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Efficiency is associated with competition
March, 08th 2007

The Government seems to be in no hurry to make operational the Competition Act, 2002, but a new book on the subject is optimistic the powers that be will get their Act together `within a short period'. The law that we have on statute books is a sophisticated one, writes Vinod Dhall, the editor of Competition Law Today, from Oxford (www.oup.com).

Why then is the delay? Perhaps, because "years of government controls and protective regimes have left India with a weak competition culture." And there are enemies: "There are still sceptics about the need for a competition law seeing it as an unnecessary intervention in the markets," as the preface notes. In the absence of an effective law to govern `anti-competitive agreements, abuse of dominance, and merger regulation,' we may have to only make-do with pleas by Ministers to manufacturers to hold the price-line.

"As the role of the market expands, the role of the state also undergoes a change," writes C. Rangarajan, in his foreword. "As the state reduces its role in the production of marketable goods and services and yields to the market, its role as a regulator and facilitator gets enhanced." The state has to maintain competitive conditions in the market, he insists. Because, "Efficiency is associated with competition and the markets can fulfil their functions efficiently only if they remain competitive. Legislation is, therefore, required to prevent the degeneration of the markets to a monopolistic or a near-monopolistic situation."

There are more than a hundred different systems of competition law in the five continents, informs Fali S. Nariman in his essay on law and economics. "Activities that were once regarded as state monopolies - telecommunications, energy, transport, broadcasting, postal services, and the like - have now become the subject of scrutiny and regulation under competition law." Competition law is the handmaiden of modern economics, describes Nariman. "Economics motivates laws which in turn drive the economy; the bundle of laws that reflect societal values is now known as `sociological jurisprudence'."

Part I of the book is on substantive provisions and major issues, such as mergers and IPR (intellectual property rights). In Part II, are chapters on the competition law in Australia, Germany, Mexico, South Africa, Korea, the UK and the US.

The word `competition' in competition law is a misnomer, says an essay titled `The economics of competition law'. Reason: The law deals `not so much with competition but its complement, namely the lack of competition'. What is needed is an enabling policy that makes it easier for firms to develop markets, argue the authors. Instead of restricting incumbents, such a policy will `encourage entrants to challenge the incumbents, cut into the incumbent's profit, forcing it to reduce prices'. The competition authority, for its part, `should allow for free contracting between parties' and, as a watchdog, collect information and analyse it `to determine whether there is any anti-competitive behaviour by firms'.

A book that merits an urgent read, without waiting for the Act to emerge from the freezer.

 
 
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