Competition Law
Competition Law
Competition Law
INTRODUCTION
A growing number of countries since the 1990s have undertaken major reforms aimed at the
breaking down of monopoly structures in infrastructure and financial markets. These reforms
have particularly focused on the liberalization, privatization and deregulation of
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Harmonizing Regulatory Conflicts- CUTS International
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telecommunications, electricity, natural gas, transportation, and financial service industries and
the introduction of an economy-wide competition regime aimed at curtailing anticompetitive
practices and abuse of market power. The reforms have brought in private players at multiple
levels and issues of regulatory overlap need more attention than ever.
2
Source OECD(1999)
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Warrick Smith and David Gray, “ Regulatory institution for Utilities and Competition, International experience”
unpublished, world bank paper, p-27(1988)
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Monopoly Pricing: some competition regimes include rules, which restrict excessive or
unjust prices. Such rules could also conflict with industry specific pricing rules
established under utility sector or industry specific regulation.
Restrictive Business Practices: where we have one vertically integrated monopoly firm
then there are no competitors, hence there is no one with which to enter into agreements
or to behave in a manner that would restrict or lessen competition in the market for
relevant services.
Merger Control: restriction on mergers between utilities and other firms, or restrictions
on reintegration, are often provided for under industry or sector specific regulatory laws.
In the new unbundled environment of infrastructure firms, common ownership for
example of generation firms with transmission or generation with distribution firms is
normally restricted under sector specific regulation.
The liberalization of the Indian economy in 1991 brought with it the need for some changes in
the general regulatory environment. Before the opening up of the economy, economic activity
was mainly dominated by the government and government-owned companies. In addition, most
of the factors that determine the level of competition in the economy, such as entry, price, scale,
Location, etc., were controlled. Telecommunication services were under the control of
Government firms. Oil exploration, drilling, refining and marketing were a government
monopoly, while the same pattern of government dominance was also apparent in other sectors
Such as banking and electricity. This situation did not call for independent regulators as
government was generally believed to be acting in the interest of the public.
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Unlike the socialist hue that pervaded governance till 1991, India increasingly relies upon market
rivalry for allocation as well as distribution of resources7. Also there is a realization that the
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CUTS(2007)
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(MANU/UP/0823/2005)
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[2006 (11) SCALE 208; MANU/SC/4912/2006]
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textbook model of perfect competition does not exist in reality. One of the intervention strategies
to address the market imperfections that may induce welfare-reducing monopolies is that of
competition law and policy.
While new regulatory bodies were being set up to tackle various issues emanating from actual
and anticipated private player behaviour and other structural issues, the same concerns were also
being felt about the competition arena. Prior to the early 1990s liberalization period, India had an
operational competition law in the form of the Monopolies and Restrictive Trade Practices
(MRTP) Act, 1969.
7
The latest step in reliance upon market is freeing up of exploration of oil and gas sector for private players. See for
instance, Raghuvir Srinivasan, “Well of paradoxes”, The Hindu Business Line,
http://www.blonnet.com/bl10/stories/2004012800732300.htm.
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The preamble of Competition Act, 2002 read” An Act to provide keeping in view of the economic development,
for establishment of commission to prevent practices having adverse effect on competition, to prevent practices
having adverse effect on competition in market, to protect the interest of consumer to ensure freedom of trade
carried by other participants.
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Sec.60 of Competition Act, 2002 The provision of this Act shall affect notwithstanding anything inconsistent
therewith contained in any other law for time being in force.
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Sec.62 of Competition Act, 2002 reads: The provision of the Act shall be in addition to, not in derogation of the
provision of any other law for time being in force.
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Sec.2(w) read: define Statutory authority – “any authority, board, corporation, council, institute, university or by
other body corporate, established by or under any central, state or provincial Act for the purposes of regulating
production or supply of goods or provision of any services or market therefore or any matter connected therewith or
incidental thereto.
