consumer protection under competition law: …
TRANSCRIPT
CONSUMER PROTECTION UNDER
COMPETITION LAW: LEGITIMACY OF
CONSUMER WELFARE AS A GOAL UNDER
INDIAN COMPETITION LAW
Dissertation submitted in part fulfillment for the requirement of the
Degree of
LL.M
Submitted by Supervised by
DIKSHITA DAMODARAN DR. SUSHILA
NATIONAL LAW UNIVERSITY
DELHI (INDIA)
2016
i
DECLARATION BY THE CANDIDATE
I hereby declare that the dissertation entitled “Consumer Protection under
Competition Law: Legitimacy of Consumer Welfare as a Goal under Indian
Competition Law” submitted at National Law University, Delhi is the outcome of my
own work carried out under the supervision of Dr. Sushila, Assistant Professor,
National Law University, Delhi.
I further declare that to the best of my knowledge, the dissertation does not contain any
part of work, which has not been submitted for the award of any degree either in this
University or in any other institution without proper citation.
Dikshita Damodaran
Roll No. 32 LLM 15
National Law University, Delhi
New Delhi
May 30, 2016
ii
CERTIFICATE OF SUPERVISOR
This is to certify that the work reported in the LL.M dissertation entitled “Consumer
Protection under Competition Law: Legitimacy of Consumer Welfare as a Goal
under Indian Competition Law” submitted by Dikshita Damodaran at National Law
University, Delhi is a bona fide record of her original work carried out under my
supervision. To the best of my knowledge and belief, the dissertation: (i) embodied the
work of candidate herself; (ii) has been duly completed; and (iii) is up to the standard,
both in respect of content and language, for being referred to the examiner.
Dr. Sushila
Assistant Professor,
National Law University, Delhi
New Delhi
May 30, 2016
iii
ACKNOWLEDGEMENTS
After these few intensive months, I am writing the acknowledgments and giving a final
touch to my dissertation. The whole period employed for making this dissertation was a
huge learning experience and had a very big impact on me not just academically but also
personally. I would like to reflect on the people who constantly stood beside me and
helped me throughout the completion of my research.
First of all, I express my deepest gratitude to my mentor Dr. Sushila for her constant
guidance and continuous encouragement. It was her valuable suggestions and deep
knowledge in the subject that helped me in the successful accomplishment of this work. I
express my gratefulness to her for being in touch with me constantly throughout the
making of this dissertation. Despite her busy schedule, the door to her office was always
open whenever I ran into a trouble spot or had questions about my research. I am deeply
indebted to her for being the kind of a mentor she was which helped me make this work
how it stands today.
Even though it’s my name that appears on the cover of this dissertation, there is no way I
can move further without naming the three most important people of my life without
whom I wouldn’t have been able to write a single word. This dissertation is a product of
my grandmother’s blessing, my father’s belief and my mother’s prayers. I dedicate this
dissertation to you in its entirety. You three have been a constant source of inspiration,
love, and strength throughout my life. Words fall short if I attempt to acknowledge your
sacrifices.
My joy knows no bounds in expressing my cordial thankfulness to my best friends
Shreya Sinha and Shivank Datta for their unfailing support and backing whenever I lost
confidence while working. I have been really blessed with these two amazing people and
thank them for being extremely patient and listening to my ridiculous whims whenever I
got exhausted and lost hopes of completing my work on time.
I am also thankful to my friends Anam Rais Khan, Arya Singh, Kamakhya Sharma,
Garima Bhardwaj, Prerna Chugh and Saswatee Mohapatra at the National Law
University, Delhi for not just being a source of happiness and energy by deliberating over
iv
my problems and findings, but also happily talking about the things other than work
which made my journey at the University memorable.
I would like to thank the entire teaching staff of the University for helping me broaden
my horizon in the subject of Competition Law and providing with a conducive
environment for research.
I humbly extend my gratitude to all the concerned persons who helped me in this regard.
Thank you very much everyone!
v
TABLE OF CONTENTS
TABLE OF CONTENTS
TITLE
PAGE NO.
DECLARATION BY CANDIDATE i
CERTIFICATE BY CANDIDATE ii
ACKNOWLEDGMENTS iii
LIST OF ABBREVATIONS ix
LIST OF CASES xi
LIST OF GRAPHS AND FIGURES xiv
CHAPTER 1 - INTRODUCTION
1-11
1.1 PREFACE AND CONCEPTUAL FRAMEWORK 1
1.2 LITERATURE REVIEW 4
1.3 RESEARCH METHOD 8
1.3.1 STATEMENT OF PROBLEM 8
1.3.2 OBJECTIVES 9
1.3.3 RESEARCH QUESTIONS 9
1.3.4 RESEARCH DESIGN, COLLECTION, AND ANALYSIS 10
1.3.5 LIMITATIONS OF THIS RESEARCH 10
1.4 CHAPTERISATION 11
vi
CHAPTER 2 - UNDERSTANDING THE CONSUMER
WELFARE STANDARD
12-22
2.1 THE UNDERLYING RATIONALE 12
2.2 THE NOTION OF CONSUMER WELFARE IN ECONOMICS 14
2.3 MEANING OF THE TERM ‘CONSUMER’ UNDER
COMPETITION LAW
16
2.4 COMPETITION AS A MEANS TO INCREASE CONSUMER
WELFARE
19
CHAPTER 3 - PROTECTION AND WELFARE OF
CONSUMER UNDER COMPETITION LAWS IN INDIA,
USA, AND EU
23 - 36
3.1 UNITED STATES OF AMERICA 23
3.1.1 CHICAGO SCHOOL – JUSTIFICATION OF THE
CONSUMER WELFARE STANDARD
24
3.1.2 CRITICS OF CHICAGO SCHOOL–EMERGENCE OF
CONSUMER INTEREST STANDARD
25
3.1.3 ANALYSIS OF THE PRESENT FRAMEWORK OF
ANTITRUST REGIME IN RESPECT TO THE CONSUMERS
26
3.2 EUROPEAN UNION 27
3.2.1 EFFICIENCIES AS MEANS TO ACHIEVE CONSUMER
AND SOCIAL WELFARE
28
3.2.2 PROVISIONS IN THE TFEU FOR THE PROTECTION OF
CONSUMERS
29
3.3 INDIA 31
3.3.1 MONOPOLIES AND RESTRICTIVE TRADE PRACTICES
ACT AND CONSUMER PROTECTION ACT – PLAYING
COMPLEMENTARY ROLES
31
3.3.2 RAGHAVAN COMMITTEE 32
vii
3.3.3 COMPETITION ACT 33
3.3.4 NATIONAL COMPETITION POLICY 35
CHAPTER 4 - INTERFACE OF COMPETITION AND
CONSUMER POLICIES
37- 47
4.1 CONSUMER WELFARE AS A SHARED GOAL 38
4.1.1 CONSUMER SOVEREIGNTY 40
4.1.2 POSSIBILITY OF HONEST TRANSACTIONS 41
4.1.3 ABILITY OF CONSUMER LAW TO INTERVENE IN CASE
OF FAILURE OF COMPETITION LAW
42
4.1.4 RESOLUTION OF MARKET FAILURE 42
4.2 COMPARING THE COMPETITION LAW AND CONSUMER
LAW
43
4.2.1 DEFINITION OF CONSUMER 43
4.2.2 UNFAIR TRADE PRACTICES 44
4.2.3 COMPLAINANT v. INFORMANT 45
4.2.4 INTENT BEHIND PASSING ORDERS BY BOTH FORUMS 46
4.2.5 SCHEMES OF THE ACT 46
4.3 UNDERSTANDING THE EFFICACY OF CONSUMER
WELFARE UNDER COMPETITION LAW
47
CHAPTER 5 - ROLE PLAYED BY COMPETITION
AUTHORITIES IN PROTECTING CONSUMER
INTERESTS
48 - 63
5.1 THE COMPETITION AUTHORITIES AND ENFORCEMENT
PROCESS
49
5.2 CASES DISCUSSING THE ASPECT OF CONSUMER
INTEREST UNDER COMPETITION LAW
51
viii
5.2.1 BELAIRE OWNER’S ASSOCIATION V. DLF LIMITED 52
5.2.2 MCX STOCK EXCHANGE LTD. v. NATIONAL STOCK
EXCHANGE OF INDIA LTD
55
5.2.3 JYOTHI SWAROOP ARORA v. TULIP INFRATECH LTD.
AND ORS.
56
5.2.4 OTHER CASES 57
5.3 CASES CLOSED BY THE COMMISSION DUE TO LACK OF
COMPETITION ISSUE
59
5.3.1 SUBHASH YADAV V. FORCE MOTOR LTD. & ORS. 59
5.3.2 SANJEEV PANDEY V. MAHENDRA & MAHENDRA &
ORS
60
5.3.3 SMT. GEETA CHATTERJEE V. M/S BONGAON GAS
SERVICE
60
5.3.4 SHRI GIRIJI MEENA V. MOHAN GAS SERVICE 60
5.3.5 PRAVAHAN MOHANTY V. HDFC BANK LTD 60
5.3.6 PANKAJ AGGARWAL AND ORS. V. DLF GURGAON
HOME DEVELOPERS PRIVATE LIMITED
61
5.4 COMPETITION ADVOCACY – A FRIEDNLY APPROACH 61
5.5 LESSONS FROM THE PRESENT WORKING OF THE
COMPETITION AUTHORITIES
62
CHAPTER 6 - CONCLUSION AND
RECOMMENDATIONS
64-67
BIBLIOGRAPHY
xv-xxii
ix
LIST OF ABBREVIATIONS
AAEC - Appreciable Adverse Effect on Competition
CCI - Competition Commission of India
Cir - Circuit
COMPAT - Competition Appellate Tribunal
COPRA - Consumer Protection Act, 1986
DG - Director General
DOJ - Department of Justice
E.U - European Union
EC - European Commission
ECJ - European Court of Justice
FTC - Federal Trade Commission
ICN - International Competition Network
MRTP - Monopolies and Restrictive Trade Practices Act, 1969
NCP - National Competition Policy
OECD - Organisation for Economic Co-operation and Development
R&D - Research and Development
TFEU - Treaty on the Functioning of the European Union
x
UNCTAD - United Nations Conference on Trade and Development
UTP - Unfair Trade Practices
xi
LIST OF CASES
1. Arun Kumar Tyagi v. The Software Engineering Institute, The High Court of
Uttrakhand and The HCL Technologies Ltd, [2011]110 SCL 157(CCI).
2. Ashoka Smokeless Coal Ind. P. Ltd. v. Union of India, (2007) 2 SCC 640.
3. AstraZeneca AB and AstraZeneca plc v. European Commission [2010] ECR II-
2805.
4. Belaire Owner's Association Vs. DLF Limited Haryana Urban Development
Authority Department of Town and Country Planning, State of Haryana,
[2011]104 CLA398(CCI).
5. Broadcom Corp. v. Qualcomm Inc, 2008 WL 66932.
6. Competition Commission of India v. SAIL, (2010) 10 SCC 744.
7. Continental TV Inc v GTE Sylvania Inc., 433 US 36 (1977).
8. DLF Home Developers Limited Vs. The Competition Commission of India and
Ors., 2016CompLR60(CompAT).
9. Dr. Miles Medical Co. v. John D. Park and Sons., 220 U.S. 373 (1911).
10. Ghanshyam Dass Vij Vs. Bajaj Corp. Ltd. and Ors., MANU/CO/0083/2015.
11. Government of Kerala Vs. National Insurance Co. Ltd. and Ors.,
MANU/CO/0062/2015.
12. Hoffmann-La RocheAG v Commission., [1979] ECR 461.
13. In Re: Domestic Air Lines, RTPE 05/2009 of MRTPC and Suo-Motu
(11.02.2009- CCI)
14. Jupiter Gaming Solutions Private Limited v. Government of Goa and Anr.,
[2012]106CLA339(CCI).
15. Jyoti Swaroop Arora v. Tulip Infratech Ltd. and Ors., 2015CompLR109(CCI).
16. LAPD v. Gen. Elec. Corp. 132 F.3d 402 (1997).
17. Laxmi Engineering Works v. P.S.G. Industrial Institute, 1995 AIR 1428.
xii
18. LC Nungesser Kg E Kurt Eisele v Commission of the European Communities,
Case 258/78, (1982).
19. M/s Bharat Petroleum Corporation Ltd. and M/s Hindustan Petroleum
Corporation Ltd., 2012CompLR563(CCI).
20. M/s Metalrod Ltd. Ghaziabad v. M/s Religare Finvest Ltd., New Delhi,
MANU/CO/0080/2011.
21. M/s Metalrod Ltd. Ghaziabad v. M/s Religare Finvest Ltd., New Delhi,
MANU/CO/0080/2011.
22. M/s Royal Energy Ltd. v. M/s Indian Oil Corporation Ltd.,
23. MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd.,
2011CompLR129(CCI).
24. Metro v Deutsche Grammophone.,[1971] 470.
25. Mr. Ramakant Kini Informant v.Dr. L.H. Hiranandani Hospital,
2014CompLR263(CCI).
26. Mrs. Manju Tharad, Proprietress and M/s. Manoranjan Films, Kolkata v. Eastern
India Motion Picture Association (EIMPA), Kolkata and The Censor Board of
Film Certification, Kolkata, [2012]110CLA136(CCI).
27. Pankaj Aggarwal and Ors. v. DLF Gurgaon Home Developers Private Limited.,
2015CompLR728(CCI).
28. PostDanmark A/S v. Konkurrencerådet [2012] ECR I-0000.
29. Pravahan Mohanty v. HDFC Bank Ltd., Case No.17/2010.
30. Sanjeev Pandey v. Mahendra & Mahendra & Ors., Case No. 17 of 2012.
31. Savitri Leasing and Finance Ltd. D-91, Ambabari, Jaipur, Rajasthan v. Punjab
National Bank (PNB) HO. 7, Bhikaji Cama Place, New Delhi-66, PNB, 2, Nehru
Place, Tonk Road, Jaipur -15 and PNB, Raja Park Branch, Jaipur, Rajasthan,
MANU/CO/0057/2011.
32. Shri Giriji Meena v. Mohan Gas Service., File No.C-22/2009/DGIR
xiii
33. Shri Neeraj Malhotra, Advocate v. North Delhi Power Limited, BSES Rajdhani
Power Limited and BSES
34. Smt. Geeta Chatterjee v. M/s Bongaon Gas Service., Case no. 192 of 2008
35. State Oil v Khan., 522 US 3 (1997).
36. Subhash Yadav v. Force Motor Ltd. & Ors., MANU/CO/0102/2012
37. The National Stock Exchange of India Ltd. Vs. Competition Commission of
India, 2014CompLR304(CompAT)
38. United Brands Company v Commission., [1978] ECR 207.
39. United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967).
40. United States v. Syufy Enters., 903 F2d 659 (9th Cir. 1990)
41. V. Ramachandra Reddy and Ors. v. HDFC Bank Ltd. and ICICI Bank Ltd.,
MANU/CO/0023/2011.
42. Yamuna Power Limited, MANU/CO/0026/2011.
xiv
LIST OF GRAPHS AND FIGURES
FIGURE
NUMBER
CAPTION
PAGE
NUMBER
1.
Marshallian Consumer Surplus
16
2.
The conceptual framework for competition and consumer policies
43
1
CHAPTER 1
INTRODUCTION
1.1 Preface and Conceptual Framework
The economic foundation of any market economy is formed by the interplay between
supply and demand. The enterprises are expected to produce the goods and services
that are consumed and bought by the consumers. Such a market-oriented process
which is determined by the market forces is done with the help of this demand and
supply. But in reality, this market process doesn’t work on this ‘invisible hand’ theory
and experiences considerable state intervention for its regulation. This interventionist
approach in the market process, like any other social policy, is grounded on the same
philosophy of welfare state with an aim to correct undesirable market effects and for
strengthening the position of the consumers’.1
The importance attached to strengthening the position of the consumers’ in markets
emanates from the rudimentary issue of Consumer Protection. The present idea of
consumer protection is founded on the basic realisation of competition and markets
being imperfect in nature susceptible to failures. On the other hand, the emergence of
consumerist society after the World War II2 which was in response to the imbalance
of economic power between the consumers and the market players also played an
important role in the development of remedial measures in the interests of the
consumers.3 The acknowledgment of this model of imperfect competition and market
failures admits the need for the protection of competition and consumers.
In earlier times, the link between deception of consumers and adverse competitive
effects was taken for granted but it wasn’t clear as to which the primary was and
which the secondary concern was.4 The option to choose the best from available
1 ROBERT DAHL, DILLEMAS OF PLURALIST SOCIETY 1 (1981).
2 Halina Szejnwald Brown and Philip J. Vergragt, From Consumerism to Wellbeing: Toward a
Cultural Transition? Journal of Cleaner Production: Special Volume on “Absolute Reductions” (2014),
available at http://www.ukayamut.com/wp-content/uploads/2015/03/FINAL-Brown-Vergragt-
Consumerism-and-Wellbeing.pdf. 3 REICH, N., MICKLITZ, H.-W., & COMMISSION OF THE EUROPEAN COMMUNITIES,
CONSUMER LEGISLATION IN THE FEDERAL REPUBLIC OF GERMANY: A STUDY 2(1981). 4 Thomas B. Leary, Competition Law and Consumer Protection Law: Two Wings of the Same
House,72 Antitrust L.J. 1147 , 1147–48 (2005)
2
alternatives becomes a real tool for growth in the economy and welfare of the people.
This makes competition crucial for the better functioning of the markets and
providing best choices to consumers. Due to this reason, consumers are supposedly
the most important economic agents of the market.5 The absence of competition in the
marketplace has the effect of reducing the consumers’ right to choice and makes the
vulnerable section of society susceptible fall into the trap of poverty due to the
resultant anticompetitive practices.6 Whereas, competition law has a potential to
check such behaviour. The international experiences point towards the role played by
competition in promoting innovation increases static and dynamic efficiency and
productivity and improving the quality of goods and services.7
The competition law of any jurisdiction, existing in the world today, aim at the
achievement of certain goals which are connected to the peculiarities and the
social/political ideologies of any country. But one goal which does not diminish in
importance and exists as a recognized goal in all the national antitrust policies is the
protection of consumer interests. This is due to the simple reason that competition was
regarded as the “consumer’s best friend”.8 The theory of competition based on the
model of workable competition focusses on consumer welfare as one of the primary
objectives. The implementation of the consumer welfare standard in competition law
instead of being an economic or legal rationale was a political choice.
