Competition or anti-trust laws are put in place for the dual objectives of protecting the interest of the customers and maintaining healthy competition within the market by checking predatory business practices and preventing monopoly in business. These intricate laws affect a multitude of factors such as collusions, acquisitions and mergers. Therefore, considerable difficulty arises in deciding which of the practices actually restrain competition in the market.
Several countries with extensive economies, regardless of their state of development, have witnessed the rise of monopolistic practices such as price fixing and cartelization. Opinions, on the other hand, have been divided as to the effectiveness of these anti-competition laws. Those in support claim that competition laws provide an open market with healthy competition and benefit the consumers with better pricing, high-end goods and services, innovation and greater choice. Others claim that such laws hinder the proper functioning of a free market, which left to its own devices will eventually result in the most efficient economy.
Prior to the first of modern anti-competition laws being passed in the late 1890s, the USA faced massive problems of entire industries like consolidating themselves into trusts. The oil industry, for example, formed the Standard Oil Trust, which essentially bought together multiple oil companies under a common umbrella and management. This gave the illusion of competition and free market forces, while actually being orchestrated for maximum profit for the trustees and their shareholders. Corruption and political bribery were also rampant, as tends to be the case when consolidation of large amounts of wealth and power occur. As a result of public outcry, the US Congress passed what they termed “anti-trust” legislations. The first of these was the Sherman Act of 1890, which made monopolistic practices and price fixing illegal. The punishment for the contravention of these laws ranged from fines to jail time. In 1914 came the Federal Trade Commission Act, which focused on curbing unfair methods of competition and fraudulent acts. Also in 1914, the Clayton Act was passed to address areas left unprotected under the Sherman act. These three laws together form the framework of the US anti-trust regime.
There are a few elements of anti-trust that have developed over the years. The first of these are anti-competitive agreements which can take many forms. Some are obviously anti-competitive agreements to limit supply or distribution to only certain parties. This would be the case if, for example, Qualcomm refused to sell their chips to anyone who wasn’t Samsung. Another manifestation of this are tie-in clauses. The most infamous of these is probably Microsoft bundling Internet Explorer with their OS, a clear case of using the market influence of a more competitive product to capture that of a less competitive product.
The second major component of anti-competitive behavior is abuse of dominance. This occurs when a group with considerable clout in given market engages in strategies such as predatory pricing- ie, deliberately selling goods at a low price so as to drive away any remaining competition. This occurred with Standard Oil in the early 1900s. It must be noted that market dominance in itself is not anti-competitive, and also that lowered pricing and related strategies can be used by companies so long as they are not “dominant” in the given sector. This is evident from the 2017 Reliance Jio case.
In India, The Monopolistic and Restrictive Trade Practices Act of 1969 was passed to deal with competition issues. Post the liberalization, privatization and globalization movement, the Competition Act, 2002 was passed to deal with the shortcomings in law. In support of these laws, entities such as Competition Commission of India and Competition Appellate Tribunal were also set up to perform certain tasks.
Even aggressively free market countries like the USA are aware of the limits of the system without government oversight. Anti-competition laws play an important role in maintaining healthy market conditions. Since these laws are responsible for checking the biggest and most powerful companies in the country, the implementation of laws have the possibility of being something of a challenge. The laws have to be absolutely clear, detailed, strict and well-defined so as to prevent any loopholes or compromises, and this strict implementation is the a key component to having a healthy, consumer-driven economy.
Author: Imran Rizvi, Legal Intern at PA Legal.
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