Legal Aspects of Business | Understanding of the Competition Law (Competition Act, 2002)

Legal Aspects of Business | Understanding the Key Concepts of the Competition Law (Competition Act, 2002)

1. Overview of the Competition Act, 2002

Purpose of the Act:

• Encourages competition in response to global economic changes.
• Replaces the outdated MRTP Act to promote fair market practices.
• Aims to prevent harmful practices, protect consumers, and ensure market freedom.

Key Objectives:

• Prevent anti-competitive practices by firms.
• Limit unnecessary government interference in markets.
• Focus on three main areas:
  • Anti-Competitive Agreements (e.g., cartels).
  • Abuse of Dominant Market Position.
  • Regulation of Mergers and Acquisitions (M&As).

2. Prohibition of Anti-Competitive Agreements

Key Points from Section 3(1):

• No agreement causing harm to competition is allowed.
• Agreements that limit production, allocate markets, or fix prices are considered anti-competitive.
• Common anti-competitive practices include:
  • Limiting production/supply.
  • Market allocation.
  • Price fixing.
  • Bid rigging.
  • Tie-in arrangements.
  • Exclusive supply/distribution agreements.
  • Refusal to deal.
  • Resale price maintenance.
• Presumption: Practices like price fixing and bid rigging are assumed to harm competition unless proven otherwise.
• Rule of Reason: Other practices are judged based on their context.

3. Prohibition of Abuse of Dominant Position

Definition of Dominant Position:

• A firm in a dominant position can influence the market and its competitors.
• Abuse of Dominance includes:
  • Imposing unfair prices or conditions.
  • Predatory pricing (undercutting competitors).
  • Restricting production or market access.
  • Creating barriers to entry.
  • Applying unfair terms to similar transactions.

4. Regulation of Combinations (Mergers and Acquisitions)

Section 6 - Regulation of Combinations:

• Any merger or acquisition likely to harm competition is prohibited.
• The law focuses on regulating combinations, not prohibiting them.
• The Competition Commission of India (CCI) assesses whether a combination will reduce competition.

5. Functions of the Competition Commission of India (CCI)

Key Functions:

• Prohibit anti-competitive agreements, abuse of dominance, and regulate combinations.
• Offer opinions on competition-related matters upon request from other authorities or the government.
• Promote competition advocacy, public awareness, and training on competition issues.