“The term consumer welfare is the most abused term in modern antitrust analysis.”9
This statement itself makes it necessary to reconnoitre the underlying economic and
legal arrangement of the consumer welfare standard under the competition law
regime. In the 1960s, Robert Bork in his article The Goals of Competition law
propounded a simple thesis stating that "existing statutes can be legitimately
interpreted only according to the canons of consumer welfare,"10
and also stressed on
5 Meglena Kuneva, Consumers and Competition: The quest for Real Opportunities, 8 Competition L.
Int'l 7 (2012), available at
http://heinonline.org/HOL/LandingPage?handle=hein.journals/cmpetion8&div=5&id=&page=. 6 CUTS CCIER, National Conference on "Competition Regime – Benefiting the Consumer" available
at http://www.cuts-ccier.org/National_Conference_on_Competition_Regime-
Benefiting_the_Consumer.htm. 7 Id.
8 Norbert Reich, Diverse Approaches to Consumer Protection Philosophy, Journal of Consumer Policy
279, 257-92 (1992) 9 Joseph F Brodley, The economic goals of antitrust: efficiency, consumer welfare, and technological
progress, (1987)62 NYUniv LR 1020, p 1032. 10
Robert H. Bork, The Goals of Antitrust Policy, 57 AM. ECON. REv. 242, 242-53(1967).
3
the fact that "consumer welfare is the only legitimate goal of antitrust, not because
antitrust is economics, but because it is law."11
Thus, in the opinion of Bork, it is
undeniable that consumer welfare ought to be the touchstone antitrust policy.12
The Bundeskartellamt has argued that "the economic freedom model is based on the
belief that in the long run both goals [economic freedom and consumer welfare] are
not in conflict as safeguarding of a vivid competition process will enhance consumer
welfare."'13
According to the Bundeskartellamt, there is no doubt as to as both aims at
safeguarding a vivid competition process that will enhance consumer welfare.14
Consumer welfare aims at the express gain by the consumers in the form of lower
prices, high-quality products, a wide selection of goods and services, and
innovation.15
Consumer welfare though predominantly is concerned with efficient
transactions and cost-savings but it is also concerned with the various sociological
aspects of the market like the safety and health of consumers. The consumer welfare
standard in competition law helps to verify primary goals of competition policy and
also helps to demarcate the general legal framework of competition law enforcement
by determining the foundation for the standard of proof necessary in investigation and
litigation.
India responded to globalization, by opening up its economy, removing controls and
resorting to liberalization.16
Naturally, the Indian market started to face competition
from the players within the country and outside. Competition has played a significant
role in unlocking the fuller growth potential of Indian economy. This lead to the
enactment of the Competition Act, 2002 with the main aim to promote the free
competition in India and to protect the interest of the consumers. Thus, it becomes
11
Id. 12
James R. Eiszner, Antitrust Civil Damages Remedies: The Consumer Welfare Perspective, 75
UMKC L. Rev. 375 377-78(2006). 13
Bundeskartellamt/Competition Law Forum, A Bundeskartellamt/Competition Law Forum Debate on
Reform of Article 82: a 'Dialectic' on Competing Approaches, 2 European Competition Journal 211,
218(2006). 14
Liza Lovdahl Gormsen, The Conflict Between Economic Freedom and Consumer Welfare in the
Modernisation of Article 82 EC, 3 Eur. Competition J. 329 2007 available at
http://ftp.infoeuropa.eurocid.pt/files/database/000040001-000041000/000040191.pdf. 15
European Commission, DG Competition Discussion Paper on the Application of Article 82 of the
Treaty to Exclusionary Abuses, 2005 available at
http://ec.europa.eu/competition/antitrust/art82/discpaper2005.pdf. 16
Raghav Kumar Singh and Sukriti Guha, Appreciating “appreciable adverse effect” of two diverging
phenomenon of policy making and regulation on the competition law, Manupatra Competition Law
Reports(2010) available at http://www.manupatrafast.in.
4
necessary to focus on how the protection of consumer interests or consumer welfare
has to be enforced under the competition law of India.
1.2 Literature Review
Competition makes enterprises more efficient and offers wider choices to consumers
at lower prices. It helps in ensuring optimum utilization of available resources which
in turn enhances consumer welfare since consumers are able to buy better quality
products at lesser prices. Thus, fair competition proves to be beneficial for the
consumers, producers / sellers and for the whole society acting as a catalyst for
economic growth. But since many years, there always exists an ongoing debate as to
the single goal of antitrust/ competition law, sought to be achieved but there is no
answer as to the single unambiguous goal of antitrust. However, there is one goal
which gains support from the major jurisdictions for being one of the primary goals of
antitrust i.e. protection of consumers from anticompetitive conduct. As a normative
matter it cannot be accepted that the goal of consumer protection is superior to
economic efficiency or welfare of the society but as a matter of being a dominant goal
based on legislative history, case laws and ease of administration this goal is given
prime importance.17
For many years, a passionate debate has divided the antitrust community which is the
question as to what are consumer’s interests in one jurisdiction and this answer itself
differs from one jurisdiction to another depending on that economy itself. For
instance, in certain jurisdictions “protecting consumer’s economic interests is as
important as regulation to ensure that the goods and services are available at a
reasonable price and are safe… but in a third world country, for instance, the
problems of consumers are more related to the provision of essential services such as
drinking water, sanitation, education and health care, than the market–related
ones….”18
This itself suggests how significant it becomes to analyse the rationale
behind a competition policy and the underlying consumer welfare philosophy in all
the respective jurisdictions.
17
John B. Kirkwood, The Essence of Antitrust: Protecting Consumers and Small Suppliers from
Anticompetitive Conduct, 81 Fordham L. Rev. 2425 (2013) available at
http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=4887&context=flr 18
Martha Kisyombe , Ad Hoc Expert Meeting on Consumer Protection: The interface between
competition and consumer policies, (May. 25, 2012, 8:26 AM), available at
ehttp://unctad.org/meetings/en/Presentation/ciclp2012_EMCP_S3_Kisyombe_Discussion_en.pdf
5
The USA holds more than 100 years of experience in the antitrust practice and was
the first jurisdiction to pass an antitrust legislation. But even after so many years of
antitrust law application, the federal courts of USA are still not clear about the fixed
goals of the law and have led to a lot of debates amongst different scholars. Robert
Bork in the year 1978 published a book named The Antitrust Paradox. This book is
considered to be one of the most influential works in antitrust law. In this book, Bork
came up with the proposition that "antitrust policy cannot be made rational until we
are able to give a firm answer to one question: What is the point of the law-what are
its goals? Everything else follows from the answer we give."19
The answer that
followed the Borkean approach to antitrust was that of the Congress adopting the
Sherman Act as a "consumer welfare prescription."20
In the words of Bork, he said:
“competition, for purposes of antitrust analysis, must be understood as a term of art
signifying any state of affairs in which consumer welfare cannot be increased by
judicial decree."21
Thus, Bork’s approach towards competition laws was all about the
maximization consumer welfare.
Though the views of Bork were highly debated by many other scholars22
, however,
the US Supreme Court adopted the Borkean approach and made it the law of the
land.23
The critics of Chicago School contended that while enacting the antitrust
provisions the Congress had a much broader notion which is not of consumer welfare
whereas it is ‘consumer interest’. They viewed that the goal of economic efficiency is
not the exclusive goal rather the antitrust intends at the protection of consumers from
the undesirable market practices. Herbert Hovenkamp in the year 2005 in his book
The Antitrust Enterprise wrote that "after thirty years, the debate over antitrust
ideology has quieted. Most now agree that the protection of consumer welfare should
19
ROBERT H. BORK, THE ANTITRUST PARADOX: A POLICY AT WAR WITH ITSELF 50
(1978). 20
Barak Y Orbach, The Antitrust Consumer Welfare Paradox, 7 J. Comp. L. & Econ. 133 2011,
available at
http://poseidon01.ssrn.com/delivery.php?ID=8851010960711220641191051220890670640040520520
06035025009008073103020117081112117107062107121002051121097127031115113023107019043
03204402107602607700712709408812306907709409910508611312312709212111809310006810712
2091009010081030066102074025113094124&EXT=pdf. 21
Id. 22
RICHARD A. POSNER, ANTITRUST LAW 267(2d ed. 2001). ; See also United States v. Syufy
Enters., 903 F2d 659 (9th Cir. 1990) 23
Harry First, No Single Monopoly Profit, No Single Policy Prescription?, 5 COMPETITION POL'Y
INT'L 199, 199-204 (2009)
6
be the only goal of antitrust laws."24
In the introductory chapter of the book,
Hovenkamp stressed that the "only articulated goal of the antitrust laws is to benefit
consumers."25
The United States Court of Appeals in the case of LAPD v. Gen. Elec.
Corp.26
observed that the antitrust law aims at the protection of consumers from the
higher prices and benefit the whole society from the allocative, productive and
dynamic efficiency. Thus, the present framework of United States is the protection of
consumer interest by seeking to achieve their welfare.
In the European Union, the competition law is a multi-goal system and is not meant
only to protect consumer interests rather have various social, political and economic
goals. Although market integration is considered to be the primary object of the EC
competition law it targets to achieve efficiencies as means to achieve consumer and
social welfare pointing towards a ‘total welfare approach’ being followed. Thus, what
can be inferred is the EU competition law aims at achieving the intermediate goal of
consumer welfare ultimately leading to social benefits by the way of improving
efficiencies through competition.
Whereas in India, the competition law regime is in its embryonic stage. It is still a
toddler in terms of its experience and working in comparison to the jurisdictions of
US and EU which hold years of experience and expertise. India does not have any
evidence as to which term, Consumer welfare or Consumer interest is being used in
particular for the implementation of competition goals. But quite at times, these terms
are used as synonyms and sought to achieve the same objectives, unlike the USA.
It was observed by Pranab Mukherjee, “Competition is the buzzword now in every
walk of life - in industry, among service providers, among students, job seekers and
employers. Higher productivity, efficient allocation of resources, increased consumer
welfare through lower prices, better quality, wider choices and accelerated economic
growth are the dividends that accrue from greater competition.”27
While analysing the
economic goal of antitrust it is rightly observed that this goal includes both the end
24
HERBERT HOVENKAMP, THE ANTITRUST ENTERPRISE: PRINCIPLE AND EXECUTION
(2005). 25
Id. 26
132 F.3d 402 (7th Cir 1997). 27
Pranab Mukherjee, Competition, Public Policy and Common Man. Speech presented at the National
Conference of Competition Commission of India, New Delhi (2009) available at
http://www.cci.gov.in/sites/default/files/workshop_pdf/ccispeechfmfinal.pdf.
7
result and the means through which it is achieved.28
The means by which this result is
to be achieved is ‘interfirm rivalry’. The end result that is sought to be achieved is the
enhancement of aggregate social wealth i.e. economic efficiency provided consumers
receive a fair share of such wealth i.e. consumer welfare. This fair share is ensured by
a market which is competitive.29
It was observed by P. Areeda & D. Turner
“consumer welfare and progressiveness to be achieved through a procompetitive
policy”.30
Thus, the antitrust policy aims at achieving the economic objective by the
amalgamation of efficiency and consumer welfare through interfirm rivalry. This has
led to the coining of a new term called as antitrust welfare.
Since this clearly establishes that the terms consumer welfare and efficiency are not
identical and stand for different meanings and require clear definitions and
distinctions. Here, the term efficiency as a concept requires further taxonomy vital to
further understand the antitrust goals whereas, consumer welfare is a different concept
referring to the direct and immediate welfare of the consumers of a specific product.31
Accordingly, it can be argued that in pursuit of efficiency, antitrust policies ultimately
aim at protecting the interest of the consumers through a competitive process in the
long run.32
The synergies between competition and consumer policy become important to be
analysed due to the common goals they share i.e. healthy competition and consumer
welfare.33
In order to achieve these objectives in India the legislature has enacted two
laws named Competition Act, 2002 and the Consumer Protection Act, 1986. In terms
of the objectives of the two Acts, the former aims at protecting the interests of the
consumer, the latter lays its focus on protecting the rights of the consumers by
improving transparency generally to increase the number of informed consumers.34
Due to the similarity in the goals of both the laws, it becomes important to understand
the intersection of these two branches. Though these two laws are instruments of
28
Eleanor M. Fox, The Modernization of Antitrust: A New Equilibrium, 66 Cornell L. Rev. 1174, 1140-
92(1981). 29
BRODLEY, supra note 9. 30
P. AREEDA & D. TURNER, ANTITRUST LAW 103(1978) 31
Id. 32
Id. 33
KUNEVA, supra note 5 34
Armstrong Mark, Competition Policy International: Interactions between competition and consumer
policy, Volume 4 Number 4 (1) Spring 112 (2008) (May. 26, 2016, 9:30 AM),
http://discovery.ucl.ac.uk/7634/1/7634.pdf
8
economic policy, they aim at providing well-functioning markets by a strong supply
side through competition and a strong demand side through consumers.35
But
sometimes the interface itself becomes problematic and results in the tension between
the two policies due to the difference in the way of achieving the same objective.
Hence, making it important to recognise there interdependencies and differences in
order to fully give effect to the implementation and coordination of both the policies.
The regulation of on the other hand sometimes becomes a little confusing due this
overall between the objectives of these two laws. This is due to the possibility that
sometimes all these objectives become utopian and in reality an incumbent producer
may resort to unfair practices to gain market power or to distort the competition. At
this point, there arises a need to regulate the behaviour and eliminate such conduct.
These factors clearly establish that since India is in its nascent stage in developing its
own jurisprudence of competition law it becomes necessary to understand dealing
with the various issues relating to consumer protection under the competition law in
India as one of its aims as enshrined in the preamble. This dissertation intends to
study whether this objective of consumer protection is achieved through Competition
laws and what is its degree of effectiveness. It is an attempt to understand the role
interpret and understand the legitimacy of this standard as one of the primary goals as
enshrined in the preamble of the Indian Competition Law.
1.3 Research Method
1.3.1 Statement of Problem
Consumer welfare is the only enunciated goal of antitrust law in the United States. It
has become the governing standard following the Borkean Approach and is influential
to the implementation and enforcement of antitrust laws. Whereas, in the European
Union, the welfare of the consumers is one of the multiple goals of their competition
policy. But being the forerunners in the application of antitrust in their respective
jurisdictions, a lot has been spoken and discussed about the welfare and protection of
consumers’ under the mature antitrust regimes of US and UK and are in the process of
35
Taimi Amunkete, The Link between Competition Policy and Consumer Protection, Namibian
Competition Commission (2013) available at
http://www.nacc.com.na/cms_documents/ebb_competition_and_consumer_protection.pdf
9
refining their already established goals according to the pressing needs and
circumstances.
On the other hand, relatively young jurisdictions like India are still confused as to the
achievement of this object which is easily witnessed by looking at the clashes existing
between the regulatory and enforcement authorities of competition and consumer law.
The present work tries to explore the legitimacy of this consumer welfare standard as
one of the primary goals of the Indian Competition Law by exploring the position of
same in mature jurisdictions like the European Union and the United States to cull out
lessons for India. The work culminates with certain suggestions and recommendations
for clear understanding and achievement of this goal.
1.3.2 Objectives
The following are the objectives of this study:
a) To analyse basis and underlying of the Consumer Welfare standard
b) To understand the evolution, origin and meaning of the protection and welfare
of consumer under competition laws in India, the USA, and EU
c) To understand the interface between Competition Act and Consumer
Protection Act and analyse how far the Competition Act helps in serving the
object of consumer protection
d) To analyse the Role of Competition authorities in consumer protection
e) To render certain suggestions and recommendations as to how the purpose of
protecting the consumer interest mentioned in the preamble can be achieved
more effectively.
1.3.3 Research Questions
1. Whether the protection of consumer interest rests as an ultimate objective of
competition law, or is it a consequence of the enforcement of this law?
2. Whether the competition authorities play a proactive role in directly protecting
the consumer interest as their duty under the Competition Act, or exercise
certain amount of caution?
3. Whether the present framework of the Competition law can effectively deal
with the protection of consumers or calls for an urgent need for reforms?
10
1.3.4 Research Design, Collection, and Analysis
This work in its nature is a qualitative enquiry i.e. a doctrinal legal research aiming at
dealing with the various issues relating to consumer protection under the competition
law in India, and comparing and contrasting the position in other jurisdictions. The
research is purely doctrinal in nature involving descriptive and analytical judicial
method, however; assorted techniques of data collection and interpretation have been
used throughout the work. For instance, while analysing the American and European
stands on the protection of consumer welfare the grounded theory method of
collecting and, simultaneously, analysing the data, which involves exhaustive,
constant comparison between small units of text have been utilised.36
For the
comparative analysis of India with other jurisdictions a micro approach37
of data
analysis has been utilised.
The various databases, on-line search and the websites of Regulatory Authorities like
FTC, DOJ, EC, and CCI had been of great help. In order to present the necessary
economic considerations and analysis of the consumer welfare standard; the relevant
opinions of well-known scholars have been quoted and expressed.
1.3.5 Limitations of this Research
The jurisdictions of USA and UK being very old in their application of competition
laws have spoken widely about the protection of consumer interest under competition
law and have evolved a huge jurisprudence in this regard. But being a new kid on the
block in its application and enforcement of competition laws, India doesn’t have the
similar materials on the subject in comparison to the other matured jurisdictions.
Thus, there are two major limitations of this research firstly, since, this is an
extremely broad area in other countries, overlooking the voluminous literature
available on this subject becomes impossible whereas it was difficult to find materials
in reference to India. Thus, one cannot expect a complete evaluation of all the aspects.
Secondly, being a very narrow area it sometimes became difficult to cull out new
points in relevance to India without being repetitive in the content.
36
Greg Guest ET. AL., Collecting Qualitative Data, A Field Manual for Applied Research, 13 (2012),
available at http://www.sagepub.in/upm-data/48453_ch_1.pdf. 37
GEOFFREY SAMUEL, AN INTRODUCTION TO COMPARATIVE LAW THEORY AND
METHOD 50 (2014).
11
1.4 Chapterisation
After this brief introduction of my topic and specified objectives of my research, the
Second Chapter of this dissertation aims at understanding the consumer welfare
standard, its underlying rationale, its economic notion and competition as a means to
increase the consumer welfare. This chapter lays the foundation for understanding the
meaning of this particular goal of competition laws.
