in Section 2(o) of the MRTP Act,
precise definitions of anti-competitive practices like abuse of dominance, cartel,
collusion, boycott, refusal to deal, bid rigging, predatory pricing, etc. are necessary to
effectively detect such behavior and impose sanctions against them. Lack of precise
definitions had led to different judicial interpretations, sometimes contradictory.
These judicial pronouncements are binding precedents for future amendment to the
MRTP Act. The MRTPC itself is constrained to fit anti-competitive behaviour into
one or more of the provisions of the law in the absence of precise definitions. The
Raghavan Committee noted that ‘Cartels, to give another illustration, are not
mentioned or defined in any of the clauses of Section 33(1) of the MRTP Act, though
the MRTP Commission has attempted to fit such offences under one or more clauses
of Section 33(1) by way of interpretation of the language used therein’. 56 The existing
law was found to be inadequate to deal with implementation of the WTO agreements.
The MRTP Act does not have merger control provisions since l991.57 The Committee
recognized the necessity of having specific merger control provisions at par with
other modern competition laws.58 Provisions dealing with unfair trade practices
overlap with similar provisions in the Consumers Protection Act, 1986, and in the
MRTP Act. The Raghavan Committee found the MRTP Act to be falling short of
squarely addressing competition and anti-competitive practices. It emphatically stated
that ‘...the MRTP Act, in comparison with Competition Laws of many countries, is
inadequate for fostering competition in the market and trade and for reducing, if not
eliminating, anti-competitive practices in the country’s domestic and international
trade’.59 Based on this analysis, the Raghavan Committee found it expedient to have a
new competition law. It will be useful to understand the underlying principles that led
to the new enactment.
55
56
57
The merger control powers were with the Central Government until 1991.
58
Merger control under the general provisions of monopolization in the Sherman Act had not
succeeded in the US, leading to introduction of specific provisions in the Clayton Act.
59
Page | 33
The Committee desired the focus of the new law to be on preventing anti-
competitive practices that reduce welfare. While free markets produce desired
outcomes, they do so only when protected from abuses. Therefore, ‘...the only
legitimate goal of Competition Law is the maximization of economic welfare’.60 The
Committee further desired that the competition authority should be governed by
established competition principles. The Committee was aware of the pitfalls and
recommended a cautious approach to achieve a balance between over-intervention
and exemption from sanction in the name of ‘public interest’ .The role of industrial
organization theory in competition analysis was recognized and it recommended
incorporation of a host of factors to be considered by the competition authority in
competition assessment.
The Raghavan Committee was determined to have merger control provisions

in the new legislation. It sought to make a distinction between horizontal mergers,
vertical mergers, and conglomerate mergers on the basis of their differing degrees of
impact on competition. But it chose to opt for a soft regime which has voluntary
notification for mergers above rather high threshold limits and time bound decisions
to reduce transaction cost. The Committee perhaps felt that provision for action in law
up to one year after merger would provide sufficient deterrence.
The Committee was convinced that government enterprises as well as

departments should be brought under the purview of competition law. The only
exception should be sovereign functions of the government like defense. The policy
of purchase or price preference to government owned enterprises was recommended
to be discontinued. These recommendations were in spite of the fact that many
countries exempt government enterprises from purview of competition law.
1.3.5 Salient Features of the Indian Competition Act, 2002
The Competition Act 2002 was part of India’s economic reform and
globalization process which necessitated aligning the economic laws of the country
with the new economic scenario. The Statement of Objects and Reasons 61 annexed to
the Competition Bill, 2001, states the reasons for enacting the new law in the
60
61
Statement of Objects and Reasons annexed to Competition Bill, 2001.
Page | 34
following words: ‘In the pursuit of globalization, India has responded by opening up
its economy, removing controls, and restoring to liberalization. The natural corollary
to this is that the Indian market should be geared to face competition from within the
country and outside. The Monopolies and Restrictive Trade Practices Act, 1969, has
become obsolete in certain respects in the light of international economic
developments, relating more particularly to competition laws, and there is a need to
shift our focus from curbing monopolies to promoting competition.
The objective of the new Act may be gathered from its preamble 62 which
states as follows: ‘An Act to provide, keeping in view the economic development of
the country, for the establishment of a Commission 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, and for matters connected therewith or incidental
thereto.’ Section 18 of the Act further states that ‘it shall be the duty of the
Commission to eliminate practices having adverse effect on competition, to promote
and sustain competition, protect the interests of consumers and ensure freedom of
trade carried on by other participants, in markets in India’. The preamble and section
18 read together would suggest that the Act seeks to achieve its objectives through the
establishment of the Competition Commission of India (hereafter refer red to as the
‘Commission’), the enforcing authority, which in turn is given the mandate spelt out
in section 18.63
The above objectives appear in competition laws of other jurisdictions as well.

The principal objective of a competition law is to maintain and protect the
competitive process; this figures as a core objective of the Act and also as a principal
duty of the Commission. Economic theory asserts that competition itself maximizes
consumer interest; nevertheless the protection of the interests of the consumers has
been emphasized as a distinct objective of the Act. Ensuring the freedom of trade also
figures as a separate objective of the Act. This may be seen in the light of the
62
The Indian Competition Act, 2002 available at
http://www.competitioncommission.gov.in/Act/competition _act2002.pdf
63
Vinod Dhall. Competition Law Today – Concepts, Issues and the Law in Practice, Oxford
Page | 35
fundamental right to carry on any trade or business that is guaranteed in the Indian
Constitution.64 This view corresponds to the school of thought that regards
competition law as being important to the preservation of economic freedom, much as
political democracy is important to the protection of fundamental personal freedom.
The Act prohibits or regulates:
1. Anti-competitive agreements, prohibited by section 3 of the Act,
2. Abuse of dominant position, prohibited by section 4 of the Act, and
3. Combination regulated by sections 5 and 6 of the Act.
1.3.6.1 ANTI-COMPETITIVE AGREEMENTS
1.3.6.1.1 General
Section 3(1) prohibits any agreement with respect to production, supply,

distribution, storage, acquisition, or control of goods or provision of services which
causes or is likely to cause an appreciable adverse effect on competition within
India.65 Further, section 3(2) provides that any agreement in contravention of this
provision shall be void.66
The term ‘agreement’ itself is defined in section 2 (b) of the Act; it includes
any arrangement or understanding or action in concert whether or not formal or in
writing or is intended to be enforceable by legal proceedings. Clearly, the definition
which is inclusive and not exhaustive, is a wide one. The agreement does not
necessarily have to be in the form of a formal document executed by the parties. It
may include even what is commonly called a ‘gentleman’s agreement’.
Once an agreement has been determined as causing or likely to cause an

