Competition Act,

2002
Subject – Law
Course – B.Sc. Economics, Semester II
Unit – Competition Act 2002
Curated by – Prof. Shreya Madali
What is Competition Law?
- The process of competition is not automatic.
- it is important for the state to monitor the markets with a view to keep an eye on any type
of impediments and distortions and correct them.
- The law which takes cognizance of such situations is the competition (or anti-trust) law and
the institution that oversees the functioning of the markets is the competition regulator.
- Competition Law is codification of rules designed to promote and sustain market
competition. Across the globe, these laws are prevalent with active enforcement &
advocacy functions.
- over 100 countries have competition law regimes and competition law enforcement
agencies.
- Though the practice of competition law varies from jurisdiction to jurisdiction, the
substance of these laws is primarily the same.
- World over, it prohibits practices that restrict competition between businesses and
prohibits behaviour which is most prejudiced to the interest of the consumer.
- Businesses have certain obligations under competition law and it is important for them to
understand and abide by these laws.
History of Competition Law in India
- In India, the first legislation to restrain abuse of market power was enacted in
1969, i.e., Monopolies and Restrictive Trade Practices Act (MRTP Act).
- The MRTP Act was enacted to ensure that the economic system didn't result in
concentration of economic power, to provide for control of monopolies and to
prohibit monopolistic and restrictive trade practices.
- As India moved steadily on the path of reforms comprising of Liberalisation,
Privatisation and Globalisation, it did away with the MRTP Act, 1969 as it was
realised that the Act had outlived its utility and control of monopoly was not
appropriate to support the growth aspirations of Indians.
- Indeed, need was felt to promote and sustain competition in the market place.
- And the competition law through Competition Act, 2002 was passed in India
Some Important Definitions of the Act
a. Agreement: The Act has a wide and inclusive definition of an “agreement”. It is an
arrangement/understanding or action in concert. It includes both written and oral agreements. It
need not to be enforceable by law. Any communication among competitors, either in person or by
telephone, letters, e-mail or through any other means even a wink or a nod can be construed as
an agreement.
b. Enterprise: “enterprise” means a person or a department of the Government, who or which is, or
has been, engaged in any activity, relating to the production, storage, supply, distribution,
acquisition or control of articles or goods, or the provision of services, of any kind, or in
investment, or in the business of acquiring, holding, underwriting or dealing with shares,
debentures or other securities of any other body corporate, either directly or through one or
more of its units or divisions or subsidiaries, whether such unit or division or subsidiary is located
at the same place where the enterprise is located or at a different place or at different places, but
does not include any activity of the Government relatable to the sovereign functions of the
Government including all activities carried on by the departments of the Central Government
dealing with atomic energy, currency, defense and space.
c. Consumers: The Act defines “consumers” as any person who purchase goods either for personal
use or for resale or for any commercial purpose. It also includes those consumers who hire or
avail any service either for personal or commercial purpose.
d. Practice: includes any practice relating to the carrying on of any trade by a person or an enterprise
Anti-competitive agreements
- Anti-competitive agreements and abuse of dominance are considered as
potential impediments to free and fair competition in the markets and penalty is
imposed wherever the Commission concludes that the enterprise has/ had
indulged in anticompetitive practices resulting in appreciable adverse effect on
competition
- Competition advocacy is about sensitizing the market players and other
participants on the competition issues and creating awareness about the
benefits of competition.
Prohibition of Anti-competitive Agreements (Section 3)
- Section 3 provides that any agreement which restricts the production, supply,
distribution, acquisition or control of goods or provision of services, which
causes or is likely to cause an appreciable adverse effect on competition within
India, is prohibited and void.
- Anti-competitive agreements may include Horizontal and Vertical Agreements
Horizontal agreements - Section 3(3)
“Horizontal Agreement” means an agreement between enterprises, each of which
operates at the same level in the production or distribution chain.
Defined under Section 3(3) of the Act, horizontal agreements include agreement
which:
a) Directly or indirectly determine purchase or sale prices:
- Fixing of prices by competitors is a horizontal agreement wherein competitors
conspire to raise, decrease, fix or stabilize prices in a specific market.
- The prices in a competitive market should be determined freely on the basis of
demand and supply and not as a result of an agreement between the competitors.
- An understanding between the competitors under which the competitors agree to
take actions to raise, decrease, fix or stabilize prices would be anticompetitive.
- Such agreements are often done in secret but can be unearthed through
circumstantial evidence.
b) Limit or control output, technical development, services etc:
- Production control involves competitors agreeing to limit the quantity of goods or services available in the
market.
- Competitors agreeing to specialise in certain products, ranges of products or in particular technologies could also
be deemed to be anticompetitive.

c) Share or divide markets:

- This could include competitors agreeing to allocate customers between themselves or agreeing to stay out of
each other's geographic territory or customer base.

d) Indulge in bid-rigging or collusive bidding:

