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Competition Law – A Legislative Instrument to Boost Economy & Safeguard Consumer Welfare?

by Pushkaraj Ghorpade
Competition Law – A Legislative Instrument to Boost Economy & Safeguard Consumer Welfare by Pushkaraj Ghorpade

Introduction

With the advent of liberalization and globalization, the markets have been extending at a faster pace and witnessing a higher degree of competition in the markets which also implies that the risks of the introduction of malpractices in the economy are also on the increase which results in a competition which is not healthy.

Competition in a market means that all the suppliers are competing with each other to lure the maximum customers to buy their products or services and retain them in greater ratios than their competitors.[1] Competition in an economy is also essential so that the quality of the products improves, the range of products diversify giving the people more choices, curbing the growth of monopolies, anti-competitive practices, and other unfair trade practices which results in ensuring the welfare of the people. An economy needs to counteract all the unfair practices by formulating laws and policies in every sphere.

One such legislation would be in the field of competition which could ensure that no unfair competition thrives in the economy. The legislation and policies formulated for the regulation of the competitive practices within an economy work to build a strong market free from any irregularities in the market along with making a strong market structure beneficial to the customers also.[2] This established the fact there is a close relationship between the competition law and the growth of the national economy and also between the competition law and the welfare of the customers.

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Competition Law And The Welfare Of The Consumers

The term consumer welfare does not have a strict definition; it is a wide and subjective concept. However, to form the basis of the concept, it is linked with the price offered to them, quality of the products offered, and also the range of choice which are made available to them. The policies made to regulate the competitive practices in the economy tend to make the market more consumer-friendly by providing measures for the enforcement of this law and promoting its advocacy.[3]

The practices which lead to excessively high rates of the products accompanied with inferior quality and little diversification is a means to exploit the customers by demanding huge amount of money for the products which do not deserve that but through the laws on competition, such anti-competitive activities are checked. This brings in the scope of healthy competition which implies that more entries of genuine business units can regulate the prices of the goods, improve in their quality, bring innovative products which would help the units to survive in the market by attracting the customers and securing a market share. All these aids towards ensuring the welfare of the customers. The legislation often entails the provisions related to the enforcement of the law which is done through the provision of remedies in case there exists any practice which can endanger the competitive environment in the market.

The competition law makes the establishment and growth of a free market for proper “allocation of resources” which are of economic nature, which eventually helps the customers to have a better position concerning the business units. The customers benefit from this legislation because it aims to augment and intensify the competition in the markets which leads to a higher degree of free communication by the businesses to the customers to make them aware of the features of their products and increasing the availability of the products to retain more and more customers to thrive against their competitors.

The policies also liberalize the practices of business including the entry of new firms but restrict the activities which tend to put the customers in a prejudicial position that could harm their interests. The protection of the customers is done through an indirect method rather than doing it directly as done by the consumer protection laws. It is through the regulation of the business units and the competition, that the customers are benefitted because it is the consumers for whom the units are established.[4]

Welfare Of The Customers In India Vis-A-Vis Competition Law

The competition act, 2002 was enacted to ensure the fair play of businesses in the market through the development of healthy competition. This statute focused on the prohibition of practices that were anti-competitive and which abused their position because of dominancy. It also provided for the regulation of “mergers, acquisitions, and amalgamations”. The legislature intended to promote the welfare of consumers by applying the provisions of this statute.[5]

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The Indian Judiciary has always interpreted this act to have its main objective, the welfare of the customers. In Competition Commission of India v. SAIL[6], it was held that this act was meant for providing a better market that responds to the preferences of the consumers with due care and no exploitation. Therefore, every consumer has the right to indulge in a market where there exists a “free and fair” competition.

In the case of Ashoka Smokeless Coal Ind. P. Ltd. v. Union of India[7], the Apex court of India realized the role of the state in providing a free and open economy where the competition is fairly regulated. The market must be such that there are ample producers who can provide the customers with a variety of choices at affordable prices which saves them from exploitation. The court analyzed this to be an obligation of the government to make them inclusive in the policies and laws related to competition.

The preamble to the Competition Act, 2002 also describes the “protection of the interests of the consumers” and prohibition of all the activities which hamper the competition in the market as some of the goals of this enactment. For the purpose to enforce this, a commission has to be set up according to this statute. Under section 18 of the Competition Act, 2002. the commission has been given the responsibility to protect and ensure the well-being of the consumers which could be done by regulating the prices of the goods so that the consumers of the goods or services get them at the least possible price and with the best possible quality.[8]

The working of cartels has been prohibited under this legislation as it would harm the interests of the customers. They work by determining the pricing which is set to be as high as possible and also curtailing the supply of the goods and services which ultimately affects the well-being of customers. Consumers being the endpoint in the process of production and sale are considered to be a stakeholder whose interests deserve to be protected which is righteously attempted to be done by the competition commission established under this statute.[9]

Competition Law- The Guardian of Economic Growth.

