Competition Act, 2002

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A flexible, dynamic, and competitive private sector is increasingly recognised as critical to long-term economic success. The increasing competition allows consumers to choose from a wider range of higher-quality products at lower prices. The competition also promotes accountability and openness, as well as the reduction of corruption and lobbying. Competition, as a well-functioning market system, fosters business and expands options. According to economic theory, prices and quantities in a competitive market equilibrate to levels that provide efficient outcomes. Anti-competitive practices are more common in less developed markets. Competition Act and policy does not kill competition but encourages competition by penalising anti-competitive behaviour like anti-competitive agreements and abuse of dominance situations. Competition in any field is regarded as a positive practice for expanding prospects and acting as a motivator, as long as it is conducted in a legal manner. Perfect competition is a market outcome in which all businesses sell a homogenous and perfectly divisible product, all producers and consumers are price takers, all firms have a modest market share, and buyers and sellers receive all essential market information, including price and quality of the product.

Most countries’ competition laws aim to improve consumer welfare, ensure fair trading, boost economic efficiency, and prevent market power abuse (Dominant Position). The three avenues of enforcement that most competition laws provide for are:

• Anti-competitive agreements including Cartels
• Dominance abuse, and
• Mergers that have the potential to be anti-competitive.

The Competition Act was passed in 2002 and went into effect on January 13, 2003. The act’s objectives are stated in its preamble, which states that the act will establish a Commission (the Competition Commission of India) to prevent anti-competitive practices, promote and sustain competition in the market, protect consumers, and ensure the freedom of trade carried on by other market participants. Anti-competitive agreements, abuse of dominant position, and mergers and acquisitions are among the three anti-competitive practises regulated by the Act (Combinations).

The key criterion for anti-competitive practises regulation is that they should not have a significant negative impact on competition within India. Section 3 of the Act defines anti-competitive agreements and divides them into two categories: horizontal agreements and vertical agreements. It stipulates that all anti-competitive agreements that have the potential to have a significant adverse effect on competition in India are void, subject to the exceptions set out in section 3(5). Section 4 discusses issues of abuse of dominant position and provides a list of activities that may be considered abuse of dominant position.

Objectives of the Competition Act,2002

Contents [hide]

• Objectives of the Competition Act,2002
• The Act’s Key Concepts
• Anti-Competitive Agreements
• Abuse of Dominant Position 
• Regulations of Combinations
• Conclusion

The Act aims to establish the legal framework and mechanisms necessary to ensure that competition policies are followed, to prevent anti-competitive conduct, and to punish those who do so. The Act safeguards free and fair competition, as well as trade freedom.

The Act aims to prohibit monopolies as well as government interference that isn’t necessary. The Competition Act of 2002’s main goal is to provide a foundation for the creation of the Competition Commission.

• To guarantee the freedom of trade for the market’s participating persons and corporations by preventing monopolies and promoting competition.
• to safeguard the consumer’s interests

The Act’s Key Concepts

The Competition Act of 2002 primarily addresses four concepts:

• Anti Competitive Agreements
• Abuse of Dominant Position
• Combinations and their Regulation

Anti-Competitive Agreements

Anti-competitive agreements are agreements between parties involved in a business transaction that have the potential to undermine competition in a particular market or that benefit one person or group at the expense of others. The Competition Act of 2002 prohibits such anti-competitive arrangements. The term ‘agreement,’ as defined in section 2(b) of the Act, does not require that the agreement be in the form of a formal document signed by the parties. It could be in writing or not. Clearly, the definition given is inclusive rather than exhaustive, and it covers a wide range of topics.

The fundamental rationale for using a broad definition of “agreement” under Competition law is that those participating in anti-competitive actions are unable to enter into formal written agreements in order to keep their activities hidden. Cartels, for example, are frequently kept secret. Section 3 of the Act prohibits any arrangement relating to the manufacture, supply, distribution, storage, purchase, or control of commodities or the provision of services that has or is likely to have a significant negative impact on competition in India. 103 Section 3(2) also states that any agreement made in violation of this clause is null and invalid.

• Horizontal Agreement: These are agreements that occur between two or more companies or organisations that compete in the same market in terms of production, supply distribution, and so on. Horizontal anti-competitive agreements, for example, are agreements between manufacturers of a particular commodity not to sell a product below a certain price or not to offer a product to a specific market.

The Competition Act of 2002 restricts the following forms of horizontal agreements:

i)Agreements involving the direct or indirect fixing of purchase or selling prices of a product.

ii) Agreements to limit or control the production, supply, investment, or provision of services for specific products and quantities.

(iii) A market-sharing agreement

iv) Bid Rigging Agreements

Bid rigging is defined in the Explanation to Section 3(3)(d) as an arrangement between parties engaged in the same business that has the effect of eliminating or reducing bid competition or negatively impacting or manipulating the bidding process.

(v) Agreements in the form of Cartels.

Cartels are formed when businesses enter into anti-competitive horizontal agreements. They constitute a significant threat to competition and, as a result, tend to suffocate free commerce. Cartels, in fact, are secret agreements between businesses with the sole purpose of setting prices or sharing markets.

• Vertical agreements: Vertical agreements are those that take place among firms or persons at different stages or levels of production in respect of production, supply, distribution, storage, sale, or price of goods, according to Section 3(4) of the Act. A vertical anti-competitive agreement, for example, is any agreement between a manufacturer and a distributor that has the potential to harm market competition. The Competition Act of 2002 allows for a variety of vertical agreements. These are the following:

I Tie-in Arrangement: Any agreement that compels the purchaser of goods to purchase other items in addition to the required goods as a condition of purchase. Sellers frequently sign into such arrangements in order to enhance their sales and profit margins. A tie-in arrangement becomes illegal when a company takes use of its market power on a particular product by refusing to sell or lease that product to the consumer until he agrees to buy another product that the company wants him to buy.

ii)Exclusive Supply Agreement: Purchasers of products are bound by such agreements not to acquire or deal in goods other than those of the seller or any other person. Typically, such agreements are made by taking advantage of a market’s dominant position. For example, a buyer of a commodity may engage into an agreement with the manufacturer that the product will not be made for any other buyer. However, such agreements should not be mistaken with a legitimate and non-anticompetitive agreement between customers and sellers/ producers on specifications, quality, size, and other factors.

(iii)Exclusive Distribution Agreement: This type of agreement typically contains terms that limit, restrict, or withhold the output or supply of any items.