CONSUMER WELFARE: AN EXCEPTION TO ANTI-COMPETITIVE AGREEMENTS?

In this article, the author has analysed the interface between competition law and consumer protection in India. In particular, this article seeks to resolve the issue as to whether consumer welfare can be an exception to the functioning of the Competition Act.


The Competition Act, 2002 was passed in India after the earlier Monopolies and Restrictive Trade Practices Act, 1969 was found to be obsolete in light of rapid developments across the world, in the field of competition law.

The object of the Act, as laid out in the Preamble, is: (a) to prevent practices having an adverse effect on competition (hereinafter “AAEC”), (b) to promote and sustain competition in markets, (c) to protect the interests of consumers, and (d) to ensure freedom of trade carried on by other participants in markets.[1]

While it can simply be said that all these objectives have to be construed in harmony with one another, there is a possibility of conflict among them while assessing whether certain conduct is anti-competitive under the Act. One such conflict could be between the positive consumer welfare effects of an agreement and the prohibition of anti-competitive agreements.


The primary focus of Competition Law


It would help to observe the trend in European competition law, which has an impact on Indian competition law. The General Court of the European Union has held in the case of Glaxo Smith Kline Services that the task to be undertaken by the European Commission is:

"weighing up the advantages expected from the implementation of the agreement and the disadvantages which the agreement entails for the final consumer owing to its impact on competition, which takes the form of a balancing exercise carried out in the light of the general interest appraised at Community level."[2]

It is pertinent to note that the interests of consumers have always played a role in European competition law,[3] which states that an exemption may be granted if consumers receive a fair share of the benefits of the agreement. The focus on the final consumer is so much that some have suggested that the standard by which EC competition law operates is not efficiency or economic freedom, but consumer welfare.[4]

However, the Hon’ble Supreme Court of India has held in the case of Steel Authority of India[5] that

The primary purpose of competition law is to remedy some of those situations where the activities of one firm or two lead to the breakdown of the free market system, or, to prevent such a breakdown by laying down rules by which rival businesses can compete with each other.”

The Apex Court has also observed in the more recent case of Excel Crop Care[6] that

“In fact, the ultimate goal of competition policy is to enhance consumer well-being. . . Competition policy towards the supply side of the market aims to ensure that consumers have adequate and affordable choices.”

Thus, it can be understood that the Court deals with the balancing of objectives of the Act based on the facts and circumstances of each case.

The position with respect to Anti-Competitive Agreements


At this juncture, it is pertinent to look into the factors to be considered while deciding whether an agreement has, or is likely to have, an AAEC and is thus anti-competitive in nature. The Competition Act contemplates six factors that shall be considered: the creation of barriers to new entrants in the market; driving existing competitors out of the market; foreclosure of competition by hindering entry into the market; accrual of benefits to consumers; improvements in production or distribution of goods or provision of services; or promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.[7]

The Competition Commission of India has observed in Shamsher Kataria[8] that whether an agreement restricts the competitive process is always an analysis of the balance between the positive and the negative factors listed under Sec. 19 of the Act. Therefore, it is clear that the positive and negative factors must be weighed against each other to determine whether an agreement has an AAEC.

On one hand, it can be argued that when seen through the prism of achieving the goal of economic development, static allocative efficiency, which refers to consumer welfare, may have to be forgone in certain cases for dynamic efficiency.[9]

Further, since the theory of consumer sovereignty depends upon the choice made by the consumer, competition law and consumer law must enable the consumers to make the best choice possible. This would imply that the role of competition policy is to ensure the sustenance of free and fair competition in the market, as the right to choose is what ultimately leads to consumer welfare.[10] These benefits accrue by way of economic efficiency; economic growth and development leading to an enhanced quality of life; and consumer welfare in terms of a better choice, better quality, and lower prices.[11]

On the other hand, the consumer welfare standard, which is one of the approaches used in competition law, must also be looked into. The consumer welfare test is not a balancing test, in the sense that one must attempt to measure efficiency gains and losses and net them out. Under the test, if consumers are harmed either by reduced output or product quality or by higher prices resulting from the exercise of market power, then this fact trumps any offsetting gains to producers and, presumably, to others. Even a minor injury to consumers outweighs significant efficiency gains. In this sense, the consumer welfare test can be easier to administer on a case by case basis than general welfare tests.[12]

In any case, there are several examples wherein attention of the Commission has been on the final consumer and it reflects carefully about how the final consumer may or may not gain from the behavior of firms. In the case of Mehrotra v. Jet Airways,[13] the Commission observed that the agreement between the airlines, which facilitates passenger travel and handling of the baggage of the passengers, would benefit the ultimate consumers and was therefore not anti-competitive in nature.

Analysis and reconciliation of the differing views


The Preamble to the law has unequivocally endorsed the consumer as a vital focus for enforcement but has also set the consumer welfare standard in the context of economic development.[14] Interpretation of the Act in a manner that goes against the interest of the producers and sellers in the market, would result in them withdrawing from the market and will lead to an economic detriment.

From an analysis of the varying standpoints on the issue at hand, it becomes evident that a wide approach is to be taken, wherein the welfare of all the stakeholders and the market as a whole is to be considered. Going by this approach, it is evident that consumer welfare cannot solely be used to allow exemptions to anti-competitive conduct, but a host of factors are to be looked into before deciding the same.

At the same time, it is to be realised that the granting of exemptions or relaxations does not necessarily imply the weakening of competition law enforcement. Rather, it may well be that such instances are necessary for furthering the objectives of competition law policy.[15] The review of exemptions should include an analysis of their impact on economic efficiency and consumer welfare.


Conclusion


The goals of competition law are changing with new developments in the economy, and there is a proposed shift from ensuring the freedom to compete to promoting socio-economic welfare. The two goals are not mutually exclusive and further, it is a fair competition that causes consumer interests to be normalised in the long run.[16] In a nutshell, it can be firmly concluded that consumer protection is not an exception to the application of the Competition Act, but an important part of it.


References:

[1] Competition Act 2002. [2] GlaxoSmithKline Services Unlimited v. Commission, [2006] CMLR 1623. [3] Treaty Establishing the European Community art. 81. [4] S. Bishop & M. Walker, The Economics of EC Competition Law (2nd ed. Sweet & Maxwell 2002). [5] Competition Commission of India v. Steel Authority of India Ltd. & Anr., (2010) 10 SCC 744. [6] Excel Crop Care Ltd. v. CCI, (2017) 8 SCC 47. [7] Competition Act 2002 §19(3). [8] Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors., 2014 Comp LR 1 (CCI). [9] Payal Malik, Competition Law in India: Perspectives, 41 Vikalpa (2016). [10] 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 (2012). [11] ASEAN Regional Guidelines on Competition Policy (2010). [12] Hovenkamp H. J., Distributive Justice and Consumer Welfare in Antitrust, http://ssrn.com/abstract=1873463. [13] M. P. Mehrotra v. Jet Airways (India) Limited. & Kingfisher Airlines Limited., Case No. 4/2009. [14] K. K. Sharma, Vertical Restraints on Distribution under Indian Competition Law. [15] Shyam Khemani, Application of Competition Law: Exemptions and Exceptions, UNCTAD/DITC/CLP/ Misc.25. [16] Anne Perrot, Appropriation of the Legal System by Economic Concepts: Should Conflicting Goals be Considered? 130 Economic Theory and Competition Law (2009).

Submitted by:

Deepasri Bharathan,

SASTRA Deemed University, Thanjavur


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