Ahmed Qadir

Competition Commission of Pakistan

Competition in Pakistan

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Why is competition important?Competition is the main driver of innovationCompetition pushes businesses to push for

reformsDeveloping countries suffer most from anti-

competitive practices; thus, competition between countries also works…

90% of managers are not profit (meaning productivity) maximisers

Fair and intense competition with the best leaves them the choice between catching up or giving up

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Why is competition important? If there is no competition, there would be:

high prices limited choices compromise on quality inefficient services

If there is competition, there would be: More R&D – enhanced efficiency and reduced production

costs – reduced prices and improved quality – improved consumer welfare

More choices – consumer sovereignty

Developing Countries are Considerably Affected by Anti-competitive Practices Inadequate Infrastructure

Poor communications networks lead to segmented markets and local monopolies

Segmented markets are more prone to cartel formation and monopolies that create disparities that lead to market failure

Access to Capital High interest rates and lack of entrepreneurial culture lead to state

monopolies & inefficiencies State or private monopolies with excessive rents distort resource allocation,

reduce efficiency, and impair growth of SMEs Asymmetry of information

Consumers unaware of rights Total lack of competition culture Entrepreneurial capacity does not develop as markets are foreclosed to new

entrants by entrenched and vested interests

The Need for Competition LawThough the benefits of competition are

many, competition can be thwartedFirms have incentives to acquire market

power by limiting competition by erecting barriers to commerce

This can result in market failure

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The Need for Competition LawMarket failures result in inefficient allocation

of resources and adversely affect economic welfare

Such market failures, for example, can enable sellers to deliberately reduce output to extract a higher price from buyers

Competition law helps to address these issues 7

History of Competition in PakistanCompetition is not new

■ 1963 Anti-cartel laws study group’s recommendations led to the MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ORDINANCE, 1970 [MRTPO, 70]

■ Broad objectives: contain (i) undue concentration of economic power; (ii) monopoly power; (iii) restrictive trade practices

Competition Law in Pakistan- Then

Monopolies and Restrictive Trade Practices Ordinance, 1970 (MRTPO)

Salient Features: Preventing concentration of wealth– threshold 33% Prohibiting restrictive trade practices No mandatory merger clearance regime

Established the Monopoly Control Authority (MCA)

Comprised of three members – government employees

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The Monopoly Control Authority

The MCA’s main functions were to (i) register undertaking, individuals, agreements (ii) conduct research on general economic conditions; (iii) give advice

Discretionary, recommendatory, investigative, and legislative powers

Performance of the MCA

Largely ineffective■ Nationalisation in the 1970s■ Budget■ Staff

■Hence, time for a revamp of the law as part of the government’s overall STRATEGY OF REFORMS

Market-oriented Reforms need Competition RulesDeregulation and Privatisation, FDI

liberalisation, trade liberalisation need safeguards against anti-competitive abuses: International cartels Abuse of dominance by large firms Mergers & takeovers monopolising

domestic markets

The New Law

The Competition Ordinance, 2007 was promulgated on 2 October 2007, with the objective to enhance economic efficiency, consumer welfare and sustainable development in Pakistan by:

promoting competition in all spheres of commercial and economic activity, and

preventing or eliminating anticompetitive practices in the business environment.

This was a marked change in the paradigm followed by the MRTPO, 70, where the objective was to “prevent the concentration of wealth in the hands of few.”

The Ordinances were given permanency with the enactments of the COMPETITION ACT, 2010 on 6 October 2010.

Competition Law in Pakistan - Now

The Ordinance established the COMPETITION COMMISSION OF PAKISTAN on 12 November 2007, replacing the MCA.

Who are we? The Competition Commission of Pakistan is a quasi-judicial, quasi-regulatory, law

enforcing agency established as an autonomous statutory body…

The Commission works towards: Promoting competition in commercial/economic activity Preventing or eliminating anti-competitive practices

The Commission comprises 5 to 7 Members (no more than 2 from government). 14

The New LawPakistan’s competition law has been

inspired by: the Treaty of Rome; The United Nations Set of Multilaterally Agreed Equitable

Principles and Rules for the Control of Restrictive Business Practices; and

the OECD’s recommendations and best practices

The New LawProvides an efficient regulatory framework which promotes

market mechanism;Promotes the creation of a viable market economy that is

capable of competing in both domestic and global marketsProvides a link between the political system and a

competitive market economy.