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Sec.21(1) States:- where in the course of proceeding before any statutory authority and issue to raised by any
party that any decision which such authority has taken or pr4oposes to take is or would be contrary to any of the
provision of this Act/ then such statutory authority may make a reference in respect of such issue to the commission
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upon the statutory authority13. The competition authority is bound to deliver its opinion to the
statutory authority within a stipulated time period of two months.
The essence of the interface between competition authority and sector specific regulators in India
lies on the four limbs of sections 18, 21, 60 and 62 of the Competition Act, 2002. Competition
authority could have potential interface with the jurisdiction of sector-specific regulators viz.
Telecom Regulatory Authority of India (TRAI), Central Electricity Regulatory Commission
(CERC), and Petroleum and Natural Gas Regulatory Board (PNGRB). The Competition
authority unites the power of private enforcement with the claim of damages and hence can
ensure healthy consumer welfare.
The objective of a sector regulator is to provide good quality service at affordable rates, but
the promotion of competition and prevention of anticompetitive behaviour may not be high on its
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Sec.21(2) On receipt of reference under sub section(1), the commission shall, after hearing the parties to the
proceeding, give its opinion to such statutory authority which shall thereafter pass such order on the issue referred to
in that sub-section on it deem fit.
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agenda or the laws governing the regulator may be silent on this aspect. It is not uncommon for
sector regulators to be more closely aligned with the interest of the firms being regulated, which
is also known as “regulatory capture”. Besides, a sector regulator may not have an overall view
of the economy as a whole and may tend to apply yardsticks which are different from the ones
used by the other sector regulators. In other words, there is a possibility of the lack of
consistency across sector.
The difference in the approach of Sector Specific Authority and Competition Authority
Sector Specific Authority Competition Authority
Tells businesses “what to do” and “how to Tells businesses “what not to do”
price products”
Focuses upon specific sectors of the Focuses upon the entire economy and
economy functioning of the market
Ex ante – addresses behavioral issues before Ex post – addresses behavioral issues after
problem arises. problem arises.
Focus upon orderly development of a sector Focus upon consumer welfare and unfair
that would presumably trickle down in a transfer of wealth from consumers to firms
sector ensuring consumer welfare. with market power.
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COMPLEMENTARY RELATIONSHIP:
The competition law cannot fully deliver all its benefits and there is a need to monitor the
behavior of the incumbent operator. There is a need to define and control the access price to the
facility to allow market entry. Furthermore, it is sometimes argued that monitoring the timing of
entry in the industry is also an important factor to ensure that entrants do not fail during the first
years following their entry. Thus it is argued that there is a specific need to monitor the sector.
This type of regulation is generally not inconsistent with competition law. The enforcement of
competition law may help ensure that the incumbent does not abuse its market power by
engaging in anticompetitive strategies (such as predatory pricing or cross subsidization) when
providing the services open to competition. The Canada illustrates the potential complementarity
between sector regulations in sectors newly opened to competition and general competition law
by stating:
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REPORT TO THE THIRD ICN ANNUAL CONFERENCE
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“The purpose of Canadian competition law is to maintain and encourage competition in Canada
in order to promote the efficiency and adaptability of the Canadian economy and achieve other
objectives. Sector regulation in Canada often complements this goal. This has particularly been
the case in network industries such as telecommunications and energy where regulation of
access to monopoly or near monopoly essential facilities has been instrumental in promoting
open and effective competition in related markets. In certain sectors there has been a high
degree of cooperation between sector regulators and Canadian competition authorities in
detecting and preventing competition abuse”
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CONFLICTING RELATIONSHIP
• Regulated Conduct Defence (RCD):- In this Activities that are regulated are not directly
subject to the Competition Act due to the “Regulated Conduct Defence” under Canadian
competition law. The RCD protects conduct which would otherwise be subject to the
Competition Act, if the conduct is specifically authorized by valid provincial or federal
legislation. RCD is an interpretive tool developed by the courts to resolve apparent conflicts
between two different laws. The Bureau’s approach to the RCD is to determine where the
Competition Act and a statutory regulatory regime are in conflict. The RCD applies, and the
Competition Act becomes inoperative where there is clear operational conflict between the
regulatory regime and the Competition Act, such that obedience to the regime means
contravention of the Act. An example of such situation can seen in 1999 when the Fleet
Financial/Bank Boston merger was examined, the DoJ and the FRB staff’s reached different
conclusions on the remedy needed to address competitive concerns and that the FRB did not
require divestitures in a limited number of markets favored by the DoJ.
