Need for Competition Law

In a liberal economic philosophy that succeeded laissez faire, the consumers are sovereign. The essence of the philosophy is maximum benefit to the ultimate consumers through competitive market. The consumers play the decisive role to determine which of the producers is to survive.

Nepal has no such law to specifically deal with anti-competitive business practices. The world has gone far ahead in this field. In the United States, such laws (including Sherman Act) are commonly referred to as the antitrust laws. In the United Kingdom it is Competition Act and in India it is called Monopoly and Restrictive Trade Practices (MRTP) Act. Recently, voices are being raised from various quarters arguing the need for a competition law also in Nepal. Nepal-USA Chamber of Commerce and Industry recently conducted a program in Kathmandu on such a need for competition law in Nepal. There also has been a research carried out by SAWTEE and CUTS-CITEE, the NGOs working on trade and consumer welfare.

In the absence of a law, naturally, the business community engages in anti-competitive practices, as the profits will come easier that way. Such practices are grouped under a number of headings, such as, the cartel, syndication, artificial scarcity, collusive tendering, predatory pricing tied up selling etc.

Carteling is collective price fixation, and by this the business enterprises have restrained the growth of competitive market. The business associations such as those of the gas dealers, airline operators, colour labs, brick factories, truck and bus syndicates, barber’s association provide examples of collective price fixation, syndication and carteling.

Such associations either fix the rates or bottom line prices, and no one affiliated to the association dares to violate the rule. If anyone does violate the rule of the association, the result will be withdrawal of the affiliation. In the surface transport business, the result of violating the group decision would even result in physical harm to the vehicle as well as the driver, conductor, helper and, sometimes, the owner himself. Through syndication, they have not only fixed the price of the service, but also have developed a mechanism to prevent others from entering this business.

The rotation system, under which the user has to accept the vehicle that is offered by the association at a rate already fixed, has now been a big issue even among the transport operators themselves. Though the Ministry of Works and Transport has issued notice declaring such practices illegal, there is a petition of injunction filed against this practice pending final decision at Hetauda Appellate Court.

Artificial scarcity of the goods is very common particularly in food grains, sugar, cooking oil etc. Agricultural products are collected by local traders from the farmers and they sell the stock to the traders based in nearby towns who further sell the stock to even bigger traders, exporters and millers that belong to one or the other of business houses. They often hoard the grains until a scarcity develops and then sell the stock for unreasonably high prices. There also is an undeclared cartel among those traders.

The collusive tendering, which is practised in taking contracts for public works, dilutes the very purpose of awarding contracts through bidding. The objective of getting the work done at the lowest possible cost but receiving the best quality is never achieved. Under such tendering, the bidders collude and submit apparently independent tenders with an agreement among themselves that whoever gets the contract would pay certain amount as prize to the rest of the fraternity.

The benefits are twofold. First, they get contracts by rotation with substantial margin of profit assured by collectively keeping the costs abnormally high. Second, they get certain amount as their share of the profit from jobs carried out by others. In small-scale contracts, there is practically no chance at all for anybody outside the group to participate in the bidding without first entering the gang. Anyone trying otherwise would have to face violence from the gangsters.

Predatory sale has negligible presence in Nepali market till now. One of the reasons may be that it is not so much necessary to involve into cut-throat competition as the other means of undue profiteering, e.g. by way of collusion, can be freely exercised without the fear of action from authorities and without harming anyone of the players who are ready to team up. The only possibility for predatory pricing is in imports from abroad. But, gradually, Nepali businesses too may find it more convenient than collusive pricing, depending upon future developments in legislation in this field.

Going by the conventional wisdom, competition is for the benefit of the consumers. But not always. In case of neck-to-neck competition, higher incentives are provided to the dealer or retailer for push sales, but the dealers do not pass such incentives on to the consumers. Such practices can be seen now in airline business.

The public utility services under the government control are exercising monopoly powers. The existing laws and government policies also pose hurdle to some extent in development of competitive market behaviour. The Industrial Enterprises Act has specified certain industries that require governmental permission to establish.

Given these situations, an effective legal support is urgently required to foster competition. Though there is a law against black marketing, which can also be invoked to control undue profiteering, hoarding, adulteration and other social offences, it can also be used by the authorities to condone some forms of anti-competitive activities. Moreover, the black marketer can escape punishment on even such pretexts that he suffered losses in export and therefore he had to make good the losses by profiting in the imported items. Another drawback of the Act is that it is applicable only for those items that are prescribed in the law.

The Act describes black-marketing activities as sale of goods for higher than as determined by the manufacturer, importer or main distributor. It further goes on to include in the scope of black marketing the sale of coupon or order to obtain goods, which are not easily available in open market, the sale of tickets for buses or cinema for prices higher than that is fixed.

Most importantly, it prohibits the hoarding of goods with the intention of creating artificial scarcity and earning undue profit by over pricing. It is regarded as serious offence with the punishment of imprisonment for up to five years or fine or both. In practice, however, it is only a paper tiger. There is another law called as Essential Materials Control (authority) Act. It also deals with hoarding, over pricing etc. Both the Acts provide for the jurisdiction of Chief District Officer, which in normal case does not have competency in judicial proceedings and lacks knowledge about legal provisions.

We also have Consumer Protection Act, which is basically to safeguard health and economic benefits of the consumers by way of protection from the irregularities in quality, consequence and price of the services and by restraining such conditions, which would help a rise in price through monopoly and restrictive business activities. It protects six different rights of the consumers, and specifically restricts the cartel and creation of artificial scarcity of consumable items.

From the above, we can come to the conclusion that we have laws to regulate the unwanted business practices but the problem is lack of enforcement. Vested interest groups in the government are reluctant to enforce the existing laws. There is no meaning to bring a new law unless there is full-fledged execution and enforcement of the existing ones. However, I do not mean here that we need no more discussions on this.