appreciable adverse effect on competition, such agreement, being void, cannot be
enforced by the parties in a court of law. This could lead to serious difficulties for a
party in trying to enforce any claim under such agreement in a court of law; therefore
the consequences of an agreement being held to be anti-competitive, could be far-
reaching for the enterprises.
64
Article 19(1)(g) of the Constitution of India guarantees the fundamental right of citizens to ‘practice
any profession, or to carry on any occupation trade or business’.
65
Section 3(1), Indian Competition Act, 2002
66
Section 3(2), Indian Competition Act, 2002
Page | 36
1.3.6.1.2 Appreciable Adverse Effect
The term ‘appreciable adverse effect on competition’, used in section 3(1) has
not been defined in the Act. However, section 19(3) states that while determining
whether an agreement has an appreciable adverse effect on competition under section
3, the Commission shall have due regard to all or any of the following factors:67
(1) creation of barriers to new entrants in the market;
(2) driving existing competitors out of the market;
(3) foreclosure of competition by hindering entry into the market;
(4) accrual of benefits to consumers;
(5) improvements in production or distribution of goods or provision of

services; and
(6) promotion of technical, scientific, and economic development by

means of production or distribution of goods or provision of services.68
The first three factors relate to negative effects on competition while the
remaining three relate to beneficial effects. Thus, in assessing whether an agreement
has an appreciable adverse effect on competition, both the harmful and beneficial
effects, as reflected in the above factors, are to be considered. ‘Barriers to new
entrants’ can be created, for example, through an agreement to set unduly high
standards. ‘Driving existing competitors out of the market’ could happen if an
enterprise enters into an exclusive supply agreement with distributors that obliges
them to discontinue their trade with other suppliers, or if certain suppliers enter into
agreement to sharply reduce the prices with a view to drive out competitors who are
not party to the agreement. Competition may be ‘foreclosed’ if an enterprise enters
into a long term agreement with a raw material or components supplier, thereby
adversely affecting supplies to the competitors. ‘Accrual of benefits to consumers can
arise from lower prices or improved quality or more efficient delivery of services.
‘Improvements in production or distribution’ can be reflected in rapid after-sale
67
It may be noted that there is a separate set of factors given in section 20(4) for determining
appreciable adverse effect on competition in respect of combinations.
68
Foundation, New Delhi, 2006 at pp. ____.
Page | 37
service or in a broader range of products being stocked by distributors. ‘Promotion of

technical, scientific and economic development’ may result from agreements relating
to research and development or specialization in production. This approach to
determining the ‘appreciable adverse effect on competition’ is similar to the rule of
reason that is common in the competition laws of most countries.
Competition law usually places anti-competitive agreements in two categories

(i) horizontal agreements, and (ii) vertical agreements, with horizontal agreements
being viewed more seriously than vertical agreements. The Act does not specifically
use the terms horizontal agreement and vertical agreement. However, the agreements
referred to in section 3(3) are horizontal agreements.
(i) Horizontal agreements
Horizontal agreements of the types described in section 3(3) are presumed to

have an appreciable adverse effect on competition. These are agreements, including
cartels, which (a) directly or indirectly determine purchase or sale prices; (b) limit or
control production, supply, markets, technical development, investment, or provision
of services; (c) share the market or source of production or provision of services by
way of allocation of geographical market, or type of goods or services, or number of
customers in the market; and (d) directly or indirectly result in bid rigging or
collusive bidding. Thus, cartels and similar horizontal agreements are placed in a
special category and are subject to the adverse presumption of being anti-competitive.
Cartels
Section 3(3) also covers cartels. A cartel is defined in section 2 (c), which
states that a cartel ‘includes an association of producers, sellers, distributors, traders,
or service providers, who, by agreement amongst themselves, limit, control, or
attempt to control the production, distribution, sale or price of, or, trade in goods or
provision of services.’ This definition is inclusive and wide. A cartel of producers or
sellers usually seeks to do two things: raise prices and limit output. Cartelization is
regarded as the most pernicious offence since it has no redeeming feature, and there is
no question about the harm that it causes to the consumers and to the economy.
Page | 38
Most competition laws treat practices such as those mentioned in section 3(3)
as particularly grave violations of the law and, as stated above, usually subject these
to the per se rule. Price fixing may not refer necessarily to setting a uniform and
inflexible price; it can also refer to setting an administered price, which does not vary
according to market conditions as competitive prices do. Thus, the prices might be
controlled by formulae, agreements, or price leadership.69 Geographic market sharing
is considered by many as highly restrictive as it eliminates the need to police the
pricing practices of the companies that are party to the agreement. Bid rigging has
been defined in the Act itself in the Explanation to section 3(3) as ‘any agreement
between enterprises or persons referred to in sub-section (3) engaged in identical or
similar production or trading of goods or provision of services, which has the effect
of eliminating or reducing competition for bids or adversely affecting or manipulating
the process for bidding.’ According to Meyerman et al., bid-rigging can take several
forms such as bid suppression, complementary bidding and bid rotation.70
Section 3(3) includes, apart from an agreement, a practice carried on, or a

decision taken by an association. It appears therefore that this might cover any
practice or decision of an association relating to an activity mentioned in subsection
(3) e.g., to fix prices or limit production, or rig bids even if some of the members of
the association have not agreed with the particular decision.
There may be horizontal agreements for activities other than those mentioned
in section 3(3), for example for research and technology development, setting
standards, specialization, or for exchange of information. Such agreements may have
efficiency enhancing effects. Horizontal agreements that do not fall in any of the
categories listed in section 3(3) would be covered by section 3(1), and would
therefore be subject to the rule of reason as against the ‘shall presume’ rule. In some
jurisdictions, block exemptions are notified in favour of certain classes of agreements
that may be efficiency enhancing; for example, in the EU, block exemptions have
69
D.P. Mittal, Competition Law, Taxmann, 2003, p. 95.
70
Gerald Meyerman, Mary Jean Moltenbrey and Judy Whalley et al. ‘Agreements’ in A Framework for
the Design and Implementation of Competition Law and Policy, World Bank/OECD, p. 23.
Page | 39
been notified in respect of agreements relating to specialization, and research and

