ECONOMIC HIGHLIGHTS    

New Delhi, 13 September 2007

Competition Commission Set Up

PROTECTING CONSUMER INTERESTS

By Dr. Vinod Mehta

(Former Director (Research) ICSSR

Competition, say economists, ensures low prices and quality products to consumers.  But in a market economy there are always dangers that the producers would try to restrict competition overtly or covertly to maximize their profits.

It may take the form of price collusion like the recent decision of cell phone companies to jack up the SMS rates or narrow down the purchase options of consumers by taking over a similar business as is the case of Kingfisher airline acquiring the low fare Air Deccan. By this move the option of low fare tickets is gone for the consumer.

Matured market economies like the American or European are aware of these tactics of the producers and have put in place well set mechanisms to protect the interests of their consumers.  In the USA it is called the Federal Trade Commission (FTC), in the UK it is the Competition Commission and in Australia it is called the Competition and Consumer Commission.

The FTC deals with issues that touch the economic life of every American. It is the only federal agency with both consumer protection and competition jurisdiction in the broad sectors of the economy. The FTC pursues vigorous and effective law enforcement; advances consumers’ interests by sharing its expertise with Federal and State legislatures and U.S. and international government agencies.

It also develops policy and research tools through hearings, workshops, and conferences and creates practical and plain-language educational programmes for consumers and businesses in a global marketplace with constantly changing technologies

The FTC’s Bureau of Competition champions the rights of the American consumers by promoting and protecting free and vigorous competition. The Bureau: reviews mergers and acquisitions, and challenges those that would likely lead to higher prices, fewer choices, or less innovation.

It seeks out and challenges anti-competitive conduct in the marketplace, including monopolization and agreements between competitors; promotes competition in industries where consumer impact is high, like health care, real estate, oil & gas, technology, and consumer goods; provides information, and holds conferences and workshops, for the consumers, businesses and policy makers on competition issues and market analysis.

The Bureau of Competition is also committed to preventing mergers and acquisitions that are likely to reduce competition and lead to higher prices, lower quality goods or services, or less innovation. In most cases, the Bureau receives notice of proposed mergers under the Hart-Scott-Rodino (HSR) Amendments to the Clayton Act.

Bureau lawyers, along with economists from the FTC's Bureau of  Economics, investigate market dynamics to determine if the proposed merger will harm the consumers. When necessary, the FTC may take formal legal action to stop the merger, either in a Federal court or before an FTC administrative law judge.

The Competition Commission in UK is an independent public body, which conducts in-depth inquiries into mergers, markets and the regulation of the major regulated industries. The Competition Commission was established by the Competition Act 1998. It replaced the Monopolies and Mergers Commission on 1 April 1999. 

Like FTC of USA, the Competition Commission of UK also conducts in-depth inquiries into mergers, markets and the regulation of the major regulated industries. Every inquiry is undertaken in response to a reference made to it by another authority: usually by the Office of Fair Trading (OFT) but in certain circumstances the Secretary of State, or by the regulators under sector-specific legislative provisions relating to regulated industries. The Commission, however, has no power to conduct inquiries on its own initiative.

Now with the passing of the Competition (Amendment) Bill, 2007 last week India has also joined the league of matured market economies to protect the interests of the consumers and promote competition in the economy.  (The Competition Act was enacted by the Parliament in 2002 but due to some reservations could not be implemented).  

The new body will be known as the Competition Commission of India (CCI) and will replace the Monopolies and Restrictive Trade Commission (MRTPC) of the license raj era.  While the job of the MRTPC was to stop the emergence of monopolies, the task of the CCI will be to ensure competitive conditions in the market. 

The CCI as an expert body will function as a market regulator to prevent and regulate anti-competitive practices and would have advisory and advocacy functions in its role as a regulator. It will also look into mergers and acquisitions of companies in India.

Mergers and acquisitions of similar businesses are becoming very important.  Before this Amendment was finally passed we have witnessed three important mergers of airlines: one, merger of Air Deccan with Kingfisher, two, of Jet Airways with Sahara and the merger of State owned airlines Air India and Indian Airlines. 

Had the CCI been in place a few months earlier all these mergers would have been first referred to it to see if these were in the best interests of the consumers or whether they would restrict competition and lead to higher airfares which are inimical to the interests of the consumers.  Since these mergers are now a reality the CCI cannot do anything about it.

However, on the positive side many small players at the regional level are waiting in the wings to start their airlines. Which are likely to ensure competition in the airlines business.

That apart, each merger and acquisition may not restrict competition and always harm the consumer interest.  Each case will have to be dealt with separately on its own merit and within the context of the industry concerned. 

For instance, acquisition of an ailing business by a stronger one may actually help the weaker one to get rehabilitated.  This could have been the case with some textile units or public sector units manufacturing drug or photo film which were forced to close down as they were not allowed to be acquired by healthier firms.  Had the acquisition and mergers of these units been allowed as a policy we wouldn’t have been saddled with a large number of sick units today.

But we have to be very careful about the mergers, price collusion  of new businesses such as cell phone companies which are known for restrictive trade practices, covert price collusions etc the world over. As also air lines, drug manufacturers, car manufacturers, fast moving consumer goods and so on. 

The CCI is going to have the onerous task on its hands in the coming years.  How far it will succeed in its task of protecting the interests of the Indian consumers depends largely on developing its expertise in such matters.  

The Competition Commissions the world over have appointed economists, financial analysts and legal experts to help them in nailing down industries which restrict competition and fleece the consumer.  We also have such expertise available in the country and now it all depends upon the Commission to make the right selections and start the work. ---- INFA

(Copyright India News & Feature Alliance)