Competitive Environment

Competitive environment

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Efficiency of economy depends upon competitiveness of market…

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Degree of competition depends upon the number of firms in the market & distribution of market share between them..

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Barriers, government interventions, immobility of factors of production, dominance of public sector firms tend to decrease degree of competition & increase the market imperfections..

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India is also moving towards competitive environment!

Factors contributing to competitive environment in India.. 

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Public sector disinvestment & privatization Opening up of new sectors to private enterprises De licensing De reservation of SSI items Liberalization of FDI

Benefits of competitive markets.. 

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Growth of entrepreneurial culture leading to increase in number of producers & sellers in the market. Increase in investment & capital formation leading to increase in supply capabilities. Sustained R&D efforts Reduction in wastage Customer focus

Benefits of competitive markets..    

Increased foreign market entry International trade & investment Better resource utilization Wider range of goods & services

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Competition between the firms of unequal strength can really be self destructive…

Negative effects of competition..       

Information asymmetries Unethical collusions Hostile takeovers Transfer pricing Strategic market alliances Differentiated pricing Interlocking directorates

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So there comes the need to regulate competition!!!

MRTP Act-1969 

Objectives: -To prevent concentration of economic power in few hands -To control monopolies -To prohibit monopolistic & restrictive trade practices

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MRTP act replaced by competition act 2002..

Major flaws in MRTP Act.. 

MRTP Act failed to recognize following anti competitive practices: -collusions -bid rigging -predatory pricing -full-line forcing

New competition policy 2002 

A set of government measures aimed at stimulating competition, encouraging growth, preventing monopolistic & restrictive trade practices and promoting efficiency

Objectives of competition policy in India 

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Promotion & sustenance of competition in markets to increase economic efficiency Protection of consumers’ interest Ensuring freedom of trade

Features of competition Policy 2002  

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Anti-competitive agreements Prohibition of abuse of dominant position Regulation of combinations Competition fund Competition commission of Indiathe apex body

Features of a good Competition Policy 

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Capable of controlling the misuse of the market power of dominant firms. Should be able to identify anticompetitive effects of mergers & acquisitions Should be able to check barriers Capable to identify & monitor collusions

Features of a good Competition Policy 

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Capable to protect anti-competitive agreements Provide wider choice to consumers Must provide protection to SSI’s of national importance Should apply to all the major segments