development.71
(ii) Vertical Agreements
Section (4) deals with vertical agreements. It lists, in particular, five categories
of vertical agreement which would be in contravention of subsection (1) if these
cause or are likely to cause an appreciable adverse effect on competition in India.
Vertical agreements are therefore subject to the rule of reason, and not to the ‘shall
presume’ rule of subsection (3). This softer treatment acknowledges that vertical
agreements can have beneficial effects as well, and these need to be weighed against
the harmful effects to see if the agreement is on balance anti-competitive. The
harmful effects may include restrictions on intra-brand competition, foreclosure of
competition, and compartmentalization of markets, and the pro-competitive effects
can include efficiency gains, increase in inter-brand competition, and prevention of
free-riding.72 The five vertical agreements particularly listed in subsection (4) are: (a)
tie-in arrangements (b) exclusive supply agreement; (c) exclusive distribution
agreement; (d) refusal to deal; and, (e) resale price maintenance. Each of these
categories of agreements has been explained in the Explanations below:
(a) Tie-in-arrangement
Explanation (a) states that a ‘tie-in-arrangement’ includes any agreement

requiring a purchaser of goods (called the tying product), as a condition of such
purchase, to purchase some other goods (called the tied product). This practice is
often resorted to by enterprises to use the popularity of a product (tying product) to
promote the sale of a less popular product. In the antitrust cases that Microsoft faced
in the US and the EU, one of the allegations was that Microsoft used its dominance in
personal computer operating systems (tying product) to push the sale of its other
products, specifically its internet browser and media player systems (tied products).73
71
The European Commission has adopted block exemptions for agreements relating to specializations
(Regulation 2658/2000), research and development (Regulation 2659/2000), technology transfer
(Regulation 772/2004), motor vehicle distribution (Regulation 1400/2000) and some others.
72
Barry J. Rodger and Angus MacCulloch, Competition Law and Policy in the EC and UK, (3rd Edn)
Cavendish Publishing Ltd., London, 2004.
73
United States v. Microsoft Corporation, 258 F.3d 34 (DC Cir, 2001) and Case No. COMP/C-
3/37.792-Microsoft.
Page | 40
According to Fox, tying-in arrangements (and exclusive dealing) can have net
negative effects if they fence off so much of the market that not even a few efficient-
sized competitors can survive or can bring their products to the market efficiently. In
such cases, consumer prices are likely to rise and the practice is likely to be found to
be illegal under a market-based rule of reason.74 In Jefferson Parish Hospital, the
Supreme Court observed that the essential characteristic of an invalid tie—in
arrangement lies in the seller’s exploitation of its control over the tying product to
force the buyer into the purchase of a tied product that the buyer either did not want at
all, or might have preferred to purchase elsewhere on different terms.75 In Kodak, the
Supreme Court held that the questions to be asked in a tie-in case were: first, whether
two separate products were involved; second, whether the defendant had required the
tied product to be purchased with the tying product; third, whether a substantial
amount of inter-state commerce had been affected; and finally, whether the defendant
had market power in the tying product.76 Tying, in the US, has been subject to the
modified per se rule, under which it is per se unlawful whenever the seller has
sufficient economic power with respect to the tying product to restrain appreciably
free competition in the market for the tied-in product.77 The recent trend, however, is
towards dilution of this approach, and courts seem willing to hear and weigh the
defendant’s arguments that the tie was efficient and did not cause competitive harm.78
(b)Exclusive supply agreement
Explanation (b) states that ‘exclusive supply agreement’ includes any

agreement restricting in any manner the purchaser in the course of his trade from
acquiring or otherwise dealing in any goods other than those of the seller or any other
person. It is thus an agreement placing restrictions on the buyer in favour of the seller,
prohibiting the buyer to deal in the goods of any competitor of the seller. For
example, such a restriction may be placed by the producer of a product (like motor
74
Eleanor M. Fox, ‘Competition Law’, 2002 in A. Lowenfield, International Economic Law, Oxford
University Press, Oxford, 2002.
75
466 US 2 (1982).
76
Eastman Kodak Co. v. Image Technical Services Inc 504 US 451, 461-62 (1992) referred to at p.
659 in Richard Whish,, Competition Law, 5th Edn, Oxford University Press, Oxford, 2005.
77
Northern Pacific Railway Co. et al. v. United States, 356 US 1 (1958)
78
Supra note 32.
Page | 41
vehicles) on its distributors or retail showrooms. In certain circumstances, an

exclusive supply agreement may contribute to efficiencies.
(c)Exclusive distribution agreement
Explanation (c) states that ‘exclusive distribution agreement’ includes any

agreement to limit, restrict, or withhold the output or supply of any goods or allocate
any area or market for the disposal or sale of goods. Such a restriction is, for example,
resorted to by producers to demarcate the areas or customers for the operations of
their distributors. Exclusive distribution agreements cause concern because these
could dilute intra-brand competition and partition the market. This would be
particularly so if inter-brand competition is weak between the supplier and its
competitors; where this competition is robust, the dilution of intra-brand competition
may be outweighed by the strengthened inter-brand competition.79 In Tata
Engineering and Locomotive Co. v. Registrar of Restrictive Trade Practices,80 a case
under the MRTP Act, the Supreme Court did not find the distribution of areas
between the company’s distributors as being restrictive.
(d)Refusal to deal
Explanation (d) states that ‘refusal to deal’ includes any agreement that
restricts, or is likely to restrict, by any method, the persons or classes of persons to
whom goods are sold or from whom goods are bought’. Refusal to deal by a dominant
firm with say, any of its distributors, could have a damaging effect on the business of
the distributor. In United Brands, the court held that the refusal to deal by United
brands with its distributor in Denmark was an abuse of its dominance. 81 Similarly, the
court upheld EC’s decision that Commercial Solvents had abused its dominant
position by refusing to supply nitro propane to Zoja.82
79
Richard Whish, supra note 34 at p. 604.
80
(1977) 47 Com. Cas. 520 (SC)
81
United Brands Co. and United Brands Continental BV v. Commission of the European Communities
(1978) 1 CMLR 429 See paragraphs 163, 191, 202, 203, 294; Available at
http:/www.bailii.org/eu/cases/EUECJ/1978/C2776.html.
82
Zoja/CSC-ICI JO [1972] L 299/51, [1973] CMLR referred to in Richard Whish, supra note 34, p.
204.
Page | 42
(e)Resale price maintenance
Explanation (e) states that ‘resale price maintenance’ includes any agreement
to sell goods on condition that the prices to be charged on the resale by the purchaser
shall be the prices stipulated by the seller unless it is clearly stated that prices lower
than those prices may be charged. Resale price maintenance can reduce intra-brand
competition and increase transparency of prices, which may facilitate collusion.83
Resale price maintenance is in some countries treated under the per se rule e.g., in the
US, because it could be the sign of a cartel.
1.3.6.1.3 IPR Provisions
Section 3(5) provides for exemption from the provisions of section 3 for
intellectual property rights (IPRs). It states that nothing in the section shall restrict the
right of any person to restrain any infringement of, or to impose reasonable
conditions, as may be necessary, for protecting any of his rights which have been or
may be conferred upon him under the five laws mentioned in the section such as the.
Patents Act, 1970 and the Copyright Act, 1957. Thus, like many competition laws,
the Act recognizes the value of IPRs as an incentive to creativity and economic
growth. However, to benefit from section 3(5), the restrictions must be reasonable
and necessary to protect the IPR. In some countries, restrictions held to be
unreasonable include agreements restricting price, quantity of goods that may be
manufactured, and competition between the licensee and the licensor, agreements
providing for payment of royalty after the license period, and certain types of
exclusivity conditions.84
Many countries exempt anti-competitive agreements relating to exports from

