chapter 9 ethic in marketing and consumer protection

8/3/2019 Chapter 9 Ethic in Marketing and Consumer Protection

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Chapter 9

ETHICS IN MARKETING AND CONSUMER PROTECTION

Q. EXPLAIN THE MEANING OF ETHIC IN MARKETING .4P.

The task of marketers is to influence the behavior of customers. To accomplish this goal, marketers have

a variety of tools at their disposal. Broadly speaking, these tools include the design of a product, the price

at which it is offered, the message used to describe it, and the place in which it is made available.

Ethics are standards of moral conduct. To act in an ethical fashion is to conform to an accepted standard

of moral behavior. Undoubtedly, virtually all people prefer to act ethically. It is easy to be ethical when

no hardship is involved when a person is winning and life is going well. The test comes when things

are not going well when pressures build. These pressures arise in all walks of life, and marketing is no

exception.

Marketing executives face the challenge of balancing their own best interests in the form of recognition,pay, and promotion, with the best interests of consumers, their organizations, and society into a workable

guide for their daily activities. In any situation they must be able to distinguish what is ethical from what

is unethical and act accordingly, regardless of the possible consequences.

Meaning CompetitionPublicInterest

ETHIC IN MARKETING AND

CONSUMER PROTECTION

EthicalGuidance

Benefit of

behavingethically inmarketing

Consumer

Code of

conduct

Bribery

Gift

Not possible to make

2 column

CHAPTER-9


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Q2.EXPLAIN ETHICAL GUIDELINES IN MARKETING.

Many organizations have formed codes of ethics that identify specific acts (bribery, accepting gifts) as

unethical and describe the standards employees are excepted to live up to. Over 90 per cent of the Fortune

1,000 companies have ethics codes, as do many smaller business. These guidelines lessen the chance that

an employee will knowingly or unknowingly violate a companys standards. In addition, ethics codes

strengthen a companys hand in dealing with customers or prospects that encourage unethical behavior.For young or inexperienced executives, these codes can be valuable guides, helping them to resist

pressure to co promise personal ethics in order to move up in the firm.

However, every decision cannot be taken out of the hands of the manager. Furthermore, determining what

is right and what is wrong can be extremely difficult. It is not realistic for an organization to construct a

two-column list of all possible practices, on headed ethical and the other unethical. Rather, a

marketer must be able to evaluate a situation and formulate a response.

Q WHAT ARE THE BENEFIT BEHAVING ETHICALLY IN MARKETING.

PUBLIC, GOVERNMENT,SOCIETY,PROTECT IMAGE OF ORGANISATION.

Marketing executives should practice ethical behavior because it is morally correct. While this is simple

and beautiful in concept, it is not sufficient motivation for everyone. So lets consider four pragmatic

reasons for ethical behavior:

To reverse declining public confidence in marketing. Periodically we hear about misleading package

Labels, false claims in ads, phony list prices, and infringements of well established trademarks. Though

such practices are limited to only a small proportion of all marketing, the reputations of all marketers are

damaged. To reverse this situation, business leaders must demonstrate convincingly that they are aware of

their ethical responsibility and will fulfill it. Companies must set high ethical standards and enforce them.

Moreover, it is in managements interest to be concerned with the well-being of consumers, since they are

the lifeblood of a business.

To avoid increases in government regulation. Our economic freedoms sometimes have a high price,

just as our political freedoms, do. Business apathy, resistance, or token responses to unethical behavior

simply increase the probability of more government regulation. Indeed, most of the governmental

limitations on marketing are the result of managements failure to live up to its ethical responsibilities at

Benefit of behaving Ethically

in Marketing

Public

confidence

Guaranteed

power by society

No increase in

government

regulations

Protecting image

of organization


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one time or other. Moreover, once some form of government control has been introduced, it is rarely

removed.

To regain the power granted by society. Marketing executives wield a great deal

of social power as they influence markets and speak out on economic issues. However,

there is responsibility tied to that power. If marketers do not use their power in a socially acceptable

manner, that power will be lost in the long run.

