This article has been written by Vartika Shakya pursuing the Certificate course in competition law from LawSikho.
Economics can be a beneficial tool for observing the market players and determining whether the actions of such market players are anti-competitive or are benefitting the market by providing sustainability. Further, examining the economics of the market structure and sustainability also helps in figuring out how sustainability can be evaluated within the framework used under competition law. Further, it also helps in deciding whether the initiatives by the private organizations and government are proficiently providing sustainability or not. The objective of the Competition law is to promote healthy competition for accelerating growth through innovation and increasing economic efficiencies but at the same time regulating all the anti-competitive practices, thus increasing consumer welfare by providing better products at a reasonable price.
There are three ways by which this objective is achieved:
- Prohibiting anticompetitive agreements and practices that cause Appreciable Adverse effect (AAEC) in the market;
- Preventing abuse of dominant position in the market;
- By regulating mergers and acquisitions.
Competition is undeniably beneficial to every market player, be it a new or an already existing player in the market. Having competition in the market gives market players stronger incentives and multiple techniques for better productivity and gives consumers multiple substitutable choices with reasonable prices. This allows organizations to provide cost savings to the consumers and offer good products with multiple good choices at a low price.
While the competition policy objectives have been widely accepted and recognized, the ground reality is different regarding the application and practice of competition law creating questions about its efficacy. In jurisdictions like the United States who have experience in antitrust laws for almost a century, there have been several contradictory judgments in the same. Even though, later there have been well-advised judgments that showed a better understanding of market economics, a clear demarcation of monopolies still remains a big challenge.
Sustainability and competition
Sustainability has been an important issue of international organizations, states, etc. but more increasingly, private businesses. However, from a competition agency’s viewpoint, the aim to achieve sustainability might be a preferred option. Still, businesses have the capability to affect sustainability and the competition in the market equally despite having competition laws to keep a check.
This debate of sustainability vis-a-vis competition has placed competition agencies in a very difficult position. On one hand, they’re supposed to promote sustainability and show that it cannot be used as a method for cartelization or any other anti-competitive conduct. At the same time, it might become difficult to follow sustainability and competition together. A case to explain this situation is the Consumer-Detergents Cartel of the European Union wherein the application of an environmental initiative related to laundry detergents led to cartelization that resulted in price-increase. Further, the market players want to avoid the feeling that their goals are solely dependent on one-thing.
While interpreting the inter-relationship between sustainability and competition law a more in-depth look at this concept of sustainability is needed. Nowadays, ‘sustainability’ and ‘sustainable development’ are often used interchangeably. The term sustainability is a frequently applied term in science and means a capacity to sustain something for an indefinite period of time. The meaning of sustainable development is different and still connected. The definition of sustainable development which attracted major consensus arises from the report of Brundtland of the World Commission on Environment and Development which defined it as ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’. Therefore, after that report, sustainable development was understood as a universal goal to be achieved which had a concept of eco-development.
In the 1980s, the social objects of the society were combined because of the after-effects that war and poverty had on the environment. In 1987, the Brundtland report named “Our Common Future” by the World Commission on Environment and Development recognized the issues related to the development of economics, environment and social aspects which were correlated. The focus was given to the root cause of those problems instead of just the problems. Therefore, focusing on the fact that poverty is the major cause behind all the global problems.
Therefore, the focus was given on:
- Reinvigorating growth;
- Changing the standard of growth;
- Meeting basic needs;
- Securing a sustainable population level;
- Resource Base;
- Restructuring technology and managing risk;
- Including environment and economics together for any decision;
- Focusing on International economic relations.
Later, the focus was shifted towards contributions to sustainable development by private organizations. Thus, the three pillars that constituted and still are the concept of sustainability are environment, economy, and society.
The interplay between competition law and sustainability
Since sustainability has become a broad issue and consumers have become aware and started promoting it, many organizations have started verifying that their supply chains are environmentally and ethically responsible, from sourcing to production, through distribution and packaging, to disposal. Most of the time, these organizations can achieve these goals on their own without any help. For example, when there is fierce competition in the market for different products, organizations can compete better by providing sustainability, making it a parameter for competition. However, companies/organizations cannot work independently at all time; a joint initiative is required for a huge impact and a bigger change. The combined efforts in the market will also have fewer disadvantages. It is due to the combined efforts of competitors that will be able to elevate issues under global competition laws. Sometimes, these rules create issues for competitors; however, not every agreement can create issues under competition/antitrust laws. Further, in reality, there’s a possibility that sustainability projects are going to increase costs, even in a competitive environment, these might be passed down the supply chain i.e it will lead to consumers paying more for the sustainable products. Solely focusing on these sustainable projects will create trouble for competitors.
Some of the issues that will arise are:
⮚ Standard setting and Benchmarking for more sustainable outcome
Standards can benefit in the supply chain by covering the payment to the manufacturing methods and can even use recycling methods; these benefits will prevent them from antitrust issues. However, companies have to make sure that it’s not affecting others. By acquiring a voluntary standard that companies are free to exceed might result in reducing the risks under the competition laws.
Further, the fact that engaging in sustainability projects often requires sharing of information between companies, arising other related risks. For example Companies might work with smaller organizations for passing on these initiatives with an even better supply chain continuing with sustainable products under the ambit of ‘ecolabel’.
⮚ Scope-creep and stepping into illegal territory
The major drawback of these sustainability initiatives is that a lot of companies will be getting into cartelization under the garb of sustainability initiatives as disguise and will face heavy charges by the competition regulating authorities. However, the chances to get caught are very rare. Further, another backlash is that the long term nature projects end up with the discussion which is not related to sustainability initiatives rather price discussions or new cost standards for profit. Therefore, there is a need to have proper compliance related to all these issues in order to safeguard the nature of the projects.
⮚ The tricky category
A big challenge for companies will be in deciding as to how the projects should be executed, that they don’t result in cartelization by increasing prices etc. when companies are only working towards positive societal benefits. This will be a difficult job as with every step companies will be required to weigh pros and cons, until they’ve reached an assurance point that the project results will be positive.
Since there are no specific parameters for this category, the assessment will always be done on the basis of jurisdiction and facts, however, there are certain points stated below that can help in reducing risks:
- To be sure that the responsible people for corporate sustainability initiatives are already keeping a tab with the antitrust agencies in order to avoid future problems. Proper training to organizations in order to remind them of the original idea behind the projects and also to avoid competition risks.
- To make sure that competition is still alive and the projects are not affecting the other market players and the standards are set properly.
- Try to keep a tab and check on the benefits related to the projects as to how it is benefitting organizations.
- To make sure that there is a compliance program in all the projects which will safeguard the shared information and will keep an eye on the initiative to avoid unforeseen risks and scope creep.
- Considering the pros and cons of approaching a Government body and/or Competition law agency for the inspection of a contemplated project.
To sum up whatever has been stated above, the bottom line is that there are high chances that sustainability initiatives involving competitors can certainly raise antitrust issues. However, it’s only possible when competition law doesn’t hinder the way of a legitimate goal, rather encourages and facilitates them based on their ability to innovate and embrace wider responsibilities contributing to a sustainable future.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join: