Economics of Competition Policy in India: Emerging Issues

Topics: Economics, Competition, Economic growth Pages: 6 (1789 words) Published: September 4, 2013
Economics of Competition Policy in India: Emerging issues
Rajeev C.Bharathan,

Generally in economics, competition is seen as rivalry among firms for a larger share of the market, which leads to efficiency in production and lower prices for the consumers. Competition can be defined as a process by which cost efficient production is achieved in a structure where entry and exit are easy, a reasonable number of players (producers and consumers are present) and close substitution between products of different players in a given industry exists.

As regards the impact of competition on economic growth there are numerous studies which in essence argue that it has a positive impact .Bayoumi et al. (2004)[1]have estimated that the differences in levels of competition can account for over half of the current gap in GDP per capita between the Euro area and the United States. They conclude that more intense product market competition could help in achieving higher growth and increasing employment rate. Aghion et al (2001)[2], through an endogenous growth model, show that competition has a positive effect on growth. I t is often posited that competitive market ensures quality, lowest prices, efficiency in allocation and adequate supplies to consumers. The following three conditions are essential for this to be true: · Competition: there are a large number of producers supplying the same product, or close substitutes, and no single producer dominates the market place · Full information: all consumers are fully informed about the options that the market offers them · Low switching costs: the costs a consumer faces in switching from one option to another is not high enough to deter this switch

However, as the real world markets do not satisfy any one of these conditions’; competitive markets may not exist. The factors responsible include situations where: 1. Producers/Sellers adopt unfair means to restrict competition and hurt other Producers/Sellers and the consumers 2. Markets fail due to externalities, imperfect or asymmetric information, and economies of scale and scope 3. Government policy often may be inadequate to ensure proper functioning of markets

The first two factors require some form of intervention in the market process. The third factor requires fine-tuning the government policy and its implementation to facilitate the working of markets[3]. Thus we can argue that governments have to adopt and implement policies for the smooth working of the markets. No democratic government can step away from this crucial responsibility. This is the rationale for introducing appropriate competition policy to uphold the interests of consumers. However certain scholars like Koedijk and Kremers (1996)[4] find a clear negative relationship between government regulation and economic performance in 11 European countries. In this background let us analyse the status of the Competiton policy and law in India. Before embarking on that let us make a distinction between competition law and competition policy. Competition law and Competition policy

Competition law is a narrow concept that centres on the legislative aspect of boosting competition. It is the enactment of the competition policy and achieves its objectives in three ways: (1) Prohibiting anti-competition agreements and practices that harm free trade and competition; (2) Preventing abuse of dominant position and anti-competitive practices that lead to such a dominant position; (3) Regulating mergers and acquisitions.

Competition policy is a broad concept which harmonises all the following public policies: *Foreign trade Policy
*Industrial Policy
* Disinvestment Policy
* Foreign Direct Investment Policy
* Fiscal Policy
* Intellectual Property Rights Policy
* Labour Policy
* All other Policies affecting competition
The principal objective of competition policy is to foster competition as an instrument for accelerating growth. The policy is meant to fuel...
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