Competition Law

Types of Market Structure

1. Perfect Competition
Perfect competition occurs when a large number of small companies compete against each other, selling similar (homogeneous)
products. These companies have no control over prices and can freely enter or exit the market. Consumers in this type of market
are well-informed about the products and their prices. While this market structure rarely exists in its pure form in the real world, it
serves as a useful theoretical benchmark for comparing companies with similar characteristics. However, perfect competition has
some significant criticisms and is largely considered unrealistic.

•In summary, there are numerous buyers and sellers, with no dominant seller in the market, making all firms price takers. Perfect
competition is more of a theoretical concept, and its assumptions include:

o Homogeneous products

o Profit maximization as the sole objective of all firms

o Free entry and exit from the market

o No consumer preferences influencing the market

2. Monopolistic Competition
Monopolistic competition is an imperfectly competitive market that combines traits of
both monopoly and competitive markets. In this structure, sellers differentiate their
products based on quality and branding to distinguish themselves. While sellers are
aware of competitors' prices, they focus on their own pricing strategies without overly
concerning themselves with their competitors' reactions.

In the short term, firms in monopolistic competition maximize their profits and
operate like monopolies. However, as new firms enter the market with differentiated
products, competition increases, and profits decline. This type of market is more
realistic, featuring many buyers and sellers who offer slightly different products.
3. Oligopoly
An oligopoly market consists of a small number of large companies selling either
differentiated or identical products. These firms' strategies are interdependent—if one
firm lowers its prices, others are likely to follow suit. Conversely, if a firm raises its
prices, competitors may choose not to react, assuming that consumers will buy their
products instead. Strategic planning is crucial in this type of market.

When firms in an oligopoly collaborate and limit production, they can earn
supernormal profits, operating similarly to monopolies. Such collusion is referred to
as a cartel. In summary, oligopoly markets have a few dominant firms, and new firms
face significant barriers to entry. The limited number of firms gives them market
4. Monopoly
A monopoly occurs when a single company dominates the entire industry, facing no
competition and serving as the sole seller of products. Factors such as exclusive
ownership of resources, patents, copyrights, government licenses, or high initial
costs can create this situation. These characteristics make it difficult for other
companies to enter the market, granting the monopolist complete control over
prices.

In summary, a monopoly features a single seller with full control over the market,
setting prices unilaterally. Consumers lose their influence, and market forces
become irrelevant. Monopoly markets are rarely observed in their pure form.
Constitutional Provisions

Article 39(b) and (c)

The Directive Principles in Article 39(b) and (c) of the Indian Constitution are
relevant when discussing competition policy. These clauses state:
Article 39(b): The State shall direct its policy toward ensuring that the ownership
and control of material resources are distributed to serve the common good.
Article 39(c): The State shall ensure that the economic system does not lead to
the concentration of wealth or means of production to the detriment of the
common public
The Competition Act, 2002 is an Indian legislation designed to promote and regulate competition in the
country. Its constitutional foundation is primarily rooted in Article 19(1)(g) and Article 14 of the
Constitution of India.
Article 19(1)(g): This article guarantees the right to practice any profession, trade, or business. The
Competition Act aims to ensure fair competition in the market, prevent anti-competitive practices, and
create a level playing field for all businesses.
Article 14: It guarantees the right to equality before the law and equal protection of the laws. The
Competition Act establishes the Competition Commission of India (CCI) as an independent regulatory
body to enforce and administer the provisions of the Act. The CCI ensures that all market participants
are treated equally and fairly, without any discrimination.
Article 38: This article directs the state to promote the welfare of the people by securing social and
economic justice. The Competition Act aligns with this objective by ensuring that markets operate
Article 39: This article emphasizes principles of policy, including the equitable
distribution of resources and preventing the concentration of wealth and means of
production. The Competition Act aims to prevent anti-competitive practices that could lead
to economic power being concentrated in the hands of a few, thereby promoting a more
equitable distribution of resources and opportunities.
Article 47: This article directs the state to improve public health and promote the welfare
of the people. The Competition Act indirectly contributes to public welfare by ensuring
fair competition and preventing practices that may harm consumers or limit their choices.
By promoting competition, the Act encourages businesses to offer better products and
services at competitive prices, benefiting consumers and enhancing their welfare.
Article 21: This article guarantees the right to life and personal liberty. The
Competition Act helps protect this right by preventing practices that may result in
unfair exploitation or the infringement of individual rights in the market. By promoting
competition, the Act aims to provide consumers with a wider choice of goods and
services, better quality, and competitive prices, safeguarding their economic interests.
Article 301: This article states that trade, commerce, and intercourse throughout the
territory of India shall be free. The Competition Act supports the objective of free trade
by ensuring that markets operate competitively, without undue restrictions or anti-
competitive practices that could hinder the free flow of goods and services.
Competition Policy and Law (CPL)

Competition policy aims to promote and protect competition in the market, ensuring a level
playing field for all enterprises. Effective competition improves economic efficiency, fosters
growth, and benefits consumers. Broadly, competition policy can be defined as a government
initiative to maintain market competition by influencing enterprise behavior and industry
structure.

