Competition and Policy?

Sunday, 15 July 2001
Parth J Shah
Economic Times

The Cabinet has approved the competition bill despite crucial differences among the members of the Committee on Competition Policy. The importance of these disagreements could be judged by the rather unusual inclusion of two Supplementary Notes, a Note of Dissent, and a Comment on Dissent in the Committee’s report. This is no typical committee report!

The competition law claims to protect consumers against monopolistic, collusive, predatory, restrictive, and unfair business practices.

I would like to bring the first case to the new Competition Commission of India. Against this newspaper. For collusive pricing. Have you noticed that most newspapers charge exactly or almost the same price? Not only the prices are the same but they don’t change much either. This historical gauging of consumers by newspapers is patently obvious.

Next target, magazines. The readers of India must unite; the competition law has come to their rescue. After the readers, it’s the eaters of India. Have you noticed that most same-class restaurants have very similar prices for the same dishes? The prices of drinks and cocktails are almost exactly the same. Collusive pricing, My Lord! Then a lawsuit from vehicle owners. Have you noticed that same octane petrol costs almost the same despite different oil companies selling it? Diesel prices? CNG has just one price! Collusive pricing is rampant in our economy.

My butler also wants to get into this column. He has noticed that whichever bus he takes, he pays the same fare for the same distance. There is no competition, only collusion. I am sure you have noticed a similar pattern of conduct among autorickshaws and taxis. The whole public transport is afflicted with collusive conduct. Where is the Supreme Court? Surely this daily exploitation of the common man by the oil and CNG companies and by the owners of buses, autos, and taxis justifies suo motu action.

Of course in these cases, the government has forced the collusive rates. Should that make them immune to the competition law? If you still have doubts about the vices of promoting competition by law, read the story that was the rite of passage in the anti-trust class. Three dark-suited men were in jail. Each asked the other what crime he had committed to get there. The first one said, “My prices were too high compared to my competitors. I’m charged with monopolistic pricing.” The second confessed, “My prices were too low compared to my competitors. I’m charged with predatory pricing.” The third exclaimed, “My prices were the same as my competitors. I’m charged with collusive pricing!” Could any commission have wished for a more vague law to enforce? We thought that the license-permit raj gave too much discretionary power to the government. The regulatory raj replacing it would make most people nostalgic.

Absurdity and arbitrariness define the competition law. In the above examples I used words and phrases, “similar,” “almost the same,” “about the same.” The members of the Commission would interpret these words and phrases and determine the fate of India’s businesses. We don’t have to assume that the members would be corrupt. Even the most conscientious individuals would find their conscience so stretched that the only sane step would be to quit. One can’t be consistently objective about whether the two products are the “same,” sold at the “same” price, with the “same” non-price attributes, in the “same” geographical market.

Along with the agreement among enterprises (collusion) and combinations among enterprises (mergers), dominance and abuse of dominance are the central concerns of the competition law. How would the Commission decide abuse of dominance? Defining dominance just by market concentration is no longer couth among competition experts. They focus on the conduct of the firm. This brings in a fascinating creature called “uncommitted entrant.” To assess abuse of dominance, one should determine how other firms not just in the same industry but also in other relevant industries would respond—the supply response. It also requires identification of firms not currently producing or selling the relevant product in the relevant market in the relevant geographical area but which can respond within one year and without incurring significant sunk costs of entry or exit against small but significant non-transitory price increase by the dominant firm. Ascertaining this firms— uncommitted entrants—would drive one insane. Similarly, demand response must be measured—type and amount of substitute products that consumers would instead purchase.

Determination of collusion requires interpretation of “similar,” “almost the same,” that of dominance demands interpretation of “relevant.” Note the number of times that word is used in explaining “uncommitted entrants.” The more is the sophistication, the more the arbitrariness.

I am led to form an axiom of my own: When the government fails in simpler tasks, it acquires complex tasks. The MRTP Act though useless was simpler to administer; failing that the government is now entrusted with the Competition Law. A different illustration of the axiom: the government that can’t produce bread is asked to provide education and healthcare. For government, failure brings more responsibilities and rewards.

The competition law is no friend of competition, businesses, or consumers. Better competition simply requires removal of all entry and exit barriers that government has created through its various acts and laws. Consumers would be protected first by increased competition and then by effective enforcement of the Consumer Protection Act (COPRA). Businesses who buy from other businesses could be covered under COPRA or by a new law, BUPRA, if the tort remedies are deemed inadequate. Unlike COPRA courts, BUPRA courts could be self-financing and speedy by charging appropriate case-filing fees.

Before the parliament votes on the bill, it should at the least answer this: Why is alliance of political parties christened as coalition but that of private businesses condemned as collusion?