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Can We Trust The “Antitrust Laws”?

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October 8, 2020

Recently, US tech giant Google has faced a new antitrust case in India for allegedly misusing its position in the smart television market. This comes as the fourth major anti trust case for Google in India after following anti trust challenges in both USA and China. In 2018, Competition Commission of India fined google $ 21 million for search bias. In 2019, the CCI investigated Google for misusing its dominant position to reduce the ability of smartphone manufacturers to choose alternate versions of its Android mobile operating system.

What are Antitrust Laws?

Antitrust law or Competition policy is a collection of laws that regulate the conduct and organization of business corporations and are intended towards promoting competition for the benefit of consumers. Antitrust laws protect competition. Free and open competition benefits the consumers by ensuring lower prices and better products. In a freely competitive market, each competing business tries to attract consumers by slashing its prices and improving the quality of its products or services. Simply, the antitrust law stops businesses from playing dirty in order to make a profit.

Origin of Antitrust Laws

Antitrust laws were originally established to check the abuses threatened or imposed by the powerful “trusts” that emerged in the late 19th Century. These trusts controlled entire nationwide markets for rail transport, steel, petroleum, banking, and related lines of commerce. The antitrust laws were established to ensure that these trusts do not permanently undermine the competition in any markets.

India adopted its first competition law in 1969 and it was called Monopolies and Restrictive Trade Practices Act (MRTP). The Monopolies and Restrictive Trade Practices Bill was introduced in the Parliament in 1967. The MRTP Act, 1969 came into force with effect from, 1 June, 1970. This act underwent amendments in 1974, 1980, 1982, 1984, 1986, 1988 and 1991.

In October 1999, the Government of India constituted a High Level Committee under the Chairmanship of Mr. SVS Raghavan to create a modern competition law for the country in sync with international developments and to seek advice regarding a legislative framework, which could either entail a new law or amendments in the MRTP Act, 1969. On the basis of the recommendations of the Raghavan Committee, a draft competition law was prepared and presented in November 2000 to the Government of India and the Competition Bill was introduced in the Parliament, which referred the Bill to its Standing Committee. After taking consideration of the recommendations of the Standing Committee, the Parliament passed The Competition Act, 2002.

It was amended by the Competition (Amendment) Act, 2007. It follows the philosophy of modern competition laws.
The Act prohibits anti-competitive agreements and deals, abuse of dominant position by companies and regulates activities , which can cause an adverse effect on competition within India.
In accordance with the provisions of the Amendment Act, the Competition Commission of India and the COMPAT (Competition Appellate Tribunal) were established. The government replaced COMPAT with the NCLAT (National Company Law Appellate Tribunal) in 2017.

What went wrong with Antitrust Laws?

  1. Antitrust laws were meant to prevent monopolies and encourage competition. However, since their dawn , history has shown that they do not prevent monopoly, but, in fact, foster it by limiting competition. These regulations permit the government to regulate the business activities, including pricing, production, product lines, and mergers, ostensibly in order to prevent monopolies and stimulate competition. In reality, the government has been the source of monopoly through its grants of legal privilege to special interests in the economy. 
  2. The laws fail to clearly define what constitutes an antitrust violation. Authorities can make them look the way they desire. For example, if a company is charging a high price for the product, they can make it look like monopoly overcharging. If a company charges the same price as their competitors, it can be shown as a case of collusion among competitors. Similarly, if the company charges prices which are lower than the competition, they can be accused of predatory pricing.
  3. The main objective of a company is to earn maximum profits. But, the antitrust law prevents the company from growing beyond a certain point. The competition is restricted by antitrust laws, innovative companies don’t reach the marketplace as now one wants to waste their money in R&D of a product which won’t yield them maximum profit. The end result of antitrust law is that innovation is killed.
  4. Antitrust law is wielded most often by favor‐ seeking businessmen and their allies in the political arena. Instead of focusing on new and better products, rival firms try to exploit the law by consorting with members of the legislature and antitrust officials. 95% of all antitrust cases, for example the 1995 antitrust case against Microsoft, were brought by rival firms rather than the Justice Department itself. Antitrust, therefore, can be used as a weapon by inferior firms to hunt superior competitors who offer better products to consumers.
  5. Consumers don’t have a say in the implementation of antitrust regulations. Consumers need can be best met by a free market but that seems to be snatched away from the consumer the moment the government decides for their interest. The free movement of the economy is now in hands of a few. The problem begins when government thinks it knows about consumer needs better than the consumer.
  6. Antitrust laws prevent organizations from achieving economies of scale as they are an impediment to mergers and acquisitions, which are the most effective and efficient form of arrangement of capital.
  7. Antitrust law is immoral because it completely endangers the property rights of an individual . Individuals who built a large business through innovation, research and development can still be asked to break up their business. This violates the very basic principle that every person, institution or entity is entitled to their property and that government telling a person what to do with their property is immoral.
  8. The government officials routinely direct antitrust regulators to bend the rules in the direction which suits their political desires. Therefore, there is high chance that antitrust mechanisms become a stone at the hands of the unprincipled politicians to bludgeon the firms and keep them in chains to suit their interests.
  9. Antitrust laws also involve large economic costs like huge expenses involved in defending one’s firm in antitrust actions.

Why are Antitrust Laws inevitable?

If there were no antitrust laws, a dominant firm or few powerful firms would have emerged in all the markets, especially the vital markets like telecommunications, energy markets and various others in which there are significant “barriers to entry” for the firms. These firms will omit all other competitors and will impose unfair trading terms on their business partners and ultimate customers, while failing to keep fit and responsive because of the dearth of competition from rivals.

These monopolies will become unresponsive to customers, less efficient, and will impose abusive trading terms in the markets that they control.

The anti trust law does not attack monopolies. It just ensures that the practices of such firms is not undermining the competition. Antitrust law is needed to address the discrepancies in the market to curb the effort of monopolization and to stop any trading abuse. The antitrust laws also outlaw any collusive behavior by which two or more firms impose higher prices or other unfavorable trading conditions on captive customers.

Anti trust laws might be a bad policy, but it is better than the worse alternatives and way better than completely leaving the market unattended only to fall in the hands of a few.

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2 Comments
  1. Reply

    Rahul

    October 9, 2020

    Nice article

  2. Reply

    Aditya

    October 9, 2020

    Insightful

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