Competition policy covers two main areas:

 Policies that promote competition, reduce restrictive trade practices, facilitate market entry
and exit, minimize unnecessary government intervention, and emphasize market forces.
 Competition law, which prevents anti-competitive agreements, abuse of dominance, and
anti-competitive mergers through legislation and regulations.
Competition policy complements other government initiatives such as trade policy,
industrial policy, and regulatory reform, contributing to technological advancement,
industrial diversification, and job creation.
Competition
Policy

Government Competition
Policies Law

Trade Policy Industrial Consumer .

Policy Protection
Objectives of the Competition Act, 2002

The Competition Act, 2002, provides the legal framework to ensure the objectives of
competition policy are met, prevent anti-competitive practices, and impose penalties for
such violations. The Act is designed to protect free and fair competition, thereby
safeguarding the freedom of trade. It also aims to prevent monopolies and unnecessary
government intervention.

The key objectives of the Competition Act are:

 Establishing the Competition Commission

 Preventing monopolies and promoting competition in the market

 Protecting the freedom of trade for market participants

Salient Features of the Act:

1. Command and Control Approach:

The MRTP Act enforced a strict regulatory regime where enterprises with assets
exceeding Rs. 20 crores were required to obtain prior approval from the Central
Government before any corporate restructuring or takeover.
This approach aimed to control the concentration of economic power and ensure
government oversight over large corporate activities.
Enterprises with assets exceeding Rs. 1 crore were automatically identified as
dominant undertakings, ensuring stringent monitoring of large business houses.
 2. Monopolistic Trade Practices (MTPs):
 Monopolistic Trade Practices were addressed under Chapter IV of the Act, focusing on activities by
large corporations that abused their market dominance to hamper competition.
 Such practices included price manipulation, restricting production, or controlling the supply of
goods to eliminate competition. The Act saw these practices as harmful to both consumer welfare and
the free market.

3. Restrictive Trade Practices (RTPs):

 Restrictive Trade Practices referred to actions that blocked the free flow of capital, goods, or services
in the market. Such practices were often employed by dominant firms to limit competition.
 RTPs included tactics like controlling production, limiting supply, or delaying deliveries, creating
artificial shortages or influencing prices.
 The Act discouraged and prevented firms from engaging in these practices as they disrupted the market
 4. Unfair Trade Practices (UTPs):

 Unfair Trade Practices involve misleading, deceptive, or false representation of goods and services, typically through

false advertising, exaggeration, or misleading claims.

 Section 36-A, inserted by the 1984 Amendment, explicitly prohibited firms from engaging in UTPs. This provision aimed

at protecting consumers from being misled about the quality or features of products and services.

 UTPs were not only detrimental to consumer welfare but also distorted market transparency.

5. MRTP Commission:

 The Act established the MRTP Commission, a quasi-judicial body tasked with investigating complaints and enforcing the

provisions of the Act.

 The Commission had the power to:

o Inquire into monopolistic, restrictive, and unfair trade practices.

o Issue cease-and-desist orders.

o Impose fines or penalties on offenders.

 The Commission was a key feature of the Act, serving as a regulatory authority aimed at maintaining a fair and
MRTP Act: A Damaged Legislation in Need of Repair

Until 1984, the MRTP Act effectively regulated competition in the Indian market. However, by that time,
certain amendments were necessary to update the legislation to meet the changing needs of society. The
following are the major amendments made to the MRTP Act:
 1984 Amendment – This amendment was based on the recommendations of the Sachar Committee. It
introduced Section 36A to the Act to protect consumers from unfair trade practices, enabling effective
action against such practices. Consequently, claims regarding false advertisements, deceptive
representations of goods, and false guarantees were brought under the Act's purview.
 1991 Amendment – This amendment expanded the scope of the MRTP Act to include public sector and
government-owned companies. Following this change, private entities operating in the market were no
longer required to obtain special approvals or permissions from the government for corporate restructuring.
This amendment was implemented in light of the New Economic Policy, which opened up the Indian
economy and effectively abolished the License Raj that had previously restricted economic growth.
Role of Economics in Competition Law

Competition Law is a branch of economics that focuses on studying markets with the aim of ensuring
competition among suppliers. Its primary objective is to ensure that this competition benefits
consumers, contributing to economic growth and development. On a daily basis, competition law
identifies markets and assesses whether competition within them is fair and just. It also evaluates how
the actions of companies impact both competitors and consumers, addressing key economic issues.

Economists play a crucial role in studying markets, particularly in how goods and services are
allocated to consumers. They monitor supply and demand to maintain market equilibrium and are
interested in consumer behavior in various situations, such as when there are more or fewer
competitors, when companies merge, or when firms leave the market. Additionally, economists
observe how firms react to such changes. Their analysis provides valuable insights into these
dynamics, helping to clarify market operations and guide decisions on regulating markets through fair
Economics is an essential tool for assessing market power and determining the relevant
boundaries within which competitors operate, a task that competition authorities must
undertake. It is vital for legal practitioners to have a deep understanding of economic
issues, market structures, and firm behavior.

