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First Published: Fri, May 11 2007. 12 08 AM IST
Updated: Fri, May 11 2007. 12 08 AM IST
Amodern market economy needs a law to ensure that monopolies do not try to stamp out competition and thus harm consumer interests.
India is now edging towards such a competition law, and not a day too soon. The air is thick with talk of mergers and acquisitions, and there should be an effective law to prevent the formation of monopolies and cartels. Even as there is last-minute tinkering with some provisions of the new law, there is opposition from industry. One of the modifications in the Competition (Amendment) Bill 2006 has been criticized by a leading industry association. It argues against making it mandatory for companies entering into a merger to inform the Competition Commission before the actual marriage. While some of its concerns are valid, we feel the basic objection to mandatory filings is not.
The competition law had earlier envisaged a voluntary notification regime. Subsequently, mandatory filings subject to a threshold transaction size were proposed. The association seems worried that this could lead to bureaucratic intrusion and delay the mergers that domestic industry is now gearing for in its bid to become globally competitive. It notes that voluntary regimes are working well in several other countries.
While concerns about bureaucratic delays must be addressed, we don’t think mandatory notification, if appropriately structured, would be a hurdle to industry consolidation. In fact, it could reduce uncertainty for the companies trying to merge, which otherwise could face the higher costs of undoing the deal, or parts of it, after going ahead without informing the commission. Unscrambling the eggs is no easy task, after all.
Indeed, even in the UK, which has a voluntary notification regime, the uncertainty associated with a post-merger intervention by the competition commission (CC) is increasingly being acknowledged. The office of fair trading (OFT) in the UK is mandated to investigate and/or refer to the CC any mergers that may result in substantial reduction of competition. And, of late, both OFT and CC have become more stringent in their requirements of the entities involved to ‘hold separate’ the business until after OFT has decided whether to refer the case to CC. The latter’s hard-hitting approach in two recent merger inquiries, in fact, signals the high cost of not getting prior approvals. The world over, competition experts suggest, the trend is now towards mandatory pre-merger filings.
On the other hand, industry’s view on the threshold for pre-merger notifications being unacceptable at current levels needs to be debated further—essentially in terms of what would be the right parameter for anticipating abuse of market dominance. In the US, which also has mandatory filings, the underpinnings are on an index of market concentration in an industry.
The European Union uses a de-minumus criterion based on market share. The measures used globally are combinations of measures such as the size of assets of the merged entity, its market share, etc. In India, the threshold criteria refer to asset size or turnover, on the assumption that market share may not be appropriate for various reasons, including the fact that there’s a high degree of market concentration in domestic industry.
The key to address concerns about bureaucratic delays would be to impose stringent terms for timely response from the competition authorities, along the lines of global best practices.
The bottom line is that a strong and independent competition authority should implement a law that’s acceptable to stakeholders and completely transparent. But just one question: Will the government be able to set its own house in order, too? Recall how in the retail petro-products sector, the private competitor is suffering losses on account of populist pricing practices by dominant PSUs.
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First Published: Fri, May 11 2007. 12 08 AM IST
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