Competition laws

Competition laws or more famously known as the anti trust laws prohibit collusion between market participants for the purpose of protecting competitive markets and protecting consumer rights. These laws aim for the repression of cartels which restrict free trading, prevention of predatory pricing, restriction of practices such as refusal to deal with certain business entities and supervision of mergers and acquisitions to monitor for transparency. The rationale behind anti trust legislation is that though it curbs a monopoly house’s freedom, it also curbs sufficiently the monopoly house’s freedom to curb the consumer’s freedom.

In the early part of 20th century the large American corporations used trusts to conceal the nature of their businesses. Big trusts became synonymous with monopolies and were perceived to be a threat to democracy and free market mechanism. This initiated an aggressive anti trust campaign. After the World War 2 , this legislation was introduced in Europe and certain other countries like Japan. Whereas American law emphasizes strict competition, European laws emphasize competition with inter firm collaboration.

The anti trust laws are not without its critics. Under some schools of thoughts, many economists argue that it is unnecessary since competition is a long term dynamic process. Certain firms due to their efficient and innovative practices may acquire market dominance but when they decide to manipulate prices taking advantage of their monopoly position, it offers opportunity for other firms to compete, thus gradually leading to the erosion of the monopoly.

Shifting our focus to India, there used to be a Monopoly and Restrictive Trades Practices Act, 1969 (MRTP) to curb practices which violate the conditions for free market practices. But with the Indian economy in all kinds of restrictive shackles and government monopoly it was never regarded as a serious law. But after the economic reforms a new competition law was introduced in the year 2002, though it will still take some time to come into full practice.

Though the anti trust legislation is important for the functioning of free market mechanism, it is essential that that the focus of these laws should be on the protection of consumer welfare and competition rather than the competitors. It has often been observed that stringent anti trust practices lead to social and political aims that undermine economic efficiency.