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Studied silence on monopoly
October, 04th 2007

The Competition Act, 2002, which is at last all set to take off, with procedural glitches that were holding it back having been satisfactorily addressed, studiously avoids mention of the word monopoly.

The earlier law that it has replaced, the MRTP Act, 1969, in contrast, trained its guns on monopoly so much so that people came to call it by the facile name Monopolies Act, ignoring the remaining three letters of its abbreviated name. < /p>

It seems that realisation of the futility of pursuing something that is bound to rear its head for the nonce every time a breakthrough technology or product is thrown up by the scientific world, is the un-stated truth behind this omission.

Not a dirty word

The prospects of monopoly profits, albeit for a limited period, are what drives innovation. Snuff that out and the scientific world, spearheaded by commerce, would lose its verve and quest for progress. In the commercial world, where distinction is acquired by cutting edge technology, monopoly is not a dirty word.

In any case, patents or no patents, competition has the knack of catching up sooner than later and it need not be propped up by fiat or statute. The implicit acknowledgement of this by our lawmakers augurs well for the country.

This does not mean that the commercial world should be left unregulated. There is a concomitant realisation that more than the monopoly, it is the abuse of monopoly that needs to be fought and checked. The Competition Act does precisely that. It frowns on anti-competitive agreements and, in fact, makes a fairly comprehensive catalogue of possible abuses that have become commonplace.

Considerable leeway has been given to some of the practices, such as tie-in arrangements and exclusive distribution agreements, so as not to frustrate innovative marketing initiatives so long as they do not degenerate into practices stifling competition.

Display of sagacity

The Competition Act displays enormous sagacity in acknowledging critical mass and thus does not put impediments in the way of M&A. By making pre-combination approval optional but at the same time reserving the right to investigate into the deleterious effects of M&A, the Act strikes a fine balance between business freedom and public interest.

One, however, cannot help feeling that the absolute amounts (expressed in rupees and dollars by Section 5) prescribed in this regard giving rise to presumption of the possible danger of incipient concentration of economic power may not be true indicators of the danger ahead.

Instead, market share should have been the sole criterion. The MRTP Act countenanced 25 per cent market share. In other words, as a rule of thumb, a minimum of four players in a product or service category each with not more than 25 per cent share was considered safe enough.

The philosophy underpinning the Competition Act and the Supreme Courts hands-off policy, enunciated way back in the early 1990s when it pragmatically promised to cross the bridge when it came to it, alas, have a rare unison.

S. Murlidharan
(The author is a Delhi-based chartered accountant.)
 
 
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