To protect the image of the organization. Buyers often form an impression of an entire organization

based on their contact with one person. More often than not, that person represents the marketing

function. You may base your opinion of a retail store on the behavior of a single sales clerk. As Procter &

Gamble put it in an annual report: When a Procter & Gamble sales person walks into a customers placeof business that sales person not only represents Procter & Gamble, but in a very real sense, that person is

Procter & Gamble.

Question : Explain the extent to which it is possible to observe ethical behaviour in marketing.

Also explain in brief the merits and demerits of the above (May 2008)

Answer

Ethical behaviour in Marketing; Merits and Demerits:Market is flooded with

duplicate goods having fake labels for selling drugs, food stuffs, consumables

like agarbathis, suparis etc. followed by misleading advertisements. This results in

disrepute for the products of good companies even though such fake goods are

small in quantities. Setting high ethical standard and enforcing them reverses the

position. If government notices such depletion of ethical standard, rigid

regulations are brought in and are never withdrawn. Marketing executives enjoy

great amount of social power in influencing the society. They also are the

emblems for the organization. Once the virtues are lost it is difficult to regain the

social power, influence and

image.

Question 4

Explain the pragmatic reasons for maintaining ethical behaviour in marketing through

marketing executives. (November 2009)

Answer

Pragmatic reasons for maintaining ethical behaviour: Marketing executives

should practice ethical bahaviour because it is morally correct. To maintain ethical

behaviour in marketing, the following positive reasons may be useful to the

marketing executives:

1. To reverse declining public confidence in marketing: Sometime misleading

package labels, false claim in advertisem

ent, phony list prices, infringement of trademarks pervert the market trends

and such behaviour damages the marketers

reputation. To reverse this situation, business leaders must demonstrate


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convincingly

that they are aware of their ethical responsibility and will fulfill it. Companies

must set high ethical standards and enforce them. Moreover, it is in managements

interest to be concerned with the well being of consumers, since they are the

lifeblood of a business.

2. To avoid increase in government regulation: Business apathy, resistance, or tokenresponses to unethical behaviour increase the probability of more

governmental regulation. The governmental limitations may also result from

managements failure to live up to its ethical responsibilities. Moreover, once

the government control is introduced, it is rarely removed.

3. To retain power granted by society: Marketing executives wield a great deal of social

power as they influence markets and speak out on economic issues. However, there

is a responsibility tied to that power. If marketers do not use their power in a

socially acceptable manner, that power will be lost in the long run.

4. To protect the image of the organisation: Buyers often form an impression of an

entire organisation based on their contact with one person. That person represents

the marketing function. Some times a single sales clerk may pervert the marketopinion in relation to that company which he represents.

Therefore, the ethical behaviour in marketing may be strengthened only through the

behaviour of the marketing executives.

Fig.3

Q What is Competition?

COMPETITION

MeaningCompetition

policy & Laws

Competition

Law

GenusInject power to

commission

Preserve &

Promote

Process

Cost effective


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GYPCI. (GENUS,YIELD,PRESERVR, PROMOTE, PROCESS,COST EFFECTIVE, INJECTING

POWER TO COMMISSION,)

KAB, KAHAN , KAISE ,KISSKO,KAISE, KAYN BECHNA HAIN.

Abroad definition of Competition is a situation in a market in which firms or sellers independently

strike for the buyers patronage in order to achieve a particular business objective, for example profit,sales or market share (World Bank, 1999). A pre-requisite for a good competition is trade, trade is the

unrestricted liberty of every man to buy, sell and barter, when, where and how, of whom and to whom he

pleases. For a free market to be in existence the handicap is that for a given distribution of income of

those who can pay the highest price will most be able to purchase the goods regardless their relative

needs. However, the real culprit is income distribution system and not the competitive system. In an

unregulated free market, in certain circumstances it could be of greater benefit to the owner to withhold

goods from market in order to extract a higher price. Despite the efforts to regulate prices which have

been unsuccessful, the caution in a free market as compared to the problems in an unregulated market can

be overcome by posturing competition by which the ultimate raison de etre of competition, namely the,

interest of the consumer can be protected.