The Third Chapter is an attempt to understand the origin, evolution, and working on
protection of consumer interest standard in USA, UK and comparing their position
with India. This chapter also analyses the protection of consumer interest standard vs.
promotion of consumer welfare standard and its implications. This chapter primarily
tries to understand the possible analogy and the historical evolution of this principle
under the laws of India and other jurisdictions.
The Fourth chapter is an examination of the interface between the Competition and
Consumer laws. It aims in studying and exploring the links between competition and
consumer policies for the purpose of serving consumer protection. The chapter would
not just look at the point of intersection of these laws but would also lay its emphasis
in understanding the differences in order to give full effect to its implementation.
The Fifth Chapter is the major part of the analysis and makes an effort to understand
the role played by competition authorities in protecting the consumer interests. This
chapter looks at the regulatory framework and also contains the case-analysis of
certain important matters brought before these authorities. This chapter makes an
endeavor to understand the present stand taken by the authorities and understand how
this goal of protecting the consumers in the preamble is achieved and whether there
exist any limitations in its achievement.
The closing Chapter is that of Conclusion whereby the entire research findings have
been summed up. Along with the conclusion, certain suggestions and
recommendations also form a part of this chapter.
12
CHAPTER 2
UNDERSTANDING THE CONSUMER WELFARE
STANDARD
The government of every State aims in performing the various administrative
functions for the welfare of its people. This also includes the economic welfare. The
economic welfare is achieved by the government by playing various roles including
the formulation of policies aiming the best for the common man. This function is
performed in a way by examining what are the governmental policies that are likely to
promote economic welfare and what policies are going to obstruct it.1In this manner
the government plays a very major role in protecting the interest of the consumers in
their state and this phenomenon is not a result of political idealism rather, the
governmental intervention between the buyer and the seller is an outcome of the less
bargaining position of the consumer vis-à-vis the seller due to innovation in
technology and complexity.2 Thus, the fundamental goal of the government is to
ensure equality in bargaining power between the buyers and sellers which results in
the efficient allocation of resources for an operation of free enterprise economy and
for an effective market-oriented system.
2.1 The Underlying Rationale
The fundamental function of the government i.e. the enactment of every legislation
starts with one basic question as to- ‘what is the ultimate objective of bringing it into
force?’ The competition policy of any jurisdiction also analyse this basic question.
This objective of Competition Law is not limited to only being economic but it can
also be political and social as well. But this basic objective also depends on the legal
and social structure of that jurisdiction source through which the Competition policy
derives its authority. In India, the validity and requirement of the Competition Law
emanates from the Article 383 and 39
4 of the Constitution of India which provides for
1 VINOD DHALL, COMPETITION LAW TODAY 431 (2007).
2 Hon. William B. Saxbe, The Role of the Government in Consumer Protection: The Consumer Frauds
and Crimes Section of the Office of the Ohio Attorney General, Ohio State Law Journal 29 (1968),
available at http://kb.osu.edu/dspace/bitstream/handle/1811/69018/OSLJ_V29N4_0897.pdf. 3 Art. 38 of The Constitution Of India 1950: - The State to secure a social order for the promotion of
welfare of the people
13
the State to secure a social order for the promotion of welfare of the people and
certain principles of policy to be followed by the State. In order to secure the same,
the Monopolies and Restrictive Trade Practices Act, 1969 was enacted, whose main
aim was to prevent the concentration of economic power, for the control of
monopolies and for the prohibition of monopolistic and restrictive trade practices.5
But the present act was proved insufficient in the wake of the varying economic
situation and the subsequent economic reforms in the year 1991. The necessity for a
new law has its origin in Finance Minister’s budget speech in February, 19996:
“The MRTP Act has become obsolete in certain areas in the light of international
economic developments relating to competition laws. We need to shift our focus from
curbing monopolies to promoting competition. The Government has decided to
appoint a committee to examine this range of issues and propose a modern
competition law suitable for our conditions.”
Thus, there arose a need to foster competition which required a new Act to be enacted
in place of the then MRTP Act. This gave rise to the Competition Act, 2002. Under
the Statement of the Objects and Reasons to the Act the reason for enacting the new
law is mentioned in the following words, “In the pursuit of globalization, India has
responded by opening up its economy, removing controls, and restoring to
liberalization”.
The objective of the Act can be further gathered from its preamble which states- ‘An
act to provide, keeping in view of the economic development of the country, for the
(1) The State shall strive to promote the welfare of the people by securing and protecting as effectively
as it may a social order in which justice, social, economic and political, shall inform all the institutions
of the national life
(2) The State shall, in particular, strive to minimize the inequalities in income, and endeavour to
eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also
amongst groups of people residing in different areas or engaged in different vocations. 4 Art. 39 of The Constitution Of India 1950:- Certain principles of policy to be followed by the State:
The State shall, in particular, direct its policy towards securing
Cl (b) that the ownership and control of the material resources of the community are so distributed as
best to subserve the common good;
Cl (c) that the operation of the economic system does not result in the concentration of wealth and
means of production to the common detriment; 5 Preamble, THE MONOPOLIES RESTRICTIVE TRADE PRACTICES ACT, 1969
6 Dr. S Chakravarthy, MRTP Act Metamorphoses Into Competition Act, (Feb.23, 2016, 5:45 pm),
available at
https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ah
UKEwi_hYK9z6LLAhURjo4KHXouCW8QFggbMAA&url=http%3A%2F%2Fwww.cuts-
international.org%2Fdoc01.doc&usg=AFQjCNFRirwOqnQJonsD_yEv23_4U-
CQEQ&bvm=bv.115339255,d.c2E.
14
establishment of a Commission to prevent practices having adverse effect on
competition, to promote and sustain competition in markets, to protect the interests of
consumers and to ensure freedom of trade carried on by other participants in
markets, in India...’
The above-mentioned objectives make it clear that the Competition Law derives its
authority from the Part IV of the Constitution and in its nature is a welfare legislation
which aims in the protection and promotion of an individual’s rights, and for the
dignity and welfare of the citizen in turn making it essential to provide for the welfare
of the individual as a consumer.
2.2 The Notion of Consumer Welfare in Economics
The authorities present worldwide have many at times articulated that they do not
have an explicit definition of consumer welfare and there has been various reasons
expressed for the same without any concrete answers. The reason for the same is the
notion of consumer welfare sometimes becomes very complex in competition law in
its understanding.
A static analysis provides that the concept of consumer welfare is synonymous to
consumer surplus whereas the dynamic analysis provides for with a broader scope
being equated to total surplus.7 Bork has equated consumer welfare to total welfare
while others identify the term to protect consumer surplus.8 El Salvador stated that in
the absence of a formal definition the concept of consumer welfare, in general terms
refers to the value consumers receive from the goods and services they consume –
including price, quality, and consumer choice.9 Thus, in common parlance as believed
by majority of jurisdictions, consumer welfare is considered to be one of the accepted
goals to maximize consumers’ surplus under the antitrust laws of various
jurisdictions.
7 The 10
th Annual Conference of ICN from May 17-20 2011 at Hague, Competition Enforcement and
Consumer Welfare Setting the Agenda, (March 3, 2016, 7:00 AM) available at
http://www.internationalcompetitionnetwork.org/uploads/library/doc857.pdf 8 John Kirkwood & Robert H. Lande, The Chicago School’s Foundation is Flawed: Antitrust Protects
Consumers, Not Efficiency, 89 University of Baltimore Legal Studies Research Paper No. 2009-17,
2008, (Feb 28, 2016, 3:00 PM) available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1358402. 9 Id.
15
The concept of consumer welfare refers to the benefits derived by an individual
through the consumption of goods or services. It theory, it can be equated to the
concept of collective individual welfare which refers to assessment of an individual’s
own satisfaction ceteris paribus i.e. income and price. Presently the branch of welfare
economics uses the idea consumer surplus to calcite the consumer welfare. The
consumer surplus therefore is the assessment of consumer welfare and is described as
the excess of social valuation of product over the price actually paid.
Consumer surplus is defined as the difference between the price that one is ‘willing to
pay’ and ‘the price one actually pays’ for a particular product.10
According to Alfred
Marshall, an increase in consumer surplus is an indicator of an increase in social
welfare11
which rightly reflects the idea of consumer welfare under the Competition
laws. The whole essence of the concept of consumer surplus is based on the extra
satisfaction derived from his purchases over the price actually paid. In the words of
Robert Bork, “Consumer welfare is the greatest when society's economic resources
are allocated so that consumers are able to satisfy their wants as fully as technological
constraints permit. Consumer welfare, in this sense, is merely another term for the
wealth of the nation.... Consumer welfare, as the term is used in antitrust, has no
sumptuary or ethical component, but permits consumers to define by their expression
of want in the marketplace what things they regard as wealth.12
Consumer welfare thus, is defined as an economic concept with certain socio-political
and legal implications. It is meant to be the ‘buyer’s welfare’ i.e. the benefit a buyer
derives from the consumption of goods and services. The traditional antitrust analysis
of the consumer welfare is done by the Marshallian concepts of partial equilibrium
analysis.13
This analysis is based on a subsection of an economy called as the
“relevant market” where the “consumers” are the buyers. The Marshallian demand
curve sums up the demands of consumers, taking prices, preferences, and income as
exogenous variables. In this analysis, consumer welfare is equated to consumer
surplus,14
which is, the difference between the amount a buyer is willing to pay for a
10
Dr. H.L. AHUJA, ADVANCED ECONOMIC THEORY MICROECONOMIC ANALYSIS 321(20th
ed. 2014). 11
ALFRED MARSHALL, PRINCIPLES OF ECONOMICS 103(8th
ed. 1890). 12
ROBERT H. BORK, THE ANTITRUST PARADOX: A POLICY AT WAR WITH ITSELF 50
(1978). 13
See ALFRED MARSHALL, PRINCIPLES OF ECONOMICS (1st ed. 1890). 14
ALFRED MARSHALL, PRINCIPLES OF ECONOMICS 199 (4th ed. 1898)
16
good and the amount that he actually pays for it. The graph given below explains the
Marshallian consumer surplus.15
The graph also depicts the producer surplus that
signifies the difference between the amount a seller is paid for a good and the seller's
cost of providing it.16
The "total surplus" or "aggregate welfare" in this simplistic
model is the joint area of the consumer surplus and producer surplus.
17
GRAPH- Marshallian Consumer Surplus
2.3 Meaning of the term ‘Consumer’ under Competition Law
The consumer movement in India is old as trade and commerce. Even in the
Kautilya’s Arthashastra, there are references to the concept of consumer protection
against exploitation by the trade and retailer with respect to quality, short weight,
measurement and adulteration of goods but until the late 1970s, there was no
systematic movement in the country for safeguarding the interest of consumers. But
now it is widely acknowledged that the level of consumer awareness and protection is
a true indicator of development of the country and progressiveness of civil society.18
15
See Jerry A. Hausman, Exact Consumer's Surplus and Deadweight Loss, 71 AM. ECON. REv 662
(1981) 16
Barak Y Orbach, The Antitrust Consumer Welfare Paradox, 7 J. Comp. L. & Econ. 133 (2011),
available at
http://poseidon01.ssrn.com/delivery.php?ID=8851010960711220641191051220890670640040520520
06035025009008073103020117081112117107062107121002051121097127031115113023107019043
03204402107602607700712709408812306907709409910508611312312709212111809310006810712
2091009010081030066102074025113094124&EXT=pdf. 17
Orbach supra note 16 18
Draft National Competition Policy 2011, Para 11.2, available at
http://www.mca.gov.in/Ministry/pdf/Draft_National_Competition_Policy.pdf
17
Consequently, the concern in the Indian Constitution for protection and promotion of
an individual’s rights, and for the dignity and welfare of the citizen makes it necessary
to offer the welfare of the individual as a consumer. The rights under the Consumer
Protection Act, 1986 also flow from the rights enshrined in Articles 14 to 19 of the
Constitution of India.
But, the importance that the competition authority gives to the consumer welfare
depends on the relative objective that the competitive law want to pursue- whether it
is a consumer well-being approach, a total welfare approach or a public interest
approach.19
Some of the jurisdictions aim in achieving ‘total welfare’ through its
competition policies. Total welfare stands for the overall welfare of the economy i.e.
by achieving consumer surplus (difference between the consumer valuations and the
price actually paid) and producer surplus (difference between the amount a producer
of goods receives and the minimum amount he would be willing to receive for that
good). The surplus received by the consumer and the producer is the benefit received
by both while buying and selling the goods in the market. This in turn helps in the
overall or total welfare which is one approach adopted by certain jurisdictions. But,
the jurisdictions which intend at achieving the ‘consumer welfare’ only take into
consideration the consumer surplus.
But the debate among enforcers and academicians in the late 1980s has led to the
view that competition law should primarily aim at an efficient working of the market,
in order to maximise consumer benefits i.e. to follow the consumer welfare
standard.20
In order to further delve into this aspect, first it becomes necessary to define who is a
consumer. According to the Oxford dictionary the term consumer stands for a person
who purchases goods and services for personal use and whereas according to the
Black Law’s Dictionary21
, ‘a consumer is someone who buys goods or services for
19
EUGÉNE BUTTIGIEG, COMPETITION LAW: SAFEGUARDING THE CONSUMER
INTEREST A COMPARATIVE ANALYSIS OF US ANTITRUST LAW AND EC COMPETITION
LAW 7(2009). 20
See Karl Van Miert, European Competition Policy: A Retrospective and Prospects for the Future,
29th
Annual Fordham Corporate Law Institute. 1-14, 1(1999); See also Mario Monti, Convergence in
EU US Antitrust Potiky Regarding Mergers and Acquisitions: an EU Perspective (2004), available at
http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/04/107&format=HTML&aged=0&
language=EN&guiLanguage=en 21
CONSUMER, Black's Law Dictionary (10th ed. 2014)
18
personal, family, or household use, with no intention of resale; a natural person who
uses products for personal rather than business purposes.’ Therefore, term in common
parlance refers to a person who receives any kind of goods or service.
In India the term ‘consumer’ under the Competition Act, 2002 is defined under
Section 2(f) as any person who—
(i) buys any goods for a consideration which has been paid or promised or partly paid
and partly promised, or under any system of deferred payment and includes any user
of such goods other than the person who buys such goods for consideration paid or
promised or partly paid or partly promised, or under any system of deferred payment
when such use is made with the approval of such person, whether such purchase of
goods is for resale or for any commercial purpose or for personal use;
(ii) hires or avails of any services for a consideration which has been paid or promised
or partly paid and partly promised, or under any system of deferred payment and
includes any beneficiary of such services other than the person who hires or avails of
the services for consideration paid or promised, or partly paid and partly promised, or
under any system of deferred payment, when such services are availed of with the
approval of the first-mentioned person whether such hiring or availing of services is
for any commercial purpose or for personal use;
Thus, under the Indian Competition Law, the term consumer relates not only to the
end consumer but rather it is more comprehensive as it covers many others in the
distribution chain. As per the recommendations given by the Raghavan Committee22
for the new Competition law regime of India, “All consumers will be treated equally
and the law will not distinguish between consumers who purchase goods or services
for personal use or for commercial use. Thus, for the purpose of the Competition
Policy/Law a consumer is any purchaser of goods and/or services regardless of the
purpose for which the purchase is made.” Consequently, the term consumer does not
refer to only consumer or seller, as under the Competition laws consumer can be both.
The focus of this dissertation would be on all those who form the part of the supply
22
Report of High Level Committee on Competition Policy & Law – SVS Raghavan Committee 2000, ¶
4.8.2, (March 16, 2016, 4:28 PM), available at
http://www.ccr.org.in/uploads/2/1/9/6/21961628/report_of_high_level_committee_on_competition_pol
icy_and_law.pdf
19
chain (as consumers) but it would majorly focus on the consumer at the end of the
supply chain i.e. the final user, the man on the streets. The whole idea of this
dissertation is to analyse ‘consumer’ as a reference point to examine whether the
Competition laws are effectively implemented and how for it is serving objectives
enshrined in the preamble of the Indian Competition Act.
2.4 Competition as a Means to increase Consumer Welfare
The term ‘competition’ generally refers to an act of rivalry. While we talk about
competition, it denotes a structure in the market where no buyer or seller is in a
position to influence the price of goods or services through his purchases or sales.
This kind of a competitive market helps in the smooth functioning of the economy
and subsequently helps in generating efficiencies (allocative, productive and
dynamic)23
. Precisely, the competition policies does not make anyone rich or poor but
acts a source to expand the collective wealth by requiring the lawful products to be
sold and produces under the conditions that are favourable to the consumers.
The objective of this whole idea is based on the view that the consumer as the weaker
party in the distribution chain often becomes the victim of excessive economic power
and market failure and thus requires more protection. As stated earlier, the
competition policy or antitrust policy (interchangeably used) is different for different
jurisdictions, but what remains the same for almost every competition policy globally
is the goal to achieve ‘consumer welfare’ or the ‘protection of consumer interest’. The
consumer welfare lies on the philosophy of Jeremy Bentham’s theory of
utilitarianism24
. As the theory of utilitarianism stands for ‘greatest happiness for the
greatest number of people’, the consumer welfare perspective aims at the protection
of the consumers at large in the form of consumer gain. In common parlance for an
end consumer, competition stands for lower prices, innovation and better choices
between different products. Thus the primary function of competition laws intends in
improving the economic mechanisms for inducing private and public forces for
23
United Nations Conference on Trade and Development, The role of competition policy in promoting
economic development: The appropriate design and effectiveness of competition law and policy, Sixth
United Nations Conference to Review All Aspects of the Set of Multilaterally Agreed Equitable
Principles and Rules for the Control of Restrictive Business Practices 2010, available at
http://unctad.org/en/Docs/tdrbpconf7d3_en.pdf. 24
Liza Lovdahl Gormsen, The Conflict Between Economic Freedom and Consumer Welfare in the
Modernisation of Article 82 EC, 3 Eur. Competition J. 329 2007 available at
http://ftp.infoeuropa.eurocid.pt/files/database/000040001-000041000/000040191.pdf.
20
working efficiently for the benefit to consumers therefore equating competition to
consumer welfare.