• Self regulation: - There are cases in which the goal of regulation is to limit (or even eliminate)
competition, possibly because of a perceived market failure. In France, lawyers, architects,
public notaries, doctors and surveyors have legally binding self-regulations enforced by their
respective professional associations. These self regulations limit competition by restricting
entry, freedom of establishment, advertising and, in certain cases, price competition. The official
justification for these restrictions on competition is usually that consumers would be unable to
exercise their choice because of lack of information, all the more so that consulting such
professionals is usually not an often repeated experience, and therefore consumers need to be
protected against unfair practices.
These type of relationship are seen in the European Union, Mexico, Norway, Sweden, the United
Kingdom and the United States.
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RESOLUTION OF CONFLICT
Resolving or Managing the Problem
International experience shows that the interaction between sector and competition regulators
can be managed through institutional approaches. Primacy can be given either to sectoral
regulatory law or to competition law. Another approach could be a concurrent one, where both
competition law and industry or sector regulation law possess equal jurisdiction, through
consultative approach.
Within the three institutional models (sector regulation, competition law, concurrent) there are
five approaches in practice governing the regulatory interface:
1. There is no economic regulation in one or more sectors; instead the competition agency
applies general competition rules to accomplish some or the entire objective commonly
associated with economic regulation. In the initial case New Zealand used the
competition agency as the Utility Regulator. General Legislation, i.e. the Competition
Act states that practices which lesson competition or abuse of dominant position is
prohibited. New Zealand has no separate sector legislation.
2. Sector or industry regulators are given primacy to deal with competition issues in the
regulated industry. They are the principal enforcers of competition laws, if any, applying
to their sectors.
3. The economy wide competition law enforced through the competition authorities takes
primacy over industry or sector regulatory law. Competition agencies are also the
principal economic regulators.
4. Sector or industry regulators and competition authorities are given concurrent jurisdiction
to enforce competition rules in the regulated sectors.
5. A general mandate driven division of labour, i.e. competition laws are exclusively
applied by the competition agencies and regulation exclusively by technical and
economic regulators.
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INTERNATIONAL EXPERIENCE
A look at international experiences would reveal that countries have adopted different
strategies to try and deal with the issue of overlaps between competition authorities and sector
regulators. Some have opted for an exclusive jurisdiction approach, where the legislative
provisions make it clear that either the competition authority or the sector regulator has
jurisdiction and not both. However, the overlaps between the regulated issues might pose some
challenges in the implementation of such an exclusive jurisdiction framework. Merger regulation
by the competition authority, for example, may warrant structural remedies, thereby encroaching
on the functions of sector regulators. The standards imposed by sector regulators may also result
in exclusive licensing and marketing, which holders can easily abuse, which a competition
authority may see some reason in challenging. It can also be established that some countries have
opted for a concurrent jurisdiction approach, having noted problems brought about by an
exclusive jurisdiction approach.
1. CONCURRENT JURISDICTION
Concurrent jurisdiction would give both competition authorities and sector regulators mandates,
with the success of such an approach being hinged on the establishment of a working framework
between the two regulators to harness their respective expertise.
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This thus implies that the regulators are free to decide whether to use the Competition Act
powers against anticompetitive behaviour or to enforce the sector specific provisions. Necessary
provisions were also put under the Competition Act to accommodate concurrent powers of sector
regulators. Under Sections 54 and Schedule 10 of the Act, the necessary tools for the competition
authority to engage the sector regulators are provided. In addition, the Competition Act
(Concurrency) Regulation 2004 gives guidelines on how concurrency can be determined. Among
the issues covered by the guidelines are the following:
The sector regulators and OFT are both classified as ‘competent persons’ to handle
competition issues.