Q EXPLAIN Competition Laws in UK and US

Competition and Consumer Welfare. (AVIATION CARTEL )

Competition means rivalry in the marketplace, which is regulated by a set of policies and laws to achieve

the goals of economic efficiency and consumer welfare, and to check on the concentration of economic

power. All these goals have an interactive relationship and, when in harmony, deliver total welfare.Indeed, it is the consumers who are supposedly the biggest beneficiaries of competition. On the other

hand, it is the consumers who are the main losers due to anti-competitive activities in a market. The

consumers are worse off because of their lack of capacity to deal with such problems.

It is sometimes believed that competition policy and law are tools for the rich, the urban, and industries

alone. However, at the macro level, the design and implementation of a competition policy promotes the

advancement and increased welfare of the poor. At the micro level, an effective competition regime or

consumer law (covering competition distortions) can prevent consumer abuses, both at industry level as

well as in a village or locality where one shopkeeper can cheat the whole community. An appropriate and

dynamic competition policy and law are imperative to buttress economic development, curb corruptionreduce wastage and arbitrariness, improve competitiveness and

provide succour to the poor.

Before we embark on assessing the consumer welfare implications, i t is important to

understand the notion of consumer welfare. Unfortunately, there is no agreed definition of

consumer welfare. Even so, one can have a fair understanding of the notions surrounding

consumer welfare by looking at the United Nations Guidelines for Consumer Protection,

adopted by the UN General Assembly in 1985, and amended in 1999. These guidelines

represent an international regulatory framework for governments to use, for the development and

strengthening of consumer protection policy and legislation, aimed at promoting consumer welfare.


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Fig.4

Q EXPLAIN Competition Policy and Law.

The Competition Policy is regarded as genus, of which, the Competition Law is specie. Competition Law

provides necessary powers to the commission to enforce and implement the Competition Policy. Thecentral economic goal of the Competition Policy is the preservation and promotion of the competitive

process. It is a symbolic process, which encourages efficiency in the production and allocation of goods

and services over a period of time through its effects on innovation and adjustment to technological

change. In conditions of effective competition, competitors will be having equal opportunities to compete

for their own economic interest and therefore the quality of their outputs and resource deployment will be

given top priority in order to sustain and succeed in the market by meeting consumers demand at the

lowest possible cost.

COMPETITION LAW

US (Federal) Law

(FATL)

U.K. Laws Indias Law

US FEDERAL LAWS

1890

Sherman Act

1950

Clayton ActFor fair price

1914

Federal trade

commission ACt


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There are three major federal anti-trust laws in United States namely the Sherman Anti-trust Act, the

Clayton Act and the Federal Trade Commission Act.

The Sherman Act passed in 1890 was the first Federal Anti-Trust Laws. The Act aimed at restraint of

trade and monopolisation of Inter-State and Foreign Commerce.

The Clayton Act is a civil statute (carrying no criminal penalties, was passed in 1914 and significantlyamended in 1950). The Act is the result of failure of the Sherman Act to stop the trend towards

concentration in the American economy. It attempts to nip monopolise in the bud by specifying practicesthat monopolists used to gain monopoly power.

The Federal Trade Commission Act, 1914 prohibits unfair methods of competition in InterState

Commerce but carries no criminal penalties. However, there was Federal Trade . Commission to monitor

violations of the Act. Thus, in US basically anti-trust laws protect competition by ensuring free and open

competition, which bring benefits to consumers by way of lower prices, new and better products.

The

UK Competition Act, 1988 which came into force in March 1, 2000 is based upon the Competition Law

of the European Commission. The Act prohibited agreements, which have the object of preventing,

restricting or distorting competition which directly or indirectly fix prices, trading conditions, limit or

control production, markets or sources of supply.

The Enterprise Act introduced the next major reform of UK Competition Law, 2002 which concentrated

on a new regime for the assessment of mergers and markets in the UK. The third and final stage of reform

process in the UK Competition Law will be the implementation of European Commission, which is a

radical modemisation of UKs Competition Policy. To regulate the competition and its practices. most of

the countries have the competition authority commonly known as the Competition Commission.