In the early 1970s, the University of Chicago through a lot of economic and legal
analysis came to an understanding that competitive arrangements must be evaluated
with reference to the criteria of efficiency on the premise of how the markets work.25
One of the main advocators of the Chicago School, Robert Bork, notes that the
consumers are benefitted whenever there is a proper allocation of economic resources
so that consumers are able to satisfy their wants properly. For instance, benefits to
consumer from corporate mergers. He also argued that the original intention of
antitrust laws and economic efficiency was in order to achieve consumer welfare and
protection of competition. It is often believed, Bork’s writings on antitrust law along
with Richard Posner and other Chicago school thinkers were significant in causing
change since the 1970s in the approach of the U.S. Supreme Court’s towards the
antitrust laws.
For example, it is often said that the U.S. antitrust laws, provides a proper balance
between the interests of American industry to compete in domestic and foreign
markets while providing the economic welfare and maximum protection to the
domestic consumers of U.S.26
While the Europeans were earlier keen in protecting the
competitors than consumers, but in fact EU has also made enormous efforts towards
adopting evaluation criteria based on consumer welfare considerations.27
In turn, this
convergence has led to the general acceptance of consumer welfare as the standard for
the evaluation of competition policies of different jurisdictions.
The analysis of competition in both US and in Europe is usually based on how the
firms are arranged in order to promote efficiency and competition. This is generally
evaluated by using output, price, product characteristics and quality as the criteria.
The followers of the Chicago School like Richard Posner initially strongly argued for
the use of a single standard of price theory as an instrument to analyse the industrial
25
See Bork supra note 12 26
John L. Cooper, Balancing Competitor Cooperation and Competition against Consumer Welfare and
Viable International Competition, 61 Antitrust L.J. 621, 621-634 (1993). 27
Alberto Pera And Vito Auricchio, Consumer Welfare, Standard Of Proof and the Objectives of
Competition Policy, 1 Eur. Competition J. 153 2005, available at
http://heinonline.org/HOL/LandingPage?handle=hein.journals/eurcompet1&div=11&id=&page=
21
practices28
, but various technical advancements have called for a more dynamic
analysis rather than a single criterion on which rule of reason should be applied.29
In the US, it was held in the case Broadcom Corp. v. Qualcomm Inc30
that the primary
goal of antitrust law is to maximize consumer welfare by promoting competition
among firms. In another case of LAPD v. Gen. Elec. Corp.31
the United States Court of
Appeals observed that the antitrust law is designed to protect consumers from the
higher prices and society from the reduction in allocative efficiency, which occurs
when firms with market power curtail output.
Also, there is a wide shift of analysis from the formal characteristics of potentially
restrictive arrangements to effect on consumer welfare due to the consumer welfare
approach. This has led to a shift in practice and various practices which were
evaluated under the per se rule are assessed under the rule of reason with the help of
economic analysis.
The US Supreme Court has stressed upon consumer welfare by expanding the scope
of rule of reason while referring to exclusive territorial distribution agreements in
terms of reduction of free-riding, the strength of inter brand competition and
expansion of competition by new entrants32
which earlier was judged under the per se
rule.33
Even for resale price maintenance originally it was considered as restricting
competition per se34
but further by overruling the previous decision held that
"vertically-imposed maximum prices [can be deemed not to] harm consumers or
competition to the extent necessary to justify their per se invalidation."35
Whereas in Europe, under a DG Competition had stated in its Discussion report, the
paramount object of Article 82 was consumer welfare.36
Even though the report is not
28
Board of Trade of the Ci of Chicago v United States., 246 US 231, 38 S Ct 242 (1918). 29
Louis Kaplow, Antitrust, Law & Economics, and the Courts, (Feb 25, 2016, 10:45 AM), available at
http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=3926&context=lcp 30
2008 WL 66932. 31
132 F.3d 402 (1997). 32
Continental TV Inc v GTE Sylvania Inc., 433 US 36 (1977). 33
United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967)
34 Dr. Miles Medical Co. v. John D. Park and Sons., 220 U.S. 373 (1911).
35 State Oil v Khan., 522 US 3 (1997)
36 European Commission, DG Competition Discussion Paper on the Application of Article 82 of the
Treaty to Exclusionary Abuses, 2005 at ¶ 4, available at
http://ec.europa.eu/competition/antitrust/art82/discpaper2005.pdf.
22
an authoritative source on this subject, it shows the DG Competition’s current idea
about Article 82. It is often observed that the consumer welfare and efficiency are the
new principles of EU competition law where the protection of consumer welfare as an
outcome of the competitive process is the eventual goal. For example, EU has
involved itself in a lot of economic analysis while considering the aspects of
consumer welfare. In the many cases37
during 1990s involving agreements and the
unilateral conduct, the European Courts have a paved a way for detailed economic
evaluation as compared to their US counterparts. In the case of Metro v Deutsche
Grammophon38
and other cases39
the ECJ analysed the agreements on pricing and
held them legitimate on the appraisal of economic effects of distribution systems.
In India in the case of M/s Metalrod Ltd. Ghaziabad v. M/s Religare Finvest Ltd., New
Delhi40
the CCI opined that the principle objective of competition law is to maintain
and encourage competition as a vehicle to promote economic efficiency and
maximize consumer welfare. In another case of Arun Kumar Tyagi v. The Software
Engineering Institute, The High Court of Uttrakhand and The HCL Technologies
Ltd41
the CCI spoke about this aspect stating that the Competition Act, 2002 being an
economic law seeks to promote and protect competitive forces in the market because
free and fair competition is in the interest of consumers and according to the
conclusion made by the microeconomic theory, competition results in greater
consumer welfare and also producer efficiencies and would result in lower prices as
compared to a scenario where there is no competition. Thus, this analogy by the CCI
results in an observation that the Competition law in India follows a total welfare
approach in which the protection of the consumer interests plays a crucial role to
achieve consumer welfare. Hence, at large the competition law concentrates in the
promotion of competition between enterprises and to remedy structural and
behavioural problems in the market and the protection the consumers at large by
offering them wide array of choices at reasonable prices, stimulates innovation and
productivity, and leads to optimum allocation of resources to enhance welfare.
37
Europemballage Corpn and Continental Can Co Inc v Commission., [1973] ECR 215.
See also United Brands Company v Commission., [1978] ECR 207.
See also Hoffmann-La RocheAG v Commission., [1979] ECR 461 38
Metro v Deutsche Grammophone.,[1971] 470. 39
LC Nungesser Kg E Kurt Eisele v Commission of the European Communities, Case 258/78, (1982). 40
MANU/CO/0080/2011 41
[2011]110SCL157(CCI)
23
CHAPTER-3
PROTECTION AND WELFARE OF CONSUMER
UNDER COMPETITION LAWS IN INDIA, USA, AND EU
Every jurisdiction has its own history of the enactment of the competition laws.
Different jurisdictions aimed at achieving different objectives according to their own
experiences. Some adopted the protection of consumer interests as their foundational
objective and some accepted it as a set principle after some years of its enactment in
accordance with their own practices and understandings. From the discussion done in
the previous chapter it becomes clear that despite having different foundational
objectives and remedial mechanisms for the competition policies, the different
jurisdictions share a common aspect to provide consumer welfare. There lies a level
of convergence between the three jurisdictions when it comes to the consumer welfare
approach (including the one under total welfare) since the consumers are considered
to be a very important part of any economy and protecting their interests becomes a
prime task to be performed by the legislations and policies of the State. This portion
sets out to analyze the provisions pertaining to the protection of consumer interest
under competition laws in the three jurisdictions. This chapter sets to discuss the
possible analogy and the historical evolution of this principle under the laws of India
and other jurisdictions.
3.1 United States of America
The USA is the first jurisdiction to pass an antitrust legislation and holds long years of
experience in this field. But even after more than hundred years of antitrust law
application, the federal courts are still aren’t clear as to the fixed goals of the law
which have led to a variety of debates amongst the scholars. But an important remark
made by Robert Bork needs to be remembered here when he said, “antitrust is a
cornucopia of social values, all of them rather vague and undefined but infinitely
attractive.”1
1 ROBERT H. BORK, THE ANTITRUST PARADOX: A POLICY AT WAR WITH ITSELF 50
(1978).
24
3.1.1 Chicago School – Justification of the Consumer Welfare Standard
The Chicago School was very influential during the 1970s in convincing the federal
Courts that the focus of the antitrust laws was on maximizing consumer welfare. The
Chicago school was also instrumental in encouraging an economic-based approach to
check the impact of business on consumer welfare.
One of the main advocators of Chicago School Robert Bork contended that the
Sherman Act was passed with the sole objective to have consumer welfare with the
attainment of economic efficiency. Bork said there is no proof for the ‘possible broad
social, political and ethical obligations’ and explicitly rejected the distributive issues
as a possible for congressional concern. And thus, the whole theory of consumer
welfare is the sole goal of the antitrust laws of US.2 According to Bork, there are five
structural features3 of US antitrust law also existing in the EU competition regime
which shows that the consumer welfare is the sole goal of antitrust. The five structural
features that prove the same are-
1. The per se rule against the consumers which show that the business units must
be allowed to prosper, survive or decline in accordance to their ability for
meeting the consumer needs.
2. The distinction between cartels and mergers would have been irrational if the
goal wasn’t consumer welfare. Mergers can eliminate rivalry between firms
more than cartels which are more permanent yet only cartels are per se illegal.
The reason for the same is that elimination of rivalry by mergers may lead to
better efficiencies while cartels are insignificant in creating efficiencies. This
pro-efficiency policy is only preferred due to the existence of consumer
welfare as the goal of antitrust.
3. The Sherman Act clearly provides that mergers creating superior efficiencies
are permitted while the ones leading to monopolization are illegal which was
later strengthened with the amendment to the Section 7 Clayton Act. This pro-
efficiency standard rests upon the consumer welfare policy.
2 EUGÉNE BUTTIGIEG, COMPETITION LAW: SAFEGUARDING THE CONSUMER INTEREST
A COMPARATIVE ANALYSIS OF US ANTITRUST LAW AND EC COMPETITION LAW
26(2009). 3 Bork, supra note 1.
25
4. The Sherman Act adopted the principle that the size achieved by a business
unit by normal means is a reflection of its efficiency and the size achieved by
unfair practices is qualified to prevent competition.
5. The Robinson-Patman Act attacks at the price discrimination that may reduce
competition. But the Act also provides with a complete defense for the seller
who can prove that the price differential did no more than make allowance for
differences in costs of the two transactions being compared. The intention
behind this principle was to reflect the lower costs in lower prices when
competition is threatened which is pro-consumer.
These five features clearly show that the antitrust regime in the US was founded on
the notion of enhancement of consumer welfare so it is wrong to take into account the
non-populist goals. Thus, Bork was of the opinion that consumer welfare standard
was a much clearer, precise and easier to apply than all the other standards.
3.1.2 Critics of Chicago School – Emergence of Consumer Interest Standard
While the Chicago School asserted that the Congress had consumer welfare standard
in mind while it enacted the antitrust statute, this assertion was strongly criticised by
some commentators and scholars. The critics of Chicago School pointed out that the
Congress had a much broader notion while enacting the antitrust statute which is of
‘consumer interest’ rather than consumer welfare in the efficiency sense. Two of such
critics are EM Fox and LA Sullivan who said, the achievement ‘economic welfare’ by
antitrust laws cannot be equated with protecting consumer interests. They contended
that protection of consumer interest is altogether a totally different concept since it
aims at protecting the consumers from getting exploited by the market forces.
It is contended by the critics that economic efficiency was never the exclusive goal of
the antitrust laws rather, the Congress made it extremely clear that the fundamental
goal of antitrust was the protection of consumers from exploitation. This is because
the main objective of Congress was to prevent firms from acquiring or maintaining
market power without proper cause and justification for using it to raise prices for the
26
consumer.4 This practice doesn’t enhance efficiency rather prevents powerful players
for unfairly extracting the wealth of the consumers.
Thus, the approach given by the critics of Chicago school suggests that the antitrust
laws were mainly enacted for the purpose of giving consumers the right to purchase
‘competitively priced products’. This denounces the practice to raise prices and helps
in preventing wealth extractions by using market power. Also, a view that is usually
advocated under the consumer welfare standard is any practice or conduct must not
lead to a wealth transfer to the detriment of consumers. This analogy most
appropriately will fall under the consumer interest standard as an ideal standard to
achieve maximum consumer well-being. According to Herbert Hovenkamp, in the
year 2005 "after thirty years, the debate over antitrust ideology has quieted. Most now
agree that the protection of consumer welfare should be the only goal of antitrust
laws."5 Hence, by these contentions the post-Chicago scholars suggested that the aim
of antitrust is to protect the consumer interests by taking into account the wealth
transfer effects and thus, efficiency should not be the sole goal of antitrust.
3.1.3 Analysis of the present framework of Antitrust Regime in respect to the
Consumers
While there were criticisms of both the theories of Chicago School and Post-Chicago
School what can be observed is a middle path that is taken by US antitrust authorities
in respect of the preferred standard of antitrust policy. Recently, the International
Competition Network (ICN) recently after completing the three surveys of its member
competition authorities for the identification of the antitrust objectives of their
respective countries. In the third survey, conducted in 2011 explored fifty-seven
countries’ conception and application and cited promotion of consumer welfare as one
of the goal.6
4 John B. Kirkwood & Robert H. Lande ,The Fundamental Goal Of Antitrust: Protecting Consumers,
Not Increasing Efficiency, 84 NOTRE DAME L. REV. 191, 219–24 (2008), available at
http://ndlawreview.org/wp-content/uploads/2013/07/Kirkwood_Lande.pdf 5 HERBERT HOVENKAMP, THE ANTITRUST ENTERPRISE: PRINCIPLE AND EXECUTION
(2005). 6 Competition Enforcement and Consumer Welfare Setting the Agenda, The 10
th Annual Conference of
ICN from May 17-20 2011 at Hague, available at
http://www.internationalcompetitionnetwork.org/uploads/library/doc1035.pdf.
27
This is reflected even in the later judgments of the Courts. For example, the United
States Court of Appeals in the case LAPD v. Gen. Elec. Corp.7
observed that the
antitrust law is designed for the protection of consumers from higher prices and
society from the reduced allocative efficiency, which occurs when firms with market
power restrain output. In Netherlands, a general definition of consumer welfare has
been provided stating it cannot be equated to consumer protection and consumer
welfare will only relate to consumer surplus and not non-economic considerations.
Thus, consumer welfare only relates to long-term benefits and both static and
dynamic analysis must be employed according to facts to estimate the welfare.8
The conclusion that can be brought through these findings is the end result leads to an
approach which blends efficiency along with the prevention of wealth transfer goals
of antitrust laws. This leads to a scenario which enhances the aggregate social wealth
by providing a certain share to the consumers leading to their welfare and preventing
them from getting exploited. Thus, the approach adopted presently is a protection of
long-term consumer interest by seeking to achieve their welfare.
3.2 European Union
The origin of Competition law in EC and the US antitrust law are very different from
each other. Unlike the US antitrust law, the EC competition law was not implemented
against the concentration of market power for the protection of consumers rather the
rationale behind EC competition law is tied to the single market goal. This makes it
quite clear that the objective behind the competition law of EC was not linked to
Consumer interests when it was drafted.
But this does not mean that EC competition law is not meant to protect consumer
interests. The EC Competition Law is rather a multi-goal system. As stated by Van
Miert in 1993, then Competition Commissioner –
“The aims of the European competition policy are economic, political and social. The
policy is concerned not only with promoting efficient production but also with
achieving the aims of the European treaties: establishing a common market,
approximating economic policies, promoting harmonious growth, raising living
7 F.3d 402 (7th Cir. 1997).
8 ICN supra note 6
28
standards, bringing Member States closer together etc. To this must be added the need
to safeguard a pluralistic democracy, which could not survive a strong concentration
of economic power.”9
The EU competition law is not a ‘stand-alone’ legislation like its US counterpart
aiming at isolated objectives rather it is of a framework of interconnected Treaty
provisions.10
The working of the competition law in Europe is through the Treaty on
the Functioning of the European Union (TFEU), initially called as the Treaty of Rome
came into force following the entry of Treaty of Lisbon in 2009. The whole idea
behind having the TFEU was to have a single internal market without any restriction
and distortion in competition for the free movement of goods and services throughout
EU.11
This function in order to be performed requires the fair treatment of customers
under the competition laws.
3.2.1 Efficiencies as means to achieve consumer and social welfare
The European Competition Law primarily targeted at market integration but the
emergence of new competition goals currently it is the total welfare approach which
finds its roots in welfare economics is adopted. Although the integration of market
was the primary objective of the competition law in EC but later consumer surplus
and productive efficiency were included into the category of competition goals.12
The
EU competition law aims at promoting economic efficiency which is an economics-
oriented approach for upholding consumer welfare. This concept is achieved through
neo-classical economics where efficiencies help in wealth maximization by enhancing
consumer surplus and producer surplus which in consequence achieve social
welfare.13
Thus, what can be said is by the way of improving efficiencies through
competition the intermediate goal of consumer welfare ultimately leading to social
benefits.
9 See Speech by Commissioner Karel Van Miert, Frontier-Free Europe, 5 May 1993
10 CHRISTOPHER TOWNLEY, ARTICLE 81 EC AND PUBLIC POLICY 48(2009).
11 Slaughter and May, An overview of EU Competition rules, (Slaughter and May, 2011)
(March. 21, 2016, 5:45 PM), available at http://www.slaughterandmay.com/media/64569/an-
overview-of-the-eu-competition-rules.pdf. 12
Ioannis Lianos, Some reflections on the question of the goals of EU Competition Law, CLES
Working Paper Series 3/2013, (March. 21, 2016, 8:30 PM), available at
https://www.ucl.ac.uk/cles/research-paper-series/research-papers/cles-3-2013 13
S BISHOP AND M WALKER, THE ECONOMICS OF EC COMPETITION LAW 47(3rd ed. 2010)
29
Thus, the competition law of EC does not follow a unilateral approach by providing
protection only to customers. Contrasting the US antitrust law the EC law affords
protection to both consumer and producers. Hence, the standard of total welfare was
adopted instead of the pure consumer welfare approach.
3.2.2 Provisions in the TFEU for the protection of consumers
The EU competition law is linked with the economics-oriented approach is a view
introduced lately to promote economic efficiency and consumer welfare.14
The Title II
i.e. Provisions having General Application Article 1215
of TFEU provides for the
Consumer Protection to be taken into account. Thus, the general provisions have to be
read along with the other provisions of the treaty to get a holistic view of the Act and
how the function of Consumer Protection is performed.