The Competition Act, 2010The Act provides for “free competition in all spheres of

commercial and economic activity to enhance economic efficiency and to protect consumers from anti competitive behaviour.”

The Act applies to all undertakings, which include: all natural or legal persons, governmental and corporate bodies including regulatory authorities,

partnerships, associations, trusts, associations of undertakings, and any entities that in any way are engaged, directly or indirectly, in the

production, supply, distribution of goods or provision or control of services.

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Five Pillars

Section 3: Abuse of dominant position Section 4: Prohibited agreements Section 10: Deceptive marketing

practices Section 11: Merger control Section 29: Competition advocacy

The Act Prohibits

• Abuse of dominant position in relevant market

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Abuse of Dominant PositionAn undertaking is presumed to have a dominant

position if its market share exceeds 40 per cent, or if it has the ability to behave appreciably independent of competitors, customers, consumers, and suppliers

This is generally the case when other firms have no choice but to deal with this company

The larger the market share, the more careful an undertaking must be in certain practices

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Two broad types of business conduct are considered as abusive:

Exploitative unfair trading conditions price discrimination that is not objectively justified sale of goods or services being tied to other goods or services, conclusion of contracts linked to acceptance of unconnected

supplementary obligations,

Exclusionary predatory pricing, boycott or exclusion of other undertakings from production,

distribution or sale of goods or provision of services, or refusals to deal/supply.

Abuse of Dominant Position

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Prohibited agreements (cartelisation)

The Act Prohibits

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Prohibited AgreementsThe form of agreement is not important.

Both written agreements and/or verbal agreements or so-called co-ordinated policies, i.e. deliberate and intended collaboration between individual companies for the purpose of eliminating or restraining competition in a certain market, are deemed to come within the scope of competition law

Restraints of competition are divided into two types: Horizontal restraints mean agreements or co-ordinated policies

between companies acting on the same marketing stage, e.g. agreements with competing manufacturers.

Vertical restraints mean agreements or co-ordinated policies between companies acting on different marketing stages, e.g. agreements with distributors and customers, licensees, suppliers or licensors that restrict the competitive freedom of the partners or third companies.

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Horizontal AgreementsNormally, agreements or co-ordinated policies between

competitors which affect the terms on which they do business raise the most serious competition law concerns. These include:

Prices and conditions of supply Market sharing Limiting production Allocation of customers Boycotts Bid rigging

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Vertical AgreementsAgreements with vertical business partners that include

distributors, customers, licensees, licensors, and suppliers. These include:

Resale price maintenance: you can recommend a price but you cannot insist

Restrictions on resale or use: you may not prohibit your customers from reselling products they have purchased from you to whomever they wish, or otherwise apply any conditions that determine what they do

Tying makes the supply of a product subject to the acceptance of supplementary obligations to buy other goods and/or services which, either by their nature or according to commercial usage, have no connection with the subject of the contract

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• Deceptive marketing

FRESH FROM THE RIVER

The Act Prohibits

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Deceptive Marketing PracticesMake sure that you are not involved in:

the distribution of false or misleading information that may harm the business of another undertaking,

the distribution of information to consumers that lacks a reasonable basis,

making false or misleading comparison of goods in advertisements, and

the fraudulent use of another trademark, firm name, product labeling or packaging.

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• Also review mergers/acquisitions which (could) substantially lessen competition by creating or strengthening a dominant position

Pre-mergerPost-merger

The Act

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Clearance of Mergers The merger of companies, the acquisition and sale of businesses

and the establishment of joint ventures is subject to (prior) control by competition authorities.

This is the case if certain thresholds, set under the merger regulations, are met.

Often, these thresholds are based upon sales, the monetary value of the transaction and/or the market share of the companies involved.

The main criteria applied by the authorities in reviewing mergers, acquisitions and the formation of joint ventures is that their operation must not lead to the creation or reinforcement of a dominant position or that the transaction under review should not have the potential to substantially lessen competition.

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The ActStresses upon deepening the “culture of

competition” through advocacy activities – in fact, this has been made part of the Act (§29)

The Commission must undertake activities to increase awareness of the law and its benefits

+Thank you for your patience and attention