U.K. LAWS

1998

U.K. Competition Act

came in force in

March 2000

Enterprise Act,

2002

European

Commission


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Q EXPLAIN Competition Act, 2002

The Competition Act, 2002 intends to Drode. keeping in view of the economic development of the

country, for the establishment of a Commission to prevent practices having adverse effect on competition,

to promote and SLStBifl competition in markets, to protect the interests of consumers and to ensure

freedom of trade carried on by other participants in markets, in India, and for matters connected therewith

or incidental thereto. The renewed efforts of the Government in implementing a Competition Act, 2002 is

a laudable step in the right direction and a new beginning in the frontiers of Indias Competition Policytowards harmonizing international trade and policy.

Question 7

Answer whether the statement is correct or incorrect with brief reason:

Competition Act, 2002 protects the interest of consumers. (November

2007)

Answer

Correct: Competition Act, 2002 intends to protect theinterests of consumers by establishing a commission toprevent practices having adverse effect on competitionand to promote and sustain competition in markets. Thecommission is empowered to prohibit certain agreements

INDIAS LAW

Competition Act

2002

Prohibition of Certain

Agreements

Consumer

Protection Act

Abuse of

dominant positionRegulation


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which are considered as anti-competitive in nature, abuse ofdominant position and regulation of combinations likely tocause appreciable adverse effect on competition.

Question 8

A retailer was purchasing goods regularly from XYZ Ltd. for

the purpose of resale. There were defects in the goods inone of the purchase lot and as a result the retailer sufferedloss of his share in competition. The retailer sued thesaid company for this reason. The company contendedthat the goods were purchased for the purpose of resale andtherefore, not bound. Is it a valid contention? Explain clearlythe provisions of Competition Act, 2002 in this regard

(November 2008)

Answer

The problem as asked in the question is based on the

provisions of Section 2(f) of the Competition Act, 2002.The Section provides that consumer means any personwho buys any goods for a consideration which has beenpaid or promised or partly paid or partly promised orunder any system of deferred payment and includes any userof such goods other than the person who buys such goodsfor consideration paid or promised or partly paid or partlypromised or under any system of deferred payment whensuch use is made with the approval of such personwhether such purchase of goods is for resale or for anycommercial purpose or for personal use. Hence Section 2(f)of the Competition Act, 2002 provides that whetherpurchase of goods is for resale or for any commercialpurpose or for personal use, the purchaser is a consumer.Thus consumer will also include a person who purchasesgoods for re-sale. Therefore the contention of XYZ Ltd. is notvalid and not tenable.

Question : What are the Parameters of competition law ?

Parameters of Competition Law

Prohibition of certain agreements. which are considered to be anti-competitive in nature. Suchagreements [namely tie in arrangements, exclusive dealings (supply and distribution), refusal to deal

and resale price maintenance] shall be presumed as anti- competitive if they cause or likely to cause anappreciable adverse effect on competition within India.

Abuse of dominant positionby imposing unfair or discriminatory conditions or limiting and restrictingproduction of goods or services or indulging in practices resulting in denial of market excess or

through in any other mode are prohibited.


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Regulation of combinations which cause or likely to cause an appreciable adverse affect on

competition within the relevant market in India is also considered to be void use.

Fig.5

Q. WHAT ARE UN GUIDE FOR EIGHT THEMES UNCTAD 2001.

SIS,ESSENTIALy RDREss EDUCATION HEALTH FOR SUSTAINING COMPETETION.

ANS The UN Guidelines call upon governments to develop, strengthen and maintain a strong consumer

policy, and provide for enhanced protection of consumers by enunciating various steps and measures

around eight themes (UNCTAD, 2001). These eight themes are:

1. Physical safety 2. Economic interests,

3. Standards4. Essential Goods and services

5. Redress

6. Education and information

7. Specific areas concerning health

8. Sustainable consumption

UN Guideline for eight themes

UNCTAD 2001

Economic

Interest Standards

Essential

goods &services

RedressSustainable

consumption

Physicalsafety

Education

&

informationHealth


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Question : What are the eight consumer rights ?