The Article 101of the TFEU (ex Article 81 TEC) under clause (1) prohibits as
incompatible with EU principles, all agreements between undertakings, decisions by
associations of undertakings, and concerted practices which may affect trade between
Member States and which have as their object or effect the prevention, restriction, or
distortion of competition within the EU and clause (2) makes such agreements and
decisions void. Art 101(3) enables a consumer welfare analysis by referring to a fair
share of the resulting benefits being passed on to consumers and consequently
resulting in the balancing of efficiencies.16
A contextual correlation of consumers
under Art 101(3) shows that how in order to analyse the competition in the market it
is checked that how consumers are benefitted in the long run.
The provisions pertaining to Abuse of Dominance under Article 10217
of TFEU also
has reference to consumers. Officially the Commission claims that the assessment of
14
Lianos supra note 12. 15
Art. 12 under Title II Provisions Having General Application of the Treaty on the Functioning
of the European Union (TFEU):- Consumer protection requirements shall be taken into account in
defining and implementing other Union policies and activities. 16
The Legitimacy of Consumer Welfare and Efficiency as Goals of EU Competition Law, (April. 24,
2016, 10:50 PM) available at http://www.undergraduatelibrary.org/system/files/1661.pdf 17
Art 102 of the Treaty on the Functioning of the European Union (TFEU):-
Any abuse by one or more undertakings of a dominant position within the internal market or in a
substantial part of it shall be prohibited as incompatible with the internal market in so far as it may
affect trade between Member States. Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
30
Art 102 is evaluated on the basis of whether the actions of dominant undertaking
negatively affect the market and cause harm to consumers. It is often recognized that
the Art 102 is designed to ensure consumer welfare and effective distribution of
resources.18
The EC Merger Regulation provides in the Article 2 that the Commission during
evaluation of the concentration the interests of the intermediate and ultimate
consumers shall be taken into account.19
This protection afforded to the interest of
consumers is also strengthened through Commission’s backing of consumers to bring
an action if they suffer or are aggrieved as a consequence of a competition law
breach.20
In the case of GlaxoSmithKline21
, the ECJ held that Art 101 TFEU not only protects
competitors or consumers, ‘but it also plays a very important role to protect the
structure of the market and consequently in protecting competition. Recently, the
Court again stated that the function of competition law is to prevent distorted
competition which result in harm to the public interests, producers, and consumers in
turn safeguarding the ‘well-being’ of the Union.22
Some decisions of the General Court have explicitly recognized the idea of protecting
the final consumers as a goal of competition law.23
It has also recently accepted that
one of the chief functions of EU competition law is to prevent “consumer harm”, and
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing
them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary
obligations which, by their nature or according to commercial usage, have no connection with the
subject of such contracts. 18
N. Kroes, Member of the European Commission in charge of Competition Policy, Preliminary
Thoughts on Policy Review of Article 82, Speech at the Fordham Corporate Law Institute in New York
2005, available at http://europa.eu/rapid/pressrelease_SPEECH-05-537_en.htm?locale=en 19
Regulation (EC) 139/2004 on the Control of the Concentrations Between Undertakings, OJ 2004, L
24/1 20
Raimundas Moisejevas & Ana Novosad , Some thoughts concerning the Main Goals Of Competition
Law, Jurisprudence 20 (2):627-642. (2013), (April.26, 2016, 11:00 PM), available at
https://www.mruni.eu/upload/iblock/b0c/JUR-13-20-2-14.pdf 21
GlaxoSmithKline Services Unlimited v. Commission of the European Communities, [2006] ECR II-
2969 22
Supra note 15 23
AstraZeneca AB and AstraZeneca plc v. European Commission [2010] ECR II-2805.
31
this has led to the creation of new legal categories called as price and non-price
restraints.24
Thus, by this, we can say that EU competition law having a multi-goal objective aim
at achieving various goals some of them being the integration of the Internal Market,
protection of the consumers, protection of the competitors and thereby effective
competition, and also the protection of small and medium-sized enterprises.
3.3 India
The competition law regime of India is in its nascent stage. It is still a toddler in terms
of its experience and working as compared to the jurisdictions of US and EU which
hold years of experience and expertise. India does not use the terms Consumer
welfare or Consumer interest in its competition policy. But quite at times these terms
are used interchangeably or as synonyms and sought to achieve the same objectives,
unlike the USA. The consumer welfare under Indian competition law has a much
wider scope and includes protection of consumer interest in its ambit. This is probably
due to the reason that India is inexperienced in comparison to jurisdictions like USA
and EU and requires more experience in order to refer them differently and
understanding their implications. Thus, this portion would be employing these two
principles interchangeably.
3.3.1 Monopolies and Restrictive Trade Practices Act and Consumer
Protection Act – Playing Complementary Roles
As we know prior to the Competition Act, 2002 the function of promoting
competition in India and curbing the monopolies was done by the Monopolies and
Restrictive Trade Practices Act, 1969 (MRTP Act). Earlier till 1984, MRTP Act did
not have any express provisions pertaining to Unfair Trade Practices (UTPs) and
protection of consumers against false or misleading advertisements. But later by the
recommendations given by the Sachar Committee to add a separate chapter
amendments were brought to the Act. As quoted by the “Advertisement and sales
promotion have become well-established modes of modern business techniques. That
24
PostDanmark A/S v. Konkurrencerådet [2012] ECR I-0000.
32
advertisement and representation to the consumers should not become deceptive has
always been one of the points of conflicts between business and consumer”.25
Whereas the Consumer Protection Act, 1986 (COPRA) was enacted to provide for
better protection of consumers and establishment of consumer councils for settlement
of disputes.26
COPRA establishes consumer councils at National, State and District
levels to promote and protect the rights of consumers.27
Thus, the objective of MRTP Act was to curb Monopolistic, Restrictive and Unfair
Trade Practices disturbing the competition and adversely affecting the consumer
interest which worked parallel to the other legislation, the Consumer Protection Act,
1986 prevailing in the ambit of Unfair Trade Practices.28
Hence, it can be said that the
Consumer Protection Act and the MRTP Act have been playing complementary roles
in the promotion of consumer welfare in India.
3.3.2 Raghavan Committee
According to the preamble of the Raghavan Committee, the ultimate objective of
competition is the interest of consumers. The Committee also opined that competition
policy is instrumental in an achieving efficient allocation of resources, technical
progress, consumer welfare and regulation of the concentration of economic power
hence, competition policy should aim at the positive objective of promoting consumer
welfare.29
The objective of competition policy is to promote efficiency and maximize
welfare. In this context, the appropriate definition of welfare is the sum of consumers'
surplus and producers' surplus and also the taxes collected by the Government.30
Therefore, in order to bring about a competition policy for serving consumer interest
25
Report Of The High-Powered Expert Committee On Companies And MRTP Acts, Chapter XXI,
Monopolistic, Restrictive and Unfair Trade Practice, AUGUST, 1978 at ¶ 21.13 26
Consumer Protection Act, 1986, Preamble –
An Act to provide for better protection of the interests of consumers and for that purpose to make
provision for the establishment of consumer councils and other authorities for the settlement of
consumers’ disputes and for matters connected therewith. 27
The Consumer Protection Act, 1986, § 6. 28
Dr. S Chakravarthy, MRTP Act Metamorphoses Into Competition Act, (April. 23, 2016, 1:15 AM)
available at www.cuts-international.org/doc01.doc 29
Report of High Level Committee on Competition Policy & Law – SVS Raghavan Committee 2000
at ¶ 1.2.0 30
Supra note 29 at ¶ 2.1.1
33
and welfare, the essential prerequisite is to first bring a competitive environment
which falls within the contours of competition principles.31
The Committee quoted that “If the consumer is at the fulcrum, consumer interest, and
consumer welfare should have primacy in all Governmental policy formulations as
consumers are affected by pricing policies, financing practices, quality of goods and
services and various trade practices.”32
An Expert Group33
observed that "all
Governmental policies will have to be viewed through the competition lens to ensure
that consumer interest and welfare and economic efficiencies and development
dimensions are not pejorated."
As a consequence, since competition is an engine for growth and consumer welfare, it
became imperative to bring about the necessary economic reforms of liberalization,
deregulation, and privatization to empower the consumers to reap the benefits of
competition in market34
by ensuring that necessary intervention and over-regulation is
minimized.35
3.3.3 Competition Act
The Competition Law primarily works in order to generate economic efficiency and
the overall welfare of the society by guaranteeing consumers a share of the economic
benefits arising from effective working of the markets through lowered cost of
production, expanded output, improved quality of product or creation of a new
product and spurring innovation.36
This would mean that the competition policy
promotes the goal of improvement of consumers’ economic interests.
The protection of consumer interests also finds its presence in the Indian Competition
Act. According to the preamble of the Act, one of the aims of the Act is to protect the
31
Supra note29 at ¶ ¶1.2.1 and 3.4.3 32
Supra note 29 at ¶¶ 3.1.8 and 3.1.9 33
Report of the Expert Group on Interaction Between Trade and Competition Policy” - Ministry of
Commerce, Government of India, New Delhi, January, 1999 34
Supra note 29 at ¶ 3.4.1 35
Supra note 29 at ¶4.1.5 36
Kati J. Cseres, Controversies of the Consumer Welfare Standard, 3(2)Comp. L. Rev. 121, 130 (2006)
available at
http://poseidon01.ssrn.com/delivery.php?ID=7680740701210950910680010270900020951270390550
41087088064009094028005075103101110121096063004100021039118065111119017109126127057
08002407801612609607012007201909308803300900009102008400912601206411609709608310112
7102016121087120097030016119073064073&EXT=pdf.
34
interests of consumers. The mention regarding the protection of the consumers in the
Competition Act is not just limited to the preamble but also extends to other
subsequent sections. The Section 437
talking about Abuse of dominance also consists
of provisions where in order to assess dominance it is imperative to look into whether
the alleged dominance along with the competitors affects the consumers in the market
or not. According to the Section 1838
under Chapter IV of the Act containing in
respect to the duties, powers and functions of the CCI, one of the duties of the
Commission is the protection of consumer interests. Also, under another important
section in Chapter IV i.e. Section 19, it is provided that the Commission while
inquiring into the anti-competitive agreements should give due regard to certain pro-
competition factors one of them being benefit to consumers.39
It also provides that
while determining the "relevant geographic market" and "relevant product market" the
Commission should have due regard to consumer preferences.40
The clauses (a)-(c) of
Section 19(3) deal with the negative factors that restrict the competitive process in
markets and the clauses (d)-(f) contain the positive factors responsible for enhancing
the efficiency of distribution process and to contribute consumer welfare.41
The
Competition Act also serves the consumers in an efficient manner for redressal by
establishing the Competition Commission of India which allows individual consumers
or their associations to present their grievances for redressal, before it.42
37
The Competition Act, 2002, §4 38
The Competition Act, 2002, §18 39
The Competition Act, 2002, § 19(3):-
The Commission shall, while determining whether an agreement has an appreciable adverse effect on
competition under section 3, have due regard to all or any of the following factors, namely:—
(d) accrual of benefits to consumers 40
§ 19 of The Competition Act, 2002:-
(6) The Commission shall, while determining the “relevant geographic market”, have due regard to all
or any of the following factors, namely:—
(a) regulatory trade barriers; (b) local specification requirements; (c) national procurement policies; (d)
adequate distribution facilities; (e) transport costs; (f) language; (g) consumer preferences; (h) need for
secure or regular supplies or rapid after-sales services.
See also § 19 (7) of The Competition Act, 2002:-
The Commission shall, while determining the “relevant product market”, have due regard to all or any
of the following factors, namely:—
(a) physical characteristics or end-use of goods;(b) price of goods or service; (c) consumer preferences;
(d) exclusion of in-house production; (e) existence of specialised producers; (f) classification of
industrial products. 41
Ghanshyam Dass Vij Vs. Bajaj Corp. Ltd. and Ors., MANU/CO/0083/2015 42
Shubhangi Goel, Protecting Consumer Interests under Competition Law, Internship Report CCI
2011, (April. 27, 2016, 7:00 AM) available at
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.644.6607&rep=rep1&type=pdf
35
3.3.4 National Competition Policy
The Draft National Competition Policy (NCP)43
, 2011 also stated that the fundamental
role of a competition policy is to guarantee consumer welfare by encouraging optimal
allocation of resources. According to the Statement of the NCP, “Competition policy
is a critical component of any overall economic policy framework. Competition
policy is intended to promote efficiency and to maximize consumer/social welfare. It
also promotes creation of a business environment, which improves static and dynamic
efficiencies, leads to efficient resource allocation and consumer welfare, and in which
abuse of market power is prevented/curbed.”
The NCP is a policy to have immense competition across sectors for unleashing the
full growth of the economy of the country by the way of promoting economic
democracy, forces of competition and transparency in market by considering the
market dynamics for the protection of consumer interests and market players.44
The
fundamental role of this competition policy is to guarantee consumer welfare by
optimum allocation of resources and to grant economic agents the incentives to pursue
productive efficiency, quality, and innovation.45
The NCP endeavours to preserve the competition process by following certain
standards two of them being-
(a) to protect competition, and to encourage competition in the domestic market
so as to optimize efficiency and maximise consumer welfare46
,
(b) to ensure that consumers enjoy greater benefits in terms of wider choices and
better quality of goods and services at competitive prices.47
The promotion of consumer welfare is the primary goal of any consumer protection
and competition policy as at origin both consumer protection and competition policy
is the recognition of the imbalanced relationship between consumers and producers.48
The competition policy intends to enhance productivity at industry level and lowers
43
Draft National Competition Policy 2011 (NCP), (March 24, 206, 6:45 PM), available at
http://www.mca.gov.in/Ministry/pdf/Draft_National_Competition_Policy.pdf. 44
Id. 45
Id. at ¶ 4.2 46
Id. at ¶ 6.2 (a) 47
Id. at ¶ 6.2 (f) 48
Id. at ¶ 11.1
36
consumer prices49
, promote efficiency to maximize consumer/social welfare50
, along
with improving international competitiveness.51
Thus, the two disciplines of consumer
protection and competition policy focus on different market failures and provide
different remedies but aim at maintaining well-functioning and competitive markets
that promote consumer welfare making the two disciplines mutually re-enforcing.52
The report of 2011 suggested the list of parameters that would enable a study for the
object of competition assessment as to how government policies or institutions limit
competition.53
But this proposal has not yet progressed and is in its final shape.
Thus, India follows an approach similar to EU where the protection of consumer per
se remains the goal achieved by coincidence rather consumers are considered to be
the ultimate indirect beneficiaries of the competition laws. In the way of guaranteeing
workable and healthy competition in the market, the enforcement of competition
policies eventually serves consumer interests by prohibiting anti-competitive
agreements, abuse of dominant position and regulation of combinations. Thus, the
consumer interests are served in the long run by ensuring better choices, cheap prices
of goods and services.
49
Supra note 43 at ¶ 5.1 50
Supra note 43 at ¶ 11.23 51
Supra note 43 at ¶ 11.25 52
Supra note 43 at ¶ 11.37 53
T. RAMAPPA, COMPETITION LAW IN INDIA 37(3rd
ed. 2014)
37
CHAPTER-4
INTERFACE OF COMPETITION AND CONSUMER
POLICIES
“Competition is not only the basis of protection to the consumer but is the incentive to
progress”.
- Herbert Hoover
In the era of globalization, there has been an advancement of the economies of the
world leading to the formation of competitive markets. In this present market
framework, the consumer is considered to be the king. This influence by market
economies calls for the need of robust regulations. These changes have led to many
countries adopting the competition policies and place such institutions that can
effectively enforce the same for the regulation of competition and consumer welfare.
The former Chairman of the Federal Trade Commission (FTC) once observed,
“Robust competition is the best single means for protecting consumer interests.”1
In order to achieve these objectives in India i.e. to prevent malpractices and protect
consumers, the legislature has enacted two laws named Competition Act, 2002 and
the Consumer Protection Act, 1986. In terms of the objectives of the two Acts, both
have one commonality in them i.e. ‘consumer welfare’ where the former aims at
protecting the interests of the consumer, the latter lays its focus on protecting the
rights of the consumers. Due to a similar overreaching goal of both the laws, it
becomes important to understand the intersection between these two branches.
Though competition and consumer policy are independent instruments of economic
policy, both aim at providing well-functioning markets by a strong supply side
1 Timothy Muris, The Interface of Competition and Consumer Protection, Paper presented at Fordham
Corporate Law Institute’s 29th Annual Conference on International Antitrust Law and Policy, New
York (2002), available at
https://www.ftc.gov/sites/default/files/documents/public_statements/interface-competition-and-
consumer-protection/021031fordham.pdf.
38
through competition and a strong demand side through consumers.2 It has been an
accepted proposition that the similarity between these two laws sometimes results in
tension between the policies. Moreover, the major difference arises due to the
difference in achieving the same objective. These interdependencies and differences
need to be recognised in order to give full effect to the implementation and
coordination of the policies. Thus, the present chapter aims at studying and exploring
the links between competition and consumer policies for the purpose of serving
consumer protection.
4.1 Consumer Welfare as a Shared Goal
Generally, the question of the interface between competition and consumer policy
arises due to the shared goal of consumer welfare. The ultimate object of consumer
well-being achievable under both the policies, make them interrelated. The link
between competition and consumer protection was also highlighted by The United
Nations Guidelines for Consumer Protection in the following words “Governments
should encourage fair and effective competition in order to provide consumers with
the greatest range of choice among products and services at the lowest cost.”3 In the
words of Pranab Mukherjee, “Competition is the buzzword now in every walk of life -
in industry, among service providers, among students, job seekers and employers.
Higher productivity, efficient allocation of resources, increased consumer welfare
through lower prices, better quality, wider choices and accelerated economic growth
are the dividends that accrue from greater competition.”4 The importance of
Competition was also highlighted by the judiciary when the Hon’ble Supreme Court
observed, “In a market governed by a free economy where competition is the
buzzword, producers may fix their own price. It is, however, difficult to give effect to
the constitutional obligations of a State and the principles leading to a free economy at
the same time. A level playing field is the key factor for invoking the new economy.
