Specification of broad field of the Study

Any assessment of current regulatory practice needs to be placed in the context of the strategic
objectives for sectoral regulation and the operation and enforcement of competition law in the
economy generally. Specific sectoral regulatory regimes in relation to competition primarily
reflect the need to actively inject and promote effective competition into the sector, and to
address the risk that businesses in these sectors have inherited.
The objectives for sectoral regulation are, of course, set out in legislation, and the details of these
objectives vary from sector to sector. One of the key roles of sectoral regulation is to act as a
surrogate for competition. This explains the focus of economic regulation on monopoly elements
in the market, be they inherently a natural monopoly or a market in transition to full competition.
Sectoral regulation seeks to give benefits similar to a competitive market by setting and raising
quality standards for services, removing barriers to entry and by ensuring efficient pricing.
General competition law could and does deal with markets which have dominant players; where
competition is not self-sustaining; and where industry agreements and codes need to underpin the
functioning of the market.

Economists take the view that competition is the best economic regulator in that it ensures
productive and allocative efficiencies and provides for lower cost and prices. In doing so, both
consumer and producer welfare is maximized. From the economist point of view where
competition is possible regulation is hardly needed. Regulation is second best and invariably
leads to misallocation of resources, wrong investments and reduction of consumer welfare.
Regulation also carries costs including transactional cost which the consumer or the society must
pay for and therefore the benefits must be greater than the costs.

The rationale for regulation is that of market failure which arises in the utilities mainly from
natural monopoly: like water which is the classic natural monopoly. For Baumol 1 a natural
monopoly exists when a single firm produces a desired level of output at a total lower cost than
any output combination of more than one firm. Natural monopoly is characterized by economies
of scale and scope. Economies of scope exists in a multi-product firm if it is less costly for it to

1William J. Baumol “On the Proper Cost Test for Natural Monopoly in the Multi Product Industry American
Economic Review, Vol. 67, (1977, p. 809
produce a given combination of outputs, than to produce the same level of each of the distinct
output in separate unbundled firms.

The traditional economic view was that network utilities; electricity, rail transport, water and
telephones were natural monopolies characterized by massive economies of scale, scope or
density, with high sunk costs. In such industries it would be a waste of society’s resources to
have several parallel networks of the same type competing with each other. If they were to
compete, only one firm would survive.

Network systems not only display large high sunk cost, they also require large and lumpy
investments to enter their markets and to maintain operation. Market failure also arises for
reasons of information asymmetry: consumers cannot be expected to have the necessary
information to make informed choices as compared to producers. 2 This creates mismatch
between willingness to pay and willingness to accept, thereby deterring the market in that
specific good to develop in the first place. Information asymmetries are a common type of
market failure in financial markets.
Another important reason for market failure is externalities. Externality is unaccounted cost (or
benefit) that arises from the actions of one party affecting another party not involved in the
transaction or activity in question. Externality can be both positive and negative. Knowledge
spillovers generated from investment in R&D is a positive externality. Environmental pollution
is a negative externality. In addition, the public good nature of many products/services also
entails the externality argument and attracts regulation.

Today, the view is that telecommunications and electricity generation and retail supply
businesses are no longer characterized by natural monopoly features and competition should be
the regulator. The role of the industry or sector regulator therefore should be to facilitate
competition and regulate interconnection and access charges on reasonable terms and not to
restrict market entry.
Competition law, on the other hand, sets the economy-wide market rules in an economy. It
simply states what market agents must not do. Competition law invariably expressly prohibits
price fixing, bid rigging, tied sales, collusion, cartelization and retail price maintenance. It also