BSC REDRESS INFORMATION OF CUSTOMERS EDUCATION REPRESENTATIOM

ENVIRONMENT

The Guidelines have implicitly recognized eight consumer rights, which were made explicit in the Charterof Consumers International as follows:

Right to basic needs

Right to safety

Right to choice

Right to redress

Right to information

Right to information

Right to consumer education

Right to representatio.n

Right to healthy environment

These eight consumer rights can be used as the touchstones for assessing the consumer welfare

implications of competition policy and law, and to see how they help or hinder the promotion of these

rights.

Eight Consumer Right

(Right to)

Choice InformationHealthy

environmen

Basic

Needs

Consumer

educationRedressSafety

Represent-

ation


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Fig.6

Fig.7

Q EXPLAIN MEANING OF Consumer - [Section 2(f). Competition Act, 2002]

Consumer means any person who

(i) buys any goods for a consideration which has been paid or promised or partly paid and partly

promised, or under any system of deferred payment and includes any user of such goods other than the

person who buys such goods for consideration paid or promised or partly paid or partly promised, or

CONSUMER

Meaning

UN Guideline for

eight themesUNCTAD 2001

Eight Consumer

Right

Consumer

protection

Council in India

Consumer

interest/

welfare

Physical

safety

Sustainable

consumptionBasic needs

Health

environment


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under any system of deferred payment when such use is made with the approval of such person,

whether such purchase of goods is for resale or for any commercial purpose or for personal use;

(ii) hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such

services other than the person who hires or avails of the services for consideration paid or promised, or

partly paid and partly promised, or under any system of deferred payment, when such services areavailed of with the approval of the first-mentioned person whether such hiring or availing of services

is for any commercial purpose or for personal use;

It is note worthy that the definition of consumer is substantially the same has given to the expression

under Section 2(d) of the consumer protection Act, 1986. The difference is that under clause (i), in the

Competition Act, it uses the words whether such purchase of goods is for the resale of for any

commercial purpose or for personal use in places of the words but does not include a person who

obtains such goods for resale of for any commercial purpose, as in the Consumer Protection Act.

Likewise, in clause (ii), the words used in the Competition Act are whether such hiring or availing of

services is for any commercial purpose or for personal use in place of the words but does not include a

person who avails of such services for any commercial purpose as in the Consumer Protection Act.

Thus, the interpretation of consumer in the Consumer Protection Act will be the same as in CompetitionAct.In the latter, consumer will also include a person who purchases goods for resale or for any

commercial purpose or for personal use.

Question 9

Answer whether the statement is correct or incorrect with brief reason:

Consumer for personal use and consumer for commercial use aresynonymous.

(November 2008)

Answer

Incorrect: It seems that the definitions of consumer underCompetition Act, 2002 and under Consumer Protection Act,1986 are substantially the same. But there is differencebetween the two and that difference is that under clause (1)of Section 2(f) in Competition Act, the words used arewhether such purchase of goods is for the resale of for anycommercial purpose or for personal use in place of thewords but does not include a person who obtains such goodsfor resale of for any commercial purpose as in theConsumer Protection Act. Likewise inclause (ii) the words used in the Competition Act are

Whether such hiring or availing of services is for anycommercial purpose or for personal use in place of thewords but does not include a person who avails of suchservices for any commercial purpose as in theConsumer Protection Act. Thus in case of Competition Actthe word consumer includes both consumer for personaluse and for commercial use but it is not so in the case ofConsumer


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Protection Act.

Question 10

Answer whether the statement is correct or incorrect with brief reason.

Consumer interest and Public interest are synonymous. (June 2009)Answer

Incorrect : Apparently it seems that public interest andconsumer interest are synonymous, but it is not so. They maybe differentiated as under:

(i) In the name of public interest, many Governmental policies areformulated whichmanifest themselves in anti-competitive behaviour. If theconsumer is at the fulcrum, consumer interest andwelfare should have primacy in all governmentalpolicy formulations.

(ii) Consumer is a member of a broad class of people who purchase,use, maintain anddispose of products and services. They are being affectedby pricing policy, financing practice, quality of goods,services and trade practices. They are clearlydistinguished

Q EXPLAIN THE MEANING OF PUBLIC INTEREST.