The sector regulators and OFT have to decide which is more competent to handle a
matter once it arises, using procedure that is outlined under the regulation.
OFT and the regulators are obliged to circulate information which would be used for the
purposes of determining which of them is more competent to handle the case.
The procedure that has to be followed if agreements are not being reached among the
parties is also provided for15.
In the event of a dispute on jurisdiction, the matter will be referred to the Secretary of State for
arbitration.
SOUTH AFRICA
South Africa can be regarded as a country which has embraced both the concurrent jurisdiction
approach as well as the cooperation approach. Section 82 of the Competition Act, 1998, outlines
the basis upon which the Competition Commission can seek cooperation with sector regulators.
In addition to that, Section 3 (3) of the Act provides that, in sectors subject to the jurisdiction of
another regulator, the Competition Act, together with the other legislation, must be construed as
establishing concurrent jurisdiction in regulating conducts. The sector regulator is given room to
exercise primary authority to establish conditions within the industry that it regulates, while the
Competition Commission is also given primary authority to review mergers and to detect and
investigate alleged prohibited practices within that sector. The Section also provides for an
agreement between the Competition Commission and the sector regulator to be reached, spelling
out the administrative manner in which the concurrent jurisdiction would be managed. In pursuit
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The Competition Act 1998 (Concurrency) Regulations 2004.
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of this, the Competition Commission has signed some memoranda of understanding with some
sector regulators including those in the energy, postal services and communications sectors.
Singapore
The basis for cooperation between the Competition Commission of Singapore (CCS) and sector
regulators on competition matters is outlined under Section 87 of the Competition Act, 2004, of
Singapore. The Section provides that CCS may enter into cooperation agreements with any
regulatory authority for the purposes of facilitating co-operation between the Commission and
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the regulatory authority in the performance of their respective functions in so far as they relate to
issues of competition between undertakings. The identified rationale was to avoid duplication of
activities by the Commission and the regulatory authority in pursuing their mandate, particularly
in the determination of the effects on competition of any act done or proposed to be done, so as
to ensure consistency between decisions and steps taken by the Commission and the regulatory
authority.
In 2005, the Info-communications Development Authority of Singapore (IDA), the
telecommunications regulator in Singapore, came up with its ‘Code of Practice for Competition
in the Provision of Telecommunications Services in Singapore’. The Code outlines cooperation
guidelines on how IDA will handle a range of competition matters, including issues of
dominance and its abuse which also fall under the mandate of CCS. Under its ‘Guidelines on the
Major Provisions’, CCS undertakes that, on cross-sector competition cases, it would work out
with the relevant sector regulator on which regulator is best placed to handle the case in
accordance with the legal powers given to each regulator to prevent double jeopardy and
minimize regulatory burden in dealing with the case.
INDIA
In India this type of approach is provided under Competition Act,2002 are:-
Sec.21 Reference by Statutory: - 1. Where in the course of a proceeding before any statutory
authority an issue is raised by any party that any decision which such statutory authority has
taken or proposes to take, is or would be, contrary to any of the provision of this Act, then such
statuary authority may make a reference in respect of such issue to the commission.
Sec.21A Reference by Commission: - Where in the course of a proceeding before the
commission an issue is raised by an party that any decision which the commission has taken
during such proceeding or proposes to take, is or would contrary to any provision of this Act
whose implementation is entrusted to a statutory authority, then the commission may make a
reference in respect of such issue to the statutory authority.
Sec.49 Competition Advocacy: - The Central Government may in Formulating a policy in
competition or any matter and State Government may in formulating a policy on competition
make a reference to the commission for it opinion on possible effect of such policy on
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competition and on receipt of such a reference gives its opinion to the Central Government and
State Government.