The economic development of an economy is largely dependent on the competition law policies prevailing in that country. Such legislations have the objective to enhance fair competition in the markets and promoting free markets and prohibiting the practices which are anti-competitive and result in the abuse of the dominant position. This results in the development of efficient markets bringing in efficiency and enhancement in the process of production, thereby resulting in the economic growth of the economy.[10] It is one of the express objectives of the competitive legislature to boost the economic growth of a country by providing the best options of pricing and quality which establishes the fact that there is a directly proportional relationship between the competitive law and economic growth.

Economic growth is ensured by the competitive legislations by regulating and checking on how the business units work within the bounds of fair practices. Not only this, the competition law is responsible for maintaining market structure in economic terms. This structure determines how the industry would operate in the given market condition such as its entry and exit, abilities to expand, and diversifying its business.[11]

Economic growth is directly dependent on innovations in the market which is again dependent on the competitive policies which prevail in the economy. When the policies promote healthy competition, the industries would aim to bring in innovative and new technologies to gather more customer base as compared to their competitors in a situation of fair and healthy competition, which would directly affect the growth of an economy.[12] The need for introducing innovations influences the formulation of research and development departments within the industries which attracts a good amount of investments from the general public, thereby maintaining the flow of money in the capital markets which results in better infrastructure and development of innovations. Innovation is essential as it helps to cut away the unnecessary costs involved in the production and they come up with new products produced at a lower price which have better quality than before to satisfy customers and attract them more than their competitors, which instigates their competitors to also come up with innovations, which results in the economic development of the nation. With increased innovations, the economy tends to benefit on the international level by an increase in the number of exports when there is demand from all around the world. The innovative technologies also tend to encourage the efficient utilization of all the resources of the economy, thereby creating a sustainable economy with maximum profits.[13]

Competition law creates a secure environment for the investors who could feel safe while investing in the businesses when they are aware that the statute regulates the activities in the market.

Economic Growth of India vis-a vis Competition Law

The preamble to the Competition Act, 2002 recognizes economic development as one of the goals of this statute. It promotes competition and free trade within the markets, all of which lead towards economic growth. Section 3 of the act is meant to prohibit anti-competitive practices in the market as they are harmful to economic development. Section 4 makes all the activities of the business unit which can cause the “abuse of dominant position” as prohibited activities and against the objective of competition legislation. The combinations like “mergers, acquisitions, and amalgamations” are also regulated under this act so that they do not indulge in activities that have “appreciable adverse effect” on fair competition as it would directly hamper the economic growth of the nation. Therefore, there are various ways in which competition has to be regulated in the markets so that economic growth can be enhanced. Section 18 also talks about the duty of the competition commission in terms of maintaining fair competition which would lead to a prosperous economy.

In the case of CCI v. SAIL[14], it was held that apart from the protection of consumer welfare, it is also the duty of this legislation that efficiency is built and maintained in the economy which would promote the economic growth of India.

Analysis & Conclusion

It can be concluded that there is a relationship between legislation on competition law and the rate of economic growth and protection of the well-being of the consumers. An analysis of the competition act, 2002 also reveals the fact that the objectives behind this law are to attain both economic development along the welfare of consumers.

The approach which is followed in applying this legislation is usually economic in terms, as it ensures that pricing and quality of the products are the best with which both the objectives can be achieved. In case unfair practices prevail in the economy, the economy will suffer and it cannot flourish. Only the owners of the business would be in profit in such a scenario leaving the consumers at the will of the business units and their exploitative policies. But with the application of this law, such practices can be regulated.

This legislation is backed by an efficient enforcement mechanism through the establishment of the competitive commission which has to regulate the working and structure of the economy.  The enforcement mechanism and the concept of advocacy of competitive environment have led to empowering the consumers by providing them awareness which is done through easy and free communication to them which along with providing them protection.


[1] United Nations conference on trade and development, “The benefit of competition policy for consumers”, 2 (2014), https://unctad.org/system/files/official-document/ciclpd27_en.pdf

[2] Ibid at p.5

[3]Ibid at p.6.

[4] United Nations Conference on Trade and Development, “The role of competition policy in promoting economic development: The appropriate design and effectiveness of competition law and policy”, 7, (2010), https://unctad.org/system/files/official-document/tdrbpconf7d3_en.pdf

[5] Vishwanath Pingali, “Competitive law in India: Perspectives”, 41(2), VIKALPA, 168, 176 (2016) https://journals.sagepub.com/doi/pdf/10.1177/0256090916647222

[6] (2010) 10 SCC 744.

[7] (2007) 2 SCC 640.

[8] Supra 5 at p. 180.

[9] Ibid at p. 181.

[10] Vijay Kumar Singh, “Competition Law and Policy in India: The Journey in a Decade”, 4, NUJS Law Review, 523, 525, (2011).http://nujslawreview.org/wp-content/uploads/2016/12/vijay-kumar-singh.pdf

[11] Cornelius Dube, “Competition Policy and Economic Growth- is there a causal factor?”, Centre for competition, investment and economic regulation, 1 (2008) http://www.cuts-international.org/pdf/CCIER-2-2008.pdf

[12] Ibid at p. 4.

[13] Supra 4 at p. 10.

[14](2010) 10 SCC 744


This article has been written by Pushkaraj Ghorpade, B.A.LLB. student at NMIMS School of Law, Navi Mumbai. It was submitted as an entry to Kanooniyat’s Article Writing Competition.

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