Fig.8

Q EXPLAIN CONSUMER INTEREST AND PUBLIC INTEREST

1. Often, consumer interest and public interest are considered synonymous. But they are not and need to

be distinguished. In the name of public interest, many Governmental policies are formulated which

are either anti-competitive in nature or which manifest themselves in anti-competitive behaviour. If

PUBLIC INTEREST

Govt. policy is in name

of Public interest

Society as whole

has interest

Every Public is

consumers too


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the consumer is at the fulcrum, consumer interest and consumer welfare should have primacy in all

Governmental policy formulations.

2. Consumer is a member of a broad class of people who purchase, use, maintain and dispose of productsand services. Consumers are affected by pricing policies, financing practices, quality of goods and

services and various trade practices. They are clearly distinguishable from manufacturers, who

produce goods and wholesalers or retailers, who sell goods.

3. Public interest, on the other hand, is something in which society as a whole has some interest, not fully

capture, by a competitive market. It is an externality. However, there is a justifiable apprehension that in

the name of public interest, Governmental policies may be fashioned and introduced which may not be

in the ultimate interest of the consumers. The asymmetry arises from the fact that all producers are

consumers but most are producers as well. What is desirable for them in one capacity may be inimical in

the other capacity. A simple example will make the point clear. A farmer wants the price of goods he

consumes to be as cheap as possible but wants the highest price for his produce. A Government wishing

to encourage agriculture for self-sufficiency in food as a national security measure faces the conflict:

should it support high prices to encourage production or low prices to protect the consumer? This is a

characteristic public interest- consumer interest conflict. In genera, it can be stated that buyers want

competition and sellers monopoly. The economists answer is that there are in a society too many suchdivergent interests and therefore the resolution is best left to markets without Government intervention.

They are all too conscious of the possibility of abuse of the expression public interest by vestedinterested.


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Q. EXPLAIN CONSUMER PROTECTION COUNCILS IN INDIA

The Central Consumer Protection Council: The objects of the Central Council shall

be to promote and protect the rights of the consumers such as,

(a

the right to be protected against the marketing of goods and services which are hazardous to life and

property;

(b) the right to be informed about the quality, quantity, potency, purity, standard and price of

goods{or services, as the case may be} so as to protect the consumer against unfair trade

practices;

(c) the right to be assured, wherever possible, access to a variety of goods, and services at

competitive prices;

(d) the right to be heard and to be assured that consurncis interest will receive due consideration at

appropriate terms;

(e) the right to seek redressal against unfair trade practices {or restrictive trade practices} pr

unscrupulous exploitation of consumers; and}

(f) the right to consumer education.

The State Consumer Protection Council: The objects of every State shall be to promote within the

State the rights of the consumers laid down in point (a) to (f) mentioned above.

Consumer Protection Council in

India

The Central

Consumer

Protection Council

The District

consumer protection

Council

Implementation of A

to F at Dist.level

Protectingmarketing of

hazardous

Againstunfair trade

practice

Variety ofgoods

ConsiderationRe-dressalagainst

exploits

Right toconsumer

education


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The District Consumer Protection Council: The objects of every District Council shall be to

promote within the State the rights of the consumers laid down in point (a) to (f) mentioned above.

Question 12

Write a note on corporate governance and its historical development in the

Indian context.Answer

Corporate governance is about promotingcorporate fairness, transparency and accountability.It is concerned with structures and processes fordecision making, accountability, control and behaviour atthe top level of organisations. It influences how theobjectives of an organisation are set and achieved, how riskis monitored and assessed and how performance isoptimized.

The term Corporate Governance is not easy to define.

The term governance relates to a process of decisionmaking and implementing the decisions in the interest of allstakeholders. It basically relates to enhancement ofcorporate performance and ensures properaccountability for management in the interest of allstakeholders. It is a system through which an organizationis guided and directed. On the basis of this definition, thecore objectives of Corporate Governance are focus,predictability, transparency, participation, accountability,efficiency & effectiveness and stakeholder satisfaction.

Accountability relates to how well the content ofworkplace decisions is aligned with the organisationsstated strategic direction.