The key roles of economics in competition law are as follows:

 It offers critical insights into market structures, business practices, and incentives, as
well as the adverse effects of certain business practices on the economy.
 Economists may not always agree on whether a specific business practice affects
market competition.
 Applying economic analysis to competition law enhances transparency, precision, and
Background of Competition Law
 The principal legislation in India addressing competition was the Monopolies and
Restrictive Trade Practices Act (MRTP Act), 1969. It was passed by the Parliament on
December 18, 1969, and came into effect on June 1, 1970. The Act was recommended by
the Dutt Committee and applied to the whole of India, except Jammu and Kashmir.
Significant amendments were made to the Act in 1982, 1984, 1985, and 1991. In 1999, the
Government of India appointed a committee on competition policy and law, chaired by
Shri S.V.S. Raghavan.
 In 2000, this committee submitted its report, and based on its recommendations, the
Competition Act, 2002 was formulated and passed. The Competition Act applies to the
Objectives of the MRTP Act, 1969

The key objectives of the MRTP Act, 1969, were:

Prevention of Concentration of Economic Power – To prevent monopolies that
may harm the common good.
Control of Monopolistic, Restrictive, and Unfair Trade Practices – To regulate
practices detrimental to public interest.
MRTP Commission

As per the provisions of the MRTP Act, the Government of India established the MRTP
Commission. This commission was given the authority to investigate restrictive, monopolistic, and
unfair trade practices. The MRTP Act empowered the central government to control such
prohibitive activities. While the MRTP Act served as the legal framework, the MRTP Commission
functioned as its enforcement agency.

Provisions of the MRTP Act

The MRTP Act regulated three types of prohibited trade practices:

1. Monopolistic Trade Practices (MTP)

2. Unfair Trade Practices (UTP)

1) Monopolistic Trade Practices

Monopolistic trade practices refer to any activity that involves the misuse of market power to control
the production and sale of goods or services. The objective of such practices is to eliminate
competition, exploit monopoly, and charge excessively high prices. These practices can deteriorate
product quality, limit technical development, and obstruct competition and fair trade.

2) Unfair Trade Practices

Unfair trade practices are distinct from monopolistic trade practices. They involve the false
representation and misleading advertising of goods and services. This includes:
Falsely presenting second-hand goods as new.

Misleading claims about the usefulness, quality, standard, or style of goods and services.

3) Restrictive Trade Practices

Restrictive trade practices refer to actions that limit or reduce competition in the market.
Objectives of the Competition Act, 2000

The objectives of the Competition Act, 2000, are as follows:

Promote healthy competition in the market.

Prevent practices that negatively impact competition.

Protect the interests of stakeholders in a fair manner.

Ensure freedom of trade in Indian markets.

Prevent abuse of dominant market positions.

Regulate the operations and activities of combinations (mergers, acquisitions, etc.).

Create awareness and provide training about the Competition Act.

Competition Commission of India

The Competition Act imposes restrictions on anti-competitive agreements, prohibits the abuse of
dominant positions, and regulates business combinations. The Competition Commission of India
(CCI) was established on October 14, 2003, to enforce the Competition Act.

Differences Between MRTP Act and Competition Act

1) Nature: The MRTP Act was India’s first competition law, aimed at addressing unfair trade
practices, while the Competition Act focuses on promoting and maintaining competition.

2) Approach: The MRTP Act had a reformatory approach, while the Competition Act is more
punitive.

3) Dominance Criteria: In the MRTP Act, dominance was determined by the size of the firm,
while under the Competition Act, it is determined by sales penetration.
4) Focus: The MRTP Act prioritized consumer interests, whereas the Competition
Act focuses on public welfare.

5) Offenses: The MRTP Act recognized 14 offenses against natural justice, whereas
the Competition Act identifies 4 offenses.

6) Penalties: There were no penalties for offenses under the MRTP Act, whereas the
Competition Act imposes penalties for violations.
 1.Subimal Dutt Committee

The Subimal Dutt Committee was appointed to examine the institutional design and operational patterns
of various business houses. In its report, the committee found that 73 business houses were controlling
approximately 56% of the economy, leading to its recommendation for the introduction of the MRTP Bill.

2. Raghavan Committee Report, 1999

The Raghavan Committee was established to propose changes to the Competition Policy in India. It
made the following recommendations:
 Establish the Competition Commission of India (CCI) and dissolve the Monopolies and Restrictive
Trade Practices Commission (MRTPC).
 Include government monopolies and foreign companies under the purview of Competition Law.

 Set new limits and rules governing mergers, predatory pricing, and abuse of dominance.

 Transfer all pending MRTPC cases to the CCI.

Enactment of Competition Law, 2002

The Competition Law, 2002 was announced by the then Finance Minister of India in his
budget speech in 1999. This new law addressed the major loopholes present in the old
MRTP Act and primarily focuses on the following aspects:
Anti-Competition Agreements

Abuse of Dominance

Regulation of Combinations

Competition Advocacy

The new Act also established a quasi-judicial body known as the Competition
Commission of India (CCI) for the registration of complaints, as well as a Competition
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