2 See, George Akerlof (1970), “Market for Lemons: Quality Uncertainty and Market Mechanism,” 84 Quarterly
Journal of Economics, 488
aims to achieve consumer protection and deals with product and price information and unfair
marketing. It is an ex-post function, except when reviewing a merger. Industry specific
regulation on the other hand sets out what market agents must do and is ex-ante.
The regulatory interface problem is centered on the degree to which sectors being opened up to
greater competition should also be subject to general competition laws and how and by whom
such laws are to be administered. The new wisdom is “competition where feasible and regulation
where not” suggests that regulation should be confined to the natural monopoly elements,
typically the networks, with network services subject to competition law principles.
The technological developments which transformed these utilities, have been more pronounced
in the telecommunications and electricity industries with the result that major segments of these
industries, once treated as vertically integrated monopolies can and are now being subjected to
competition. In the financial markets the global trend has been a move towards liberalization of
financial markets and reduction of public ownership of financial enterprises with regulation
focused on fiduciary conduct and systemic risk.

The interface issue is not confined to network infrastructure industries and extends into other
economic sectors. In some sectors of the economy, regulation expressly provides for or condones
anticompetitive behavior. In professional services industries for instance, regulation has been
used to set standard schedules of fees, prohibit advertising and prohibit association with other
professional service providers. The links between such practices and advancing consumer
interests in higher quality services are questionable.
Regulation usually in the form of self-regulation as is practiced in these service industries
unnecessarily restricts competition to the detriment of the consumer (higher prices). Part of the
solution to this problem has been withdrawal of exemptions of professional service providers and
exposure to the reach of the general competition law (as was introduced in Jamaica in 1993).

SEBI was established in terms of the Securities and Exchange Board of India Act, 1992, to
promote the development of the securities market as well as protecting the interests of the
investors in the sector. In addition to its enabling Act, SEBI also operates under other
legislations, which include the Securities Contracts (Regulation) Amendment Act, 2007, the
Depositories Act, 1996 - No. 22 of 1996 and the Securities Contract (Regulations) Act 1956. An
appellate body, the Securities Appellate Tribunal, was also established in terms of Section 15K of
the SEBI, Act. Among the functions of SEBI, as outlined under Section 11(2) (e) 3 28 and (h) 294
of the Securities and Exchange Board of India Act, 1992, are the functions with a possible
overlap with the Competition authority. The Sections mandate SEBI to prohibit fraudulent and
unfair trade practices relating to securities markets and regulate substantial acquisition of shares
and takeover of companies in the sector. In that regard SEBI came up with the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 (the Takeover Code). This outlines
procedures which SEBI expects stock exchange-listed firms to observe when merging. These
mergers thus pass through the scrutiny of the SEBI, which also brings in a possible overlap with
CCI.

In NSE-MCX305, CCI in this case imposed penalty of Rs 55.5 cores upon NSE for it abuse of
Dominant position in the Stock exchange market by indulging into the practice of predatory
pricing and also abusing its dominant position to protecting other relevant market.

Importance and rationale of the Study

There always has been a debate of jurisdictional overlap between competition authority (CCI)
and sectoral regulator (SEBI), the former has an ex-post function and latter sets out what market
agent should do and is ex-ante. This research is directed to explore and find different areas where
the overlap occurs. The researcher aims at finding the possible area of conflicts, correlating them
with recent instances and looks for a solution with help of international experiences of different
countries.

Available Literature
Primary Sources

Acts and Regulations

1. The Competition Act, 2002

2. The Companies Act, 1956
3. The Companies Act, 2013
4. The Competition Commission of India (General) Regulations, 2009

3Sec.11(2)(e) Prohibiting fraudulent and unfair trade practices relating to securities market.
4Sec.11(2)(h) Regulating substantial acquisition of share and takeover of companies
5National stock exchange Vs Multi stock exchange decided on 25.5 2011
 5. Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011.
6. The Securities and Exchange Board of India Act, 1992.
7. The Securities Contracts (Regulations) Act, 1956
8. Securities and Exchange Board of India (Disclosure for Investor and Protection)
Guidelines, 2000
9. Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2009
10. Monopolistic and Restrictive Trade Practices Act, 1969
11. US, Clayton Act, 1914
12. UK, Enterprise Act, 2002, sec 23(1)
13. South Africa, Competition Act, 1998, sec 16(2)

