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Competition- What?
A situation in a market, in which sellers independently strive for buyers patronage to achieve business objectives such as profits, sales or market share. It is the foundation of an efficiently working market system.
Competition- Why?
The ultimate objective of competition is to secure the interest of the Consumer - it empowers the consumer, best guarantee for consumer protection. It is a means of reducing cost and improving quality. It also implies an open market where shortages are rapidly eliminated through the best allocation of resources. It accelerates growth and development; preserves economic and political democracy.
Benefits of Competition
Companies : Efficiency, cost-saving operations, better utilization of resources, etc.
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Entry barriers can be due to the market position of incumbent firms, legal barriers or strategic barriers Incumbent firms may use their power as first Movers to block entry. Legal barriers include licensing and other Government regulations Strategic barriers are generally erected by incumbent firms in the form of artificial and sudden price reduction with a view to thwarting new entry. Monopoly (market) power tends to lead to inefficient allocation of sources and discourages innovation or introduction of better technology.
There are two elements of competition policy. First, a set of competition enhancing policies, such as liberalised trade policy, relaxed FDI policy, de-regulation, etc. Second, competition law to prevent anti-competitive practices with minimal government intervention. Competition law also prevents artificial entry barriers, facilitates market access and compliments other competition promoting activities.
According to the Competition Act, for any multinational companies ("MNCs") operating in India,
the Competition Commission of India ("CCI"), will be empowered to scrutinize all mergers, acquisitions and joint venture activity in India where the asset value of the parties involved is more than Rs. 1,000 crore within India or $500 million globally, OR turnover is greater than Rs. 3,000 crore within India or $1,500 million globally.
Adverse effect on competition means Any agreement entered into that Contains presumption against agreements which indirectly or directly determine purchase or sale prices; control production, supply, markets, technical development, investment or provision of services; Shares the market or sources of production either by geographical allocation or types of goods or services or market shares; or which either directly or indirectly result in bid rigging or collusive bidding.
Bid rigging: any activity which has the effect of eliminating or reducing competition forbids or adversely affecting or manipulating the process for bidding. Cartel: by agreement amongst themselves , limit , control or attempt to control the production, distribution, sale or price of, or trade in goods or provision of services.
An agreement which causes or is likely to cause an appreciable adverse effect on competition includes:
Tie-in arrangement: requiring the purchaser of the goods , as a condition of such purchase, to purchase some other goods Exclusive supply agreement: restricting the purchaser from acquiring any goods other than those of the seller Exclusive distribution agreement: limit or allocate any market or area Refusal to deal: restrict to whom goods are sold or bought Resale price maintenance: resale prices stipulated by the seller
limiting or restricting
the production of goods or provision of services or market therefor; or limiting technical or scientific development relating to goods or services to the prejudice of consumers;
indulging in practice or practices resulting in the denial of market access; making conclusion of contracts subject to acceptance by other parties of supplementary obligations which have no connection with the subject of such contracts; utilisation of a dominant position in one market to enter into, or protect, another market.
Regulation of Combinations
Prohibits and voids any "combination" which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India. Combination means
The acquisition of one or more enterprises by one or more persons or Merger or amalgamation of enterprises, If certain conditions are fulfilled
Acquisition of control, shares, voting rights or assets Acquisition of control over production, distribution or trading Merger or Amalgamation
The following thresholds apply for determining whether a merger or acquisition becomes a "combination" subject to scrutiny:
enterprises with operations in India: Rs. 1,000 crore asset value or Rs. 3,000 crore turnover; enterprises with global operations: $500 million asset value or $1,500 million turnover; groups of companies with operations in India: Rs. 4,000 crore or Rs. 12,000 crore turnover; groups of companies with global operations: $2 billion asset value or $6 billion turnover.
Regulation of Combinations
No person or enterprise shall enter into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and such a combination shall be void. Exemption: Any person or enterprise , who proposes to enter into combination may give notice to the Competition Commission of India and the fee which may be determined by regulations, disclosing the details of the proposed combination within 7 days of
approval of the proposal relating to merger or amalgamation by Board of Directors of enterprises execution of any agreement or other document for acquisition
Penalty of making false statements or omission to furnish material information If any person, being a party to a combination Makes a statement which is false in any material particular, or knowing it to be false, or Omits to state any material particular knowing to be material He shall be liable to a penalty which shall not be less than Rs. 50,00,000 but which may extend to Rs. 1,00,00,000 as may be determined by the commission
To eliminate practices having adverse effect on competition To promote and sustain competition To protect interests of consumers Ensure freedom of trade carried by other participants, in markets in India
References
http://www.cci.gov.in/ http://economictimes.indiatimes.com/