the operation of the law; this is presumably on the ground that such anti-competitive
agreements harm only overseas consumers and are therefore of no concern to the
national authorities. The further argument could be to support the export efforts of
domestic companies and thereby increase national export earnings. In a similar
provision, section 3(5) states that nothing in section 3 shall restrict the right of any
83
Richard Whish, supra note 34, p. 591.
84
Robert Anderson, Timothy Daniel and Alberto Heimler et al., ‘Abuse of Dominance’ in World
Bank/OECD supra note , pp. 80-81.
Page | 43
person to export goods from India to the extent to which the agreement relates
exclusively to the production, supply, distribution, or control of goods or provision of
services for such exports. Thus, the exemption applies only to the extent that the
agreement relates to exports, and is not intended to cover the effect that the agreement
might have in the domestic market. According to Meyerman et al., ‘In the course of
reaching agreement on export prices or terms of sale, for example, the participants
may exchange information about domestic prices or output, that would permit them to
reach an explicit or tacit agreement affecting the domestic market.’ They note that
while the export cartels may be lawful in exporting countries, they may be prosecuted
by the importing countries, depending on the extra territoriality provisions of their
competition laws. However, they expect that increased cooperation between
competition authorities and pressures to harmonise competition policy worldwide are
likely to result in the elimination of export cartel exemptions or at least make them
impractical.85
1.3.6.2 ABUSE OF DOMINANT POSITION
Section 4(1) prohibits any enterprise from abusing its dominant position. The
term ‘dominant position’ has been defined in the Explanation (a) below section 4(e)
which states that dominant position ‘means a position of strength, enjoyed by an
enterprise in the relevant market in India, which enables it to (I) operate
independently of competitive forces prevailing in the relevant market; or (ii) affect its
competitors or consumers or the relevant market in its favour.’
(A) Dominant position
Dominant position has been defined in broadly similar terms in the

competition laws of several other jurisdictions. The European Commission’s Glossary
states that ‘a firm is in a dominant position if it has the ability to behave
independently of its competitors, customers, suppliers, and ultimately, the final
consumer.’86 In United Brands, the court stated: ‘The dominant position thus referred
to by Article 82 relates to a position of economic strength enjoyed by an undertaking
85
Gerald Meyerman, Mary Jean Moltenbrey and Judy Whallet et al., supra note 25, p. 36.
86
Glossary of terms used in EU Competition Policy, Antitrust and Control of Concentrations, Director
General for Competition, Brussels, July 2002.
Page | 44
which enables it to prevent effective competition being maintained on the relevant

market by affording it the power to behave to an appreciable extent independently of
its competitors, customers, and ultimately of its consumers.’87
Dominant position defined in Explanation (a) relates to the relevant market

and it is therefore necessary first to determine the relevant market in which the
dominant position is alleged. The term ‘relevant market’ itself has been defined in
section 2 (r) as ‘the market which may be determined by the Commission with
reference to the relevant product market or the relevant geographic market or with
reference to both the markets.’ The terms ‘relevant geographic market’ and ‘relevant
product market’ have also been defined in the Act.
(B) Relevant geographic market
Section 2(s) states that the relevant geographic market ‘means a market
comprising the area in which the conditions of competition for supply of goods or
provision of services or demand of goods or services are distinctly homogeneous and
can be distinguished from the conditions prevailing in the neighbouring areas.’ The
factors which are to be considered while determining the relevant geographic market
have been listed in section 19(6) of the Act, namely: (a) regulatory trade barriers;
(b) local specification requirements; (c) national procurement policies; (d) adequate
distribution facilities; (e) transport costs; (f) language; (g) consumer preferences; and
(h) need for secure or regular supplies or rapid after-sales services: Regulatory trade
barriers could arise, for instance, from trade barriers such as import tariffs or
quantitative restrictions or restrictions placed by state governments in India on inter-
state movement of goods, thereby leading to segmentation of the market. Local
specification requirements may be legal or cultural or arise from local business
traditions; the language barrier in the case of newspapers is an example. National
procurement policies sometimes stipulate giving preference to local manufacturers or
suppliers. Inadequate distribution facilities or after-sales services in remote
geographical areas or high transport costs could also lead to segmentation of the
market. Sometimes, local consumers may have preference for a particular brand and
87
United Brands Co. and United Brands Continental BV v. Commission of the European Communities
(1978) 1 CMLR 429 See paragraphs 163, 191, 202, 203, 294; Available at
http:/www.bailii.org/eu/cases/EUECJ/1978/C2776.html.
Page | 45
therefore other brands of the same product may not be regarded as substitutable by
those consumers.
(C) Relevant product market
Similarly, the relevant product market is defined in section 2(t) as ‘a market