Secondary source

Books

1. Which Richard; Competition Law; Oxford University Press; 6th Edition; 2009

2. Mehta Pradeep S., Competition Regimes in the World- A Civil Society Report, CUTS
International

3. Lloyed P.J. and Vautier M. Kerrin, Promoting Competition in Global Markets – A

Multi-national Approach, Edward Elgar Publishing Ltd., 1999

4. Ramappa T, Competition Law in India, Policy Issues and Developments, Oxford

University Press, 2006

5. SarkarSudipto& Manohar V R; Sarkar on Code of Civil Procedure; 10th Edition;

reprinted in 2004; Vol.- 1 & 2

6. Competition Law Today. Concepts, Issues and the Law in Practice, edited by Vinod
Dhall (Oxford University Press), 2007
Articles

1. William J. Baumol “On the Proper Cost Test for Natural Monopoly in the Multi
Product Industry”, American Economic Review, Vol. 67

2. George Akerlof (1970), “Market for Lemons: Quality Uncertainty and Market
Mechanism,” 84 Quarterly Journal of Economics, 488

3. Warrick Smith and David Gray, “Regulatory institutions For Utilities and
Competition, International.

4. Experiences” unpublished, World Bank Paper, p. 27, (1998)

5. A challenge for Competition Authorities, Journal of Competition Law and Economics,

Vol.7, Issue 3.

6. Richard Wish, Competition Law, Oxford University Press, 6th ed., 2009, 798.

7. Competition Law Today, Vinod Dhall (ed.) Oxford University Press, 1st edition, 2007

8. Case M 890 Blokker/Toys ‘R’ Us, decision of 26th June, 1997, OJ [1998] L 316/1

9. Neeraj Tiwari, Merger Under The Regime of Competition Law: A Comparative Study
of Indian Legal Framework With EC and UK, Bond Law Review, Vol. 23, Iss. 1, Article
7,

10. Pieter T. Elgers and John J. Clark, Merger Types and Shareholder Returns: Additional
Evidence, Financial Management, Vol. 9, No. 2 (summer, 1980), pp. 66-72,

11. James L. Hamilton and So Bock Lee, Vertical Merger, Market Foreclosure, and
Economic Welfare, Southern Economic Journal, Vol. 52, No. 4 (Apr., 1986), pp. 948-
961.

12. Alan H Goldberg, ‘Merger Control’ in Vinod Dhall (ed) Competition Law Today,
Oxford University Press, 1st ed., 2007.
13. David M. Barton and Roger Sherman, The Price and Profit Effects of Horizontal
Merger: A Case Study, The Journal of Industrial Economics, Vol. 33, No. 2 (Dec.,
1984), pp. 165-177.

14. Alan A. Fisher ET. al., Price Effects of Horizontal Mergers, California Law Review, Vol.
77, No. 4 (Jul., 1989), pp. 777-827.

15. John J. Parisi, A Simple Guide to the EC Merger Regulation, January 2010.

16. International Competition Network: Investigation and Analysis Subgroup, ICN

Merger Guidelines Workbook (‘ICN Workbook’), April 2006, 11

17. EC, Horizontal Merger Guideline, 2004.

18. Office of Fair Trading, Mergers: Substantive Assessment Guidance (‘OFT guidance’),
May 2003, 4.7

19. UK, Merger references: Competition Commission Guidelines(‘UKCC guidelines’), June

2003, 3.28-3.31.

20. EC Horizontal Merger Guideline, 2004 at 40

21. International Competition Network, Recommended Practices for Merger

Notification Procedures.

