Despite the economic turmoil caused by the pandemic, large companies such as Amazon and Facebook have managed to make sizable profits despite ordinary employees having undergone immense financial suffering. These circumstances have increased public interest in the manner of operation of large firms – and the mechanisms by which they become so large in the first place. Emergent questions pertaining to monopoly problems within economic systems are not new – rather point towards a set of laws that lie at the core of the issue – called Antitrust Laws. What are Antitrust Laws – and why are they so important?
Antitrust Laws were first introduced by the US Congress legislation in 1890 to reduce artificial barriers in economic competition. The idea behind the laws was to make monopolization of power illegal and to ensure free and open markets for trade. It serves to protect the country’s consumers and smaller companies, ensuring a level playing field for all without the dominance of a few or singular businesses in the market share. This is achieved by regulating how companies manage their operations, and preventing large scale profits being made by a handful firms.
At its core, the enforcement of antitrust laws determines the agency that consumers and small businesses possess within an economic system . The stricter the laws, the more difficult will it be for a giant firm to merge and buy over smaller companies or purchase their competition. Antitrust laws, hence, push companies to depend on earning profits on the basis of their merit, which can only be done by offering consumers quality products at competitive prices. It changes the focus from a single firm dominating the market to research and development on creating better products and services which ultimately will benefit the economy for the whole.
From the perspective of small companies, the absence of these laws can have three large scale impacts. Firstly, the large firms interfere in the competitive market by suppressing potential businesses by replicating their ideas. For example, Instagram’s integration of Snapchat’s stories and filters has pushed Snapchat to become a secondary app. Secondly, there is no market stability as the control of the industry becomes concentrated in the hands of a few. Thirdly, the smaller company has two ultimate ends: being bought over by the large firm or having no scope for individuality in the project. There is a loss of the patent ownership, which gave the company a creative edge in the market. But once they can no longer compete with the giant, they have to succumb to being bought over due to the losses or eventually die out.
On the other hand for consumers, there are three major impacts. Firstly, there is a lack of choice. The parent company owning each and every type of brand presents a false sense of choice to the consumers. Secondly, if a single company controls most of the different avenues of the market, chances are that it also has information over the consumers’ data and creating advertising models that are specifically curated, leaving no room for the privacy of data. Thirdly, these companies have the potential of becoming a means for political agendas to be carried out. As the company becomes powerful due to the concentration of wealth it has accumulated from every sector, it becomes a potential foundation contributing to the country’s Gross Domestic Product. This can lead to the company wielding political influence over crucial policies, which have a considerable impact on the nation’s progress and development. Extending the previous point of privacy, governments can also feel incentivized to involve private firms within its functioning in a manner that allows the use of this data of its citizens.
When it comes to examining the domestic field, India’s first antitrust law, called the Monopolies and Restrictive Trade Practices Act (MRTP), was established in 1969. It came into frequent use after the economy’s liberalisation in 1991 and has been amended since, being replaced by consolidated legislation known as the Competition Act (2002). There is also an established committee to oversee and enforce the Antitrust Laws known as the Competition Committee of India (CCI) but it has been extremely ineffective since its inception.
Taking a look at India’s industries, a contemporary case in point is that of Reliance Industries Limited. Business Today states that the company has bought major stakes in almost every single avenue. From purchasing the stakes in the Rs. 27,000 crore valued Future Group, it has also invested in Urban Ladder, Milk Basket, Netmeds and Zivame, to name a few. With the coronavirus pandemic crossing bigger numbers everyday, smaller businesses in India have had to succumb to the economic damage due to lack of stability in the market. Moreover, consumption patterns in retail, technology, household products have been changing, making the consumers more reliant on the services provided by a few large scale companies.
Reliance is planning on rebranding itself from a petrochemical and refining company to a technological consumer based brand. Having sold over 49% shares from its oil section to a British oil giant Petroleum Company, it plans on building a stronger hold in the digital world. This has been clear from its mammoth telecom project, Jio which launched in 2016. Moreover, the company is also planning on becoming a singular social media platform for India, including the functions of Facebook, Amazon, Apple, Netflix, Google and Zoom. This is quite similar to Jack Ma’s Alibaba, which does the same for China.
Reliance is acquiring additional companies on top of having several footholds in retail, social media, groceries, furniture, medicine, telecommunication, petrochemicals, pharmaceuticals, to name a few. This could be the final red flag for India’s laws regarding Antitrust since the company now holds interests virtually in every sector, leading to the creation of an ultimate monopoly in India. In addition, its political alignments have also been working in the background. When Jio was initially launched in 2016, it was endorsed by the Prime Minister, which played a role in its quick rise to 200 million subscribers. Moreover, the chairman of the Telecom Regulatory Authority of India, who was appointed by the government, changed the rules of what market power entailed when telecom companies objected against the competitive pricing.
The Indian government with its recent ‘Atmanirbhar’ or ‘self-reliance’ policy is seeking to make Indian firms global players. But in the process of doing so, it should not neglect the rise of domestic monopolies being created. This will only have a negative impact on consumers and smaller firms, leading to a negative impact on long term economic development in the country. Ultimately, amendments to India’s Antitrust laws will determine whether the country’s consumers and small businesses will be protected.
Gauri Bhawkar is a second year Economics and Finance student at Ashoka University.
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