Such a level playing field can be achieved when there are a number of suppliers and
2 Taimi Amunkete, The Link between Competition Policy and Consumer Protection, Namibian
Competition Commission (2013) available at
http://www.nacc.com.na/cms_documents/ebb_competition_and_consumer_protection.pdf 3 Department of Economic and Social Affairs UNCTAD, United Nations Guidelines for Consumer
Protection, New York, United Nations publication, 2003 (April 5, 2016, 7:20 PM)
http://www.un.org/esa/sustdev/publications/consumption_en.pdf. 4 Pranab Mukherjee, Competition, Public Policy and Common Man. Speech presented at the National
Conference of Competition Commission of India, New Delhi (2009) available at
http://www.cci.gov.in/sites/default/files/workshop_pdf/ccispeechfmfinal.pdf
39
when there are competitors in the market enabling the consumer to exercise choices
for the purpose of procurement of goods. If the policy of the open market as to be
achieved the benefit of the consumer must be kept uppermost in mind by the State.”5
In another landmark judgment of Competition Commission of India v. SAIL6, the
Hon’ble Court observed that “the main objective of competition law is to promote
competition for the creation of market responsive to consumer preferences.” The
abovementioned examples clearly depict the universal acknowledgment of
Competition as a means of ensuring better services to the consumers and their
protection against the misconducts of sellers. The competition in the market also
manages to reduce prices and provide better choices benefiting the consumer.7
The working of the Competition law is by the prohibition of anti-competitive
agreements and the abuse of market power by an enterprise having an adverse effect
on the market. The competition law’s concern is to separate legitimate business
transactions from the adverse ones. The primary goal of the same is to efficiently
allocate the resources by the way of competition in the market.8 On the other hand,
the consumer law primarily aims at protecting the end consumer from market failure
due to unequal bargaining power existing between the buyers and sellers.9 In terms of
economics, the approach of the Competition policy is through the supply side by
providing the consumers with the widest possible range of choice of goods and
services at lowest rates whereas consumer policy approaches through the demand side
by ensuring that the consumers can exercise their rights and choices efficiently.10
Various legal scholars have attempted to understand the connection between
consumer and competition policies and have provided the theoretical basis by
5 Ashoka Smokeless Coal Ind. P. Ltd. v. Union of India, (2007) 2 SCC 640.
6 (2010) 10 SCC 744
7 See Irina Haracoglou, Competition Law, Consumer Policy and the Retail Sector: the systems’ relation
and the effects of strengthened consumer policy on competition law, 3 CLR 100 (2007), available at
http://poseidon01.ssrn.com/delivery.php?ID=3550250090871210661260110921220640670140570840
78086094127024006100031096068072101002097006055007116104052102089088025081016010112
07300504902909710809812210201400108506909402103110809008206606502311710912100507007
5001021120110122008084118086114029091&EXT=pdf 8 See Kati. J. Cseres, Competition and Consumer Policies: Starting Point for Better Convergence
(Amsterdam Centre for Law & Economics Working Paper Group, Paper No. 2009-06) 9 Jenisha Parikh & Kashmira Majumdar, Competition Law And Consumer Law: Identifying The
Contours In Light Of The Case Of Belaire Owners Association V. Dlf, 5 NUJS L. Rev. 249, 253
(2012). 10
Organisation for Economic Co‐operation and Development (OECD) Roundtable Document 2008,
The Interface between Competition and Consumer Policies (April. 7, 2016, 9:02 PM),
http://www.oecd.org/regreform/sectors/40898016.pdf
40
observing, "The antitrust laws are intended to ensure that the marketplace remains
competitive, so that a meaningful range of options is made available to consumers,
unimpaired by practices such as price fixing or anticompetitive mergers. The
consumer protection laws are then intended to ensure that consumers can choose
effectively from among those options, with their critical faculties unimpaired by such
violations as deceptions or the withholding of material information.”11
Thus, the
consumer law strives for correcting this disadvantaged position of the consumer in
relation to the seller for effective and efficient transactions.12
Also, the working of
competition law relates to the market as a whole which is not the case with the
consumer laws.
Hence, if we compare the two laws, we can notice though there is an overlap between
the fundamental objectives between the two, the aspect of Consumer welfare is the
priority in Consumer Protection Act, 1986 whereas in the Competition Act, 2002, it is
just one of the many objectives making consumer law a basic document and
competition law as a ‘refined protection oriented document’ concerned with consumer
interest.13
Even though there is a major intersection, there still lies a very pertinent
difference between the policies due to the method employed by both the Acts for the
accomplishment of the goal of ‘consumer welfare’. In order to understand the same it
becomes important to discuss certain important concepts:-
4.1.1 Consumer Sovereignty
The difference in the policy tools of both the policies makes it important to
understand their respective role in the protection of consumer interest. In order to
under this, it becomes pertinent to throw some light on the concept of ‘consumer
sovereignty’ due to the basis it provides for the amalgamation of consumer law and
competition law.14
According to the theory of consumer sovereignty the consumers
have the option to dictate what is to be produced in an economy. The theory purely
holds that under the pure market economy conditions, the entrepreneur must always
11
Neil W. Averitt & Robert H. Lande, Consumer Sovereignty: A Unified Theory of Antitrust and
Consumer Protection Law, 65 Antitrust Law Journal 713, 714 (1997). 12
See Thomas L. Eovaldi, Private Consumer Substantive and Procedural Remedies under State Law,
15 Antitrust Bull. 255, 381 (1970). 13
Rahul Mishra, Competition Law and Consumer Welfare: Issues and Challenges, 2 International
Journal of Humanities & Social Science Studies 221-25(2016), (April 7, 2016, 10:20 PM),
https://www.ijhsss.com/files/Rahul-Misra_di6663z1.pdf 14
Averrit & Lande, supra note 11
41
and exclusively act for the interests of the consumers.15
Even in the USA the primary
emphasis of the Sherman Act is fairness in market competition but another result from
that objective is the consumer protection for the exercise of consumer sovereignty.16
The whole theory expects the market to work on the basis of the consumer demand
rather than seller’s choice or regulation by the State.17
Therefore, since the theory
works purely on consumer choices and preferences it demands the effective working
of the competition and consumer laws collectively for the interest of the consumers.18
Consumer sovereignty exists when there are a range of options available to the
consumers by the way of competition and when consumers have the right to choice
from the available options.19
Out of these two constituents of consumer sovereignty,
competition law addresses the first through competition. Thus, in order to bring this
theory into practice, competition policy becomes essential for the sustenance of free
and fair competition in the market without considering how rational a consumer is
since rationality of a consumer does not impede the market players from indulging in
anti-competitive practices20
. Hence, it can be said that a consumer policy alone can
never be successful in giving full effect to the theory of consumer sovereignty.
4.1.2 Possibility of Honest Transactions
A fairly competitive environment provides consumers with varied alternatives with a
power to switch from one good or service to the other in case of suspicion in the
quality offered. The consumers’ ability to shift to other products compels the market
players to stick to the rules of competition. It also ensures that the sellers perform
their duties in a manner which is not risking their goodwill due to the ability of the
consumers’ to punish them.21
This feature often acts as a motivation to fulfil the
promise about the truth and usefulness of their products and services without
detriment to the consumers. Thus, a competitive market ensures the presence of
honest players who would not indulge in making false claims about the good or
service.
15
J. Patrick Gunning , Consumer Sovereignty: the Key to Mises’s Economics, (2008), (April 9, 2016,
6:30 AM), http://www.nomadpress.com/gunning/subjecti/workpape/cskeymis.pdf 16
Averitt & Lande, supra note 11 17
Id. 18
Id. 19
Gunning, supra note 15 20
Gunning, supra note 15 21
Murris, supra note 1
42
4.1.3 Ability of Consumer Law to intervene in case of failure of Competition
law
Although the ability of competition in enabling honest transactions is widely accepted
and not argued or rejected, sometimes, it doesn’t prove to be sufficient.22
Sometimes,
even in the presence of competitive markets, the market players indulge in anti-
competitive practices causing consumer harm.23
In such circumstances, the consumer
policy comes into the frame.24
The consumer policy plays a vital role in helping the
consumers to make good decisions and choices. The consumer policy in such cases
provides the consumers’ the locus standi to appear before the appropriate authorities
for relief against such unscrupulous sellers. Thus, the sellers are deterred from
indulging in such practices or creating an atmosphere of distrust in the marketplace.
4.1.4 Resolution of Market Failure
Apart from a common objective of consumer welfare, the competition and consumer
laws also witness a kind of interplay between another aspect of ‘rectifying market
failures’. But similar to the former, there exists a difference between the kinds of
failures they aim at rectifying. The competition laws thereby aim at regulating the
market by providing maximum options to the consumers however, consumer law
helps by giving the consumers’ ability to make better choices out of the available
options. Thus, this clearly shows that competition law works in the public interest in
general by acting as the best regulatory tool to correct the malpractices existing in the
market whereas, in cases of deceitful and dubious practices during individual market
transactions between the buyers and sellers, the consumer law works most effectively.
The link between competition law and consumer law sharing the same goal of
consumer welfare can be understood with the help the figure mentioned below25
:-
22
Parikh & Majumdar, supra note 9 23
Murris, supra note 1 24
Spencer Weber Waller, In Search of Economic Justice: Considering Competition and Consumer
Protection Law, 36 Loyola University Chicago Law Journal (2005), available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=726512 25
N. Nanda, CUTS–CCIER, Competition policy and consumer protection policy, The conceptual
framework for competition policy and consumer protection 2005, (April. 19, 2016, 11:00 PM)
available at http://www.cutsinternational.org/ccier_publications.htm#vp
43
Policy Goals Objectives Outcomes
FIGURE – The conceptual framework for competition and consumer policies
4.2 Comparing the Competition Law and Consumer Law
As stated above, both Competition law and consumer law are concerned with the
promotion of consumer welfare. The role of consumer welfare in competition law
helps in determining the anti-competitive conduct on the markets.26
This theory also
helps in demarcation and setting of contours of the competition regime of any
jurisdiction.27
4.2.1 Definition of Consumer
One of the differences in the standard of consumer welfare under both the regimes is
largely based on the definition of a consumer under these two laws. Under consumer
26
Competition Act 2002, §§19(3) and 19(4). 27
Kati J. Cseres, Controversies of the Consumer Welfare Standard, 3(2)Comp. L. Rev. 121, 130 (2006)
available at
http://poseidon01.ssrn.com/delivery.php?ID=7680740701210950910680010270900020951270390550
41087088064009094028005075103101110121096063004100021039118065111119017109126127057
08002407801612609607012007201909308803300900009102008400912601206411609709608310112
7102016121087120097030016119073064073&EXT=pdf
COMPETITION
POLICY
CONSUMER
POLICY
Promoting
Fairness in the
Market
Empowering
Consumers
1. Consumer Welfare
2. Economic Efficiency
3. Competitiveness
1. Consumer Welfare
2. Access to Justice
3. Participation in Governance
Competitiveness
Consumer
Welfare
Development
44
law, a consumer is usually the end user of the goods and services or the aam aadmi on
streets who does not use it for commercial purposes28
whereas under competition law,
it includes ‘any person’ who purchases the goods and services, irrespective of whether
it is purchased to be reused, resold or for personal consumption.29
The distinctions
between the scopes of the term ‘consumer’ reflect on one important aspect. The
consumer broadly defined under the competition laws reflect towards the major
objective of competition law being the protection of competition in the market thereby
leading to overall interests of the society and ultimately consumer welfare.30
4.2.2 Unfair Trade Practices
The term Unfair Trade Practice (UTP) does not have a standard definition but broadly
refers to any fraudulent, deceptive or dishonest trade practice or business
misrepresentation of the products or services being sold, prohibited by a statute or
which is actionable under any law by a judgment of the court.31
At the international
level, the World Bank and the Organisation for Economic Cooperation and
Development (OECD) Model Law lists the following trade practices to be unfair32
:
distribution of false or misleading information that is capable of harming the
business interests of another firm;
distribution of false or misleading information to consumers, including the
distribution of information lacking a reasonable basis, related to the price,
character, method or place of production, properties, and suitability for use, or
quality of goods;
false or misleading comparison of goods in the process of advertising;
fraudulent use of another’s trademark, firm name, or product labelling or
packaging;
28
Consumer Protection Act, §2(c)(vi)(d): Consumer means “any person who buys any goods… but
does not include a person who obtains such goods for resale or any commercial purpose”.
See also Laxmi Engineering Works v. P.S.G. Industrial Institute, 1995 AIR 1428. 29
Competition Act, 2002 , §2 (f) 30
Angus MacCulloch, The Consumer and Competition law in HANDBOOK OF RESEARCH ON
INTERNATIONAL CONSUMER LAW 77(2010) 31
CUTS International, Unfair Trade Practices and Institutional Challenges in India An Analysis,
(April. 15, 2016, 7:00 PM), available at http://www.cuts-
ccier.org/pdf/Unfair_Trade_Practices_and_Institutional_Challenges_in_India-An_Analysis.pdf. 32
World Bank & OECD, (1999), A Framework for the Design and Implementation of Competition Law
and Policy 1999, (April. 15, 2016, 9:30 PM), available at
http://www.oecd.org/daf/competition/liberalisationandcompetitioninterventioninregulatedsectors/afram
eworkforthedesignan dimplementationofcompetitionlawandpolicy.html,
45
Unauthorised receipt, use or dissemination of confidential scientific, technical,
production, business or trade information.
The concept of unfair trade practices becomes important to be discussed here since;
the second difference that lies between the two regimes is that of UTPs. After the
repeal of the Monopolies and Restrictive Trade Practices Act by the Competition Act,
the concept of UTP did not find its inclusion in the new law. The rationale behind the
inclusion of this definition was to govern the relationship between the consumers and
traders. The idea of UTP twisted the maxim of ‘let the buyer beware’ (caveat emptor)
to ‘let the seller beware’ for providing benefits to the consumers by improved quality
of goods and services and for removal of unfair methods of trade for promotion of
sale of commodities that could impede the interests of the consumers. Through this
reasoning, it can be gathered that the express exclusion of UTP in the new
competition regime was in order to ‘not’ make the law consumer specific. The
legislature intended to promote the competition which would incidentally lead to the
protection of consumer interests. On the other hand, Consumer Protection Act was
enacted with a prime objective of protecting the interests of consumers and to solve
their disputes.33
Thus, due to reasons mentioned above UTPs as a concept continues
to be dealt under the Consumer Protection Act, 1986 only.34
4.2.3 Complainant v. Informant
The third difference lies in the methods of approaching the respective authorities for
the purpose of redressal by the consumers. Under the Competition Act, consumers can
file “information” before the Commission against any anti-competitive practice by
paying prescribed “filing fee” against any “enterprise” including Government
Companies praying for remedial measures to be taken by the respondent enterprise as
may be ordered by the Commission.35
The fine, if any, when imposed goes to the
Consolidated Fund of India but not to the Informant.36
The informant in such
situations merely helps remedy the market distortion but does not necessarily stand a
chance to get personal damages per se. Though personal damages are covered under
Section 53N of the Act but that stands as a separate procedural action before the
33
RATTANLAL AND DHIRAJLAL, THE LAW OF TORTS 742(26th edn. 2010) 34
The Consumer Protection Act, 1986 §2 (r) 35
The Competition Act, 2002 §19(1) 36
The Competition Act, 2002 §47
46
COMPAT and strict proof is necessary and condition precedent even if penalties have
been imposed on the respondent by Order by the Commission and confirmed by the
appellate Tribunal and Supreme Court.
Whereas under the Consumer Protection Act, the complainant besides being entitled
to follow on claim of damages subject to proof receiving compensation is able to put a
bar against the company to continue with the anti-consumer practice, also37
. Thus, in
this situation market correction is neither the objective of the Act nor is the action by
the complainant but the only direct aim is the protection of consumer interest.
4.2.4 Intent behind passing orders by both Forums
Under Competition law once the markets are corrected by the orders of the authorities
consistently, the Government is required to adopt policies suitable to such orders so
that economic surpluses which may generate out of such consistent orders – will have
to be ploughed back to the markets for consumers to gain in terms of better quality of
products or services and at cheaper, reasonable and affordable prices. This is the idea
of consumer welfare and indirect protection of consumer interest whereas, under the
Consumer Protection Act no such intent either of the adjudicators or of the
Government can be made out. This strengthens the stands of competition policy is
more diverse than consumer policy which is more than mere protection of consumers
rather is focussed on making the markets work, ensuring freedom of trade and by
doing so protecting the consumer interest in the long run.
4.2.5 Scheme of the Acts
The Competition Act takes within its ambit several stakeholders as beneficiaries as
per the Preamble and Section 1838
which includes “consumer welfare” in terms of the
scheme of the Act but not “consumer welfare” only whereas the Consumer Protection
Act aims at remedying the individual consumer’s agony against any company which
displayed “deficiency in services” to the complainant.
37
The Consumer Protection Act, 1986 §§21 and 6 38
The Competition Act, 2002 §18
47
4.3 Understanding the Efficacy of Consumer Welfare under
Competition Law
The consumers become the biggest losers from to the anti-competitive practices in the
markets. As a result, it becomes crucial to protect the interests of consumers not just
in the scheme of the Act but also for fulfilling the socio-economic objectives
enshrined in our Constitution. This makes the protection of consumer interests and
promotion of consumer welfare one of the primary aims of Competition laws. As a
rule, this task carried out indirectly by the competition law by predominantly
prohibiting anti-competitive agreements, abuse of dominance, regulation of
combination, and thereby promoting competition in the market which is ultimately
rewarding for the consumers.
The Competition Act is of supreme importance even in the presence of a lot of other
enactments for consumer protection because there isn’t any other law which deals
with the market as a whole and strives for the development national economy, by the
promotion the competition in the market.39
Thus, from the discussion above it is clear
that the consumer welfare is not the sole or ultimate goal of competition law rather it
just forms one of the important aspects of competition law. Some scholars are of the
view that “competition is an end in itself” and for some others “competition is a
means to an end”.40
But in my view for a progressive society competition acts as both
an end in itself and a means to an end.41
39
Jayant Kumar and Garima Panwar, An Interface between Competition Law and Consumer Welfare,
Competition Law Reports, Manupatra (April. 16, 2016, 6:10 PM), available at
http://www.manupatra.co.in/newsline/articles/Upload/D44390B0-C064-46CF-ADE3-
FC3DE33C4366.pdf. 40
Oles Andriychuk, Can We Protect Competition Without Protecting Consumers?, 6(1)Competition
Law Review 77-87(2009), available at http://www.clasf.org/ CompLRev/Issues/Vol6Issue1Article4
Andriychuk.pdf 41
Id.
