“Competition is not only the basis of protection to the consumer, but is the incentive to progress.”
– Herbert Hoover (American President, 1874-1964)
Great words by a great man. However, President Herbert Hoover had somewhat erred while making this statement. He only said ‘competition’, whereas he should have stressed on ‘fair competition’. Competition is present even when unfair trade or anti-competitive practices are being performed. However, in such competition, the consumer’s interests are not protected.. Barriers to competition caused due to unsuitable government policies or anti-competitive behavior by firms are very common in developing countries. They diminish opportunities for innovation and growth, and make consumers worse off.
However, it was realized that in order to make sure that that enterprises do not abuse their liberties and in order to give entrepreneurs a level playing field, a statute must be set up with special machinery to regulate its laws. Such a statute, in India, is the Competition Act, 2002 (which has repealed the Monopolies and Restrictive Trade Practices Act, 1969) and the machinery to enforce its provisions is the Competition Commission of India. Its main objectives are to – prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India.
The earliest records of competition laws traces back to the struggles of Roman legislators to control price fluctuations and unfair trade practices. Throughout the Middle Ages in Europe, Kings and Queens repeatedly cracked down on monopolies, counting those created through state legislation. The English common law doctrine of restraint of trade became the precursor to modern competition law. This grew out of the codifications of United States antitrust statutes, which in turn had significant influence on the development of European Community competition laws after the Second World War. Increasingly the focus has today moved to international competition enforcement in a globalized economy.
Some anti-competitive practices today include-
- Dumping, where a company sells a product in a competitive market at a loss. Though the company loses money for each sale, the company hopes to force other competitors out of the market, after which the company would be free to raise prices for a greater profit.
- Exclusive dealing, where a retailer or wholesaler is obliged by contract to only purchase from the contracted supplier.
- Price fixing, where companies collude to set prices, effectively dismantling the free market.
- Refusal to deal, e.g., two companies agree not to use a certain vendor
- Dividing territories, an agreement by two companies to stay out of each other’s way and reduce competition in the agreed-upon territories.
- Limit Pricing, where the price is set by a monopolist at a level intended to discourage entry into a market.
- Tying, where products that aren’t naturally related must be purchased together.
- Resale price maintenance, where resellers are not allowed to set prices independently.
Unfair competition leads to increase in unemployment and in essence, also to poverty. To give an example, many of the poor are small entrepreneurs, including farmers. They will benefit if entry and exit barriers are low, if they can purchase inputs at fair prices, and if they are able to sell their output on fair terms. They need to be able to do business without much interference and be given equal opportunities. William S. Knudsen had said, “In business, the competition will bite you if you keep running; if you stand still, they will swallow you.” Many of the poor are also recipients of government-funded services. In today’s world, corporations bid rigging for government provided or aided infrastructure, revenue and services is very common, and therefore the government finds it unable to provide for their people from any given budget allocation. And it is common knowledge that poverty breeds violence and also leads to illiteracy and several other severe issues.
Thus, in the light of the aforementioned reasons, it can be concluded that fair competition is the back bone of our economy. It is the engine of economic development which must be fuelled by the people’s and government’s constant efforts. Proper competition policies and a forceful consumer movement in particular, can play a productive and huge role in bringing about reforms in the system of competition. Vested interests that oppose developments and just competition have to be overcome. A proactive media and a learned judiciary are needed if competition policy and law are to be completely effective. It is only then that the engine of fair competition will run smoothly, which will further lead our country’s economy to run smoothly. Suitable co-ordination between all these groups and promoting a sense of alliance between the parties, will benefit everyone. As Brain Graham had once said in relation to competition in the market, “Competition creates better products, alliances create better companies.”
(The above article is an original work. However, the image attached with the e-mail is from jsrschools.com)
Student, Rizvi Law College, Mumbai
[Submitted as an entry for the MightyLaws.in Blog Post Writing Competition, 2011]