comprising all those products or services which are regarded as interchangeable or
substitutable by the consumer, by reason of characteristics of the products or services,
their prices and intended use’. The factors that are to be considered while determining
the relevant product market are listed in section 19(7): namely (a) physical
characteristics or end-use of goods; (b) price of goods or service; (c).consumer
preferences; (d) exclusion of in-house production; (e) existence of specialized
producers; and (f) classification of industrial products. A product may not be
jerchangeab1 with, or substitutable by, another product because of its certain peculiar
physical characteristics or end-use, for example, a banana, because of its softness and
its use for feeding infants, may not be substitutable by an apple and may, therefore,
constitute a separate market from the apple market. The market for a highly priced
luxury car may be different from the market for a low end inexpensive car.
intermediate goods produced exclusively for in-house use for the manufacture of the
end product, and which the producer is unable to divert to other uses, may not be a
substitute for other such goods in the market. Producers of a highly specialized
product sometimes may not be considered in the market of non specialized products
due inter aim to their inability to switch to the production of non specialized products.
The determination of the relevant market is generally the starting point of the
analysis of a particular case. According to World Bank/OECD Glossary, ‘If markets
are defined too narrowly in either product or geographic terms, meaningful
competition may be excluded from the analysis. On the other hand, if the product and
geographic markets are too broadly defined the degree of competition may be
overstated. Too broad or too narrow market definitions lead to understating or
overstating market share and concentration measures.’88 Competition authorities
frequently use certain economic tools to determine the relevant market. One of these
is the SSNIP (Small but Significant 0-transitory Increase in Price) test, also referred
88
World Bank/OECD, supra note 6.
Page | 46
to as the hypothetical monopolist test; the investigator asks whether, if the

hypothetical monopolist raises the price of the product by a ‘small but significant
amount’ for a ‘non-transitory’ continuous period, a sufficient number of buyers would
switch to other products so as to make the price increase unprofitable for the
hypothetical monopolist. If such substitutes exist, they are included in a new
provisional product market and the original question is repeated until no more close
substitutes can be identified.89
It is necessary, however, to avoid the ‘cellophane fallacy’ in determining the

relevant market in cases of abuse of dominance; this was an error committed by the
US Supreme Court in du Pont. It refers to the situation where a dominant enterprise
where a dominant enterprise has already raised the price to a non-competitive level; a
further rise of say 5-10 per cent may result in demand substitution by a product which
might not have been a substitute at a lower competitive price. This could lead to an
unjustifiably broad determination of the market, which would be favorable to the
defence of the dominant firm.90
Once the relevant market has been determined, the next stage would be to
inquire whether the enterprise enjoys a dominant position. The Act does not prohibit
the mere possession of a dominant position, but only its abuse, thus recognizing that a
dominant position may have been achieved through superior economic performance.
Section 19(4) provides that while inquiring whether an enterprise enjoys a dominant
position or not under section 4, the Commission shall have due regard to all or any of
the following factors, namely:
(1) market share of the enterprise;
(2) size and resources of the enterprise;
(3) size and importance of the competitors;
(4) economic power of the enterprise including commercial advantages

over competitors;
89
John Clark et al. ‘Market Definition and Assignment of Market Shares’, in World Bank/OECD pp.
10-8, and Black’s Law Dictionary supra note 13.
90
United States v. E.I. du Pont de Neumours and Co. 351 US 377 (1956) referred to in Richard Whish,
supra note 34 at pp. 30-32.
Page | 47
(5) vertical integration of the enterprises or sale or service network of such

enterprises;
(6) dependence of consumers on the enterprise;
(7) monopoly or dominant position whether acquired as a result of any

statute or by virtue of being a Government company or a public sector
undertaking or otherwise;
(8) entry barriers including barriers such as regulatory barriers, financial

risk, high capital cost of entry, marketing entry barriers, technical
entry barriers, economies of scale, high cost of substitutable goods or
service for consumers;
(9) countervailing buying power;
(10) market structure and size of market;
(11) social obligations and social costs;
(12) relative advantage, by way of the contribution to the economic

development, by the enterprise enjoying a dominant position having or
likely to have an appreciable adverse effect on competition; or
(13) any other factor which the Commission may consider relevant for the
inquiry.
(D) Predatory pricing
One of the abuses listed in section 4(2)(a)(ii) is predatory pricing, defined in

Explanation (b) below section 4(2) (e) as ‘the sale of goods or provision of services at
a price which ii below cost, as may be determined by regulations, of production of the
goods or provision of services, with a view to reduce competition or eliminate the
competitors’. By using the term, ‘with a view to reduce competition or eliminate the
competitors’, intention has been included as an ingredient of the violation.
Page | 48
1.3.6.3 REMEDIES AND LENIENCY
The remedies that can be ordered by the Commission in cases of

contravention of section 3(relating to anti-competitive agreements) or section 4
(relating to abuse of dominant position), as the case may be, have been provided in
section 27 of the Act. The Commission may pass a ‘cease and desist’ order [section
27(a)] and impose a penalty not exceeding 10 per cent of the average turnover of the
preceding three years [section 27(b)). In the case of a cartel, the penalty could be 10
per cent of the turnover or three times the amount of profits made out of the cartel
agreement, whichever is higher [Proviso to section 27(b)]; thus, cartels could attract
higher penalties than other contraventions. Section 27 (0 further allows the
Commission to recommend to the Government division of an enterprise enjoying
dominant position. Section 27(c), read with section 34, also provides for award of
compensation for any loss or damage suffered as a result of any contravention of the
provisions of the Act relating to prohibition of anti-competitive agreements, abuse of
dominant position, or regulation of combinations. The Commission may also direct
the enterprise to abide by such other orders or directions as the Commission may give
[section 27(e)], including payment of costs, if any, and the Commission may also pass
such other orders as it may deem fit [section 27(g)].
Section 48 provides that not only the company that contravenes any provision
of the law, or order or direction given there under, is liable to be proceeded against
and punished, but also any person who, at the time of the contravention, was in
charge of and was responsible to the company, unless such person can show that the
contravention was committed without his knowledge or that he had exercised all due
diligence to prevent such contravention. Similarly, every director, manager, secretary,
or other officer of the company shall be deemed guilty and liable to action under the
law if it is proved that the contravention took place with his consent or connivance, or
is attributable to any neglect on his part. Thus the liability of the directors and the
officers of the company can be very heavy and the punishment that they can receive
can be severe. The Act makes no distinction between the penalty that can be imposed
on a company and on an individual, which is unlike some other jurisdictions’, for
Page | 49
example the US and Australia, where the penalty imposable on an individual is lower
than on a company.
The Act includes a leniency program in the case of a cartel. Section 46 states
that if a party to a cartel makes a full and true disclosure in respect of the alleged
violations and such disclosure is vital, such a party may be given a lesser penalty as
the Commission deems fit. The leniency would be available only to the first party that
makes the full, true, and vital disclosure. Further the disclosure must be made before
the proceedings have been instituted or an investigation has been directed to be made
under section 26. A disclosure made after the above mentioned stage of proceedings
would not qualify for the lenient treatment. It is worth noting that the leniency
provision may save the cooperating party from a larger penalty, but it does not protect
the party from a claim for compensation for loss or damage suffered by a person on
account of the alleged violation by the party, or from any other direction or order of
the Commission.
1.3.6.4 REGULATION OF COMBINATIONS
The Act contains provisions for regulation of combinations, i.e., for ‘merger
control’. A combination has been defined in section 5, and it includes an
‘acquisition’, ‘acquiring of control’, and any ‘merger or amalgamation’ [sections 5(a),
(b) and (c) respectively]. The word ‘control’ has been explained in Explanation (a)
below section 5 according to which it includes controlling the affairs or the
management by one or more enterprises, either jointly or singly, over another
enterprise or group, or by one or more groups, either jointly or singly, over another
group or enterprise. The section sets certain size- related thresholds and only an
acquisition, acquiring of control, merger, or amalgamation above these thresholds is
covered by the definition of combination.
Section 5 (c) also explains how the value of the assets is to be computed
which shall include intangible assets like the value of goodwill, copyright, patent, and
trademark. However, the basis on which the intangible assets will be valued is not
laid down in the Act. Section 2(y) also explains that turnover includes value of sale of
goods and services.
Page | 50
While the definition of combination is contained in section 5, the regulation

