Development of Competition Law- A brief overview

Updated: Jun 2, 2021

Competition laws seek to regulate and promote the existence of competition between businesses in the various industries and niche. Further, competition law is viewed as a promoter of economic growth and helps in the monitoring of anti-competitive agreements, practices and existing competition restricting laws.

Much work has been done to promote and enact stringent competition laws in countries all over the world. However, it is imperative to know that the history of competition law dates back to almost 1700 years!

So, let's delve into each era, briefly :)

The evolution of Competition Law:

The First signs:

The first traces of competition law were seen in the Roman Empire where the ‘Lex Julia de Annona’ was enacted more than 2000 years ago. There, the practices of the-then traders were subject to scrutiny by the rulers and, instances of unfair trade practices for the promotion of business or inflation of prices, when exposed, lead to severe sanctions. The existence of laws that put a ceiling on product prices was found to have been in force going back to 310 A.D. Several legislations related to Competition were also passed under the Constitution of Zeno back in 483 A.D.

The Medieval era:

The middle ages saw legislation in England which was instituted to control monopolies and restrict certain trade practices such as excessive buying of goods to inflate market prices, was made punishable under the rule of King Edward. Under his successor, an Act to maintain fair prices throughout the territory was enacted and, under King Edward III as well, the Statute of Laborers was enacted, which mandated food goods to be sold at a reasonable price. 15th century onward, trade became a global phenomenon with the advent of new transportation methods and increased communication throughout the world.

During this time to facilitate trade, a system of Industrial Monopoly Licenses (much like the modern patent system) was granted in England allowing only a certain number of business owners to take part in certain kinds of businesses without any competition in the market.

Since it proved to be counter-productive, the year 1710 saw the enactment of a new law which put an end to monopolies and made the practice itself illegal.

The modern era:

Modern ground-breaking developments in competition laws can be attributed to the United States of America when they enacted the US Sherman Act, 1890 and to complement it, the Clayton Act in 1914. Anti-trust law was enacted to combat the malicious workings of trusts (used as a disguise by the larger businesses to conceal their true motives when in fact, they were operating as a profit-earning enterprise).

The 20th century with all its wars and conflicts saw a major progression in the enactment of competition laws in France and Canada in the 1920s. As a consequence of World War II, regulations regarding cartels and monopolies were implemented in Germany and Japan.

The 1950s witnessed the true chapter of competition laws in the form of The Restrictive Trade Practices Act introduced in England in 1956 and 1974 likewise, in Australia as well. Some major agreements such as GATT and GATS were also signed by multiple countries and the World Trade Organization (WTO) was also established in 1994 to govern such agreements and ensure free trade globally.

Developments in India:

India started with the MRTP Act, 1969 but soon realized the need for a new law to comply with its obligations to different conventions and trade agreements and major shortcomings of the said act and therefore, enacted the currently active Competition Act, 2002 which introduced a new competition regime and repealed the old Act. A new commission was created in the form of the Competition Commission of India (CCI) which would oversee the enforcement of the new code.

Brief background- MRTP Act and the Competition Act of 2002:

India’s first attempt at a competition code was in the year 1969 when the Monopolies and Restrictive Trade Practices Act was enacted. It was made according to the then existing socio-economic scenario of the country and thus, many practices were not restricted such as fake advertising which was later on corrected by the Sachar Committee.

But, the scenario of the Indian market changed when globalization was adopted in the 1990s and a need for a new competition regime was needed and thus, the Raghavan Committee was formed to codify a new law in the form of the Competition Act, 2002. Under this, the competition regime put more emphasis on the customer/consumer, and thus, under it, the customer was “the king”.

There was a need for a proper Competition law in India because these laws would:

1. Provide a level playing field to all businesses so that businesses can stop putting efforts into sabotaging each other or keep worrying about the same. The mere existence of a good competition policy makes the businesses work on their growth and keeps external factors from hampering the same.

2. Provide Opportunities for the growth of businesses by ensuring and regulating competition in the market. Without a competition law, small businesses would be driven out of the market as they don’t possess the resources to come up against bigger businesses in the relevant market.

3. Make the economy of the country efficient by preventing a monopoly of a certain business which can potentially prevent a surge of prices in the market, and also has a hand in the utilization of resources in a fruitful way by varied businesses.

4. Benefit the consumers/customers by giving them varied options to choose from. It is owed to a good Competition Law that thousands of businesses and brands flourish in the country with thousands of such businesses entering the market every year.

The establishment of the Competition Commission of India (CCI):

Before the current Competition Act of 2002, there was the existence of the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 which was in effect until the 2002 Act's enactment repealed it.

The MRTP Act had its own Commission but, it primarily concerned itself with curbing monopolies and did not consider the improvement of competition in the market and was empowered enough to only investigate restrictive or certain unfair trade practices and wasn’t capable of investigating situations creating AAEC (Appreciable Adverse Effect on Competition) in the market.