48
CHAPTER-5
ROLE PLAYED BY COMPETITION AUTHORITIES IN
PROTECTING CONSUMER INTERESTS
The primary goal of Competition law is to promote and maintain competition in the
market.1 Competition in a market makes the enterprises work in an efficient manner
and results in better choices at lower prices to the consumers ensuring the optimum
utilization of resources. Further, fair competition also becomes beneficial to the whole
society since it acts as a catalyst for inducing economic growth by providing a level
playing field for all the players in the market. But practically, most of the consumers
are not even aware of the Competition laws. Nevertheless, we cannot ignore the fact
that if these laws are effectively enforced and implemented, they can protect the
interests of a lot of consumers and help in achieving market efficiency. It was
observed by Adam Smith in his book “The wealth of nations” that when the
companies or individuals in the market are compelled to compete among themselves,
they in their own interest, put more efforts which in turn results in the elimination of
the weak competitors and production of better products at low prices. Thus, the time
frame for antitrust analysis is long-run, rather than instant and short-lived.2
The competition jurisprudence suggests that the competition policies aim at the
promotion of competition and foster allocative, productive and dynamic efficiencies.
Hence, it can be rightly said, “efficiency is the goal, competition is the process.”3 On
the other hand, in reality, all these facts are utopian as sometimes an incumbent
producer takes resort to unfair practices to gain market power or to distort the
competition. At this point, there arises a need to regulate the behaviour and eliminate
such conduct. The need for regulation became strong in the aftermath of economic
reforms in India as the economy was thrown open to competition from domestic as
well as international. The growth in the market brought along the possibility of
1 William Kolasky, What is Competition? A Comparison of US and EU Perspective, 49 Antitrust Bill
29/ 2004 2 Joseph F Brodley, The economic goals of antitrust: efficiency, consumer welfare, and technological
progress, (1987)62 NYUniv LR 1020, p 1032. 3 Remarks by William J. Kolasky before American Bar Association Fall Forum
Washington, D.C.,(May 2, 2016, 5:20 PM), available at
http://www.justice.gov/atr/public/speeches/200446.htm
49
indulging in anti-competitive practices, international and domestic cartels, the
creation of entry barriers for the small and medium size players and also the distortion
of competition by the players. Hence, these factors led to the emergence of regulatory
governance in India.
5.1 The Competition Authorities and Enforcement Process
India as a nation is still evolving in terms of the regulatory framework with time.
There has been a huge shift from a command and control mindset towards a
mechanism which aims at achieving consumer welfare by the sustenance of
competition in the market.4 It was once observed by the chairperson of COMPAT
Justice V.S. Sirpurkar that the “success of the competition regimes lies in the benefit
reaching the common man.” This statement can only become true once the
enforcement process and the regulatory bodies work in an efficient manner. Since, in
any way, a failed regulatory body can prove to be a disaster in the independent
management of a sector and competition law as a branch is no different. Thus, the
successful satisfaction of goals enshrined in the preamble of the Act can only become
a reality if the regulatory bodies are efficient in performing their functions moreover
if their role is appreciated.
In India the Competition Commission of India (CCI) is an adjudicatory wing for the
competition related issues5 whereas the District Forum, the State Forum, and the
National Consumer Forum deal with issues affecting consumers under the Consumer
Protection Act.6 The separation of adjudicatory wings in order to deal with
competition and consumer issues is absolutely different in India as compared to the
US and the UK where the Federal Trade Commission and the Office of Fair Trading
4 Anupam Sanghi, The significance of the Competition Commission of India, LIVEMINT (Jun 16,
2014), http://www.livemint.com/Opinion/nKY6PoaDeUi9NP2aOhECYL/The-significance-of-the-
Competition-Commission-of-India.html (Last visited on May 2, 2016) 5 Competition Act, 2002, §7(1).
6 Consumer Protection Act, 1986, §§§ 4, 7 and 9.
Competition Fairness in the
market
Better choices
and lower prices
Benefit to the
Consumers
50
are assigned the enforcement of competition and consumer law.7 The Office of Fair
Trading in the UK has combined its competition and consumer protection group into
one which is called "Markets and Projects". OFT explains their stand by the economic
theory in the literature:
“Our view is that is more effective to look at the demand and supply sides of markets
together. The competition and consumer regimes are complementary to each other.
Empowered and well informed consumers act as a positive stimulus to competition
between businesses. Where consumers are able to make informed decisions,
businesses are more likely to innovate, reduce inefficiencies in production and supply,
and compete in ways which make markets work well for consumers and the wider
economy.”8 Even in France, the enforcement authority, Direction Generale de le
Concurrence, de la Consommation et de la Repression des Fraudes (DGCCRF) deals
with both consumer protection and competition policies for many years. The whole
idea to have a unified body for enforcement exists for the simple reason that both
competition and consumer law aim at achieving the same objective of ‘consumer
welfare’.9
Though countries like US and UK have a single body for adjudication but it has to be
understood that the policy goals of both the laws vary in their nature. While the
former aims at the sustenance of competition in the market and the latter focusses on
the individual relation between the consumer and seller. But unlike other jurisdictions,
in India, there are two separate types of machinery dealing with competition and
consumer cases. This causes a clash in the redressal agencies since both the laws aim
at achieving a similar goal of “protection of consumer interest.” But if these
regulatory models have to work effectively then it becomes imperative to
acknowledge the fact that the purpose of consumer welfare can only be achieved by
employing both the laws together and not in isolation.
7 Thomas Leary, Competition law and Consumer Protection Law: Two Wings of the Same House, 72
Antitrust Law Journal 1147 (2005); See also Simon Priddis, Competition and Consumer law in UK, 21
Antitrust 89 (2006); See also Spencer Weber Waller, In Search of Economic Justice: Considering
Competition and Consumer Protection Law, 36 Loyola University Chicago Law Journal (2005),
available at http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=726512. 8 Office of Fair Trading Annual Plan 2007-2008, p. 6 (May. 2, 2016, 9:00PM) available at
http://www.oft.gov.uk/shared_oft/about_oft/349517/ap08.pdf. 9 Id
51
The Competition Act covers the prohibition or regulation of the three branches in
terms of economics, i.e. Anti-competitive agreements, abuse of dominant position and
combinations. The Competition authorities under the Act which look after these three
branches are-
1. The Competition Commission of India (CCI)
2. The Competition Appellate Tribunal (COMPAT) being the appellate body10
The present chapter aims at understanding the role played by the Competition
authorities when there is a competition concern arising out of injury to the consumer
in a particular case. The distinctiveness in such cases is due to the fact that in such
cases if there was an absence of anti-competitive effects, the remedy for the same
would have lied only to the consumer courts. Thus, it has been witnessed in the
present times that in cases where it was observed that an enterprise indulging in anti-
competitive practices also caused harm to consumer interests, the same were taken up
by the Competition authorities. Thus, the nature and form of such practice suggest a
consumer law remedy but the effect produced by the same on the market resulted in a
competition law scrutiny.11
Hence, the focus of the chapter is primarily on the role
played by the regulatory authorities in giving effect to policy objectives of
competition law for the attainment of ‘consumer welfare’
5.2 Cases Discussing the Aspect of Consumer Interest under
Competition Law
The idea of ‘consumer welfare’ as an important goal of competition law is the first
point for an interface between the laws of competition and consumer. This particular
feature is dependent on the way the policies are framed and how the inquiry into the
cases is conducted respectively. Thus, though both the laws aim at acheiveing a
common objective, the difference lies in the way adopted by the policies of both the
law. This leads to a certain misunderstanding as to the jurisdiction of both the
authorities especially competition which is not permitted to deal with a case in point
10
Competition Act, 2002, § 53A. 11
Jenisha Parikh & Kashmira Majumdar, Competition Law And Consumer Law: Identifying The
Contours In Light Of The Case Of Belaire Owners Association V. Dlf, 5 NUJS L. Rev. 249, 253
(2012).
52
pertaining to consumer interest. But there are some cases where such an issue was
brought before the Competition authorities and they are considered to be the most
celebrated case laws in this regard.
5.2.1 Belaire Owner’s Association v. DLF Limited12
The DLF case is a benchmark in this regard. In this case, the information was filed for
the increase in the floors and apartments which were in violation of building
restriction norms and also for the delay in possession. It was alleged by Belaire
Owner's Association that in spite of delaying the grant in possession by DLF, it had
charged excessive fees and interest for delayed payments made by the buyers. It was
also alleged that the agreement between the buyers and DLF only favoured the latter.
But DLF, in this case, contended that this case would fall outside the scope of the CCI
since the agreement was entered before the CCI was set up and also before the
enactment of Section 4 of the Act.
But this contention was rejected by the CCI and it was held that this Act would apply
and the existing agreements and also the agreements entered prior to the enactment of
Section 4.
The relevant product market, in this case, was decided by considering Gurgaon the
relevant geographic market as it was observed that buying a high-end residential
apartment in Gurgaon was not easily substitutable. Further, for deciding the question
as to the dominance by DLF the CCI held that it does not face sufficient competition
by its rival in the relevant market as it had about 50% of the market share in the year
2009-2010 and also had a strong presence in almost all related real estate sectors. All
these factors indicate that DLF Ltd. was fully capable of operating independently of
competitive forces in the relevant market fulfilling the conditions laid down in
Explanation (a) (i) to Section 4 are satisfied.
CCI, in this case, concluded that DLF had significant advantages over its competitors
in size and resources and held a position of dominance in the relevant market. The
12
Belaire Owner's Association Vs. DLF Limited Haryana Urban Development Authority Department
of Town and Country Planning, State of Haryana, [2011]104 CLA398(CCI)
53
Commission while analysing Apartment Buyers Agreement noted the various clauses
like:
1. Unilateral changes in agreement and supersession of terms by DLF without
any right to the allotees
2. DLF’s right to change the layout plan without the consent of allotees.
3. Discretion of DLF to change inter se areas for different uses like residential,
commercial etc. without even informing allotees.
4. Preferential location charges paid up-front, but when the allotees do not get
the location, he only gets the refund/adjustment of the amount at the time of
the last instalment, that too without any interest.
5. DLF enjoys unilateral right to increase/decrease super area at its sole
discretion without consulting allotees who nevertheless are bound to pay
additional amount or accept reduction in area.
6. Allotees liable to pay external development charges, without there being
disclosed in advance and even if these are enhanced.
7. Allotees have no exit option except when DLF fails to deliver possession
within agreed time, but even in that event he gets his money refunded without
interest only after sale of said apartment by DLF to someone else.
8. DLF’s exit clause gives them full discretion, including abandoning the project,
without any penalty etc.
The competition concern that arose in this particular case was the dominant position
enjoyed by a builder imposed unfair conditions on the buyers which were binding
upon them resulting in a one-sided contractual obligation. In an ideal competitive
scenario whenever an enterprise indulges in practices having anti-competitive effects,
the consumers have the option to switch to another competitor due to available
alternative which would ensure that the builder/ developer would soon face loss of
customers, forcing them to become more consumer-friendly. However, since DLF in
itself was a dominant enterprise in the relevant market the consumers could not
exercise the option of switching to another alternative.
After considering all the facts in totality in the case, CCI concluded that DLF was in
contravention of Section 4 (2) (a) (i) as it imposed unfair conditions on the sale of its
services to consumers and hence asked DLF and its group companies to cease and
54
desist from imposing such conditions, suitably modify unfair conditions by it on the
buyers within 3 months and imposed Rupees Six Hundred and Thirty Crores.
DLF, in this case, had appealed against the order with the COMPAT13
. The COMPAT
upheld the decision by CCI observing that the market share, economic strength and
commercial advantage over competitors, regulatory barriers in the real estate sector
and the dependency of consumers on DLF clearly showed the dominant position held
by DLF in the relevant market.
Currently, an appeal has been filed in the Supreme Court under Section 53T against
the order of COMPAT. But till the time Supreme Court arrives at a decision, the order
by COMPAT stands as precedent in this regard.
The DLF case is considered to be a landmark case as since the decision of this case
there have been many complaints filed at the CCI against numerous property majors.
The cases that have been brought before the CCI against such real estate companies
under Section 4 have been dismissed for two reasons, (a) that they relate to a
consumer dispute and thereby do not fall under the provisions of the Act and (b) that
the companies did not enjoy the position of dominance in the market. While
dismissing one of the cases the CCI, in its order said, “It is quite possible that injustice
has been done to the informant at the hands of the opposite party. However, for any
injustice done by a builder to the consumer, the remedy does not lie under Section 3
or Section 4 of the Competition Act, neither Section 4 should be attracted for each and
every building project, however, big or small, started by an enterprise.”14
But most of
the complaints have been dismissed by CCI due the reason that informants after the
DLF case have started filing cases for their personal interest seeking compensation for
which CCI is not the proper agency for redressal. Thus, DLF case is an epitome in
clarifying the stand of CCI for the protection of consumers as it can be clearly
understood that only the cases concerning competition issues and consumer interests
in the residential real estate market in India can be taken up by CCI.
13
DLF Home Developers Limited Vs. The Competition Commission of India and Ors.,
2016CompLR60(CompAT) 14
Dilasha Seth, Competition commission flooded with complaints against realtors (25 Mar 12 | 12:50
AM) (May 10, 2016, 11:07 PM) available at http://smartinvestor.business-
standard.com/market/Compnews-110410-Compnewsdet-
Competition_commission_flooded_with_complaints_against_realtors.htm#.VztmUpF97IU
55
5.2.2 MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd.15
The MCX case dealt with the contraventions of competition law in India with respect
to stock markets and exchange services in India. The informant MCX, in this case,
alleged that the opposite party NSE violated the Section 3 of the Act by indulging in
anti-competitive behaviour and also violated Section 4 of the Act by abusing its
dominant position by
i. eliminating competition from the CD segment,
ii. discouraging potential entrants from entering the relevant market for stock
exchange services and,
iii. achieving foreclosure of all competition in the market for stock exchange
services.
The DG, in this case, concluded that the acts of NSE harmed the competition in the
Indian Capital Market especially in the CD segment as its behaviour was exclusionary
done with the sole objective to hinder market access to potential competitors and
foreclose existing competition. It was observed that NSE had abused its dominance by
its waiver of fees for brokers in the currency derivatives and subsidising activities in
CD segment which was held to be violative of Section 4 (2) (a) (ii) affecting open
competition.
But in this case, it was argued by NSE while giving submissions against imposition of
penalty that the Commission’s order made no observation on whether the consumers
are being harmed. It was submitted that "The Act mandates the Hon'ble Commission
to protect competition and consumers and not competitors" It was also contended that
the pricing policy of NSE benefited the consumers and competitors by “increased
competition” in the market. Thus, no penalty must be imposed on this ground since
the function of Competition Act is to protect Competition and consumers and not
competition. But this contention was dismissed by the Commission since according to
it Section 4 doesn’t require the following parameters to be established. It only requires
firstly, the establishment of dominance in the relevant market by an enterprise or
group, secondly, the engagement in a conduct as specified in clauses (a) to (e). As the
15
2011CompLR129(CCI)
56
statute provides for no further considerations, thus once both these aspects are proved
to be present in a case then no other additional aspects as to effect on competitors or
consumers or market need to be examined. The Section 4 also does not require the
evaluation of appreciable adverse effect on competition (AAEC) like Section 3 or
evaluation of the factors mentioned in section 19(3), which include “accrual of
benefits to consumers”. Hence, if an enterprise in dominant position indulges in a
conduct as given in clauses (a) to (e) of Section 4, it is believed to be resultantly
bound to cause harm to the consumer by destroying competition and does not require
the evaluation if consumer advantage.
When we closely look at the order of CCI is beneficial for the larger public interest
and competition, even though it was detrimental to some consumers as they paid a
higher price which was parallel to the price charged from other customers. This case
is considered one of the landmark judgements in this issue since, this case clearly
portrayed that the CCI does not engage in protecting short-term individual consumer
interests but rather adopts an approach which helps in maintaining a fair competition
in the market and benefits consumers in the long run. The present case on appeal to
COMPAT has upheld the decision given by COMPAT in respect to the consumer
interest.16
5.2.3 Jyoti Swaroop Arora v. Tulip Infratech Ltd. and Ors.17
This case was pertaining to an agreement between various enterprises which resulted
in an anti-competitive operandi practices. The Informant, in this case, alleged that
there was a tacit understanding between the real estate players. It was also alleged that
the enterprises are marketing/selling their business without the approvals and are
selling the Floor Area Ratio (FAR) over and above the sanctioned limits. The
enterprise also made mandatory conditions for the buyers to buy the parking spaces
which was alleged to be violative of Section 3(4)(a) of the Act.
The Commission, in this case, wanted to analyse the market structures and
commonality of clauses to substantiate parallel conduct for deciding as to the
contravention of Section 3 but one of the peculiarities of this case was that the
16
The National Stock Exchange of India Ltd. Vs. Competition Commission of India,
2014CompLR304(CompAT) 17
2015CompLR109(CCI)
57
decision couldn’t be given in regards to the same due to the lack of evidence produced
by the Director General. But the Commission, in this case, highlighted that the
consumers in the real estate market have faced a lot of hardships.
In fact, many of the industry practices found by DG to be anti-competitive could not
be called innocuous. Even though such pleas are taken very frequently by the parties,
there hasn’t been a single example where common industry practices have ‘helped
consumers by ameliorating their asymmetric position’ instead the informed and fair
comparison in the form of industry practices have created much more difficulties for
the consumers. The Commission in this case also emphasized on the scheme of the
Act which clearly mandates for the protection of the interests of the consumers. Thus,
in this manner, the role of the Commission was emphasized by stating that at times
when the markets are not functioning properly or when there are distortions it is the
duty of the Commission to indulge in enforcement, regulatory and advocacy remit.
The final order, in this case, couldn’t address all the legal issues due to insufficient
evidence but while deciding this case, the Commission observed that there was a
decline in the self-regulatory standards in the real estate sector. Thus, it directed the
parties of the case and also all the players of the sector to take appropriate voluntary
measures to address these issues.
5.2.4 Other cases
In the case of Jupiter Gaming Solutions Private Limited v. Government of Goa and
Anr.18
, the CCI observed that all Competition Laws aim at the elimination of such
behaviour which has the impact of damaging the true competition between firms and
exploit consumers and also reiterated the overall legislative impact of the Act by
stating its objectives one of them being ‘protect the interest of the consumers’.
