Merger control has a crucial global objective of preventing the detrimental effects of mergers that restrict competition, thereby depriving consumers of the benefits associated with a competitive marketplace. It serves as a regulatory mechanism to maintain a balance between the advantages of mergers and the need for fair competition, consumer protection, innovation promotion, and the overall health and dynamism of the economy. In India, the Competition Commission of India (CCI) is the primary authority responsible for enforcing competition laws and ensuring fair competition in the market. Under the Competition Act, of 2002, CCI reviews mergers, acquisitions, and combinations that have the potential to significantly harm competition in the Indian market. The CCI’s role is to assess whether such transactions could result in an appreciable adverse effect on competition (AAEC).
This article is divided into two parts. The first part explores the importance of merger control in general, emphasizing its role in protecting consumers and promoting competition as well as gives a general overview of merger control. The second part focuses on the specific context of India, analysing the competition policy and merger control regime implemented by the CCI.
IMPORTANCE OF MERGER CONTROL
The purpose of merger control is to prevent anti-competitive transactions that may harm consumers, reduce competition, or lead to the creation or strengthening of a dominant market position.
The key objectives of merger control are:
Preventing Anti-Competitive Effects: Merger control aims to identify mergers that may result in a substantial lessening of competition or have an appreciable adverse effect on competition in the market. The focus is on protecting consumer welfare and maintaining a competitive market structure.
Preserving Market Competition: Competition authorities seek to preserve competition by ensuring that mergers do not eliminate effective competition, create or enhance market power, or lead to collusion among market players.
Assessing Market Concentration: Merger control involves evaluating the level of market concentration that would result from the merger. High market concentration, such as the creation of a dominant player or a significant reduction in the number of competitors can raise concerns about reduced competition and potential anti-competitive effects.
Different jurisdictions have different procedures for assessing a merger. For example- Germany assesses through analysing whether a particular merger strengthens or creates a dominant position, European Commission focuses on whether the merger poses any obstruction to effective competition, etc. However, despite such differences, substantive merger assessment is based on certain common economic principles and key factors, some of which are discussed further.
The first step of competition assessment is to define the issues which can be done on the basis of types/categories of merger. There are broadly three types of mergers:
Horizontal mergers which are between competitors at the same level of the supply chain. Since this kind of merger involves the elimination of the competitor operating at the same level, there exists the most evident risk to the competition.
Vertical mergers are mergers between firms operating at different levels of the supply chain. The most common risk with such mergers involves the merged firm being able to deprive its competitors of access to inputs such as raw materials.
Conglomerate mergers involve those mergers which are between firms operating in different markets. Such mergers are much less likely to lead to any anti-competitive effects than vertical or horizontal mergers.
Precedents or past cases are also looked at while assessing a merger by the competition authorities, however, they are only used as a starting point of guidance. The rationale behind a merger, its competitive effects, and the probable competitive constraints the merged firm might face can be assessed through internal documents and market research, thus being crucial components. Moreover, the extent to which third parties submit credible complaints about the proposed merger also constitutes a key factor in assessing a merger.
Defining the scope of the relevant economic markets on the basis of products or services and geography is also a necessary step in considering the various competitive constraints which the merged business will face. Once the market has been defined it is important to then calculate the market share which is an indicator of market power. If the market share of a merged firm is higher, there will remain a lesser number of significant competitors as a result of which competition authorities would then need substantive economic evidence to conclude that the merger is not anti-competitive.
COMPETITION POLICY IN INDIA
Competition policy in India has evolved from a regulated and controlled economy to a framework that promotes fair competition, consumer welfare, and a competitive market environment. The establishment of the CCI, enforcement actions, and advocacy efforts have played a significant role in shaping the competition policy landscape in India.
EVOLUTION OF COMPETITION POLICY IN INDIA
The evolution of competition policy in India has been a dynamic process, marked by significant developments and reforms. Before economic liberalization in the early 1990s, India had a highly regulated and controlled economy with limited competition. The focus was on protecting domestic industries through licensing and control mechanisms, which often hindered competition. However, the beginning of competition law in India is marked by the enactment of the Monopolies and Restrictive Trade Practices Act, 1969 but it ultimately became obsolete as a result of continuous international economic developments.
The government soon realised the importance of shifting from preventing monopolies to promoting competition and therefore passed the Competition Act of 2002, which also established the Competition Commission of India. The Act has been amended several times since its enactment, which includes primarily the 2007 amendment adding provisions for mergers and acquisitions in the Act, and the 2009 amendment increasing the penalties for anti-competitive behaviour.
Though there have been several instances of anti-competitive behaviours by major corporations, the following three legal battles significantly prompted the recent Competition Amendment Act 2023.
- Google-CCI case: In this case, Google was charged with the allegations of abusing its dominant position in online search advertising, and as a consequence of which it was fined USD 21 million by the CCI in 2018.
- Amazon was also accused of preferential treatment to certain sellers and was investigated by CCI.
- The recent Facebook-WhatsApp acquisition triggered concerns about anti-competitive behaviour. However, since its threshold value was below the ambit of CCI, the Commission could not investigate the issue.
IMPACT OF INDIA’s NEW COMPETITION LAW ON M&A
The Facebook-WhatsApp acquisition prompted the debate on how certain mergers, especially in the tech field, which has a significant impact in the market could escape the investigation by the CCI since its turnover was below the threshold at that time. However, the new Competition law has amended this by widening its regulatory powers and enhancing the review of global transactions. The key additions to the competition policy in India in line with this include the concept of ‘deal value threshold’ and ‘Substantial business operations in India’.
The Amendment Act of 2023 introduced a threshold for merger control, stating that any transaction involving the acquisition of control, shares, voting rights, or assets of an enterprise, or a merger or amalgamation, will require approval from the Competition Commission of India (CCI) if the value of the transaction exceeds INR 2000 crores (approximately US$ 245 million) and the enterprise involved has “substantial business operations” in India. The definition of “substantial business operations” has been left to the discretion of the CCI.
The new amendment will enable the CCI to tap into ‘killer acquisitions’ in India which are prevalent in the digital market. The definition of ‘control’ has now been narrowed and defined as the ability to exercise “material influence,” in any manner whatsoever, by an enterprise(s) or group(s) over the management, affairs, or strategic commercial decisions of another enterprise or group.
Another significant change in the new Competition policy in India involves the reduction in the review timeline from 210 days to 150 days. This might lead to unnecessary pressure on CCI which deals with hundreds of mergers at the same time. However, a reduced timeline will enable time-sensitive on-market stock purchases to complete, though the acquirer will not be able to exercise voting or ownership rights, etc unless the CCI approves it.
In conclusion, merger control plays a crucial role in protecting consumers, promoting fair competition, and ensuring a healthy market environment. In India, the Competition Commission of India (CCI) is responsible for enforcing competition laws and reviewing mergers and acquisitions in India. The CCI aims to prevent anti-competitive effects, preserve market competition, and assess market concentration. The merger control regime in India has evolved and recent legal battles have paved the way for further amendments, thereby expanding CCI’s regulatory powers and strengthening them. However, one factor that has been emphasised as a loophole in the competition policy is the enforcement activities. Ensuring consistency, transparency and sufficient capacity within the CCI are critical factors in the successful implementation of these changes, though it is expected to have more clarity once CCI releases the guidelines.
Author(s) Name: Shailja Vikram Singh (Faculty of Law, Delhi University)