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the ambit of the sector regulator under Section 60 of the Electricity Act. We have already seen
how the statutory application has varied in interpretation.
On the other hand, a good statutory application of this principle can be witnessed in the Airport
Economic Regulatory Authority (AERA) Act which has not discriminated between the
Consumer Protection Act and the Competition Act in granting exemptions from the purview of
the jurisdiction of the AERA Act.
Drawing inspiration from countries such as South Africa and Brazil, India needs to make
attempts at attacking the roots of the overlap conflict problem by addressing the existing
legislative ambiguities.
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consultations are not binding. The Ministry of Corporate Affairs recently set up a committee last
year to draft a National Competition Policy for India and allied matters.16
Accordingly, in the proposal for amendments in the Competition Act, 2002 the word “may” in
Section 21 of the Act which reads in part: any statutory authority may make a reference to the
CCI is to be substituted with the word “shall” thus making such consultation mandatory.
However, the proposed amendments to the Act and the Policy are yet to be adopted..
There are three broad options available for dividing the task:
(a) The sector regulator supplants the competition authority,
(b) the competition authority replaces the sector regulator, and
(c) The competition authority and sector regulator coexist. After considering the pros and cons
of options (a) and (b), this section posits that, though sector regulators may coexist with the
competition authority in India, the Commission ought to trump sector-specific regulators.
A. Sector Regulators Supplant the Competition Commission
The notion that a sector-specific regulator ought to take primacy over a competition authority
appears very attractive at first blush. The sector specific regulator is closest to the sector and
would naturally be a repository of pertinent information available within that sector. In other
words, it would be more in tune with the needs of the businesses within its sector.
However, when the institutional setup grants a sector-specific regulator jurisdiction over both
sector regulation and competition matters arising within the sector, conflicts may arise between
the objective of protecting competition and other goals such as, for instance, the orderly
development of a specific market. Additionally, sector regulators may shy away from enforcing
competition law in order to reduce the potential for any conflict with regulated entities.
B. The Competition Commission Replaces Sector Regulators
Another option is to make the Commission responsible for both sector specific regulation as well
as overarching competition enforcement. This approach is advantageous, as it reduces the
multiplicity of regulators and accumulates sector expertise. Indeed, Australia has used this
approach to create an economy-wide economic regulator that integrates technical and
competition regulation. However, experts have expressed their concern that this scheme may
lead to a complex bureaucratic structure. There is also a lingering danger that the regulator may
prefer using direct regulatory power over indirect competition enforcement powers.
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www.mca.gov.in/Ministry/pdf/Revised_Draft_National_Competition_Policy_2011_17nov2011.pdf
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CONCLUSION
There is a requirement is to create a system to ensure cooperation between CCI and other sector
regulators. Both CCI and sector regulator have their areas of expertise and both cannot replace
each other. It may also be noted that the objectives of CCI and sector regulators are
complementary. While sectoral regulators have socio economic benefits as their objective, CCI’s
objectives are to promote and sustain competition in the market in order to protect the interest of
the consumer.
Cooperation will make sure that the activities of the regulators is well coordinated, thereby
ensuring best use of their respective resources. It may also happen that conflicts may arise due to
different prioritization of their respective goals by the CCI and sector regulators. Even the
different method used for the resolution of the same problem may cause conflict.
Conflict can be sorted out through consultation. It is for this reason that Competition Act
provides for consultation between CCI and other statutory authorities i.e. sector regulators here,
by way of reference. Government may also consider creating ‘regulator’s forum’ (as has been
done in some other countries for example Australia) which would allow CCI and sector
Authorities to work in close cooperation and coordinate their action. This would also allow the
regulators to achieve policy coherence while simultaneously getting sensitized to competition
law.
It cannot be denied that there is a requirement of competition in all the industries in order to
improve on their efficiencies and benefit the consumer. Temporary exceptions for certain sectors
may be acceptable because certain sector in India may not be ready to face open competition.
Therefore, a formal mechanism for coordination between CCI and the sectoral regulators is of
key importance.
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