22. Jeffrey I. Shinder, Merger Review in the United States and the European Union.

23. FTC Premerger Notification Office, To File or Not to File-Introductory Guide,

September 2008, 3

24. South Africa, Merger Thresholds, April 2009

25. Organization for Economic Co-operation and Development, Substantive Criteria

used for Merger Assessment, October 2002, 29

26. MortenHaden, ‘EC Merger Control Regime’ in Gary Eaborn, Takeovers: Law and
Practice, Lexis NexisButterworths, 2005
 27. http://www.nishithdesai.com/Research2011/Paper/Joint%20Ventures%20in
%20India.pdf

28. Kiran S. Desai, et. al., Joint Ventures Under India’s Competition Act, Mayer Brown
and Khaitan & Co.

29. US, Department of Justice and Federal Trade Commission, Antitrust Guidelines for
Collaboration among Competitors, April 2000.

30. Bose, Avirup; The Concept of Control Under the Indian Competition Act: An Analysis.

31. Mario Monti, “International Antitrust – A personal perspective”, Fordham Corporate

Law Institute, New York.

32. EinerElhauge and Damien Geradin, Global Competition Law and Economics, Hart
Publishing, Potrland, 2007.

33. Lon Fuller, The Morality of Law, Universal Book Trust, New Delhi, 1995

Method and Scope of the Study

“DESCRIPTIVE” Method of Research” has been relied upon for conducting the research
given the availability of resources and time. The researcher has relied mainly upon
secondary sources, including books available in Library, Databases, Journals, Articles and
Newspapers.
This research has been limited to study the regulatory interface between competition
authority (CCI) and sectoral regulator (SEBI)i.e. Securities Exchange Board of India. This
involves different aspects of jurisdiction conflicts,extra-territorial operations and the
international exposure of different countries in resolving the conflict between competition
authority sectoral regulators.

Justification of the study and interface with the discipline of Law

The most common industries where competition law interacts with sector or industry
specific laws are in the network industries involving access to network facilities sometimes
considered as essential facilities or interconnection, monopoly pricing, anticompetitive
agreements and merger control.6
Illustratively, competition rules on the misuse of a dominant position take on added
importance in relation to access to essential facilities for the network industries. In
telecommunications, electricity and railway, the network segments remain natural
monopoly, therefore non-discriminatory access to encourage new entrants to the industry
is critical if competition is to develop in the competitive segments. In some regimes
competition rules and judicial precedents on interconnection prohibit misuse of dominant
market position and this may be sufficient to address the problem.

Refusal to allow a competitor to a network on fair, reasonable, and non-discriminatory

terms (FRAND) 7could be ruled unlawful. This rule, therefore, has the potential to overlap
or conflict with industry specific rules dealing with network access and interconnection
under utility regulation law especially where exclusive licenses are granted by the industry
regulator to an incumbent operator.
The overlap problem and jurisdictional disputes typically arise in the following areas:
Licensing Conditions: the number of licenses and the conditions of the licenses will have
an effect on the intensity of competition;
Market Dominance: market definition and assessment of dominance by the sector
regulator in establishing which operator should offer interconnection services on one hand
and by the competition authority in establishing abuse of market power by an operator;

Monopoly Pricing: some competition regimes include rules, which restrict excessive or
unjust prices. Such rules could also conflict with industry specific pricing rules established
under utility sector or industry specific regulation.

Restrictive Business Practices: where we have one vertically integrated monopoly firm
then there are no competitors, hence there is no one with which to enter into agreements

6Warrick Smith and David Gray, “Regulatory institutions For Utilities and Competition, International
Experiences” unpublished, World Bank Paper, p. 27, (1998)
7For more on FRAND, refer to FRAND terms: A challenge for Competition Authorities, Journal of Competition
Law and Economics, Vol.7 Issue 3 available at: http://jcle.oxfordjournals.org/content/7/3/523.abstract
or to behave in a manner that would restrict or lessen competition in the market for
relevant services.

Merger Control: restriction on mergers between utilities and other firms, or restrictions
on reintegration, are often provided for under industry or sector specific regulatory laws. In
the new unbundled environment of infrastructure firms, common ownership for example of
generation firms with transmission or generation with distribution firms is normally
restricted under sector specific regulation.