Control involves the process of auditing and improvingorganisational decisions and actions.Corporate governancearrangements are key determinants of an organisationsrelationship with the world and encompass:

1.The power given to management;

2.Control over managements use of power (e.g. through institutionssuch as Boards of Directors);

3.Managements accountability to stakeholders;

4.The formal and informal processes by which stakeholders influencemanagement decisions.

In India, Corporate Governance is ensured by subjectingcompanies to clause 49 of the listing agreements that listedcompanies have to signed with stock exchanges. The focusof clause 49 has been on: (i) appointment of independentDirectors, (ii) financial disclosures and (iii) stream lining ofauditing procedures.


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The Confederation of Indian Industry (CII) took the lead in framing adesirable code of

corporate governance in April, 1998. This was followed bythe recommendations of the Kumar Manglam BirlaCommittee on Corporate Governance. This Committee was

appointed by the Securities and Exchange Board of India(SEBI). The recommendations were accepted by SEBI inDecember 1999, and enshrined in Clause 49 of the ListingAgreement of all Stock Exchanges in India.

In August 2002, the Department of Company Affairs,Government of India, constituted a nine member committeeunder the chairmanship of Mr. Naresh Chandra.

SEBI having analysed disclosures made by many companiesunder Clause 49 constituted a review committee under thechairmanship of Mr. N.R. Narayana Murthy. The NarayanaMurthy Committee report, 2003, suggested further

improvements and in alignment with theserecommendations, the revised Clause 49 has been madeeffective.

Question 13

Examine the following hypothetical situation and give a brief analyticalnote on it.

ABC Ltd. has been the leading scientific equipmentmanufacturing company in South India. But it suddenly

finds that certain companies from North India that do nothave anywhere near its own kind of clout in their own turfs,are trying to enter the south Indian market. But because ofits superior clout, ABC Ltd coerces them to enter intoagreement with itself such that they do not sell at pricesabove that of its own products. Please comment on thelegality of such agreements. Conversely, if ABC Ltd were toenter into agreements with distributors such thatthe distributors are prevented from marketing theproducts of the North Indian companies, would that beillegal?

Answer

The Competition Act, 2002 intends to provide, keeping inview of the economic development of the country, for theestablishment of a Commission to prevent practiceshaving adverse effect on competition, to promote andsustain competition in markets, to protect the interests ofconsumers and to ensure freedom of trade carried on byother participants in markets, in India, and for mattersconnected therewith or incidental thereto.


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The Act deals with the following:

Prohibition of certain agreements , which areconsidered to be anti-competitive in nature. Suchagreements [namely tie in arrangements, exclusivedealings (supply and distribution), refusal to deal and

resale price maintenance] shall be presumed as anti-competitive if they cause or are likely to cause anappreciable adverseeffect on competition within India.

Abuse of dominant position by imposing unfair ordiscriminatory conditions or limiting and restrictingproduction of goods or services or indulging in practicesresulting in denial of market access or through in any othermode are prohibited.

Regulation of combinations which cause or likely tocause an appreciable adverse effect on competition withinthe relevant market in India.

In light of the above points, any agreement that ABC Ltd.may enter into with its competitors from North India to tie-up the price at a certain level is prohibited. Suchagreements would also amount to abuse of dominantposition.

Conversely, agreements with distributors preventing thelatter from distributing the goods of its competitors wouldalso be illegal since they would restrict market access andcan be deemed anti-competitive.

Question 14

State the objectives of the Central Consumer Protection Council in India.(November 2010)

Answer

The objectives of the Central Consumer Protection Council in India are topromote and protectthe rights of the consumers such as:-

(i) the right to be protected against the marketing of goods and serviceswhich are hazardous to life and property;

(ii) the right to be informed about the quality, quantity, potency, purity,standard and price of goods/services so as to protect the consumeragainst unfair trade practices;

(iii) the right to be assured, whichever possible, access to a variety ofgoods and services at competitive prices;

(iv) the right to be heard and to be assured that


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consumers interest will receive due consideration atappropriate terms;

(v) the right to seek redressal against

unfair trade practices;

(vi) the right to consumer education.


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chapter 9 ethic in marketing and consumer protection

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