thereof is provided in section 6. Section 6(1) states that no person or enterprise shall
enter into a combination which causes or is likely to cause an appreciable adverse
effect on competition within the relevant market in India, and such a combination
shall be void.
Section 6(2) provides for a notice to be given to the Commission disclosing

the details of the proposed combination within seven days of approval by the board of
directors of the enterprise concerned or execution of any agreement for acquisition or
acquiring of control; such a notice may be given by the person or enterprise
concerned at his or its option. The Act does not make giving of notice to the
Commission obligatory. This is unlike merger control provisions of most countries
where the notification of a proposed merger is mandatory. Only a few countries such
as UK and Finland have a voluntary notification regime like India.
Section 6(1) prohibits a combination having an ‘appreciable adverse effect on

competition within the relevant market in India’. Therefore, the first step in the
analysis of a combination is the determination of the relevant market in India. The
exercise is similar to that for determining the relevant market in the case of abuse of
dominant position, with however, one point of difference according to some
authorities. Unlike in the analysis of abuse of dominance, the inquiry relating to the
competitive effects of mergers is forward-looking and the main concern is whether
the merger will cause the prices to rise above the prevailing level, though that level
may be above the competitive level. Thus, according to these authorities, the
cellophane fallacy, which is pertinent in the case of abuse dominance, is not relevant
in merger cases.91
Once the relevant market has been determined, it would be necessary to

determine whether the combination causes or is likely to cause an appreciable adverse
effect in that relevant market. The factors which are to be considered by the
Commission in making this inquiry are set out in section 20(4), namely, actual and
potential level of competition through imports in the market; extent of barriers to
91
See Bishop, Simon and Mike Walker (2002): ‘The Economics of EC Competition Law: Concepts,
Application and Measurement’, (2nd Edo) Sweet and Maxwell, London, pp. 98-100, pp., and Whish,
Richard supra, n. 39, pp. 30-2.
Page | 51
entry into the market; level of combination in the market; degree of countervailing
power in the market; likelihood that the combination would result in the parties to the
combination being able to significantly and sustainably increase prices or profit
margins; extent of effective competition likely to sustain in a market; extent to which
substitutes are available or likely to be available in the market; market share, in the
relevant market, of the persons or enterprise in a combination, individually and as a
combination; likelihood that the combination would result in the removal of vigorous
and effective competitors in the market; nature and extent of vertical integration in
the market; possibility of a failing business; nature and extent of innovation; relative
advantage, by way of the contribution to the economic development, by any
combination having or likely to have appreciable adverse effect on competition; and
whether the benefits of the combination outweigh the adverse impact of the
combination, if any.
1.3.6.5 EXTRA TERRITORIALITY
The Act has extra-territorial jurisdiction. Section 32 provides that the

Commission shall have the power to inquire into an agreement or abuse of dominant
position or combination even if the act has taken place outside India or the party or
enterprise is outside India provided that it has an appreciable adverse effect on
competition in the relevant market in India. Thus the governing factor is the effect in
the domestic market; this is also referred to as the effects doctrine. Further, the
Commission is allowed under the proviso to section 18 to enter into memorandum or
arrangement with any agency of any foreign country, with the prior approval of the
Central Government. This provision is in support of the extra-territorial jurisdiction of
the Commission.
The effects doctrine is now well accepted in competition law. It was first used
in a significant manner in the US where the position now is that US courts can
intervene provided that there is a direct, substantial, and foreseeable effect on
domestic or certain export commerce. Similarly, courts in the EU have asserted the
effects doctrine in several cases involving overseas firms. The OECD Guidelines for
Multinational Enterprises expressly caution these enterprises to take into account the
Page | 52
competition laws of not only the countries in which they operate, but also of those
countries where their acts are likely to have effect.92
1.3.6.6 EXEMPTIONS
The Act covers enterprises irrespective of their ownership. Thus private

enterprises, as well as government enterprises, and also government departments are
covered by the Act. However, the Act excludes activities of the Government related
to its sovereign functions and specifically excludes all activities carried on by the
departments of the Central Government dealing with atomic energy, currency,
defense and space [section 2(h)]. What constitutes ‘sovereign functions’ has not been
elaborated in the Act? However, there is a substantial body of case law in India on the
subject. Broadly, sovereign functions are those that relate to matters such as
maintenance of law and order, defense of the country, and administration of justice.
The Act exempts two categories of agreements i.e., intellectual property rights
in so far as they impose reasonable conditions [section 3(5)(i)], and export trade
[section 3 (5)(ii)]. Joint ventures, that enhance efficiency, are exempt only from the
application of section 3(3), i.e., from the ‘shall presume’ rule, but not from the
application of section 3(1). Further, section 54 allows the Central Government, not
the Commission, to notify three other types of exemptions, these being: (a) ‘any class
of enterprises’ in the interest of security of the State or public interest; (b) ‘any
practice or agreement’ arising out of and in accordance with any obligation assumed
by India under any treaty, agreement, or convention; and (c) ‘any enterprise’ which
performs a sovereign function (the exemption being confined only to the activities
relatable to the sovereign function). The period for which the exemption is given can
also be specified in the notification.
Under section 54, exemption to individual enterprises can be given only in

