Article of Economic

Role of economics in competition

M M Sharma, Jan 14, 2010, 07.04am IST

M M SHARMA, HEAD, COMPETITION LAW PRACTICE, VAISH ASSOCIATES

          Competition law is essentially concerned with the study of markets, the objective being to ensure that there is competition between the suppliers in any market and that this competition benefits consumers. At the day-to-day level, applying competition law involves identifying markets and assessing whether competition is working well in those markets. It involves assessing how the actions of firms will affect competition and consumers. These are essentially economic issues. As the Competition Commission of India (CCI) commences its operations with a mandate, inter-alia , to preserve and promote competition in the markets, a quick appraisal on the role economic analysis is going to play in competition assessment will be just in place.Economists study how markets allocate goods and services to different consumers. They are interested in how consumers fare when there are more or fewer competitors, when firms merge or when firms change their behaviour. They are also interested in why firms behave in certain ways. Economics attempts to provide answers to such questions. Understanding economics will give clarity on how markets operate, how firms will behave in particular markets, and whether their behaviour will result in competition that benefits consumers.

          Economics is, therefore, being recognised as an essential tool to assess market power and to determine boundaries of the market in which such market power is to be analysed by competition authorities. It is, therefore, imperative for legal practitioners in India to develop a clear understanding of the economic issues, such as determination of the correct relevant market, determination of entry barriers that may, inter-alia , be created by behaviour of certain firms. It has been aptly stated by Brandeis J, "A lawyer who has not studied economics — is very apt to become a public enemy." Competition lawyers in the EU and the US regularly work with economists who specialise in matters such as market definition, the determination of market power and the analysis of particular type of business behaviour. It will be interesting to trace the growth of competition jurisprudence in the US and the EU.

           In the US, under the Structure-Conduct-Performance model, which prevailed in the 1930s, the focus of attention was on concentrated industries where barriers for entries were widespread. This school of thought remained popular till the 1960s and led to an extremely interventionist antitrust enforcement policy in the US. The change came in the form of Chicago School of thought that produced revolution in antitrust thinking in the US. The Chicago view that pursuit of efficiency — by which it meant allocative efficiency as defined by the market — became the sole goal of antitrust. Chicago School places much belief in the ability of the market to correct and achieve efficiency itself without interference from government or antitrust law.

             Chicago School has changed antitrust thinking profoundly not only in the US but everywhere. Greater emphasis is now being placed by the US courts on economic analysis of a particular behaviour to examine its likely effect on competition in the relevant market. The US has entered a less-doctrinaire age, where there is more reliance on the 'rule of reason' analysis against the earlier 'per se' approach.

          The European law stresses on 'effective competition' in which the emphasis is on the effect of competition on consumer welfare. Competition Policy, which has been included in the list of community activities set out in Article 3 of the Treaty of Rome, has played an important role in the achievement of single European market integration, particularly after the enlargement of the European Union on May 1, 2004.

Sumber : economics.about.com