Power to split monopolies: Commission should foster competition

India is moving into unchartered territory with the government’s decision to empower the Competition Commission with authority to split any large corporation guilty of monopoly abuse.

Regulatory authorities in the US and the major European countries have long had such powers. In the Indian context this is a welcome enabling legislation but it has limited practical use. In increasingly contestable markets, competition authority should focus more on encouraging competition.

The competition authority in India already has powers to regulate anti-competitive agreements or mergers and acquisitions, which should help prevent creation of new monopolies. The power to break-up a monopoly found to be abusing its market dominance is, therefore, relevant only in respect of historical monopolies that have come about through wrong policies or state protection.

Indeed, if we look around most such monopolies are in the state sector. From coal mining to railways, there is a long list of government corporations that could easily interest the Competition Commission if it were to exercise its powers.

Then there are state electricity boards that are very reluctant to allow private producers to evacuate power to other states. Would the Commission look into possible monopoly abuse by the state sector and suggest splitting of, say, the Railways, into freight and passenger business? If it does, it could make a difference.

AT&T is a famous example of a monopoly being broken up. Microsoft escaped a similar fate by reaching a negotiated settlement with the US justice department. As a general proposition, the easy availability of capital has also made sustained monopoly abuse difficult.

The essential task before any competition authority is to advance the case of market economy, which would in many instances include opposing anti-competitive government regulation.

It may be a good idea, therefore, to empower the competition commission to seek a review of tariffs or government regulation impeding market access in case they are found to be stymieing import competition particularly in those cases where there is reasonable local dominance.



~ by anick on November 25, 2006.

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