respect of a sovereign function, while in the case of a class of enterprises it can be
exempted only on grounds of security of the State or of public interest. In respect of a
practice or agreement, it can be exempted only if it arises out of any obligation
assumed under any treaty, agreement, or convention. Thus, it appears that agreements
Fox, Eleanor M. supra, n. 37. See also Chapter, ‘Overview of Competition Law’ by Vinod Dhall and
92
Chapter,’ Conflicts, Convergence, Cooperation, and World Competition Law’ by Eleanor M. Fox.
Page | 53
such as those relating to research and development or standards-setting that are

exempted in the EU, cannot be exempted under section 54, unless these arise out of
some treaty obligation.
1.3.7 The Background and Salient features of 2007— Amendments93
The Competition Commission of India was established on October 14, 2003

but could not be made functional due to filing of a writ petition before the Supreme
Court. The essential challenge was that the Competition Commission envisaged by
the Act was more of a judicial body having adjudicatory powers and that in the
background of the doctrine of separation of powers recognized by the Constitution of
India, the Chairman of the Commission had necessarily to be retired Chief Justice or
Judge of the Supreme Court or of a High Court, to be nominated by the Chief Justice
of India and further the right to appoint the Judicial members of the Commission
should also rest with the Chief Justice of India or his nominee. The Supreme Court in
its interim order of October 31, 2003 stayed the judicial functioning of the
Commission and the operation of rule 3 of the Competition Commission of India
(Selection of Chairperson and Other Members of the Commission) Rules, 2003.94
The Central Government then submitted before the Supreme Court that it
intends to bring about certain changes in the Competition Act, in the light of the
issues raised in the writ petition. The Supreme Court delivered its judgment in the
matter on January 20, 2005. It closed the writ petition leaving open all questions
regarding the validity of the enactment including the validity of rule 3 of the
Competition Commission of India (Selection of Chairperson and other Members of
the Commission) Rules, 2003 to be decided after the amendment of the Act and
declined to pronounce on the mailers argued before it in a theatrical context and based
only on general pleadings.2 The Court held that if an expert body is to be created by
the Union Government, it might be appropriate for the Government to consider the
creation of two separate bodies, one with expertise for advisory and regulatory
93
V.K. Agrawal. Competition Act, 2002 (Principles and Practices), Bharat Law House Pvt. Ltd., New
Delhi, 2011, pp. 23-26.
94
Report on the Competition (Amendment) Bill, 2006 [44 th Report of the Standing Committee on
Finance, 2006-2007], paras 4 and 5.
Page | 54
functions and the other for adjudicatory functions based on the doctrine of separation
of powers recognized by the Constitution of India.95
Keeping in view the order of the Supreme Court, the submissions made by the
Government before the Court, and consultations with various Ministries, the
Competition (Amendment) Bill, 2006 was introduced in Lok Sabha on March 9,
2006. The Bill was referred to the Standing Committee on Finance on April 17, 2006
by the Speaker of the Lok Sabha for detailed examination and report thereon. Finally,
the Act was amended by the Competition (Amendment) Act, 2007. The salient
features of the Amendment Act, 2007 are as follows:
• The Competition Commission of India would be an expert body which will

function as a market regulator for preventing anti-competitive practices in the
country in accordance with the Act and it should also have advisory and
advocacy functions in its role as a regulator.
• To provide for mandatory notice of merger or combination by a person or

enterprise to the Competition Commission within thirty days and to empower
the Commission for imposing a penalty of up to one per cent of the total
turnover or the assets, whichever is higher, on a person or enterprise which
fails to give notice of merger or combination to the Commission.
• Insertion of a new Chapter VIII A in the Act, providing for establishment of

the Competition Appellate Tribunal which• shall be a three-member quasi-
judicial body headed by a person who is or has been a Judge of the Supreme
Court or the Chief Justice of a High Court to hear and dispose of appeals
against any direction issued or decision made or order passed by the
Competition Commission.
• To provide for adjudication by the Competition Appellate Tribunal of claims

on compensation and passing of orders for the recovery of compensation from
any enterprise for any loss or damage suffered as a result of any contravention
of the provisions of the Act.
95
Statement of Objects and Reasons appended to the Competition (Amendment) Bill, 2007.
Page | 55
• To provide for implementation of the orders of the Competition Appellate

Tribunal as a decree of a civil court.
• To provide for filing of appeal against the order of the Competition Appellate
Tribunal to the Supreme Court.
• To provide for imposition of a penalty by the Competition Commission for

contravention of its orders and in certain cases of continued contravention a
penalty which may extend to rupees twenty-five cores or imprisonment which
may extend to three years or with both as the Chief Metropolitan Magistrate,
Delhi may deem fit, may be imposed.
• To omit the provisions relating to adjudication of disputes between two or

more parties by the Competition Commission and to provide for investigation
through the Director General in case there exists a prima facie relating to anti-
competitive agreements or abuse of dominant position under the Act and
conferring power upon the Commission to pass orders on completion of an
inquiry and impose monetary penalties and in doing so the Commission would
work as collegium and its decisions would be based on simple majority.
• To increase the period of restriction from one year to two years on

reemployment of Chairperson and other Members of the Commission.
• The Chairperson shall have the powers of general superintendence, direction,

and control in respect of all administrative matters of the Competition
Commission.
• To confer power of division of enterprise enjoying dominant position to the