- Taking turns to win competitive tender contracts is an example of bid-rigging.
- This could include:
• parties agreeing to submit cover bids (high) that are intended not to be successful – where the unsuccessful
bidders may get kick-backs;
• bid suppression where parties agree that only one of them will submit a bid for the contract;
• bid rotation where the parties to the agreement take turns to win contracts.
More than one of these bid-rigging practices can occur at the same time. For example, if one party to the
agreement is designated to win a particular contract, the other parties could avoid winning either by not bidding
(”bid suppression”) or by submitting a high bid (”cover bidding”).This is an arrangement between competitors
Vertical Agreements - Section 3(4)
- Vertical Agreements are agreements between firms at different levels of the
manufacturing or distribution processes.
- For example, an agreement between the manufacturer and a distributor is a
vertical agreement.
- Defined by Section 3(4) of the Act, vertical agreements include:
a) Tie-in arrangements-
- Tying occurs when customers buy a product they want (the tying product) but
are required (forced) to buy a product (the tied product) from a different market
that they may not want.
- Tying would be anti-competitive as it would restrict access to the tied product
market by competitors.
- Bundling could be distinguished from tying, as bundling would normally involve
products from the same market which consumers generally would buy together.
For example, a car which is sold (bundled) together with tyres.
b) Exclusive distribution agreements-
- In an exclusive distribution agreement, the supplier agrees to sell his products only to one distributor
for resale in a particular territory.
- At the same time, the distributor is usually limited in his active selling into other exclusively allocated
territories.
c) Refusal to deal-
- Businesses have the right to use their discretion in choosing whom to do business with. However, if this
choice is made through a conspiracy with another competitor, business, or individual, they will likely be
in contravention of the law.
- A refusal to deal is a violation of competition law because it harms the boycotted business by cutting
them off from a facility, product supply, or market.
- By harming the boycotted business in this way, the competing businesses control or monopolize the
market by unreasonably restricting competition.
d) Resale price maintenance-
- It means selling goods with condition on resale at stipulated prices.
- It generally occurs when an upstream seller (Producer) imposes a fixed or a minimum price that a
downstream buyer (Distributor or Retailer) must resell.
- For example, a manufacturer sets the price for which its products are sold at the retail level. The result
is that resellers (e.g. retailers) do not compete on price. This is considered to be anti-competitive
Factors considered for Inquiring into Agreements
The Commission while determining whether an agreement has an appreciable
adverse effect on competition under section 3, gives due regard to all or any of
the following factors, namely:-
(a) creation of barriers to new entrants in the market;
(b) driving existing competitors out of the market;
(c) foreclosure of competition by hindering entry into the market;
(d) accrual of benefits to consumers;
(e) improvements in production or distribution of goods or provision of services;
(f) promotion of technical, scientific and economic development by means of
production or distribution of goods or provision of services
 Prohibition of Abuse of Dominance (Section 4)
- The Act prohibits a dominant player from abusing its market power by either restricting
competition or by imposing unfair terms and conditions on its customers.
- A company has a dominant position if it enjoys a position of economic strength (and market
power) to behave independently of its competitors, customers, to an appreciable extent.
- In other words, dominant position is a position of strength enjoyed by a firm which enables it to
behave/act independently of the market forces i.e. in the determination of price of the product.
- A dominant position in itself is not illegal. However, abuse of dominance is.
- Dominant companies have a special responsibility to behave responsibly.
- They have to comply with special rules that are designed to protect competitors, customers and
market structure from abusive behaviour.
- Abuse of dominance is violation of section 4 of the Competition Act.
- The Act specifies a number of factors such as market share, size and resources of the firm,
market structure etc. that should be taken into account while determining whether an enterprise
is dominant or not.
For example: very large market shares, maintained stable for a long time can be considered as
evidence for the existence of a dominant position in the relevant market.
- Relevant market is defined on the basis of geographical and product market.
- Relevant geographic market is a geographical territory in which competition conditions in a relevant market of a
product are sufficiently the same for all participants in such market and therefore this territory can be separated
from other territories.
- The relevant geographic market is affected by factors like consumption and shipment patterns, transportation
costs, perishability and existence of barriers to the shipment of products between adjoining geographic areas.
For example, in view of the high transportation costs in cement, the relevant geographical market may be the region
close to the manufacturing facility.
- Relevant product market is defined in terms of substitutability.
- It comprises of all those products and/or services which are regarded as interchangeable or substitutable by the
consumer by reason of the products' characteristics, their prices and their intended use.
- The market for cars, for example, may consist of separate 'relevant product markets' for small cars, mid-size cars,
luxury cars etc. as these are not substitutable for each other on a small change in price.
- The Commission while determining the “relevant geographic market ”, gives due regard to all or any of the
following factors, namely:- regulatory trade barriers; local specification requirements; national procurement
policies; adequate distribution facilities; transport costs; language; consumer preferences; need for secure or
regular supplies or rapid after-sales service.
- In case of “relevant product market” , the Commission gives due regard to all or any of the following factors,
namely:- physical characteristics or end-use of goods; price of goods or service; consumer preferences;
exclusion of in-house production; existence of specialized producers; classification of industrial products.
- The Act applies only to abuse by the dominant firms because the presumption is that a small firm will lose its
customers to its competitors if it charges excessive prices. Customers might have nowhere to turn if a dominant