Time and again the Commission has discussed its duty to protect the interests of the
consumers19
and increase overall consumer welfare.20
The Commission becomes
18
[2012]106CLA339(CCI) 19
M/s Metalrod Ltd. Ghaziabad v. M/s Religare Finvest Ltd., New Delhi, MANU/CO/0080/2011
See also M/s Royal Energy Ltd. v. M/s Indian Oil Corporation Ltd.,
See also M/s Bharat Petroleum Corporation Ltd. and M/s Hindustan Petroleum Corporation Ltd.,
2012CompLR563(CCI)
See also Shri Neeraj Malhotra, Advocate v. North Delhi Power Limited, BSES Rajdhani Power
Limited and BSES
58
obligated to work towards the interest of the consumers as “the principle objective of
competition law is to maintain and encourage competition as a vehicle to promote
economic efficiency and maximize consumer welfare.”21
In another case22
before the
CCI, while analysing the validity of certain clauses in a bye-law with non-compete
obligation imposed on the dealers held it to be in contravention of the provisions of
the Competition Act since the opposite parties failed to establish the improvements
that could be made in the production or distribution of goods in question, how it did
not foreclose competition and the ‘benefits that can be accrued to the consumers’
further it also deprived the end-consumers of wider choices available in the market.
Another aspect of the validity NOC was analysed by the Commission and was held to
have no legal or statutory authority since it did not enhance or appear to enhance
either efficiency or consumer welfare. A similar approach was also taken in another
case where the Commission held the conduct of opposite parties resulted in
manipulation of bidding process and contravened the provisions of section 3(1) read
with section 3(3) (d) of the Act since the opposite parties could not rebut the
presumption of adverse effect on competition by the existing agreement between
parties by showing improvements that could be made in the production or distribution
of goods in question, how it did not foreclose competition and the ‘benefits that can
be accrued to the consumers’.23
In one more case24
the Commission established price parallelism by five airlines when
the business model of each airline was not found to be sufficiently transparent, the
required information was only available to the airline and not the consumer. This was
held to have kept them in a highly disadvantaged position which made the
Commission decide against the Commission.
The Commission while applying the functional approach to analyse the anti-
competitive concerns arising out of the Articles of Association in a case has held that
if the same or the conditions of membership & the decisions taken by the
See also Yamuna Power Limited, MANU/CO/0026/2011 20
Savitri Leasing and Finance Ltd. D-91, Ambabari, Jaipur, Rajasthan v. Punjab National Bank (PNB)
HO. 7, Bhikaji Cama Place, New Delhi-66, PNB, 2, Nehru Place, Tonk Road, Jaipur -15 and PNB,
Raja Park Branch, Jaipur, Rajasthan, MANU/CO/0057/2011
See also Mr. Ramakant Kini Informant v.Dr. L.H. Hiranandani Hospital, 2014CompLR263(CCI) 21
V. Ramachandra Reddy and Ors. v. HDFC Bank Ltd. and ICICI Bank Ltd., MANU/CO/0023/2011 22
Ghanshyam Dass Vij Vs. Bajaj Corp. Ltd. and Ors., MANU/CO/0083/2015 23
Government of Kerala Vs. National Insurance Co. Ltd. and Ors., MANU/CO/0062/2015 24
In Re: Domestic Air Lines, RTPE 05/2009 of MRTPC and Suo-Motu(11.02.2009- CCI)
59
undertakings and their concerted tactics have the effect of preventing or restricting
consumer interest and distort the competition in the market, then they would be
considered to be involved in an economic activity and be hauled up for anti-
competitive acts.25
The abovementioned cases make it very clear that while delivering orders the
competition authorities in India have addressed a particular consumer grievance only
when a contravention of the Competition Act was established.
5.3 Cases Closed by the Commission Due to Lack of Competition
Issue
In recent times, a huge number of cases have been filed before the Competition
authorities by aggrieved consumers which reflect towards a questionable conundrum.
The reasons for the same lies on the fact that most of these cases have a common
element of consumer law remedy sought after from the competition authorities. A
majority of cases filed on these grounds have been closed by the authorities due to the
lack of competition issue. This can be understood by looking at a few examples which
clarify the distinction between the competition and consumer laws.
5.3.1 Subhash Yadav v. Force Motor Ltd. & Ors.26
This case was filed by the informant for his grievance in respect to the unsatisfactory
performance of the SUV purchased by him. Though the Commission, in this case,
spoke about the primary objectives of Competition Act it said, in a nutshell, the
purpose of the Act is to maintain and ensure free and fair competition in the markets
in India. The function of protecting the individual consumer interest against the
deficiency in services or goods and unfair trade practices is performed by another
body constituted solely for this purpose under the Consumer Protection Act, 1986.
Hence, the present case was closed due to the absence of a competition issue and
since it did not fall within the four corners of the Act.
25
Mrs. Manju Tharad, Proprietress and M/s. Manoranjan Films, Kolkata v. Eastern India Motion
Picture Association (EIMPA), Kolkata and The Censor Board of Film Certification, Kolkata,
[2012]110CLA136(CCI) 26
MANU/CO/0102/2012
60
5.3.2 Sanjeev Pandey v. Mahendra & Mahendra & Ors.27
The informant, in this case, approached the Commission for being aggrieved by not
getting the delivery of the vehicle on time. The Commission, in this case, witnessed
that the informant had totally misunderstood the scope of the Act and have confused it
with the Consumer Protection Act. Thus, the present case due to the lack of
competition issue wasn’t entertained under this Act.
5.3.3 Smt. Geeta Chatterjee v. M/s Bongaon Gas Service28
In the instant case, the informant, a consumer of LPG gas connection approached the
Commission for the claim of a compensation of Rs.2, 28, 260 for the financial loss
occurred to him by the unfair trade practice. The Commission in this clearly held that
the Competition Act cannot be used for the remedy of consumer grievances thus; the
informant must approach a more suitable authority for the same.
5.3.4 Shri Giriji Meena v. Mohan Gas Service29
This case was pertaining to the grievance of the informant for the non-supply of
equipment. But the Commission, in this case, could not make a prima facie case under
the provisions of MRTP Act or under the provisions of the Competition Act due to the
petty nature of the matter and as in the nature of the dispute, it should be redressed by
the Consumers’ forum.
5.3.5 Pravahan Mohanty v. HDFC Bank Ltd30
In this case, it was alleged by the informant that the terms and conditions imposed by
the bank were unilateral, biased and onerous towards the consumer suggesting an
abuse of dominance by the Bank. This case was dismissed on the grounds of lack of a
competition issue while observing that the Bank did not enjoy a dominant position
just by the way of imposition of certain terms and conditions.
27
Case No. 17 of 2012 28
Case no. 192 of 2008 29
File No.C-22/2009/DGIR, Retrieved from http://www.cci.gov.in 30
Case No.17/2010
61
5.3.6 Pankaj Aggarwal and Ors. v. DLF Gurgaon Home Developers Private
Limited31
In this case, also the Commission held that if we look at the broader spirit of the Act
the Commission is not expected to decide cases for the informant only whereas the
informant is only a medium through which the Commission becomes aware of the
market competition being distorted or about the market irregularities. Thus, if the
investigation and analysis of a case is only restricted towards the interest of a
particular consumer, the very objective and spirit of the Act would be hampered.
5.4 Competition Advocacy – A Friendly Approach
The present framework of the Competition Act goes a step beyond its mere
enforcement and lays its focus on the function of Competition Advocacy.32
The CCI
currently is expected to assume a role of a competition advocate for promoting
practices which are best suited for a competitive environment in order to have a
“competition culture” in the market.33
The creation of awareness becomes very
important for the compliance of competition laws by the market players themselves.
In order to perform this function, the CCI has been in close interaction with the
market players’ right from its inception. The CCI has been successfully addressing a
large number of stakeholders in this regard including the government and the
consumers to make them conscious about the benefits of competition. This particular
function has been performed by the help of seminars, conferences, workshops, print
and electronic media etc. The CCI consequently, has been focussing on advocacy in a
very serious manner to convey the message of the pertinence of competition law for
the ultimate benefit to consumer to be adapted by the whole business community.
But, presently being a new kid on the block, India has been following a unilateral
approach of limited advocacy but has not been able to infuse a culture of competition
31
2015CompLR728(CCI) 32
Competition Act, 2002, §49. 33
SM DUGAR, COMMENTARY ON MRTP COMPETITION LAW & CONSUMER PROTECTION
LAW (LAW PRACTICE & PROCEDURE), (4th ed. 2009)
62
compliance in monitoring anti-competitive practices in the market.34
Thus, in order to
get better results, the CCI must adopt a multipronged approach by promoting
compliance along with advocacy. For example, the Confederation of Indian Industries
(CII) has recommended that there should be a system of incentivising the companies
to ensure competition law compliance and the consideration of compliance as a factor
while deciding the quantum of penalty.35
Such initiatives would help in creating better
environment for competition resulting in eventually do good to the consumers.
5.5 Lessons from the Present Working of the Competition
Authorities
The analysis of the stand taken in cases by the CCI and COMPAT itself suggests that
like others, even the competition authorities are not perfect bodies with unlimited
powers. Rather, there are certain limitations which bind them while exercising their
powers for the achievement of consumer welfare. It becomes clear that the
competition authorities can only entertain cases that involve a competition issue for
consideration. Even if a case is in relation to a very serious grievance of a consumer,
the absence of a competition issue can lead to its setting aside by the authorities. The
previous sections rightly portray how this has happened to a bulk of cases implying
that a majority of consumers’ cases cannot be entertained by the competition
authorities thus; making the jurisdiction of competition authorities very limited in
nature.36
It is very clear that the intent of the legislature while passing Competition law was the
regulation of competition as its main aim and to provide ‘’level playing field to the
players” in order to make the markets work towards the welfare of the consumers. It
was noted by the Hon’ble Supreme Court in the landmark judgement of Competition
Commission of India v. Steel Authority of India Ltd. & Another,37
that “The main
34
CIRC, Competition Compliance and Role of CCI: Need to Move Beyond Advocacy 2013, (May 16,
2016, 8:30 PM), available at
http://circ.in/pdf/Competition_Compliance_and_Role_of_CCI_Need_to_Move_Beyond_Advocacy.pdf 35
Fe Bureau, Incentivise India Inc. for competition compliance, THE INDIAN EXPRESS, (June 10,
2013), http://www.indianexpress.com/news/- incentivise-india-inc-for-competition-compliance-
/1126974/0 (Last visited on May 21, 2016) 36
Lalit Ajmani, Competition Commission Of India; A Key Player For Consumers Welfare , (May 21
2016, 7:10 AM) available at https://www.indianbarassociation.org/wp-content/uploads/2013/02/CCI-
A-key-player-for-consumer-welfare.pdf 37
(2010) 10 SCC 744
63
objective of the Competition Law is to promote economic efficiencies using
competition as one of the means of assisting the creation of market responsive to
consumer preferences.”
Subsequently, the consumers’ grievances which do not involve the Act’s
contravention and fall outside the domain of the Act are required to be appropriately
dealt by the Consumer forums and not the competition authorities. Presently, the
competition authorities have been using strict ways to deter the enterprises involving
in anti-competitive practices by the way of imposing heavy fines and orders for the
betterment of consumers in the long run.
In the view of the researcher, the present stand taken by the competition authorities
has been apposite by limiting its approach while taking up cases. A competition
authority as an expert in this branch of law is expected to test all the disorganised
ways of commercial life and smooth over market distortions not viable for a healthy
competition. Therefore, the approach taken by the competition authorities of India so
far has been pragmatic as it does not lead to the unification of systems which could
possibly result in taking away the jurisdictional powers of a particular authority
making its purpose and existence futile. This approach has also been useful in
preventing the flooding of litigation and ultimately resulting in hampering the justice
system. Hence, it can be concluded that so far, the competition authorities have been
doing well and have achieved a reasonable level of success while exercising its
statutory powers and their understanding regarding interdependence and
independence of competition law and consumer law has to be appreciated.
64
CHAPTER 6
CONCLUSION AND RECOMMENDATIONS
Rightly one can easily argue that the consumers, in general, require no protection under
competition laws and this task must be left entirely to the market forces. But with the
practices prevalent in the market and the conduct indulged into by the market players it
becomes clear that a perfectly competitive market is a mere utopia and sovereignty of
consumers is a myth. There are numerous products in a market and the consumer does
not have a perfect knowledge of all the products. In the practical marketplace, a seller has
always an upper hand and enjoys a dominant position vis-à-vis the buyer with a very little
market power. Such a realization has led to the disappearance of dependence on the
doctrine of ‘caveat emptor’ and the need for protection to consumers from unscrupulous
forces. The acknowledgment of consumer protection by the laws of a country is a sign of
its progress. The ever growing complexity and dimensions of the production and
distribution systems, advertising, forms of promotions, marketing methods, sophisticated
practices of marketing and selling etc. are reasons behind the increase in the need for
consumer protection. The consumer protection would result in fair trade practices in the
market, and better quality, quantity, and price of products gesturing towards good
governance.210
The promotion of consumer welfare under consumer and competition
policy as a goal under recognizes this unequal relationship between the buyers and
sellers.
The consumer protection under Competition law has a very wide implication. The
competition law majorly concerns itself with the wider economic interests of the
consumers and contains goals other than improving the welfare of the final consumers.
Thus, the final consumers were never intended to be the sole focus of the competition
laws by the legislature. The fascinating aspect of this goal lies in the fact that it is aimed
to be achieved by the way making the market players compete amongst themselves rather
than directly protecting the consumers.
210
Hemant Singh & Radha Naruka, Competition Commission of India and Consumers’ Welfare: An
Analysis, (April 17, 2013), available at http://dx.doi.org/10.2139/ssrn.2252526
65
The main objective of the Competition Law is to promote economic efficiencies using
competition as one of the means of assisting the creation of market responsive to
consumer preferences.211
However, the protection of consumer interest with economic
efficiency and overall welfare of the society for lower prices and unrestricted output is
one of the main values of competition policy.212
This dissertation attempted to go deep
into the aspect of consumer welfare under competition law by comparing it with the same
notion in consumer law. The whole objective of doing this was to understand the
legitimacy of consumer welfare standard as an isolated of competition law enforcement
on an objective basis and the inherent limits in its enforcement under competition law to
protect consumer interest.
Recommendations
After analysing the various issues pertaining to the protection of consumers under
Competition law of India, it can be made out though this aim of protection under the
Preamble is not sought to be achieved directly by the Act; however it forms one of the
most important parts of this legislation. On the basis of the analysis in the previous
chapters, the researcher thinks it is favourable to add certain aspects to the present
framework of competition law for the effective achievement of the aim of protection of
consumer interest under the Competition Act.
I. Compensation by CCI
Under Section 53N of the Act, the Appellate Tribunal (COMPAT) has the powers to
adjudicate compensation to any person on an application made to it. A consumer under
this provision may be covered under the words ‘any person’. But prior to the amendment
of 2007, even CCI was given the similar powers to grant compensation. But later this
power was taken away from the CCI stating it is an expert body and not a judicial body.
211
Competition Commission of India v. Steel Authority of India Ltd. & Another, (2010) 10 SCC 744 212
Kati J. Cseres, Controversies of the Consumer Welfare Standard, 3(2)Comp. L. Rev. 121, 130 (2006),
available at
http://poseidon01.ssrn.com/delivery.php?ID=7680740701210950910680010270900020951270390550410
87088064009094028005075103101110121096063004100021039118065111119017109126127057080024
07801612609607012007201909308803300900009102008400912601206411609709608310112710201612
1087120097030016119073064073&EXT=pdf
66
However, by looking at the present position of the CCI, it is suggested that it should be
given the powers to award compensation parallel to COMPAT. The reason for not
providing CCI with powers for granting compensation similar to COMPAT is not very
clear. The CCI is an expert body and functions as a market regulator for preventing anti-
competitive practices in the country and also perform advisory and advocacy functions in
its role of a regulator.213
The CCI is also the body which first receives the information as
to the anti-competitive conduct, initiates the investigation, does the analysis, conducts
proper hearings and after the proper inquiry passes the orders. Such enormous functions
upon the CCI itself suggest that an authority with a lack of expertise would not be
possibly granted with such huge responsibilities. Thus, this itself suggests that the CCI is
an appropriate forum for the grant of compensation to the aggrieved parties.
Secondly, if the CCI is also the body which is empowered to impose penalties for
punishing the wrongdoer then there appears no substantial reason for not giving it the
power to grant compensation to the informant.
But it is recommended such a power must only be exercised in cases where there is a
clear competition issue involved and the party seeking compensation by virtue of that
issue and not otherwise. Hereby the compensation to a consumer must only be granted
when there is a clear contravention of the provisions of the Act. The duties214
of CCI as
provided under the Act itself indicate the protection of consumers as one of its important
responsibilities. Thus, depriving CCI of such powers becomes impracticable. As a result,
it is suggested that the CCI should be given the power to award compensation to the
aggrieved consumer, along with penalizing the concerned wrongdoer along with the
COMPAT. Consequently, this calls for the amendment of the Competition Act for the
incorporation of the necessary provisions.
II. Reference by one agency to the other
As discussed in the previous chapter, a lot of cases have been closed by the CCI for the
non-establishment of the contravention of the Act. This was due to the fact, that the
213
ABHIR ROY & JAYANT KUMAR, COMPETITION LAW IN INDIA 32(2nd
ed. 2014). 214
The Competition Act, 2002 §18
67
informant did not approach the relevant forum for relief. Most of these cases suggested
since the nature of these cases were of consumer grievances the appropriate forum were
the Consumer Forums. Thus, it suggests that while the CCI closes such cases, it should
have the power to refer these cases directly to the Consumer Redressal Agencies.
Similarly, the cases before the Consumer Forum which have competition issue involved
must be referred to the CCI for redressal and appropriate orders. Though the competition
and consumer forums need not be unified but by the way of referencing the systems can
coordinate and work harmoniously for a better form of redressal.
The above discussions rightly point that competition law and consumer protection even
though is interdependent concepts, but they both operate in their own spheres. The
protection of consumer interest is one of the aspects of competition law, and should not
be given excessive importance in its enforcement. Hence, in light of above discussions and
the relevant provisions of the Act, a clear picture is drawn, and it establishes that
protection of the interests of the consumers is a very important goal of the Indian
Competition Act however, this goal is achieved by the Act, not directly but only as a
consequence
xv
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