Competition Commission instead of the Central Government.
1.3.8 The Background and Salient Features of the 2009 —Amendments96
Section 66 of the Competition Act, inter alia, provided for repeal of the MRTP
Act and dissolution of the MRTP Commission established there under. However, the
MRTP Commission was allowed to continue to exercise jurisdiction and powers
under the repealed Act (Le. MRTP Act) for two years from the date of the
96
Ibid.
Page | 56
commencement of this Act in respect of all cases or proceedings filed before the
commencement of this Act. Section 66 of the Competition Act was brought in force
on September 1, 2009 whereby the MRTP Act stood repealed and was replaced by
the Competition Act with effect from September 1, 2009 and the MRTP Commission
was to continue to handle all old cases (filed prior to September 1, 2009) for two
years starting from September 1, 2009’. The post of the Chairperson of the MRTP
Commission was vacant on the said date and there were only two Members in the
said Commission out of five Members. Both the Members in the MRTP Commission
demitted their offices on September 14, 2009 and October 1, 2009 respectively on
competition of their tenure. Efforts were made to fill up the posts but were of no
avail. The MRTP Commission became non-functional and a gap was created for the
disposal of the cases pending with the MRTP Commission. On the other hand the
Competition Appellate Tribunal established under the Competition Act, 2002 was not
having adequate workload.97 To overcome this situation, the Competition
(Amendment) Ordinance, 2009 was promulgated on October 14, 2009 which brought
an end to the MRTP Commission, so as to transfer immediately the cases pending
with the MRTP Commission to the Competition Appellate Tribunal and National
Commission constituted under the Consumer Protection Act, 1986 from the date of
the issue of the Ordinance. The said Ordinance has been repealed and replaced by the
Competition (Amendment) Act, 2009. The salient features of the Amendment Act,
2009 are as follows.
• The MRTP Commission was brought to an end with effect from October 14,
2009.
• All the old cases pertaining to monopolistic trade practices or restrictive trade
practices pending (including) such cases, in which any unfair trade practices
has also been alleged) pending before the MRTP Commission shall stand
transferred to the Competition Appellate Tribunal and shall be adjudicated by
the Appellate Tribunal in accordance with the provisions of the repealed Act
(i.e. MRTP Act) as if that Act has not been repealed.
97
Statement of Objects and Reasons appended to the Competition (Amendment) Bill, 2009
Page | 57
• The cases pertaining to unfair trade practices referred to in clause (x) of sub-
section (1) of section 36A of the MRTP Act and pending before the RTP
Commission shall also stand transferred to the Competition Appellate
Tribunal and the Tribunal shall dispose of such cases as if they were field
under that Act.
• All cases pertaining to unfair trade practices other than those referred to in
clause (x) of sub-section (1) of section 36A of MRTP Act and pending before
the MRTP Commission shall stand transferred to the National Commission
constituted under the Consumer Protection Act, 1986, and the National
Commission shall dispose of such cases as if they were field under that Act.
Further, all the cases relating to the unfair trade practices pending before the
National Commission, on or before the date on which the Competition
(Amendment) Bill, 2009 receives the assent of the President, shall stand
transferred to the Competition Appellate Tribunal and be adjudicated by the
Tribunal in accordance with the provisions of the repealed Act (Le. MRTP
Act) as if that Act had not been repealed.

Page | 58

Comp 3

Uploaded by

Comp 3

Uploaded by

Chapter-I

EVOLUTION, CONCEPT AND JUSTIFICATION FOR THE

1.1 GENERAL CONCEPTION OF COMPETITION LAW

Competition is a process of economic rivalry between players to attract

According to Professor Whish, ‘competition means a struggle or contention

• Unfair: This relates to the adoption of restrictive business practices such as

In either situation, competition in the sense of economic rivalry leads to a

Given this, the appropriate definition of competition is “a situation which

Competition refers to a situation in a market place in which firms/entities or

1.1.2 Competition Policy, Competition Law and Competitiveness

Competition policy means government measures, policies, statutes, and

The World Trade Organization (WTO) defines competition policy as:

World Bank also provides a definition of competition policy as:

(b) competition law, also referred to as antitrust or antimonopoly law.”

Competition Policy is a broader term which includes all government policies

Competition policy, competition law and competitiveness are three distinct

compete which is based on the productivity of the entity concerned. 7

1.1.3 Types of Competition

Competition can be broadly divided into two parts:

1. Price Competition: This is a form of competition among suppliers where the

2. Non-price Competition: This is a form of competition among suppliers

Before understanding different forms of competition in the market, it is

Market is an exchange mechanism that brings together sellers and buyers of

A single individual producer whose share in the market is very small

3. Large number of sellers and buyers, existence of close substitutable products,

1.1.4 Necessity of Competition Law

theories of competition as well as ideological defenses of competition as a social

Competition was defined by the Court as a process that required numerous

there is no reason to assume that efficiency requires a competition system. A society

Elanor M. Fox has very rightly pointed out that17

Competition law protects competitive markets for promoting efficiency by

Competition is the engine of free enterprise. Market economy performs with

“Throughout the history of these statutes it has been constantly assumed

Trade liberalisation is one of the most effective measures to ensure

• To maintain and promote the competitive spirit in the market.

1.1.5 Goals of Competition

Due to multifarious dimensions of competition law and policy, It is very

(a) Classical goals

• Enhancement of efficiency in the market;

• Promoting consumer welfare;

• Avoidance of conglomeration of economic power; and

• Protection of smaller firms from anti-competitive agreements.

(b) Specific goals

The Celler-Kefauver Amendment to the Claytons Act, 1914 considered

• Competition for efficiency

In recent years, efficiency advocates have gained ascendancy, powerfully

Allocative and productive efficiency are together known as static efficiency.

Productive efficiency means optimal production of goods with available input

Dynamic efficiency refers to development of new products. This can be done

Competition should aim at achieving static as well as dynamic efficiency. The

1.1.6 Hurdles to Fair Competition

1.1.6.1 Anti-competitive Agreements

A cartel is an agreement between firms to act in concert on prices, production

Horizontal agreements work in following ways to thwart competition:

Bid suppression: One or more competitors agree to refrain from tendering or

Complementary bidding: The competing firms agree among themselves as to

(iii) Allocating Markets: Competitors can agree to allocate geographic territories

Agreements between, firms which are at different stages or levels of

(iii) Exclusive Distribution Agreements: This agreement is between the supplier

1.1.6.2 Abuse of Dominant Position

Dominance by an enterprise is to be judged by its power to operate

Abuse of dominance is broadly of two types: Exploitative and Exclusionary

(i) Exploitative abuse means exploiting customers by ignoring the needs of

The various ways in which exploitative abuse could be exercised ate

• Refusal to deal, such as denial of essential facilities;

(ii) Exclusionary abuse involves exclusion of competitors. For example, in some

1.1.6.3 Combinations (Mergers and acquisitions etc.)

Such Mergers and Acquisitions (M&As) might be horizontal, vertical or

with the other producing bottles to contain such cold drinks.

(iii) Conglomerate M&As: These involve firms in diversified and unrelated

(a) a monopoly situation may arise;

1.2 COMPETITION LAW – INTERNATIONAL PERSPECTIVE

For a longtime, there remained a controversy with regard to compatibility of

a genuine competition, with presupposed equality and freedom was impossible. He

According to Raybould, the concept of monopoly is quite ancient and can be

1.2.1 Sherman Act, 1890-