firm charges an excessive price.
The abuse of dominant position is broadly classified into exploitative and
exclusionary practices.
The following are examples of abuse under each of the practices:
Exploitative Practices
Directly or indirectly imposing unfair or discriminatory prices in purchase or sale
of goods or service - The imposition of unfair or discriminatory condition has a
negative effect on the consumer welfare.
Discriminatory pricing: Price discrimination occurs when customers in different
market segments are charged different prices for the same good or service, for
reasons unrelated to costs.
Predatory pricing: selling a product or service below cost to drive competitors
out of the market or create barriers to expansion for such competitors or to
create barriers to entry for potential new competitors
Excessive pricing: charging excessive prices due to lack of competition. Since the
firm has no competition, it can charge higher prices.
Exclusionary Practices
a. Limiting production of goods or provision of services or limiting or restricting technical or
scientific development - The dominant firm can restrict the production of its goods and services
in order to create artificial scarcity in the market. As a result of which demand will be greater
than supply and hence the price of the product would increase. Moreover, the dominant firm
can also restrict scientific and technical innovations as it has no incentive to indulge in it. Other
competitive companies innovate to achieve dominance but this is not the case with dominant
firm as it might have no or very less competition.
b. Indulges in practice or practices resulting in denial of market access - A dominant firm in order to
maintain its dominance may indulge in practices which results in denial of market access to its
competitors. For instance: it can create entry barriers like by pricing below cost (predatory
pricing). It can also indulge in lobbying with government to create/modify regulations which may
restrict new entry. It has a negative impact on consumer welfare as it limits competitive prices
and product choices.
c. Imposing conditions which are irrelevant to the contract entered into - According to it, a
dominant firm imposes conditions which impose an unnecessary onus on the other party to the
contract which may be completely irrelevant
d. Using its dominant position in one relevant market to enter into, or protect, other relevant
market - According to it, a dominant firm would condition the purchase of the product by the
consumer with another product. The two products would have different relevant markets.
Factors considered for Inquiring into Section 4
The Commission while inquiring whether an enterprise enjoys a dominant position or not under section 4, gives
due regard to all or any of the following factors, namely:—
(a) market share of the enterprise;
(b) size and resources of the enterprise;
(c) size and importance of the competitors;
(d) economic power of the enterprise including commercial advantages over competitors;
(e) vertical integration of the enterprises or sale or service network of such enterprises;
(f) dependence of consumers on the enterprise;
(g) 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;
(h) 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;
(i) countervailing buying power;
(j) market structure and size of market;
(k) social obligations and social costs;
(l) 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;
Composition of CCI
• The Commission consists of one Chairperson and six Members as per the
Competition Act who shall be appointed by the Central Government.
• The commission is a quasi-judicial body which gives opinions to statutory
authorities and also deals with other cases. The Chairperson and other
Members shall be whole-time Members.
• Eligibility of members: The Chairperson and every other Member shall be a
person of ability, integrity and standing and who, has been, or is qualified to be a
judge of a High Court, or, has special knowledge of, and professional experience
of not less than fifteen years in international trade, economics, business,
commerce, law, finance, accountancy, management, industry, public affairs,
administration or in any other matter which, in the opinion of the Central
Government, may be useful to the Commission.
Functions and Role of CCI
• To eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of
consumers and ensure freedom of trade in the markets of India.
• To give opinion on competition issues on a reference received from a statutory authority established under any law
and to undertake competition advocacy, create public awareness and impart training on competition issues.
• The Competition Commission of India takes the following measures to achieve its objectives:
• Consumer welfare: To make the markets work for the benefit and welfare of consumers.
• Ensure fair and healthy competition in economic activities in the country for faster and inclusive growth and development of the
economy.
• Implement competition policies with an aim to effectuate the most efficient utilization of economic resources.
• Develop and nurture effective relations and interactions with sectoral regulators to ensure smooth alignment of sectoral regulatory
laws in tandem with the competition law.
• Effectively carry out competition advocacy and spread the information on benefits of competition among all stakeholders to
establish and nurture competition culture in Indian economy.
• The Competition Commission is India’s competition regulator, and an antitrust watchdog for smaller organizations that
are unable to defend themselves against large corporations.
• CCI has the authority to notify organizations that sell to India if it feels they may be negatively influencing competition
in India’s domestic market.
• The Competition Act guarantees that no enterprise abuses their 'dominant position' in a market through the control of
supply, manipulating purchase prices, or adopting practices that deny market access to other competing firms.
• A foreign company seeking entry into India through an acquisition or merger will have to abide by the country’s
competition laws.
• Assets and turnover above a certain monetary value will bring the group under the purview of the Competition Commission of India
(CCI).
Need of CCI
• Promote free enterprise: Competition laws have been described as the Magna
Carta of free enterprise. Competition is important for the preservation of
economic freedom and our free enterprise system.
• Protect against market distortions: 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.
• Promotes domestic industries: During the era in which the economies are
moving from closed economies to open economies, an effective competition
commission is essential to ensure the continued viability of domestic industries,
carefully balanced with attaining the benefits of foreign investment increased
competition.